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Which of the following signs is a red flag that might indicate an entity is operating a securities business without the proper license or registration?
A.
The entity’s website lists a prospectus for each security.
B.
The entity has a history of regulatory filings.
C.
The entity has a lack of customer complaints.
D.
The entity’s promoters have unexplained gaps in their work history.
The correct answer is D because unexplained gaps in a promoter’s work history are specifically identified as a red flag that an entity might be operating a securities business without proper licensing or registration. The ACFE material explains that legitimate brokerage firms and broker-dealers must register with the appropriate regulatory authority, meet required standards, and ensure that relevant personnel are properly registered or licensed. Red flags include agents with criminal records, unexplained employment gaps, prior customer complaints, regulatory problems, and questionable credentials. Options A and B are not red flags by themselves because prospectuses and regulatory filings may be associated with legitimate securities activity. Option C is the opposite of a warning sign; customer complaints would be more concerning than a lack of complaints.
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