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NEW QUESTION: 1
Goldie Locks is an agent with Bear Broker-Dealers. One of her clients is a single woman, Annie Spinster,
who is retired and needs income from her investment portfolio to meet her current needs for liquidity. In
addition to investing in mutual funds, Annie likes the thrill of investing in single stocks and asks Goldie for
recommendations. Goldie recommends Annie invest some of her money in Alcon (ACL), a medical
instrument and supplies company selling on the NYSE, based on the fact that it has a high dividend yield
and is paying a dividend of $2.21 a share, which is guaranteed to continue or even increase, Goldie
assures Annie. Has Goldie violated any laws or engaged in any prohibited practices?
A. Yes. As the agent of a broker-dealer, Goldie is not permitted to make recommendations for specific
investments. Only investment adviser representatives and investment advisers can do that.
B. Yes. At the very least, Goldie has committed fraud since she cannot guarantee that a firm's dividend
will continue or increase.
C. Both A and B are true.
D. No. Goldie merely responded to a recommendation request from a client, and the recommendation is
suitable since the client has a need for current income and the recommended stock pays a high dividend.
Answer: B
Explanation:
In recommending that Annie buy stock in Alcon because its stock is guaranteed to pay a
dividend of $2.21 a share or higher, Goldie has committed fraud. The company itself could not even make
such a guarantee legitimately. Goldie may also be guilty of an unsuitable recommendation since factors
other than dividend yield-such as the risk of the investment--should have been considered. That being
said, Goldie is permitted to make recommendations for specific investments as an agent of a
broker-dealer, as long as she doesn't receive special compensation for it.
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