Which action qualifies as illegal representation in securities?

• A. Performing due diligence on potential clients
• B. Falsely claiming a security's performance track record
• C. Providing accurate market analyses to clients
• D. Encouraging clients to diversify investments

Answer: (B)

Falsely claiming a security's performance track record is considered illegal representation in securities because it misleads investors regarding the potential returns and risks associated with an investment. This type of misrepresentation can manipulate client decisions based on inaccurate information, which is prohibited under securities regulations designed to protect investors. Providing truthful and accurate information is essential in maintaining the integrity of the financial markets, and making false claims undermines that integrity, leading to potential legal and regulatory repercussions for both the representative and the firm.

In contrast, the other options represent actions that are either ethical or necessary for responsible advising. Conducting due diligence on potential clients is a fundamental part of ensuring that investments align with client needs and suitability requirements. Providing accurate market analyses helps clients make informed decisions, and encouraging diversification is a common investment strategy aimed at spreading risk, which is considered a prudent approach in investment management.