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Frank and Wilma Fertig are snowbirds. They spend periods of time in Arizona each winter and then return to their home in Wisconsin. They have been doing business with their broker-dealer and their agent, Michael, for almost 10 years. The broker-dealer is registered in Wisconsin but not in Arizona. This year Frank and Wilma left early for Arizona, in early October rather than their usual late October. On October 12, the broker-dealer contacted the Fertigs to ask them about using some of their current cash position to purchase shares of QRS Company. The Fertigs agreed. What happened next?
- The Fertigs went back to their golf game.
- The Wisconsin state securities Administrator issued a cease and desist order against the Fertigs’ broker-dealer for conducting a securities transaction outside Wisconsin, where the broker-dealer is registered.
- The Arizona state securities Administrator issued a cease and desist order against the Fertigs’ broker-dealer for conducting a securities transaction for Arizona residents without the broker-dealer being registered in Arizona.
- Michael realized he misled the Fertigs about being able to complete the transaction in a state where neither he nor the broker-dealer is registered and had to call them to apologize and tell them the deal could not be completed.
Correct Answer: A. The Fertigs went back to their golf game.
Explanation: After agreeing to the transaction Michael proposed, the Fertigs went back to their golf game and the transaction was completed without negative consequences. The Uniform Securities Act allows broker-dealers to complete transactions for existing customers who are out of their state of residence temporarily, as the Fertigs are. That is, the broker-dealer is excluded from the requirement to register in a state if he/she has no place of business in the state, they are registered in another state, and they have an existing client who is in that state temporarily. In this case, they can continue to make trades for their vacationing client for up to 30 days. Hence, Michael can make this trade. Once a month has passed, however, he will not be able to make similar transactions for the Fertigs until they return to Wisconsin.