Deck 32: Investor Protection,E-Securities Transactions,and Wall Street Reform

Question 1

The Securities and Exchange Commission is an administrative agency composed of five (5)members who are appointed by the United States president.

Answer 1

True

Question 2

In 2010,the United States Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate hedge funds,derivatives,and abusive practices in the securities industry.

Answer 2

True

Question 3

The Securities Act of 1933 primarily regulates the issuance of securities by corporations,limited partnerships,and companies.

Answer 3

True

Question 4

Common stock,preferred stock,bonds,debentures,and warrants are examples of statutorily-defined securities.

Question 5

A subscription contract is any contract whereby an investor invests money or other consideration in a common enterprise and expects to make a profit from the significant efforts of others.

Question 6

Following the stock market crash in 1939,Congress enacted a series of statutes designed to regulate securities markets.

Question 7

The Securities and Exchange Commission was created as part of the Securities Act of 1933.

Question 8

The courts apply the Dewey test in determining whether an arrangement is an investment contract and therefore a security.

Question 9

Pre-organization subscription agreements,interests in oil,gas,and mineral rights,and deposit receipts for foreign securities are examples of common securities.

Question 10

The Sarbanes-Oxley Act of 2002 was enacted by the United States Congress to bring more transparency to securities markets and to eliminate conflicts of interests that previously existed in the securities industry.

Question 11

The SEC may bring a civil action to recover monetary damages from violators of securities laws.

Question 12

Under the Howey test,an arrangement is considered an investment contract if there is an investment of money by an investor in a common enterprise and the investor expects to make profits based on the sole or substantial efforts of the promoter or others.

Question 13

The Federal Trade Commission (FTC)regulates the activities of securities brokers and advisors,and this regulation includes registering brokers and advisors and taking enforcement action against those who violate securities laws.

Question 14

A limited partnership interest is an investment contract.

Question 15

The Interstate Commerce Commission (ICC)has the responsibility to investigate alleged securities violations and bring enforcement actions against suspected violators.

Question 16

A "whistleblower bounty program" allows persons who provide information that leads to a successful SEC action to recover ten (10)percent to thirty (30)percent of the monetary sanctions over $1 million recovered by the SEC.

Question 17

The primary purpose of federal and state securities statutes that regulate the issuance and trading of securities is to promote full disclosure to investors and to prevent fraud.

Question 18

Criminal prosecutions of violations of federal securities laws are brought by state attorneys general.

Question 19

The federal and state governments have enacted statutes that regulate the issuance and trading of securities.

Question 20

Prior to the 1920s and 1930s,the securities markets in the United States were not regulated by the federal government.

Question 21

Section 11 of the 1933 Act provides for criminal liability for damages when a registration statement on its effective date misstates or omits a material fact.

Question 22

All defendants except the issuer may assert a "due diligence" defense against the imposition of Section 11 liability.

Question 23

The purchaser's remedy for violation of Section 12 of the Securities Act of 1933 is either to rescind the purchase or to sue for damages.

Question 24

To establish a "due diligence" defense,the defendant must prove that after reasonable investigation,he or she had reasonable grounds to believe and did believe that,at the time the registration statement became effective,the statements contained therein were true and there was not omission of material facts.

Question 25

The Securities and Exchange Commission has no legal authority to bring an action to obtain an injunction.

Question 26

Section 12 of the Securities Act of 1933 imposes civil liability on any person who violates the provisions of Section 5 of the Act.

Question 27

One of the major responsibilities of the Securities and Exchange Commission is to investigate securities so that it can issue ratings on the quality and level of risk of investing in particular securities.

Question 28

A registration statement must be accompanied by financial statements certified by public accountants.

Question 29

The prospectus provides expert analysis,from a duly-appointed representative of the Securities and Exchange Commission,of a particular security's potential for future value and growth.

Question 30

All of the information in the prospectus must be printed in all-capital letters,and in boldface type.

Question 31

Securities and Exchange Commission rules require that original signatures be obtained for all securities-related documents,so issuing securities over the Internet is prohibited as a result.

Question 32

A person who willfully violates the Securities Act of 1933 Act may be fined or imprisoned for up to five years,or both.

Question 33

Contracts to purchase and sell securities are completed during the "post-effective" period.

Question 34

The business or party selling securities to the public is called the "issuee."

Question 35

A prospectus is a written disclosure document that must be submitted to the Securities and Exchange Commission.

Question 36

An issuer of securities must provide a copy of the registration statement and a copy of the prospectus to the Securities and Exchange Commission.

Question 37

It is necessary to discuss the degree of competition in the issuer's industry in a registration statement.

Question 38

Private parties who have been injured by certain securities violations may bring a civil action against the violator under Section 12 of the Securities Act of 1933.

Question 39

Violations of Section 12 of the Securities Act of 1933 include selling securities pursuant to an unwarranted exemption and making misrepresentations concerning the offer or sale of securities.

Question 40

The "pre-filing" period ends when the registration statement is filed.

Question 41

Securities issued by any government in the United States are exempt from registration with the SEC.

Question 42

The Small Corporate Offering Registration Form is a "question-and-answer" disclosure form that small businesses can complete and file with the Securities and Exchange Commission,if they plan to generate $2 million or less from the public issue of securities.

Question 43

Securities issued in a corporate reorganization in which one security is exchanged for another security are exempt from registration with the SEC.

Question 44

There is no dollar limit on the amount of securities that can be sold under the "private placement" exemption.

Question 45

Criminal penalties may be imposed for a violation of the Securities Act of 1933.

Question 46

The issuer is permitted to "condition" the market during the "pre-filing" period.

Question 47

A section of the Sarbanes-Oxley Act establishes rules for separating the investment banking and securities advice functions of securities firms,thereby eliminating many conflicts of interest.

Question 48

The "post-effective" period begins when the registration statement becomes effective,and runs until the issuer either sells all of the offered securities or withdraws them from sale.

Question 49

Short-term notes and drafts that have a maturity date of less than nine (9)months must be registered with the SEC.

Question 50

Securities of a financial institution must register with the SEC,even if the financial institution is regulated by the appropriate banking authorities.

Question 51

Securities issued by non-profit issuers are exempt from registration with the SEC.

Question 52

Under the Securities Act of 1933,at the latest,a final prospectus must be provided to a purchaser of securities by the time the sale is closed.

Question 53

The SEC requires companies,foreign and domestic,to file registration statements,periodic reports,and other forms on its electronic filing and forms system called "EDGAR."

Question 54

Insurance and annuity contracts issued by insurance companies are exempt from registration with the SEC.

Question 55

"Regulation A" permits issuers to sell up to $5 million of securities during a twelve-month period,pursuant to a simplified registration process.

Question 56

Stock dividends and stock splits must be registered with the SEC.

Question 57

NASDAQ has the largest trading volume of any securities exchange in the world.

Question 58

The National Association of Securities Dealers Automated Quotation System is an electronic stock market.

Question 59

Under the Securities Act of 1933,in an "intrastate offering" exemption,there is no maximum dollar amount that can qualify.

Question 60

Non-issuers of securities do not have to file a registration statement before reselling securities they have purchased.

Question 61

Under the Securities Act of 1933,securities that have been issued under the "intrastate offering" exemption cannot be resold to a nonresident of the state for two years following the initial sale.

Question 62

A "tippee" is liable for acting on information that the tippee should have known was not public.

Question 63

Rule 10b-5,which prohibits securities fraud,applies only to the securities of companies listed on the major stock exchanges.

Question 64

Under the "private placement" exception to the registration of securities,the limitation on the number of investors applies to non-accredited,but not accredited,investors.

Question 65

Courts have implied a private right of action for violation of Section 10(b)and Rule 10b-5.

Question 66

Insider trading occurs when a company employee or company advisor uses material,nonpublic information to make a profit by trading in the securities of the company.

Question 67

State securities laws are usually applied when smaller companies are issuing securities within that state.

Question 68

"Rule 144" provides that securities sold pursuant to the "private placement" or "small offering" exemption must be held for six months from the date when the securities are last sold by the issuer.

Question 69

Even non-employees can violate insider trading rules.

Question 70

Rule 10b-5 is not restricted to purchases and sales of securities of reporting companies.

Question 71

An insider is liable for "short-swing" profits,even if he/she has not used inside information.

Question 72

Negligence that results in a material misstatement will subject a party to liability under Rule 10b-5 of the Securities Exchange Act of 1934.

Question 73

Statutory insiders must file reports with the Securities and Exchange Commission disclosing their ownership and trading in the company's securities.

Question 74

"Short-swing" profits pertain to trades involving equity securities occurring within one year of each other.

Question 75

You cannot be considered an insider unless you own at least fifty-one percent of a company's outstanding securities.

Question 76

Most states have enacted securities laws.

Question 77

Section 16(a)of the Securities Exchange Act of 1934 defines any person who is an executive officer,a director,or a 10-percent shareholder of an equity security of a reporting company as a "statutory insider" for Section 16 purposes.

Question 78

Companies are covered under the Securities Exchange Act of 1934 only if they are in the process of making new offerings of securities.

Question 79

Under the "small offering" exemption of the Securities Act of 1933,securities can be sold to an unlimited number of accredited and unaccredited investors.

Question 80

A person who discloses material nonpublic information to another person is called a "tippee."