General Securities Sales Supervisor (Series10) Practice Exam

Under federal securities law, failing to disclose a material fact in an official statement is considered what?

1. Compliant with disclosure rules

2. A minor infraction

3. Fraudulent

4. Unethical but not illegal

The correct answer is: Fraudulent

Failing to disclose a material fact in an official statement is considered fraudulent under federal securities law because it misleads investors and compromises the integrity of the financial markets. Material facts are information that could influence an investor’s decision-making process. When such information is intentionally or negligently withheld, it is deemed to distort the truth and violates the trust that the system relies upon to function fairly and efficiently. The law is very clear on the importance of full and honest disclosure in securities transactions, and any attempt to obscure significant information is treated seriously. This can lead to legal ramifications for the parties involved, including penalties or sanctions from regulatory agencies. In essence, the prohibition against omission of material facts underscores the principle that investors have the right to receive all pertinent information before making financial decisions.