Deck 17: Investor Protection, E-Securities, and Wall Street Reform

Question 1

The Securities and Exchange Commission (SEC)is an administrative agency composed of five members who are appointed by the ________.

Answer 1

president

Question 2

Interests in oil,gas,and mineral rights are considered statutorily defined securities.

Answer 2

True

Question 3

The Howey test is used to determine if an arrangement is an investment contract.

Answer 3

True

Question 4

Continuous reporting to investors and the SEC is a requirement imposed by the Securities Act of 1933.

Question 5

The Securities Act of 1933 is a federal statute that primarily regulates the issue of securities by companies and other businesses.

Question 6

The SEC is concerned with regulating issues and trading of securities alone and cannot regulate the activities of securities brokers and advisors.

Question 7

The ________ is a federal statute that primarily regulates the issuance of securities by companies and other businesses.

Question 8

An investment contract is a flexible standard for defining a security.

Question 9

The ________ is a federal statute that primarily regulates the issuance of securities by companies and other businesses.

A)Securities Act of 1933
B)Securities Exchange Act of 1934
C)Sarbanes-Oxley Act of 2002
D)Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Question 10

Which of the following is regulated by the Securities Act of 1933?

A)fraud in mortgage transactions
B)hedge funds and derivatives
C)reporting to investors
D)the issue of securities online

Question 11

The ________ is a federal agency that is created by the Securities Exchange Act of 1934 and is empowered to administer federal securities laws.

Question 12

A(n)________ is a flexible standard for defining a security.

A)red herring prospectus
B)investment contract
C)certificate of interest
D)debenture

Question 13

Interests in oil,gas,and mineral rights are classified as ________.

A)statutorily defined securities
B)implicit securities
C)investment contracts
D)common securities

Question 14

Which of the following is classified under "common securities"?

A)real estate
B)bullion
C)a debenture
D)a bank deposit account

Question 15

A "whistleblower bounty program" allows a person who provides information that leads to a successful SEC action in which more than $1 million is recovered to receive 10 percent to 30 percent of the money collected.

Question 16

The Securities Act of 1933 regulates the issuance and sale of securities online.

Question 17

The Securities and Exchange Commission (SEC)provides a(n)________ which allows a person who provides information that leads to a successful SEC action to receive 10 percent to 30 percent of the money collected over $1 million recovered by the SEC.

Question 18

Interests or instruments that are expressly mentioned in securities acts are known as ________.

A)common securities
B)implicit securities
C)investment contracts
D)statutorily defined securities

Question 19

Courts apply the ________ in determining whether an arrangement is an investment contract.

A)Howey test
B)misappropriation theory
C)strict scrutiny test
D)intermediate scrutiny test

Question 20

The ________ is a federal statute primarily designed to prevent fraud in the trading of securities after they are issued.

A)Securities Act of 1933
B)Securities Exchange Act of 1934
C)Sarbanes-Oxley Act of 2002
D)Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Question 21

________ permits issuers to sell up to $50 million of securities to the public during a 12-month period,pursuant to a simplified registration process.

A)SEC Rule 506
B)Section 12 of the Securities Act of 1933
C)Section 5 of the Securities Act of 1934
D)Regulation A

Question 22

The electronic data and record system of the Securities and Exchange Commission (SEC)is known as ________.

A)EDGAR
B)NASDAQ
C)MICEX
D)SPSE

Question 23

Debentures are an example of ________ securities.

Question 24

Which of the following is true of the Small Company Offering Registration (SCOR)form?

A)A SCOR form can only be used for raising more than $1 million through the sale of securities.
B)A SCOR form can be used by both domestic and foreign companies.
C)A SCOR form doubles as a prospectus for potential investors.
D)A SCOR form must be completed by the issuee before purchasing securities.

Question 25

Which of the following has the largest trading volume of any securities exchange in the world?

A)the NYSE
B)Euronext
C)NASDAQ
D)the London Stock Exchange

Question 26

The sale of securities by an issuer to the public is known as an initial public offering.

Question 27

Interests or instruments that are expressly mentioned in securities acts are ________ securities.

Question 28

A small business can file a ________ with the Securities and Exchange Commission (SEC)if it plans on raising $1 million or less in any 12-month period from a public offering of securities.

A)Form U-7
B)registration statement
C)Form S-1
D)certificate of interest

Question 29

________ requires securities offered to the public through the use of the mails or any facility of interstate commerce to be registered with the Securities and Exchange Commission (SEC)by means of a registration statement and an accompanying prospectus.

A)Section 24 of the Securities Act of 1933
B)Section 12 of the Securities Act of 1933
C)Section 5 of the Securities Act of 1933
D)SEC Rule 506

Question 30

Which of the following is true of a Regulation A offering?

A)It imposes resale restrictions on the securities it offers.
B)It requires issuers to prepare a registration statement for offers exceeding $100,000.
C)It requires more disclosure than a registration statement and is more costly to prepare.
D)It mandates that an offering circular be provided to investors prior to their purchase of securities.

Question 31

Which of the following must be included in the registration statement?

A)judgments passed by the SEC on the merits of the securities offered
B)how proceeds from the offering will be used
C)the date of termination of the initial public offering
D)the maximum number of times a share can be sold post-issue

Question 32

A(n)________ is submitted along with the registration statement to the Securities and Exchange Commission (SEC),and is also used as a selling tool to help prospective investors evaluate the financial risk of an investment.

A)organization document
B)certificate of interest
C)prospectus
D)operation agreement

Question 33

Scissorwire Inc.sells shares of its stock to the public,with each share valued at $16.After a year,the company incurs a loss and the price of the stock drops to $5 per share.The company reveals that it had deliberately not registered with the SEC before going public and that it has no money to pay the investors.Which of the following is true in this situation?

A)Scissorwire Inc.can register with the SEC at any point after the decline in share price.
B)The U.S.government can file a criminal lawsuit against Scissorwire Inc.to seek criminal penalties.
C)The investors were negligent in failing to verify registration prior to stock purchase,and therefore cannot rescind their purchase.
D)Scissorwire Inc.is liable for violation of the Securities Exchange Act of 1934.

Question 34

The courts apply the Howey test in determining whether an arrangement is a(n)________ and therefore a security.

Question 35

Only an established company is permitted to sell new securities to the public.

Question 36

Which of the following is true of a registration statement?

A)A registration statement must be accompanied by financial statements certified by certified public accountants.
B)Once submitted,a registration statement cannot be amended.
C)The SEC judges the merits of the securities based on the registration statement.
D)A registration statement need not reveal how a company plans on using the proceeds from the offering.

Question 37

Which of the following best defines an initial public offering (IPO)?

A)the issuance of an offering statement to the public prior to purchase
B)the filing of a registration statement by an issuer
C)the disclosure document released for public scrutiny
D)the issuance of securities by an issuer to the public

Question 38

Utilities Inc.decided to go public by an initial public offering.It sold securities,some of which were bought by James Jefferson.Six months later,Mr.Jefferson sold the Utilities shares he had purchased to Martha Graham and Mark Franco.Two years later,Mr.Jefferson bought back the Utilities shares from Ms.Graham and Mr.Franco and made a profit out of both transactions.Identify the issuer in this scenario.

A)Utilities Inc.
B)James Jefferson
C)Martha Graham
D)Mark Franco

Question 39

A(n)________ refers to a document that an issuer of securities files with the Securities and Exchange Commission (SEC)that contains required information about the issuer,the securities to be issued,and other relevant information.

A)article of organization
B)operating statement
C)registration statement
D)certificate of interest

Question 40

Section 5 of the Securities Act of 1933 requires an issuer to register its securities with the SEC prior to selling them to the public.

Question 41

An offering circular must be provided to the investors immediately after the purchase of a Regulation A offering.

Question 42

A company that is issuing securities to the public must file a written ________ with the Securities and Exchange Commission (SEC).

Question 43

A prospectus is a written disclosure provided with the registration statement that helps the SEC to evaluate the financial risk of an investment.

Question 44

According to Regulation A,securities of up to $50 million can only be sold to accredited investors.

Question 45

The issuance of securities by an issuer to the public is known as a(n)________.

Question 46

Crowd funding offerings are subject to the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Question 47

An investor who has purchased an unregistered security can rescind their purchase,but not recover damages.

Question 48

________ allows small companies to raise capital from many small-dollar investors through Web-based platforms.

Question 49

There are no resale restrictions on securities that come under Regulation A.

Question 50

An offering statement requires less disclosure compared to a registration statement.

Question 51

Exempt securities include ________.

A)stock dividends and stock splits
B)IPOs made by multinational corporations
C)securities that have been held by a single investor for longer than a year
D)securities worth $1 million or more

Question 52

An issuer who plans on raising $1 million or less from the public must answer the questions on Form U-7,which doubles as a prospectus and must be made available to prospective investors.

Question 53

The ________ is a registration exemption that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the Securities and Exchange Commission (SEC).

A)intrastate offering exemption
B)Regulation A offering
C)private placement exemption
D)nonissuer exemption

Question 54

A registration statement need not contain details on how the proceeds from the offering will be used.

Question 55

Which of the following is true of exempt securities?

A)Only the federal government can issue exempt securities.
B)Once a security is exempt,it is exempt forever.
C)An exemption notice must be filed with SEC each time the exempt security is transferred.
D)Exempt securities cannot be traded publicly.

Question 56

Regulation A offerings can be sold without registration with the SEC provided that an offering statement is provided prior to the purchase of the securities.

Question 57

The ________ is a registration exemption which states that securities transactions not made by an issuer,an underwriter,or a dealer do not have to be registered with the Securities and Exchange Commission (SEC).

A)intrastate offering exemption
B)private placement exemption
C)Regulation A offering
D)nonissuer exemption

Question 58

During the review of a registration statement,the SEC does not pass judgment on the merits of the securities offered.

Question 59

How does a company sell its shares to the public for the first time? Explain the contents of a registration statement.

Question 60

SEC Rule 506 is known as the ________ exemption.

A)nonissuer
B)intrastate offering
C)private placement
D)interstate offering

Question 61

An exemption from registration which states that securities transactions not made by an issuer,an underwriter,or a dealer do not have to be registered with the Securities and Exchange Commission (SEC)is known as a(n)________ exemption.

Question 62

Of the following,who is considered a Section 16 statutory insider?

A)Sharon Muller,an editor who was tipped by her friend to buy shares of KYU Corp.
B)Robert Morgan,an employee who owns ten percent of all equity security of KYU Corp.
C)Jim Downey,a graphics engineer who quit KYU Corp.after five years of service.
D)Kate Harris,a legal consultant to KYU Corp.

Question 63

Which of the following is an example of insider trading?

A)An employee uses material nonpublic information to make a profit by trading in the securities of the company.
B)A manager purchases all the shares of a corporation available to the public.
C)A director purchases enough shares of a public company to gain a majority stake in its management.
D)An employee sells his shares to another employee without notifying the company.

Question 64

The ________ coordinates state securities laws with federal securities laws.

A)Insider Trading Sanctions Act
B)Securities Exchange Act of 1934
C)Securities Act of 1933
D)Uniform Securities Act

Question 65

SEC Rule 506-known as the private placement exemption-allows issuers to raise capital from an unlimited number of ________ without having to register the offering with the SEC.

Question 66

The ________ imposes liability under Section 10(b)and Rule 10b-5 on an outsider who misappropriates information about a company,in violation of his or her fiduciary duty,and then trades in the securities of that company.

A)Insider Trading Sanctions Act
B)Sarbanes-Oxley Act
C)tort of appropriation
D)misappropriation theory

Question 67

A(n)________ is a person who discloses material nonpublic information to another person.

A)issuer
B)tippee
C)grantor
D)tipper

Question 68

The Securities Act of 1933 provides a(n)________ exemption that permits local businesses to obtain from local investors capital to be used in the local economy without the need to register with the Securities and Exchange Commission (SEC).

Question 69

________ requires that any profits made by a statutory insider on transactions involving short-swing profits belong to the corporation.

A)Section 5 of the Securities Act of 1933
B)Section 12 of the Securities Act of 1933
C)Section 16(b)of the Securities Exchange Act of 1934
D)SEC Rule 10b5-1

Question 70

The nonissuer exemption permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC.

Question 71

List the securities exempt from registration with the Securities and Exchange Commission (SEC).

Question 72

Drafts that have a maturity date of six months are exempt from registration with the SEC.

Question 73

Section 10(b)of the Securities Exchange Act prohibits the use of manipulative and deceptive devices in contravention of the rules and regulations prescribed by the SEC.

Question 74

Which of the following is true of the small offering exemption?

A)Securities coming under this exemption cannot be sold through general selling efforts to the public.
B)Securities coming under this exemption can only be sold to accredited investors.
C)Securities coming under this exemption can only be sold to nonaccredited investors.
D)Securities coming under this exemption have no resale restrictions imposed on them.

Question 75

An accredited investor is defined as a person who does not understand the risks involved in securities investment and will suffer considerable financial damage if the investment fails.

Question 76

In order to be found guilty for violation of Rule 10b-5,intentional conduct (scienter)must be proven.

Question 77

Which of the following best defines short-swing profits?

A)profits made by an insider by selling shares of the corporation before the public disclosure of unfavorable information
B)profits made by an insider by personally purchasing shares of the corporation before the public release of favorable information
C)profits made by a statutory insider on trades involving equity securities of his or her corporation that occur within six months of each other
D)profits made by a tippee by personally purchasing shares of the corporation either before or after the public release of favorable information

Question 78

Which of the following violates Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5?

A)nonexemption status
B)scienter
C)a lack of due care
D)negligence

Question 79

________ is a federal statute that permits the Securities and Exchange Commission (SEC)to obtain a civil penalty of up to three times the illegal benefits received from insider trading.

A)The Securities Act of 1933
B)The Securities Exchange Act of 1934
C)The Insider Trading Sanctions Act
D)SEC Rule 506

Question 80

Distinguish between the nonissuer exemption,the intrastate offering exemption,and the private placement exemption.