Practice Quiz

FINRA Series 63 (NASAA)

Category - Series 63

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The Turnover Corporation, a firm with 25,000 employees, has recently hired 50 new employees, many of whom have been hired to replace middle-level managers who have retired. Turnover has omitted this fact from its prospectus. Turnover is guilty of
  1. fraud.
  2. misrepresentation.
  3. misusing insider information.
  4. nothing. The hiring of 50 new employees by a firm with 25,000 employees is not a material fact.
Explanation
Answer: D - Turnover is guilty of nothing when it hires 50 new employees, but doesn’t include this information in its prospectus because this is not a material fact. Most of the employees have been hired to replace middle-level managers who have retired, and these employees wouldn’t be considered significant enough to affect the price of the stock in any way. If Turnover had hired a new CEO, that would be a material fact that must be disclosed.
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