Other Prohibited Activities

This final section covers additional prohibited practices that don't fit neatly into the categories above but are still testable on the Series 63.

Misrepresentations and Omissions

Making any untrue statement of a material fact or omitting a material fact necessary to make statements not misleading is prohibited under both:

  • USA Section 101(2) (the general antifraud provision)
  • The NASAA Dishonest Practices statement

This includes:

  • Affirmative misstatements: saying something that is false
  • Material omissions: leaving out information that changes the meaning of what was said
  • Half-truths: statements that are technically true but omit key context, treated as misrepresentations

Exam Tip: Gotchas

  • A half-truth is still a misrepresentation. "This stock has outperformed the S&P 500 for the past year" is misleading if it omits that the stock is down 50% over five years. Selective true facts can violate the antifraud rule.

Fictitious Accounts

Establishing or maintaining an account containing fictitious information in order to execute transactions that would otherwise be prohibited is a dishonest practice.

This covers situations where an agent creates fake account details to circumvent compliance rules, suitability requirements, or trading restrictions.

Forgery, Embezzlement, and Nondisclosure

The NASAA Dishonest Practices statement explicitly states that the enumerated prohibited conduct is not inclusive (not exhaustive).

Other conduct that constitutes grounds for denial, suspension, or revocation of registration includes:

  • Forgery
  • Embezzlement
  • Nondisclosure or incomplete disclosure of material facts
  • Misstatement of material facts
  • Manipulative or deceptive practices (broadly defined)

Publishing False Transactions or Quotations

It is prohibited to:

  • Publish or circulate any communication that purports to report a transaction as a purchase or sale unless the broker-dealer believes it was a bona fide transaction
  • Publish a bid or ask price unless the broker-dealer believes it represents a bona fide bid or offer

This prevents firms from creating false market data to mislead investors about the actual trading activity or pricing of a security.

Guaranteeing Against Loss

A broker-dealer may NOT guarantee a customer against loss in any securities account or transaction.

  • This prohibition applies regardless of the customer's investment objectives or risk tolerance
  • Even if a customer demands a guarantee before investing, the broker-dealer cannot provide one
  • Telling a customer "you can't lose money on this" is a violation

Exam Tip: Gotchas

The NASAA Dishonest Practices list is explicitly NOT exhaustive. The statement says the enumerated conduct is "not inclusive" and that other forms of manipulative, deceptive, or fraudulent conduct are also grounds for action. The exam may present a scenario involving conduct not specifically listed and ask whether it can be the basis for disciplinary action. The answer is yes; if it constitutes fraud or dishonest practice, it can be grounds for action even if not specifically enumerated.