Deck 43: Securities Regulation

Question 1

The 1933 Act imposes only civil, not criminal, sanctions for violation of its provisions.

Answer 1

False

Question 2

"Restricted securities" are those that are sold pursuant to an exemption from registration.

Answer 2

True

Question 3

Insiders would violate the short-swing profits rule (Rule 16b) of the 1934 Act by buying stock on January 1 and selling on May 1.

Answer 3

True

Question 4

Insiders may refrain from trading on inside information rather than disclose it to avoid liability under Rule 10b-5.

Question 5

The federal government alone regulates the sale of securities.

Question 6

Bob buys a share of Atlas Pizza, which is unregistered. If it was not exempt from registration, Bob may return the stock and get his money back.

Question 7

The Securities and Exchange Commission can seek civil injunctions and recommend that the Justice Department bring criminal prosecution against violators of federal securities laws.

Question 8

The 1934 Act applies only to stock traded on a national exchange for companies whose corporate assets exceed $10 million.

Question 9

The antifraud provisions of the 1933 Act pertain to both unregistered and registered securities.

Question 10

Registration with the SEC ensures a potential investor as to the financial soundness of the business represented by the stock.

Question 11

A "private placement" involves no public offering and is exempt from registration.

Question 12

Every registration filed with the SEC is held in confidence until the business permits disclosure.

Question 13

Under the antifraud provisions of the securities acts, as long as the falsity is not contained in the prospectus, there is no liability where there is a registered security.

Question 14

If a limited offering of $1.6 million worth of shares is made only to banks, they will not be required to receive any disclosure materials.

Question 15

The Securities Exchange Act of 1934 primarily deals with secondary transactions in stock.

Question 16

The 1934 Act regulates tender offers and proxy solicitations.

Question 17

If a stock offering is made only to "accredited investors," there is no limit on the amount of the offering for the exemption to apply.

Question 18

Registration requirements are the same under the 1933 and 1934 Acts.

Question 19

"Shelf registrations" have to do with delayed sales of stock.

Question 20

The 1933 Securities Act differs from the 1934 Act in that the latter deals with issuing stock and the former has to do with trading stock that has already been issued.

Question 21

A registration statement becomes public immediately on filing with the SEC, but a prospectus only becomes public upon signature of the chief financial officer.

Question 22

The effective date of a registration statement is the thirtieth day after filing, after which investors can access it using
EDMOND.

Question 23

In an election of directors, solicitations of proxies by a person other than the issuer must include an annual report with a written proxy statement.

Question 24

Under SEC requirements adopted in 2010, disclosure of any directorships held by each director and nominee at any time during the past seven years at any public company or registered investment company must be made to shareholders.

Question 25

Under Regulation A, as amended in 1992, an issuer may make offers upon filing the offering statement but may make sales only after the SEC has qualified the statement.

Question 26

The SEC has adopted rules requiring an issuer's chief executive and chief financial officers to certify the financial and other information contained in the issuer's annual and quarterly reports.

Question 27

In 1992, the SEC issued new rules tightening the registration and reporting system for small business issuers, which increase the cost for such issuers wishing to trade their securities publicly.

Question 28

The Foreign Corrupt Practices Act makes it illegal for an American company to pay money to a foreign official to influence a decision of that person in his official capacity.

Question 29

Shelf registrations allow issuers to respond more quickly to market conditions, but the provision allowing it does not apply to all companies.

Question 30

In 2006, the SEC abolished the requirement that a registration statement disclose compensation paid to senior executives and directors.

Question 31

In 2009, Congress enacted the Investor Protection and Securities Reform Act, which imposes new corporate governance and investor protection rules on privately and publicly held companies.

Question 32

Under Regulation A, as amended in 1992, issuers may use a simple question-and-answer disclosure document.

Question 33

Bonds are not included in the definition of the term "security."

Question 34

The definition of "insider" is consistent between Rule 10b-5 and Section 16(b) of the 1934 Act.

Question 35

All fifty states have enacted similar statutes regulating tender offers.

Question 36

The profits realized for violation of Rule 16(b) are given directly to the shareholders as a penalty to the corporation.

Question 37

The SEC may not advance the effective date of a registration statement.

Question 38

The Foreign Corrupt Practices Act makes it illegal to offer a payment of money to a foreign official to influence a decision even if the payment is not made.

Question 39

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 gives the SEC power to issue cease and desist orders and to impose criminal fines up to $1 million.

Question 40

There are rigorously enforced restrictions regarding both number and qualification of investors who purchase securities under Regulation A.

Question 41

If Mark owns shares in General Custard Co., he may bring his proposal for a new subdivision, branching out into ice cream, before the shareholders if he:

A) owns at least 5% of the GC Co. stock.
B) owns at least 10% of the GC Co. stock.
C) limits it to 5,000 words.
D) has not made a proposal yet this year.

Question 42

Types of securities that are exempt from registration under the federal securities laws include:

A) securities of domestic banks.
B) securities of a charitable organization.
C) bonds issued by a city.
D) All of these are exempt.

Question 43

The Securities and Exchange Commission (SEC) consists of five commissioners.

Question 44

Under Rule 505, the issuer must:

A) not advertise.
B) restrict the offering to thirty-five persons.
C) limit the offering to $1 million.
D) sell only to "accredited investors."

Question 45

A defense to an action based on untrue statements contained in a registration statement is:

A) innocent mistake.
B) due diligence.
C) constructive disclosure.
D) reasonable diligence.

Question 46

The Wall Street Reform and Consumer Protection Act of 2010:

A) removes the SEC's power to bring enforcement actions under the 1933 Act against aiders and abettors.
B) amends the 1933 and 1934 Acts to allow recklessness as well as knowledge to satisfy the mental state required for the SEC to bring aiding and abetting cases.
C) amends the 1933 and 1934 Acts to allow negligence to satisfy the mental state required for the SEC to bring aiding and abetting cases.
D) sets national standards for securities class action lawsuits involving nationally traded securities.

Question 47

"Insider trading" rules pertain to:

A) employees.
B) officers.
C) directors.
D) All of these.

Question 48

A registration statement requires all of the following EXCEPT:

A) financial statements certified by an independent accountant.
B) description of the business.
C) description of the management.
D) projection of future growth potential.

Question 49

Section 16(b) differs from Rule 10b-5 in that the latter:

A) applies to transfers within 6 months of each other.
B) only applies to officers, directors and 10% shareholders.
C) allows injured investors to recover damages on their own behalf.
D) All of these.

Question 50

The rule that prohibits schemes and devices to defraud investors is Rule:

A) 504.
B) 14a-3.
C) 10b-5.
D) 16(b).

Question 51

Atlas Pizza plans to sell $500,000 worth of stock in the next year. This stock will be exempt from registration under Regulation A as long as:

A) no more than $5 million worth of stock will be sold in any 12-month period.
B) fewer than 100 shareholders presently own stock in the business.
C) the stock is sold only to current shareholders.
D) All of these.

Question 52

The agency responsible for enforcing the federal securities laws is the:

A) FTC.
B) SEC.
C) Commerce Department.
D) EEOC.

Question 53

The exemption from registration for transactions not involving any public offering is the so-called private placement provision found in Section 4(2) of the Act and SEC Rule:

A) 10b-5.
B) 504.
C) 505.
D) 506.

Question 54

Rule 10b-5 applies to:

A) any purchase or sale of any security.
B) only the purchase or sale of securities registered under the 1934 Act.
C) only publicly traded securities.
D) only securities that are involved in a secondary distribution.

Question 55

Which of the following would NOT be exempt from registration under the 1933 Securities Act?

A) An offering restricted to the residents of the state in which the issuing company is organized and doing business
B) An offering of state securities
C) An offering of limited partnership interests
D) A private offering to sophisticated investors who will not redistribute them

Question 56

A writing signed by a shareholder, granting authority to another to vote the signer's stock at a specified shareholder meeting is a:

A) tender offer.
B) short-term commercial paper.
C) registration.
D) proxy.

Question 57

A basic objective of the Securities Act of 1933 is:

A) to provide investors with material information concerning securities offered for sale to the public.
B) to prohibit misrepresentation and other fraudulent acts in the sale of only registered securities.
C) to provide disclosure requirements on publicly held corporations.
D) to regulate tender offers and proxy solicitations.

Question 58

Which of the following would ordinarily NOT be considered a security under the federal securities laws?

A) Bonds
B) Stocks
C) Investments in limited partnerships
D) General partnership interests

Question 59

The 2008 amendments to the SEC rules define a small business issuer as a noninvestment company whose annual revenues total less than $1 million.

Question 60

The rule that prohibits the solicitation of a proxy unless each person solicited has been furnished with a written proxy statement containing specified information is Rule:

A) 10b-5.
B) 16(b).
C) 14a-3.
D) 505.

Question 61

The 1934 Securities Exchange Act requires certain disclosure during a "tender offer." Which of the following best describes this requirement?

A) Whenever stock is acquired with intent to effect a takeover
B) Whenever an offer for more than 5 percent of a class of registered equity securities is made
C) Whenever 10 percent of a target corporation's stock is acquired
D) Whenever the acquiring company acquires a "controlling interest" in the target

Question 62

The antifraud provisions of the 1934 Act would prohibit which of the following?

A) Lying about the value of the firm's assets to sell stock
B) Disclosing that the firm has discovered oil on its property in order to sell stock
C) Telling about the bad health of the CEO in a transaction to purchase stock
D) Not disclosing the salaries of secretaries of a large firm whose stock is being sold

Question 63

The SEC's computer system that performs automated collection, validation, indexing, acceptance, and dissemination of reports required to be filed with the SEC is known as:

A) SEC-ELS.
B) ELMER.
C) EDGAR.
D) EDMOND.

Question 64

Which of the following is correct about the sanctions and penalties under the 1934 Act, as amended?

A) Individuals may not be imprisoned for violation of the 1934 Act.
B) For individuals, conviction may carry a fine of up to $5 million.
C) A defendant who proves she was ignorant of a rule can still be imprisoned.
D) A corporation may be fined not more than $10 million.

Question 65

Rule 10b-5:

A) applies only to seller misconduct.
B) is an SEC antifraud rule.
C) applies only to securities listed on an exchange, not those sold over the counter.
D) All of these.

Question 66

Which of the following is TRUE regarding the Foreign Corrupt Practices Act of 1977?

A) It applies only to corporations whose securities are registered under the Securities Exchange Act of 1934.
B) It applies only to corporations engaged in foreign commerce.
C) The Act makes it illegal to bribe foreign officials to obtain business.
D) All of these are correct.

Question 67

Recovery of damages under Rule 10b-5 requires proof of:

A) a purchase and sale of the same securities within six months.
B) scienter.
C) negligence.
D) immateriality of a statement.

Question 68

Section 16(b) of the 1934 Securities Exchange Act deals with short-swing profits of "insiders." For purposes of the section, which of the following are not "insiders"?

A) Attorneys with access to corporate records
B) Directors
C) Officers
D) 10 percent shareholders

Question 69

The registration statement must be signed by:

A) the issuer and the chief financial officer.
B) the SEC secretary and the chief financial officer.
C) the chief financial officer only
D) the SEC secretary only.

Question 70

The 1934 Securities Exchange Act requires registration of:

A) equity securities of companies traded over the counter whose corporate assets exceed $10 million and whose equity securities include a class with 500 or more shareholders.
B) stock listed on local stock exchanges.
C) all stock sold within the U.S.
D) all domestic stock sold within the U.S.

Question 71

If a lawyer were being held liable for a misstatement in a registration statement, her defense(s) would be:

A) she was only following directions.
B) she had reasonable grounds to believe, and did believe, her information was true.
C) she was under duress of a threat of loss of her job if she did not agree with the statement.
D) None of these would be valid defenses.

Question 72

A securities issuer that has reported continuously under the 1934 Act for at least three years is a(n):

A) well-known seasoned issuer.
B) seasoned issuer.
C) unseasoned issuer.
D) None of these.

Question 73

The Securities Act of 1933 has two basic objectives, one of which is to:

A) extend protection to investors trading in securities that are already issued and outstanding.
B) grant the SEC power to impose administrative, civil penalties up to $500,000.
C) regulate disclosure requirements on publicly held corporations.
D) prohibit misrepresentation, deceit, and other fraudulent acts and practices in the sale of securities generally, whether or not they are required to be registered.

Question 74

SEC rules concerning fraud in securities transactions apply to:

A) the issuance or sale of all securities, even those exempted by the 1933 Act.
B) only securities registered under the 1934 Act.
C) only securities registered under the 1933 Act.
D) only publicly traded securities.

Question 75

If Terry makes tender offer to the owners of Pizza Village registered stock, he must file a statement with the SEC if he:

A) owns 1% of Pizza Village stock.
B) will, after the acquisition, own 5% of all Pizza Village stock.
C) will, after the acquisition, own more than 5% of one class of Pizza Village voting stock.
D) will own more than half the stock in all classes.

Question 76

Which of the following is NOT true about private placement exemptions that do not involve any public offering?

A) Registration or disclosure is never required
B) General solicitation of purchasers is not allowed
C) Resale of securities is restricted
D) None of these

Question 77

All of the following are exempt from registration under the 1933 Act EXCEPT:

A) government bonds.
B) securities issued by nonprofit medical facilities.
C) certificates of deposit issued by banks.
D) insurance company annuities.

Question 78

David is a director on a board of a corporation that is covered by the federal securities laws. He buys 1,000 shares of stock in the corporation based upon information he has received as a director. The purchase is:

A) valid provided no fraudulent statements were made to the person from whom he purchased the shares.
B) invalid.
C) voidable regardless of whether a public announcement was made.
D) valid provided the purchase occurred after a public announcement of the information.

Question 79

Under the 1934 Act:

A) criminal sanctions may be imposed on any person who willfully violates any provision of the Act (except the antibribery provision) or the SEC rules promulgated pursuant to the Act.
B) criminal sanctions may not be imposed.
C) conviction of an individual may result in imprisonment for up to 25 years.
D) a person who proves he had no knowledge of the rule is still subject to imprisonment.

Question 80

Marge wishes to raise some money to begin mass producing her prize-winning jellies and jams. She offers her neighbors a piece of her profits if they will each invest $2,000. Is the investment a "security"?

A) Yes, since Marge will do all the work.
B) Yes, because her neighbors will have a security interest in the jelly.
C) No, since the neighbors are putting no effort into it.
D) No, because Marge is not issuing stock certificates.