Series 63 practice questioneasyProhibited Practice: Omission of Material Facts
An agent fails to mention a pending lawsuit against an issuer when recommending its stock. Under the USA, this is considered:
- AA prohibited practice if the lawsuit is material to the investment decision✓ Correct answer
- BPermissible if the agent was unaware of the lawsuit
- CPermissible if the agent thought it would not affect the client
- DOnly unethical if the client asks about lawsuits
Explanation
Why A — A prohibited practice if the lawsuit is material to the investment decision
Omitting a material fact is fraudulent under USA Section 501 if the information would influence an investor's decision. Lack of awareness (B) may be another issue, but intent is not required for omission. The agent's opinion (C) doesn't matter, and the duty to disclose (D) isn't limited to client questions.
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