General Securities Sales Supervisor (Series10) Practice Exam

Which action would be considered a violation of anti-fraud provisions in federal securities law?

1. Providing a Preliminary Official Statement to customers

2. Failing to prepare an Official Statement by the issuer

3. Not disclosing a budget deficit in the Official Statement

4. Failing to disclose who prepared a research report

The correct answer is: Not disclosing a budget deficit in the Official Statement

The answer is correct because failing to disclose a budget deficit in the Official Statement would indeed constitute a violation of anti-fraud provisions under federal securities law. These laws require that all material information, which could potentially influence an investor's decision, be disclosed to ensure that individuals are making informed choices based on complete transparency. A budget deficit is considered material information since it reflects the financial health and potential risks associated with the issuer. By not including this information in the Official Statement, investors would be misled, leading to an inaccurate understanding of the issuer's financial situation. This lack of transparency goes against the principles of fair dealing and can result in significant consequences for both the issuer and any associated brokers or dealers. The other options may not involve the same level of material risk or intentional deceit that anti-fraud provisions aim to prevent. For instance, providing a Preliminary Official Statement is a standard practice in the securities market that allows for the distribution of preliminary information to potential investors. Similarly, failing to prepare an Official Statement could carry regulatory implications but does not directly engage with misrepresentation or fraud unless it involves other malicious intent factors. Meanwhile, failing to disclose who prepared a research report may raise ethical concerns but would not necessarily fall under the same anti-fraud considerations as failing to