The Series 65/66 exams don’t frequently reward test takers for the little factoids they’ve managed to memorize. Rather, the exams expect test takers to know the factoids only so that they can use them to think their way through some rather challenging questions. Like this one:

An investor is considering an opportunity to invest in wireless spectrum now that the FCC has forced large carriers to auction off a percentage of their capacity. Minimum investment is $50,000. The check will be payable to WiredAmerica, LLC, who will act as a representative for investors, negotiating charges for spectrum and helping to find equipment contractors and re-selling opportunities for investors once the deals have been finalized. Investors are advised to prepare for a 12 to 18-month waiting period before monetization opportunities commence. If the spectrum is not available, investors will receive their initial investment, less a 4% administrative fee. Which of the following statements is accurate?

A. the investment would not meet the definition of a “security”
B. the major risk to investors is loss of purchasing power
C. regulatory risk is not significant in this scenario
D. investors face regulatory and obsolescence risk

EXPLANATION: just reading this crazy question will set you back a few minutes at the testing center and probably increase your blood pressure a few points. If you’re flabbergasted by something like this, choose “C” and mark it for review. Come back later after you get through the exam. Of course, you eventually have to deal with monsters like this, so, as always, see what you can eliminate. It’s never crystal clear whether something is/is not a “security,” but how can we rule this one out? It’s an investment of money in which the investor plays only a passive role–sounds like the Howey Decision would apply. Eliminate Choice A. I guess if you turn your money over to these folks for a year/year-and-a-half, and then you get back only 96% of your principal, you’ve lost purchasing power. But, is that the major risk? Frankly, I’d be a lot more worried about waiting 18 months, then making a phone call only to discover the number has been disconnected. I don’t like Choice B enough to choose it. The whole premise of this “investment opportunity” is that the FCC has required large wireless carriers to auction off spectrum that they currently hold–any chance that a Republican controlled House of Representatives might try to block that ruling? I would think so. Notice how it’s hard to be certain on any of these three choices–your job is to see if you can eliminate Choice D. If so, you’ll have to start all over. If not, choose it, confirm it, and keep moving. There definitely seems to be regulatory risk, and with wireless technology changing so rapidly, isn’t there at least a chance that in 18 months the spectrum you thought was worth X is now only worth Y or maybe even worthless? Tough to eliminate Choice D. So, as often happens, you’re not 100% sure of your answer, but it would still seem that D is the best choice.


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