Series 63 practice questionhardLimited Offering—Institutional Investors
A broker-dealer offers unregistered private placements to 12 clients in State J: 9 individuals and 3 institutional investors. The BD receives a commission on each sale. Which statement is MOST accurate regarding the limited offering exemption under the USA?
- AThe exemption applies because institutional investors are not counted toward the 10-person limit.
- BThe exemption is lost due to commissions paid to the BD on individual sales.✓ Correct answer
- CThe exemption is lost due to exceeding the 10-person limit.
- DThe offering is exempt for institutional investors only, not individuals.
Explanation
Why B — The exemption is lost due to commissions paid to the BD on individual sales.
Institutional investors are not counted toward the ten-person limit in the limited-offering exemption, and commissions on institutional sales do not defeat it. Here, however, the broker-dealer receives commissions on sales to the nine individual purchasers, so the exemption is unavailable and B is correct.
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