Deck 17: Governance and Regulation: Securities Law

Question 1

Rule 506 has no dollar limitations.

Answer 1

True

Question 2

A red herring is a prospectus sent prior to the effective date of the registration date.

Answer 2

True

Question 3

A comment or deficiency letter must be issued within 30 days after a registration statement is filed.

Answer 3

True

Question 4

Regulation A short-form exemptions can be used for offerings of $5 million or less.

Question 5

A bank is an example of an accredited investor for purposes of Regulation D.

Question 6

The states did not have federal legislation prior to the time of the federal securities laws.

Question 7

There are no resale limitations on Regulation A offerings.

Question 8

Only directors can be held liable for a Section 11 violation.

Question 9

Section 11 of the 1933 Securities Act imposes liability for the failure to file a registration statement.

Question 10

There are no resale limitations on Regulation D offerings.

Question 11

A bond is not considered a security under federal law.

Question 12

A tombstone ad can be run before the registration statement is effective.

Question 13

The 1933 Securities Act regulates primary offerings.

Question 14

A limited partnership interest is not considered a security.

Question 15

Only those who actually signed the registration statement can be liable for a Section 11 violation.

Question 16

The intrastate registration exemption requires that 100 percent of the offerees be residents of the same state as the issuer.

Question 17

Section 10(b)applies to corporate insiders and tippees.

Question 18

A primary offering is a first-time offering of shares for sale.

Question 19

Shareholders who solicit proxies need not comply with Section 14 of the 1934 Act.

Question 20

The 1934 Securities Exchange Act regulates the secondary sale of securities.

Question 21

A Section 12 violation results from making a material misstatement in a registration statement.

Question 22

Under Section 14, shareholders can make proposals for action in the proxy materials.

Question 23

Section 10(b)applies to all securities sold in interstate commerce.

Question 24

Short-swing profits are acceptable if there was no inside information.

Question 25

Germany and France have eight exchanges each, by far the most outside of the United States.

Question 26

Only an actual seller or purchaser can bring a suit for civil recovery under 10(b).

Question 27

Registration statements must include audited financial statements.

Question 28

All companies required to register under the 1934 Act must file a 10-K report.

Question 29

A registration approved by the SEC need not be registered at the state level.

Question 30

Regulation A filings are exempt from Section 11 liability.

Question 31

Insider trading rules apply only to officers and directors.

Question 32

Shares of stock issued pursuant to a corporate reorganization must be registered.

Question 33

Selling securities before the effective date of the registration statement is a Section 12 violation.

Question 34

Rule 504 has no limitations on number of offerees.

Question 35

A merit review standard is the same as the SEC review.

Question 36

Section 12 violations would include selling before the effective date.

Question 37

Blue sky laws are state securities registration laws.

Question 38

Section 16 applies to all stock transactions of directors and officers (of a 1934 Act company).

Question 39

A false prospectus is covered under Section 11.

Question 40

While Australia has always been supportive of securities regulation efforts internationally, it does not have an exchange.

Question 41

The penalties for certification of false financial statements are up to $1 million in fines and/or 10 years.

Question 42

To qualify for an intrastate offering exemption, the shares must contain transfer restrictions.

Question 43

The O'Hagan case is the seminal case that declared exactly what a security is for federal acts and regulations.

Question 44

Sarbanes-Oxley requires all covered companies to have a code of ethics for financial officers.

Question 45

The Escott v. BarChris Construction Corp. case is a prime example of the type of financial overstatement of a company's performance that SOX was passed to address.

Question 46

Shareholder proposals can include topics such as executive compensation.

Question 47

Under Sarbanes-Oxley, every board audit committee must have at least one financial expert.

Question 48

Which of the following would not be considered a security under the 1933 Act?

A)Limited partnership interest
B)Bonds
C)Pension fund
D)Subchapter S corporate stock

Question 49

Shares issued through reorganizations must be registered.

Question 50

Under Sarbanes-Oxley, a company must file an 8-K if it has waived its code of ethics for a financial reporting officer.

Question 51

The trend in international markets is away from regulating insider trading.

Question 52

Under Sarbanes-Oxley, audit committees of publicly held companies' boards need not be made up of independent members so long as the majority of the board is independent.

Question 53

Insider trading rules apply to information exchanged over the Internet and chat rooms.

Question 54

The FCPA applies to 1934 Act companies.

Question 55

If the earnings of a company are revealed to be false, the officers who earned bonuses based on these earnings must forfeit them.

Question 56

Section 404 of Sarbanes-Oxley is the section that requires certification of the adequacy of a company's internal controls.

Question 57

Blue sky laws never allow for a merit review standard; only federal regulations contain that type.

Question 58

Pump and dump is the act of hyping a stock in order to benefit from a sale once the hype affects the price.

Question 59

An IPO does not require SEC registration.

Question 60

An auditor for a company cannot also perform appraisal functions.

Question 61

Which of the following would be material inside information?

A)A pending takeover
B)Pending declaration of a large dividend
C)City council announcement to pay to bring business into the city
D)Both a and b
E)All of the above

Question 62

Which firms would be required to file a 10-K?

A)Company with 600 shareholders and $5 million in assets and not listed on national exchange
B)Company with 300 shareholders and $10 million in assets and not listed on a national exchange
C)Company with 700 shareholders and $6 million in assets and listed on a national exchange
D)All of the above

Question 63

Who would have standing to bring a civil suit under section 10(b)?

A)Purchaser of shares
B)Contractor with firm who loses business
C)Person who refrained from buying because of overly pessimistic information
D)Person who refrained from selling because of overly optimistic information
E)All of the above

Question 64

Which of the following can be done before the registration statement is effective?

A)Tombstone ads
B)Red herrings
C)Offers to sell to accredited investors
D)a and b
E)All of the above

Question 65

The 1934 Act proxy registration requirements:

A)apply only to management.
B)include a requirement for shareholders' proposals.
C)are not applicable to dissenters' solicitations.
D)None of the above

Question 66

Who is liable for a Section 11 violation?

A)Directors
B)Officers
C)Only directors who sign the registration statement
D)Both a and b
E)None of the above

Question 67

Section 16 applies:

A)only to shareholders.
B)to directors of all covered corporations.
C)when there is a purchase followed by a sale within a six-month period.
D)All of the above

Question 68

Which of the following is not an exempt security under the 1933 Act?

A)Municipal bonds
B)Insurance policies
C)Promissory notes
D)Annuities
E)All of the above are exempt securities.

Question 69

Which of the following is not required for the intrastate exemption?

A)The investors and issuer must all be residents of the same state.
B)Of the issuer's income, 100 percent must be earned in its resident state.
C)Of the issuer's assets, 80 percent must be located in its resident state.
D)Of the proceeds from the sale, 80 percent must be earned on operations in the state.
E)All of the above are requirements.

Question 70

Tippees:

A)are people who get information from corporate insiders.
B)are relatives of corporate directors who are given nonpublic information.
C)can be liable under section 10(b).
D)All of the above

Question 71

The Foreign Corrupt Practices Act:

A)is an amendment to the 1933 Act.
B)is also known as the Insider Trading Act of 1988.
C)is an amendment to the 1934 Act.
D)None of the above

Question 72

A tombstone ad:

A)is permitted in Regulation D offerings.
B)is an offer to sell securities.
C)can be run prior to the effective date of the registration.
D)All of the above

Question 73

Section 16 applies to:

A)all shareholders.
B)only directors who also own stock.
C)an officer of a corporation.
D)only officers who own stock.
E)None of the above

Question 74

The scienter required for proof of a 10(b)violation is:

A)intent to defraud.
B)gross negligence.
C)negligence.
D)a or b

Question 75

Which of the following is not an accredited investor for purposes of Regulation D?

A)Any bank
B)Anyone who certifies that he can afford to lose the investment
C)A purchaser of $150,000 or more of the securities
D)Any person with income greater than $150,000

Question 76

Maxine Knight is an investment banker who has just completed negotiations for a merger between two major motion picture studios. Maxine lives with Ron Heywood and suggests dinner to celebrate the successful negotiations that will become public in three days. Ron celebrates with Maxine and the next morning buys substantial blocks of shares in both the firms. After the merger is announced, the value of the shares doubles. Which of the following statements is true?

A)Ron has violated Section 10(b).
B)Ron is not an insider and therefore has not violated 10(b).
C)Ron has probably violated Section 16.
D)None of the above

Question 77

Regulation A offerings:

A)still require registration.
B)are available for offerings up to $10 million.
C)are now part of Regulation D.
D)None of the above

Question 78

Under Section 14, a shareholder proposal in the proxy materials:

A)is limited to 500 words.
B)must be made by a shareholder who owns at least 5 percent of the outstanding shares of the corporation.
C)need not be included if management objects.
D)All of the above

Question 79

Section 10(b)applies only to:

A)stock exchange listed stores.
B)public corporations.
C)officers, directors, and 10 percent shareholders.
D)None of the above

Question 80

Section 10(b)would apply to which of the following situations?

A)A financial printer trading stock based on takeover information in the printing he is doing for a corporation
B)An accounting firm performing an audit in a grossly negligent fashion that results in misleading financial statements
C)A guest at a reception trading on information she overheard at the party
D)None of the above