Question

A registered person is asked by the sponsor of a limited partnership to sell partnership units to his clients. Since the partnership is not being sold through the representative's broker-dealer, the sponsor will compensate the representative directly. For this situation, which of the following statements is TRUE?

A. A registered person cannot participate in this type of transaction.
B. For the person to participate, the broker-dealer must give written approval for the transaction and must record the transaction on its books.
C. The representative may participate if the sponsor is associated with a FINRA member.
D. The representative may participate if the partnership is being sold as a private placement.

Answer 1

The representative may participate if the partnership is being sold as a private placement.

Step-by-step explanation:

The correct answer is D. The representative may participate if the partnership is being sold as a private placement.

In a private placement, the limited partnership units are sold directly to a small group of investors, bypassing the need for registration with the Securities and Exchange Commission (SEC). Since the partnership units are not being sold through the representative's broker-dealer, the sponsor can compensate the representative directly.

This type of transaction does not require written approval from the broker-dealer or recording on its books, as stated in option B. Option C is incorrect because the association of the sponsor with a FINRA member does not determine the representative's ability to participate in the transaction.