Deck 17: Investor Protection, E-Securities, and Wall Street Reform

Question 1

Only an established company is permitted to sell new securities to the public.

Answer 1

False

Question 2

A registration statement need not contain details on how the proceeds from the offering will be used.

Answer 2

False

Question 3

During the review of a registration statement, the SEC does not pass judgment on the merits of the securities offered.

Answer 3

True

Question 4

The SEC is concerned with regulating issues and trading of securities alone and cannot regulate the activities of securities brokers and advisors.

Question 5

There are no resale restrictions on securities that come under Regulation A.

Question 6

Continuous reporting to investors and the SEC is a requirement imposed by the Securities Act of 1933.

Question 7

Regulation A offerings can be sold without registration with the SEC provided that an offering statement is provided prior to the purchase of the securities.

Question 8

An offering circular must be provided to the investors immediately after the purchase of a Regulation A offering.

Question 9

The sale of securities by an issuer to the public is known as an initial public offering.

Question 10

Interests in oil, gas, and mineral rights are considered statutorily defined securities.

Question 11

An investment contract is a flexible standard for defining a security.

Question 12

A "whistleblower bounty program" allows a person who provides information that leads to a successful SEC action to recover 10 percent to 30 percent of the monetary sanctions over $1 million recovered by the SEC.

Question 13

The Howey test is used to determine if an arrangement is an investment contract.

Question 14

A prospectus is a written disclosure provided with the registration statement that helps the SEC to evaluate the financial risk of an investment.

Question 15

An offering statement requires less disclosure compared to a registration statement.

Question 16

Section 5 of the Securities Act of 1933 requires an issuer to register its securities with the SEC prior to selling them to the public.

Question 17

The Securities Act of 1933 regulates the purchase and sale of securities online.

Question 18

According to Regulation A, securities of up to $5 million can only be sold to accredited investors.

Question 19

The Securities Act of 1933 is a federal statute that primarily regulates the issue of securities by companies and other businesses.

Question 20

An investor who has purchased an unregistered security can rescind their purchase, but not recover damages.

Question 21

An accredited investor is defined as a person who does not understand the risks involved in securities investment and will suffer considerable financial damage if the investment fails.

Question 22

Which of the following is regulated by the Securities Act of 1933?

A) fraud in the purchase and sale of securities
B) hedge funds and derivatives
C) reporting to the investors
D) the issue of securities online

Question 23

Defendants cannot assert a due diligence defense against liabilities arising from the violation of Section 11 of the Securities Act of 1933.

Question 24

EDGAR is the world's largest electronic securities exchange.

Question 25

The issuer is permitted to assert a due diligence defense against the imposition of Section 11 liability.

Question 26

It is legal for a company employee to make a profit by personally purchasing shares of the corporation prior to public release of favorable information.

Question 27

Interests or instruments that are expressly mentioned in securities acts are known as ________.

A) common securities
B) implicit securities
C) investment contracts
D) statutorily defined securities

Question 28

The nonissuer exemption permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC.

Question 29

Drafts that have a maturity date of six months are exempt from registration with the SEC.

Question 30

The ________ is a federal statute primarily designed to prevent fraud in the trading of securities after they are issued.

A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Sarbanes-Oxley Act of 2002
D) Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Question 31

Blue-sky laws are state laws that regulate the issuance and trading of securities.

Question 32

Which of the following is classified under "common securities?"

A) real estate
B) bullion
C) debenture
D) bank deposit

Question 33

A tipper cannot be held liable for the profits made by the tippee.

Question 34

Liability under Section 11 is imposed on issuers who are negligent in not discovering fraud in their security offerings.

Question 35

The ________ is a federal statute that primarily regulates the issue of securities by companies and other businesses.

A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Sarbanes-Oxley Act of 2002
D) Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Question 36

Section 10(b)of the Securities Exchange Act prohibits the use of manipulative and deceptive devices in contravention of the rules and regulations prescribed by the SEC.

Question 37

An issuer who plans on raising $1 million or less from the public must answer the questions on Form U-7, which then becomes the offering circular that must be given to prospective investors.

Question 38

Section 12 of the Securities Act of 1933 provides purchasers who have been injured by securities pursuant to an unwarranted exemption to rescind the securities purchase.

Question 39

A 10-percent shareholder of an equity security of a reporting company is considered a statutory insider.

Question 40

In order to be found guilty for violation of Rule 10b-5, intentional conduct (scienter)must be proven.

Question 41

Utilities Ltd. decided to go public by an initial public offering. It sold securities, some of which were bought by James Jefferson. Six months later, Mr. Jefferson sold the Utilities shares he had purchased to Martha Graham and Mark Franco. Two years later, Mr. Jefferson bought back the Utilities shares from Ms. Graham and Mr. Franco and made a profit out of both transactions. Who is the issuer in this scenario?

A) Utilities Ltd.
B) James Jefferson
C) Martha Graham
D) Mark Franco

Question 42

Which of the following has the largest trading volume of any securities exchange in the world?

A) NYSE
B) Euronext
C) NASDAQ
D) London Stock Exchange

Question 43

________ requires securities offered to the public through the use of the mails or any facility of interstate commerce to be registered with the SEC by means of a registration statement and an accompanying prospectus.

A) Section 24 of the Securities Act of 1933
B) Section 12 of the Securities Act of 1933
C) Section 5 of the Securities Act of 1933
D) SEC Rule 506

Question 44

A(n)________ refers to a document that an issuer of securities files with the SEC that contains required information about the issuer, the securities to be issued, and other relevant information.

A) articles of organization
B) operating statement
C) registration statement
D) certificate of interest

Question 45

Which of the following best defines an initial public offering?

A) the issuance of an offering statement to the public prior to purchase
B) the filing of a registration statement by an issuer
C) the disclosure document released for public scrutiny
D) the sale of securities by an issuer to the public

Question 46

________ permits issuers to sell up to $5 million of securities to the public during a 12-month period, pursuant to a simplified registration process.

A) SEC Rule 506
B) Section 12 of the Securities Act of 1933
C) Section 5 of the Securities Act of 1934
D) Regulation A

Question 47

Small businesses can file ________ with the SEC if they plan on raising $1 million or less from the public issue of securities.

A) Form U-7
B) a registration statement
C) an operation agreement
D) a certificate of interest

Question 48

A(n)________ is a flexible standard for defining a security.

A) red herring prospectus
B) investment contract
C) certificate of interest
D) debenture

Question 49

Which of the following is true of registration statements?

A) A registration statement must be accompanied by financial statements certified by certified public accountants..
B) A registration statement once submitted, cannot be amended.
C) The SEC judges the merits of the securities based on the registration statement.
D) The registration statement need not reveal how a company plans on using the proceeds from the offering.

Question 50

Which of the following is true of a Regulation A offering?

A) It imposes resale restrictions on the securities it offers.
B) It necessitates the issuers to prepare a registration statement for offers exceeding $100,000.
C) It requires the most disclosure of information to investors at the time of the issuance of the securities.
D) It mandates that an offering circular be provided to the investors prior to the purchase of securities.

Question 51

Interests in oil, gas, and mineral rights are classified as ________.

A) statutorily defined securities
B) implicit securities
C) investment contracts
D) common securities

Question 52

The courts apply the ________ in determining whether an arrangement is an investment contract.

A) Howey test
B) misappropriation theory
C) strict scrutiny test
D) intermediate test

Question 53

Which of the following is true of Section 24 of the Securities Act of 1933?

A) It imposes civil liability on any person who violates the provisions of Section 5 of the act.
B) It imposes criminal liability on any person who willfully violates the 1933 act or the rules or regulations adopted.
C) It imposes civil liability on persons who intentionally defraud investors by making misrepresentations of material facts in the registration statement.
D) It exclusively regulates the sale of securities online.

Question 54

A(n)________ is submitted along with the registration statement to the SEC, and also used as a selling tool to help prospective investors evaluate the financial risk of an investment.

A) organization document
B) certificate of interest
C) prospectus
D) operation agreement

Question 55

________ is a provision of the Securities Act of 1933 that imposes civil liability on persons who intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement.

A) Section 24 of the Securities Act of 1933
B) Section 12 of the Securities Act of 1933
C) Section 11 of the Securities Act of 1933
D) SEC Rule 506

Question 56

Which of the following must be included in the registration statement?

A) judgments passed by the SEC on the merits of the securities offered
B) how proceeds from the offering will be used
C) date of termination of the initial public offering
D) maximum number of times a share can be sold post issue

Question 57

Which of the following is true of Small Company Offering Registration (SCOR)form?

A) SCOR forms can only be used for raising more than $1 million through sale of securities.
B) SCOR forms are available to both domestic and foreign companies.
C) SCOR forms that have been completed act as the offering circular for potential investors.
D) SCOR forms have to be completed by the issuee before purchasing securities.

Question 58

Scissorwire Inc. sells shares of its stock to the public, with each share valued at $16. After a year, the company incurs a loss and the price of the stock drops to $5. The company reveals that it had deliberately not registered with the SEC before going public and that it has no money to pay the investors. Which of the following holds well in this context?

A) Scissorwire Inc. can register with the SEC at any point after the dip in shares.
B) The U.S. government can file a criminal lawsuit against Scissorwire Inc. to seek criminal penalties.
C) The investors have been negligent in not verifying registration before purchase of shares and cannot rescind their purchase.
D) Scissorwire Inc. is liable for the violation of the Securities Exchange Act of 1934.

Question 59

Which of the following is true of Section 11 of the Securities Act of 1933?

A) It permits injured private parties to bring criminal action against fraudulent registration statements filed by issuers.
B) It imposes liability on those who are negligent in not discovering the fraud.
C) It allows an issuer to assert a due diligence defense against the imposition of Section 11 liability.
D) It cannot be imposed on cases involving negligent omission of a material fact in a registration statement.

Question 60

The electronic data and record system of the Securities and Exchange Commission is known as ________.

A) EDGAR
B) NASDAQ
C) MICEX
D) SPSE

Question 61

A(n)________ is an exemption from registration which states that securities transactions not made by an issuer, an underwriter, or a dealer do not have to be registered with the SEC.

A) intrastate offering exemption
B) private placement exemption
C) regulation A offering
D) nonissuer exemption

Question 62

Which of the following best defines short-swing profits?

A) profits that are made by an insider by selling shares of the corporation prior to the public disclosure of unfavorable information
B) profits that are made by an insider by personally purchasing shares of the corporation prior to public release of favorable information
C) profits that are made by a statutory insider on trades involving equity securities of their corporation that occur within six months of each other
D) profits that are made by a tippee by personally purchasing shares of the corporation prior to or post public release of favorable information

Question 63

The ________ imposes liability under Section 10(b)and Rule 10b-5 on an outsider who misappropriates information about a company, in violation of his or her fiduciary duty, and then trades in the securities of that company.

A) Insider Trading Sanctions Act
B) Sarbanes-Oxley Act
C) tort of appropriation
D) misappropriation theory

Question 64

Which of the following is an example of exempt securities?

A) stock dividends and stock splits
B) IPOs made by multi-national corporations
C) securities that has been held by a single investor for longer than a year
D) securities worth $1 million or more

Question 65

Which of the following is true of small offering exemptions?

A) Securities coming under this exemption cannot be advertised to the public.
B) Securities coming under this exemption can only be sold to accredited investors.
C) Securities coming under this exemption can only be bought by nonaccredited investors.
D) Securities coming under this exemption have no resale restrictions imposed on them.

Question 66

________ requires that any profits made by a statutory insider on transactions involving short-swing profits belong to the corporation.

A) Section 5 of the Securities Act of 1933
B) Section 12 of the Securities Act of 1933
C) Section 16(b) of the Securities Exchange Act of 1934
D) SEC Rule 10b5-1

Question 67

Distinguish between nonissuer exemption, intrastate offering exemption, and private placement exemption.

Question 68

A(n)________ is an exemption from registration that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC.

A) intrastate offering exemption
B) regulation A offering
C) private placement exemption
D) nonissuer exemption

Question 69

Which of the following is true of exempt securities?

A) Only the federal government can issue exempt securities.
B) Once a security is exempt, it is exempt forever.
C) An exemption notice must be filed with SEC every time the exempt security is transferred.
D) Exempt securities cannot be traded publicly.

Question 70

Who among the following is considered a statutory insider?

A) Sharon Muller, an editor who was tipped by her friend to buy shares of KYU Corp.
B) Robert Morgan, a government employee who owns ten percent of all equity security of KYU Corp.
C) Jim Downey, a graphics engineer who quit KYU Corp. after five years of service
D) Kate Harris, a legal consultant to KYU Corp.

Question 71

Which of the following is enough to prove a violation of Section 10(b)and Rule 10b-5?

A) nonexemption status
B) scienter
C) aiding and abetting
D) negligent conduct

Question 72

The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes regulations on ________.

A) hedge funds and derivatives
B) stock dividends and splits
C) interests in realty
D) restricted securities

Question 73

The ________ is a federal statute that permits the SEC to obtain a civil penalty of up to three times the illegal benefits received from insider trading.

A) Securities Act
B) Securities Exchange Act
C) Insider Trading Sanctions Act
D) SEC Rule 506

Question 74

How does a company sell its shares to the public for the first time? Explain the contents of a registration statement.

Question 75

Which of the following constitutes insider trading?

A) an employee makes a profit by personally purchasing shares of the corporation prior to public release of favorable information
B) a manager purchases all shares of a corporation available to the public
C) a director purchases enough shares of a public company to gain a majority stake in its management
D) an employee sells his shares of the company to another employee without notice to the company

Question 76

The ________ coordinates state securities laws with federal securities laws.

A) Insider Trading Sanctions Act
B) Securities Act of 1934
C) Securities Act of 1933
D) Uniform Securities Act

Question 77

A(n)________ is a person who discloses material nonpublic information to another person.

A) issuer
B) tippee
C) grantor
D) tipper

Question 78

List the securities exempt from registration with the SEC.

Question 79

What is insider trading? How is it regulated in the U.S.A?

Question 80

SEC Rule 506 is known as the ________.

A) nonissuer exemption
B) intrastate offering exemption
C) private placement exemption
D) interstate offering exemption