Deck 22: Securities Regulation

Question 1

The 1933 Act prohibits fraud only in transactions involving registered securities.

Answer 1

False

Question 2

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.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

Under what type of securities offering must the issuer determine if the investor is an accredited, sophisticated investor and if the stock is restricted?

A)Regulation A offering
B)Regulation D offering
C)public offering
D)interstate offering

Question 7

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

Question 8

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

A)short-term notes
B)treasury stock
C)government securities
D)annuity contracts

Question 9

Regulation Crowdfunding permits privately held companies to sell up to $1 million in securities in any 12-month period provided they meet a number of criteria.

Question 10

Under which of the following exemptions is there no dollar limitation?

A)Rule 504
B)Rule 505
C)Rule 506
D)Regulation A

Question 11

Officials from Vital Corporation are traveling around the country making presentations to prospective investors. The officials are conducting a

A)prospectus.
B)secondary offering.
C)road show.
D)private offering.

Question 12

Securities issued by banks are exempt from SEC registration.

Question 13

Any securities offerings covered by the NSMIA must comply with state securities laws.

Question 14

The SEC has enforcement powers, including the power to issue cease and desist orders, to levy fines, and to confiscate profits from illegal transactions.

Question 15

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

Question 16

Premier Enterprises sold Watson unregistered stock which was not exempt. The 1933 Act imposes liability on Premier, and Watson can demand rescission if he still owns the stock.

Question 17

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

Question 18

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

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

Question 19

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

Question 20

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

Question 21

Felicity brought a lawsuit under Section 11 of the 1933 Act against Mojo Corp. What will Felicity have to prove in order to prevail?

A)only that she relied on the registration statement
B)that Mojo was negligent in preparing the registration statement
C)that there was a material misstatement or omission in the registration statement and she lost money
D)that Mojo intentionally tried to deceive investors

Question 22

Which of the following has the most elaborate disclosure requirements?

A)initial public offering
B)Regulation A
C)Regulation D
D)crowdfunding

Question 23

Which of the following represents a valid Regulation A Tier 1 offering?

A)selling $3 million of securities in any 12-month period with a $250,000 individual investor limit
B)selling $10 million in securities in any 12-month period; investors can't buy more than 10% of their annual income or net worth
C)selling $20 million of securities in any 12-month period with no individual investor limit
D)selling $20 million in securities in any 12-month period; investors can't buy more than 5% of their annual income or net worth

Question 24

What is the legal term meaning that someone has acted with the intent to deceive or with deliberate recklessness as to the possibility of misleading investors?

A)scienter
B)omission
C)negligence
D)fraud

Question 25

Section 16 of the 1934 Act prohibits short-swing trading on the part of officers, directors, and controlling shareholders who

A)own more than 25% of the company.
B)are also on the board of directors of the company.
C)own more than 10% of the company.
D)trade their shares in order to invest in another company.

Question 26

Which of the following is a characteristic of a restricted security?​

A)​It is purchased in a private offering.
B)It cannot be sold at any time.
C)​It is subject to reporting requirements.
D)​After six months, it is classified as a control security.

Question 27

Under Regulation D, institutions such as banks and insurance companies are ​considered to be what type of investors?

A)​accredited
B)​unaccredited
C)​restricted
D)​unrestricted

Question 28

Under Section 10 (B)of the 1934 Act, all of the following would be considered a "corporate insider" EXCEPT

A)the janitorial company who cleans the corporate offices.
B)a major shareholder of the corporation.
C)a member of the board of directors.
D)All of these are correct.

Question 29

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

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

Question 30

Ed, a vice-president of Palmette Products, Inc., buys 1,000 shares of his company's stock on June 15. His son has medical problems in September, and Ed sells the stock at a profit. Under Section 16, Ed

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

Question 31

In determining liability for errors in a registration statement, the plaintiff must prove that there was a misstatement or omission that was important enough to affect the plaintiff's investing decision. In other words, the misstatement or omission needs to be

A)material.
B)unrefutable.
C)accredited.
D)firm.

Question 32

Section 16 of the 1934 Act addresses what type of insider trading?

A)classic insider trading
B)tipping
C)short-swing trading
D)takeovers

Question 33

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)broaden the SEC's enforcement power.

Question 34

Under the 1934 Act, an issuer must register with the SEC if

A)it has not completed a public offering under the 1933 Act.
B)its securities are not going to be traded on a national exchange.
C)it will not be providing investors with a prospectus.
D)it has at least 2,000 shareholders and total assets that exceed $10 million.

Question 35

State securities statutes are known as

A)going dark laws.
B)blue sky laws.
C)big country laws.
D)sunshine laws.

Question 36

When the underwriter buys stock from the issuer and sells it to the public it is referred to as a

A)​best efforts underwriting.
B)​firm commitment underwriting.
C)​secondary underwriting.
D)​public underwriting.

Question 37

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

A)Rule 504, option 1 of Regulation D of the 1933 Act
B)Rule 505 of Regulation D of the 1933 Act
C)Rule 506 of Regulation D of the 1933 Act
D)Rule 504, option 2 of Regulation D of the 1933 Act

Question 38

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 39

Pursuant to a public offering, a CPA firm audited the financial statements. 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 auditing 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 these will avoid liability.

Question 40

Which of the following is reported on Form 8-K?

A)audited financial statements
B)the resignation of a director over a policy dispute
C)unaudited financial statements
D)All of these are correct.

Question 41

Discuss the process an issuer follows for either an IPO or a secondary offering.

Question 42

What are the purposes of a registration statement and what information must it contain?

Question 43

The Fallwater Partnership wants to incorporate and is considering using a DPO. Explain what a DPO is and discuss the advantages and disadvantages of this course of action.

Question 44

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 45

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.