Deck 21: Public And Private Offerings Of Securities

Question 1

A "red herring" is the popular name given to a final prospectus under the 1933 Act.

Answer 1

False

Question 2

The requirement that a tender offer be left open for at least 20 business days only applies if the company is registered under the 1934 Act.

Answer 2

False

Question 3

The "common enterprise" element of the Howey test is clearly met when multiple investors pool their funds and receive a pro rata share of the profits of a single enterprise.

Answer 3

True

Question 4

Proxies give the proxy holder the right to vote the shares owned by the person who signs the proxy card.

Question 5

The Securities Act of 1933 does not provide relief for investors who are not advised of materials facts related to a potential investment.

Question 6

The Capital Markets Efficiency Act of 1996 preempts state registration requirements and merit review in connection with most initial public offerings registered with the SEC.

Question 7

The term "security," for purposes of the Securities Act of 1933,is narrowly interpreted to include only such traditional investments as a stock or a bond.

Question 8

Well-known seasoned issuers may make automatic shelf registration offerings that are effective immediately on filing a registration statement with the SEC.

Question 9

Required disclosures by companies making crowdfunding offerings include information about the business,the use of proceeds,and certain related-party transactions.

Question 10

The definition of "offer" under the Securities Act of 1933 is much broader than that in contract law.

Question 11

The SEC has the statutory authority to approve or disapprove an offering on its merits.

Question 12

The Securities Act of 1933 is also referred to as the "blue sky" law.

Question 13

Investment banking firms are prohibited by federal law from underwriting public offerings of securities.

Question 14

Any security offered by the U.S.government or any national bank would be considered an exempt security under the 1933 Act's registration requirements.

Question 15

Because of the complexity of federal securities laws,a recognized defense to a charge of violation of federal securities laws is ignorance of the specific law or laws involved.

Question 16

The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board.

Question 17

CASE 21.3 Escott v.BarChris Construction Corp.(1968)dealt with the issue of due diligence as a defense in the offering process.

Question 18

Under the Securities Act of 1933,an investor may bring a private suit for damages.

Question 19

The Securities Act of 1934 requires continuous disclosure of certain information regarding publicly traded securities.

Question 20

Shelf registration under the Securities Act of 1933 allows registration of a number of securities at one time for issuance later.

Question 21

Which of the following is NOT true regarding the Sarbanes-Oxley (SOX)Act?

A) SOX mandates the composition and authority of audit committees at public companies.
B) SOX prohibits personal loans to executives.
C) SOX requires corporations to disclose whether they have a code of ethics applicable to senior financial officers and,if not,to disclose why not.
D) SOX gives the SEC the authority to prohibit unfit persons from serving as officers or directors of a public company for a period of five years.

Question 22

Which of the following is NOT an element of a private placement?

A) Transaction with unsophisticated offerees
B) Exempt from registration
C) Less expensive than a registered public offering
D) Directed to selected qualified investors

Question 23

Under the Sarbanes-Oxley Act,which of the following actions is prohibited?

A) Enhanced financial disclosures in periodic reporting
B) CEO and CFO certification of financial statements contained in periodic reports
C) Trading during pension fund blackout periods
D) Disclosure of transactions involving directors,officers,and major stockholders

Question 24

Which of the following is true regarding whether the interest of a limited partner in a limited partnership is considered a security?

A) Such an interest is considered a security only if the limited partnership involves an investment in real estate.
B) Such an interest is not considered a security because a partnership,not an investment scheme,is involved.
C) Such an interest is rarely considered a security because limited partners,to protect their limited liability,are prohibited by law from taking part in the control of the partnership business.
D) Such an interest is almost always considered a security because limited partners,to protect their limited liability,are prohibited by law from taking part in the control of the partnership business.

Question 25

The __________ is the disclosure document that an issuer of securities provides to each prospective purchaser under the 1933 Act.

A) registration statement
B) prospectus
C) investment contract
D) placement memorandum

Question 26

Which of the following is NOT considered a traditional shelf offering?

A) Securities offered pursuant to employee benefit plans
B) Securities offered pursuant to dividend reinvestment plans
C) Securities issued to alter voting rights for shareholders
D) Securities issued in connection with business combination transactions

Question 27

Which of the following is NOT part of the Howey test?

A) Scienter
B) An investment of money
C) Common enterprise
D) Profits obtained solely through the efforts of others

Question 28

Which of the following is true regarding whether the "common enterprise" element of the Securities and Exchange Commission v.W.J.Howey Co.case requires horizontal or vertical commonality?

A) The federal circuits are in agreement that there must be horizontal commonality even if vertical commonality can be shown.
B) The federal circuits are in agreement that there must be vertical commonality even if horizontal commonality can be shown.
C) There is a split in the federal circuits as to whether the common enterprise element of the test can be met by showing horizontal commonality or whether there must be vertical commonality.
D) There is a split in the federal circuits as to whether the common enterprise element of the test can be met by showing vertical commonality or whether there must be horizontal commonality.

Question 29

A prospectus is a selling document as well as a disclosure document.

Question 30

The completion of a public offering terminates the issuer's relationship with the SEC.

Question 31

Which of the following statements is NOT true regarding the JOBS Act?

A) The JOBS Act made it harder for startups and other small businesses to raise capital from members of the public using the Internet.
B) The JOBS Act permits emerging growth companies to include as little as two years of audited financial statements and selected financial data.
C) The JOBS Act permits emerging growth companies to make an initial public offering by meeting all applicable requirements.
D) Congress passed the Jumpstart Our Business Startups Act (the JOBS Act),which President Obama signed in April 2016.

Question 32

A key step in preparing the registration statement is the process of __________,whereby the company,the underwriters,and their respective counsel assemble and review the information about the company in the registration statement.

A) due diligence
B) reasonable review
C) strict scrutiny
D) proofing

Question 33

A subsequent offering of securities by a person other than the issuer is considered a:

A) secondary offering.
B) restricted offering.
C) blank check.
D) shelf registration.

Question 34

Any transaction that involves an investment of money in a common enterprise with profits to come solely from the efforts of others is deemed to be a(n)__________ and thus a security.

A) stock issuance
B) investment contract
C) secured sale
D) committed sale

Question 35

Based on Regulation D,an issuer that does not comply with all the requirements of the applicable rule will necessarily fail to have an exemption.

Question 36

CASE 21.1 Securities and Exchange Commission v.Edwards (2004)involved sales of interests in pay telephones with a question before the U.S.Supreme Court of whether a moneymaking scheme falls outside the definition of an investment contract because the promised rate of return is fixed,rather than variable.How did the Court rule?

A) The Court held that a promise of a fixed rate of return did not prevent the arrangement from being an investment contract.
B) The Court held that a promise of a fixed rate of return prevented the arrangement from being an investment contract.
C) The Court held that a promise of a fixed rate of return did not prevent the arrangement from being an investment contract,but only because the underlying company went into bankruptcy.
D) The Court held that a promise of a fixed rate of return prevented the arrangement from being an investment contract,but only because the underlying company went into bankruptcy.

Question 37

Assuming requirements are met,Rule 144A permits the resale of unregistered securities to qualified:

A) issuers.
B) underwriters.
C) institutional buyers.
D) federal banks.

Question 38

According to the SEC,a hyperlink embedded within a prospectus causes the hyperlinked information to be treated as part of the prospectus.

Question 39

Which of the following is true regarding uniform state regulation of securities?

A) Federal law has entirely preempted the area,and there is no state regulation of securities.
B) Many states have adopted the Uniform Securities Act.
C) Many states have adopted the Proposed Uniform Trading Act.
D) There is no proposed uniform act in regard to securities,and state regulation is inconsistent.

Question 40

Assuming Rule 504 of Regulation D otherwise applies,it exempts offerings of up to __________ within a __________ period,and there may be __________ purchasers.

A) $2 million; six-month; up to 100
B) $500,000; two-year; up to 500
C) $1 million; twelve-month; an unlimited number of
D) $100,000; three-month; up to 50

Question 41

A statutory safe harbor for certain forward-looking statements by issuers subject to the 1934 Act's reporting requirements and persons acting on their behalf is provided by:

A) Rule 502.
B) Regulation D.
C) the Litigation Reform Act.
D) SEC Form S-8.

Question 42

Which of the following may be sued under Section 11 of the Securities Act of 1933,which provides a remedy for a person who purchases a security pursuant to a misleading registration statement?

A) The underwriters
B) Persons who gave their consent to be named in the registration statement as future directors
C) Both underwriters and persons who gave their consent to be named in the registration statement as future directors
D) Any member of the board of directors as well as underwriters and persons who gave their consent to be named in the registration statement as future directors

Question 43

If an issuer makes successive sales within a limited period of time,the SEC may __________ the successive sales,resulting in the loss of a private-offering exemption.

A) restrict
B) register
C) integrate
D) qualify

Question 44

CASE 21.2 In re Lehman Bros.Mortgage-Backed Securities Litigation (2011)involved a question of whether rating agencies that helped select a pool of mortgages for a mortgage-backed security were "underwriters" under the 1933 Act or "controlling persons" under section 15 of the 1933 Act.How did the court rule?

A) The court ruled that the proof established that the rating agencies were both underwriters and controlling persons under the 1933 Act.
B) The court ruled that the proof failed to establish that the rating agencies were either underwriters or controlling persons under the 1933 Act.
C) The court ruled that the proof established that the rating agencies were underwriters under the 1933 Act but that the proof failed to establish that the rating agencies were controlling persons under the 1933 Act.
D) The court ruled that the proof established that the rating agencies were controlling persons under the 1933 Act but that the proof failed to establish that the rating agencies were underwriters under the 1933 Act.

Question 45

Assuming no exemption applies,what is the penalty for a violation of section 5 of the 1933 Act through offering a security for sale without an effective registration statement or by means of a noncomplying prospectus?

A) The purchaser may keep the shares if the investment proves successful; or if within one year from the date of purchase the investment proves unprofitable,the investor can get his or her money back.
B) The purchaser must keep the shares if the investment proves successful; or if within one year from the date of purchase the investment proves unprofitable,the investor will be refunded his or her money.
C) The investor has no option to keep the shares but will be refunded his or her money.
D) The investor must hold the shares for at least two years but will be refunded his or her money if the investment has failed to show a profit within that amount of time.

Question 46

To which of the following is an entrepreneur likely referring when using the term "angel" in reference to an investment plan?

A) An investment banker
B) A venture capitalist
C) Lenders of last resort who provide needed funds once it appears that an entrepreneur who has started a company is in financial trouble
D) Family,friends,and wealthy individual investors to whom the entrepreneur first turns to seek funds

Question 47

If an issuer wanted to raise $100 million,and offer the issuing company's securities to no more than 35 unaccredited investors and an unlimited number of accredited investors,an issuer would choose to exempt the offering under the __________ exemption.

A) Rule 506
B) Rule 504
C) Rule 505
D) Private Placement

Question 48

Under Section 13 of the 1934 Act,any person acquiring beneficial ownership of more than _____ of the equity shares of a reporting company must file a Schedule 13D providing information regarding the acquisition within ten days after crossing the designated ownership mark.

A) 3%
B) 5%
C) 25%
D) 51%

Question 49

A(n)__________ is defined under the 1933 Act as any person who has purchased from an issuer with a view to,or offers or sells for an issuer in connection with,the distribution of any security.

A) investment banker
B) underwriter
C) dealer
D) secondary seller

Question 50

Which of the following is NOT an accredited investor under Rule 501?

A) Any national bank
B) Any director of the issuer
C) Any corporation with total assets in excess of $1 million
D) Any natural person with a net worth in excess of $1 million

Question 51

The managing investment banks in an IPO negotiate the terms of the offering and the underwriter discount with the issuer and put together an underwriting group known as:

A) the tender offer.
B) private placement.
C) the syndicate.
D) crowdfunding.

Question 52

A defendant using the due diligence defense against a Section 11 violation must show all of the following EXCEPT:

A) the defendant used experts' reports that had not been prepared for registration statements.
B) the defendant conducted a reasonable investigation.
C) the defendant reasonably believed that the statements made were true.
D) the defendant reasonably believed that there were no omissions that made any statements misleading.

Question 53

According to the __________ doctrine,a court may determine that the inclusion of sufficient cautionary statements in a prospectus renders immaterial any misrepresentations and omissions contained therein.

A) actual cause
B) bespeaks caution
C) common sense
D) trap door

Question 54

__________ of the Dodd-Frank Wall Street Reform and Consumer Protection Act restricts the ability of large commercial banks to engage in potentially risky proprietary trading for their own accounts.

A) Rule 501
B) Troubled Asset Relief Program
C) The Volcker Rule
D) The dark market clause

Question 55

In Lawson v.FMR,LLC (2014),the question before the U.S.Supreme Court was whether the __________ Act's whistleblower protections extended to __________ contractors of __________ corporations.

A) Sarbanes-Oxley; employees of private; public
B) SEC 1934; employers of public; private
C) Private Securities Litigation Reform; employees of private; public
D) SEC 1933; employers of private; public