Deck 20: Securities Regulation

Question 1

A control security is stock which gives the owner a controlling interest in the company.

Answer 1

False

Question 2

The 1934 Act requires companies with a class of stock that is publicly traded to make regular filings with the SEC.

Answer 2

True

Question 3

Securities issued by banks are subject to SEC registration.

Answer 3

False

Question 4

The Securities Act of 1933 established the Securities and Exchange Commission.

Question 5

Securities offered and sold entirely within one state by a corporation of that state are exempt from registration.

Question 6

The guiding principle of federal securities law is that:

A) it is important for the government, through the SEC, to keep investors from making bad investments.
B) investors can make reasoned decisions on whether to buy or sell securities if they have full and accurate information.
C) effective securities legislation will avoid another stock market crash.
D) effective securities legislation should promote the issuance of securities.

Question 7

Any securities offerings not covered by the NSMIA must comply with state securities laws.

Question 8

Under what type of securities offering must the issuer determine if the investor is an accredited,sophisticated,or unaccredited investor?

A) Regulation A offering.
B) Regulation D offering.
C) Public offering.
D) An interstate offering.

Question 9

Offerings under Regulation A of the Securities Act of 1933,although called private offerings,are really small public offerings.

Question 10

The 1933 Act prohibits fraud in any securities transaction,not just transactions involving public offerings.

Question 11

To recover for an alleged violation of SEC Rule 10(b)-5,a plaintiff is required to prove reliance on a misstatement or omission relative to the purchase of the security.

Question 12

The 1933 Act exempts all but which of the following from its registration requirements?

A) Short-term notes.
B) Long-term notes.
C) Government securities.
D) Annuity contracts.

Question 13

The term "securities" could not include things like animal breeding arrangements.

Question 14

Premier Enterprises sold Watson unregistered stock which was not exempt.The 1933 Act imposes liability on Premier,and Watson's sole remedy is damages.

Question 15

Techno is planning a securities offering under Regulation D,Rule 506.Under this rule,Techno can:

A) offer up to $5 million in securities over 12 months.
B) offer up to $1 million in securities over 12 months.
C) offer an unlimited amount of securities.
D) only offer an amount equal to twice its initial capitalization.

Question 16

After the SEC completes its review of a preliminary registration statement,it sends the issuer a comment letter setting forth changes that must be made.

Question 17

Typically,exemptions from registration under the 1933 Act are based on either the type of security or the type of transaction.

Question 18

The SEC regulates the securities industry but cannot create law.

Question 19

The "tipper" of inside information can be convicted of a crime,the "tippee" cannot.

Question 20

Under Rule 504,a restricted security:

A) can be sold at any time.
B) cannot be sold within nine months of its offering.
C) cannot be resold, either publicly or privately, for one year.
D) cannot be sold until the SEC issues a release letter allowing it to be sold.

Question 21

Which of the following statements is correct?

A) Investors generally do not receive a copy of the registration statement.
B) Investors generally receive the company's prospectus.
C) A prospectus provides disclosure about the offering but does not include as much information as the registration statement, such as information that would be of interest to the SEC but not the typical investor.
D) All the above.

Question 22

Ted is the vice-president in charge of marketing for Barnard Basketry.In any three-month period,he may sell:

A) any amount of stock he owns in Barnard Basketry.
B) no more than 10 percent of the stock he owns in Barnard Basketry.
C) only an amount of stock equal to the average weekly trading volume for the prior four weeks or one percent of the number of shares outstanding, whichever is greater, under Rule 144.
D) any amount of stock he owns in Barnard Basketry as long as it has been more than six months since a private offering of the stock was made.

Question 23

If a registration statement contains a material misstatement or omission:

A) the company is liable and has no defense.
B) anyone other than the company who signed the statement is liable and has no defense.
C) all experts are liable and have no defense.
D) the company is liable unless it can show due diligence.

Question 24

Valdon brought a lawsuit under Section 11 of the 1933 Act against Kenndey Corp.He will have to prove that:

A) he relied on the registration statement.
B) Kenndey was negligent in preparing the registration statement.
C) there was a material misstatement or omission in the registration statement and he lost money.
D) All of the above.

Question 25

A defense to a civil action brought under Section 10(b)and Rule 10b-5 of the 1934 Act would be that the:

A) statute of frauds was not observed.
B) seller of the securities was not in privity of contract with the plaintiffs.
C) sellers did not intentionally make a false representation.
D) All of the above.

Question 26

Pursuant to a public offering,a CPA firm prepared an unqualified opinion as to the financial statements of Merrick Co.After the offering,omissions and misstatements were found.The CPA firm is now being sued by the purchasers of the stock.The purchasers are alleging that the erroneous financial statements in the registration statement caused them to suffer a monetary loss.The CPA firm can avoid liability if it can prove:

A) that it used due diligence in preparing the financial statements.
B) the corporation was the party who made misstatements and omissions.
C) the firm believed that the statements were accurate.
D) None of the above will avoid liability.

Question 27

Margo,treasurer of Zachariah Products,Inc.,bought 500 shares of her company's stock on February 23.Her son had health problems in May and she sold the stock at a profit to help pay his medical expenses.Margo:

A) must turn over to Zachariah Products any profits she made on the sale.
B) may keep any profits she made on the sale since she had a good reason to sell and was not selling in order to manipulate the market for the stock.
C) may keep the profits from the sale as long as she electronically reported the sale to the SEC within two business days.
D) may keep any profits from the sale if she did not act on secret information when she sold the shares.

Question 28

Under Section 14 of the 1934 Act or SEC rules:

A) a company must solicit proxies from shareholders at least 30 days prior to any shareholder meeting.
B) a company must provide detailed information about officers and directors when soliciting proxies from shareholders.
C) the CEO of a publicly traded company must certify that the information in the annual report is accurate.
D) All of the above.

Question 29

The Foreign Corrupt Practices Act makes it a crime:

A) for U. S. companies to sell unregistered stock in other countries.
B) for non-U. S. companies to sell unregistered securities in the U. S.
C) to "bribe" foreign governments or officials.
D) to conspire to defraud stock purchasers in other countries.

Question 30

Larry was working at his job at the landfill when he got off his tractor to take a break.He noticed some papers on the ground and went to throw them on a pile.As he held the papers he saw a confidential report from MegaCorp stating it would be announcing the development of a new super computer in two weeks.Larry has no relationship with MegaCorp.Larry mortgaged his house and borrowed all the money he could to purchase $300,000 worth of MegaCorp stock.Larry bought the stock for $32 a share.When the announcement was made public,MegaCorp's stock skyrocketed.Larry sold his stock a few weeks later and made a huge profit.Larry has:

A) committed a criminal act.
B) violated SEC regulations but not the criminal law.
C) committed an act of improper insider trading.
D) done nothing legally wrong.

Question 31

Under the Sarbanes-Oxley Act,each company's CEO and CFO must certify that the:

A) information in the quarterly and annual reports is true.
B) company has effective internal controls.
C) officers have informed the company's audit committee and the auditors of any concerns they have about the internal control system.
D) All of the above.

Question 32

When a stock underwriter acts as the company's agent in selling stock,it is called a(n):

A) company underwriting.
B) express underwriting.
C) firm commitment underwriting.
D) best efforts underwriting.

Question 33

Which of the following is a characteristic of a DPO?

A) It is more expensive and slower than a regular public offering done through an underwriter.
B) It can be an effective marketing tool because shareholders tend to become more loyal customers.
C) Setting up a system to permit trades is unnecessary because the purchases are long-term investments.
D) The issuer can make a DPO only under Rule 147 or Regulation D.
E) All of the above.

Question 34

MegaCorp wishes to sell $25 million of securities.The only investors will be 20 institutional buyers.Which of the following applies to this offering?

A) Rule 504 of the 1933 Act.
B) Rule 505 of the 1933 Act.
C) Rule 506 of the 1933 Act.
D) None of the above apply to this $25 million offering.

Question 35

The Foreign Corrupt Practices Act:

A) applies only to corporations registered under the federal Securities Exchange Act.
B) makes it illegal to bribe U. S. and foreign officials.
C) applies to U. S. corporations, whether reporting under the 1934 Act or not.
D) applies only to foreign corporations bribing U. S. officials.

Question 36

The 1934 Act is primarily intended to:

A) maintain the integrity of the secondary market for securities.
B) make sure companies who wish to raise money by the sale of securities comply with disclosure requirements for the initial offering.
C) coordinate federal and state laws with a primary emphasis on allowing the individual states to maintain primary control over securities law.
D) All the above are correct.

Question 37

If the final registration statement contains a material misstatement or omission,the purchaser of the security can recover damages from:

A) the issuer of the security, but not the company's directors or chief officers.
B) the company's directors, but not the chief officers.
C) the experts who signed the registration statement, but not any other parties.
D) everyone who signed the registration statement.

Question 38

Which of the following requires companies to file annual reports containing audited financial statements?

A) The 1933 Act.
B) The 1934 Act.
C) Regulation A.
D) Regulation B.

Question 39

An individual engaged in illegal insider trading could be:

A) fined.
B) given a prison sentence.
C) required to pay the SEC three times the profit made.
D) All the above are correct.

Question 40

A criminal case under the Securities Act of 1933 is prosecuted by:

A) the SEC.
B) the Justice Department.
C) the Department of the Treasury.
D) the FTC.

Question 41

Countywide Metals is a small company that incorporates in the state in which it is doing business and plans to offer and sell $100,000 worth of stock only to residents of the county in which it is doing business.Discuss the requirements Countywide must meet for registering its securities.

Question 42

Identify and explain three options that ease the process of complying with state securities requirements.

Question 43

Jackie learned of insider trading information while talking to Mark,a director of a large corporation.She took advantage of the information to buy stock and make a huge financial gain.If she is accused of violating securities law,what must the government prove in order to gain a conviction against Jackie?

Question 44

What are the three primary ways the SEC creates law?

Question 45

What is the purpose of a registration statement and what information must be contained in it?