Exam Series 6 topic 1 question 214 discussion

Actual exam question from FINRA's Series 6

Question #: 214
Topic #: 1

HiTop Investments main office is located in the state of Colorado. A registered representative of the firm sent out an e-mail to his clients, some of whom reside in other states, promoting the firms Colorado Municipal Bond Fund, which invests exclusively in bonds offered by the state and local governments of Colorado. In the e-mail, the representative states, "These bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists."
Is this e-mail in violation of any securities laws?

A. No. Since the fund invests exclusively in bonds offered by the state and local governments of Colorado, the representatives statement contains no misstatement of fact.
B. Yes. Advertisements referring to a specific fund may not be distributed by electronic means.
C. Yes. A fund that invests only in bonds offered by state and local governments of one state may not be sold to investors who reside in other states.
D. Yes. The representative’s statement that the" bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if

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Suggested Answer: D 🗳️
Yes, the e-mail is in violation of the Securities Act of 1933 because the representative’s statement that the "bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists," is an untrue statement of a material fact. Although the income will be free from federal taxation, residents of states other than Colorado will likely be required to pay state and local income taxes on the interest earned. It is not illegal to sell municipal bonds to investors in other states or to distribute advertisements by electronic means.

by lolojepu at April 6, 2025, 1:26 a.m.

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