Deck 45: Securities Regulation

Question 1

The JOBS Act requires the SEC to create a "crowdfunding exemption" that would allow companies to raise $1 million in any 12-month period.

Answer 1

True

Question 2

A registration statement sets forth the key information contained in the prospectus.

Answer 2

False

Question 3

Regulation D is commonly referred to as the "private placement exemption" and allows no more than 35 nonaccredited investors per offering.

Answer 3

True

Question 4

Under the 1990 Remedies Act, the SEC has the power to suspend all trading when markets are excessively volatile.

Question 5

The SEC requires that annual shareholder reports be submitted to shareholders in any proxy solicitation on behalf of management.

Question 6

The Securities Act of 1933 prohibits "bad investment" offerings to the public.

Question 7

The Securities Act of 1933 allows a emerging growth company (EGC) with less than $1 million in revenues to waive the prospectus requirement.

Question 8

The Securities Exchange Act of 1934 is concerned with the secondary distribution of securities in the national securities markets and in the over-the-counter markets.

Question 9

Under the Securities Act of 1933 a corporate bond would not be considered a security.

Question 10

Unless exempted, exchanges, brokers, and dealers who deal in the securities traded in interstate commerce must register with the SEC.

Question 11

The Securities Act of 1933 was created to deal with 'penny stocks' and 'pump and dump schemes'.

Question 12

One of the key elements in the Supreme Court's definition of an 'investment contract' is the right to a refund of the investment.

Question 13

The JOBS Act of 2012 expanded Regulation A to allow emerging enterprises to raise public capital efficiently and to allow more choices to investors through a simpler SEC registration process.

Question 14

At least 30 days must elapse from the date of a company's filing a registration statement with the SEC to the date the registration becomes effective.

Question 15

Companies whose securities are listed on a national securities exchange and unlisted companies with assets in excess of $10 million and 500 or more shareholders are exempt from the reporting requirements of the Securities Exchange Act of 1934.

Question 16

All private offerings of securities valued less than $100,000 are exempt from the SEC registration requirements.

Question 17

State blue sky laws typically deal with fraud and licensing.

Question 18

The Sarbanes-Oxley Act of 2002 contains a "clawback provision" which requires the CEO and CFO to reimburse the issuer for any bonus or incentive-based compensation received during the 12-month period following the issuance of the restated financial statements.

Question 19

Because of the widespread economic impact of the 2008 crisis, Congress passed The Dodd-Frank Act in 2012 to encourage investment in companies, especially smaller companies, by providing easier access of small firms to capital markets.

Question 20

The Sarbanes-Oxley Act of 2002 requires written certification of the 10-K and 10-Q reports by each company's CEO and CFO.

Question 21

The registration requirement of the Securities Act of 1933 applies to:

A) the issuing of stocks, bonds, and other investment securities.
B) the issuing of certificates of deposit by a national bank.
C) shares issued by nonprofit corporations.
D) issues of $1.5 million or more.

Question 22

Individuals who steal valuable nonpublic information in breach of a fiduciary duty to their employers and trade in securities on that information are guilty of insider trading as misappropriators.

Question 23

Under SEC rules, an investment attorney cannot be classified as a temporary insider.

Question 24

The ______ requires the SEC to create a(n) ______ exemption that would allow companies to raise $1 million in any 12-month period.

A) Rule 505, JOBS Act.
B) JOBS Act, accredited investor
C) Regulation A, JOBS Act.
D) JOBS Act, crowdfunding

Question 25

Forward looking statements, which involved SEC filings, press releases, and reports to shareholders, preserve the protections of the Private Securities Litigation Reform Act of 1995

Question 26

The Dodd-Frank Act authorizes the Federal Trade Commission to create a whistleblower program to encourage individuals to provide the SEC with information that would lead to the discovery and prosecution of violations of the federal securities laws.

Question 27

The Securities Act of 1933 act applies all of the following instruments and transactions except: ______.

A) stocks.
B) corporate bonds.
C) variable annuities.
D) cashier checks.

Question 28

Rule 10b-5 only applies to registered securities not sold in interstate commerce.

Question 29

Investors who lack inside information and have sold their stock during the relevant time period may recover damages from insiders who have made use of the undisclosed information.

Question 30

Any shareholder owning more than five (5) percent of any class of the corporation's equity securities is statutorily defined as an insider and must file with the SEC a disclosure statement regarding such ownership and all related transactions.

Question 31

A prospectus sets forth:

A) the key information contained in the registration statement.
B) information on stocks approved by the SEC.
C) information that the SEC has not reviewed.
D) information as to whether the investment is risk-free.

Question 32

Which exemption to registration requirements exempts offerings of less than $5 million to no more than 35 nonaccredited purchasers over a 12-month period?

A) Rule 504 exemption
B) Rule 505 exemption
C) Rule 506 exemption
D) Rule 507 exemption

Question 33

Which of the following federal laws grants the SEC the power to suspend all trading when markets are excessively volatile?

A) The Trust Indenture Act of 1939
B) The Market Reform Act of 1990
C) The Investment Advisors Act of 1940
D) The Remedies Act of 1990

Question 34

State statutes designed to protect the public from the sale of worthless stocks and bonds are called: ______.

A) antifraud acts.
B) blue sky laws.
C) investment contract laws.
D) pump and dump laws.

Question 35

The fraud-on-the-market theory creates a presumption of securities fraud based on plaintiff's reliance on defendant's misrepresentations which affected the market price of the company's shares.

Question 36

Federal regulation of the sale of securities is based on the:

A) Securities Act of 1933 and the Securities Exchange Act of 1934.
B) Securities Act of 1933 and the Federal Trade Act of 1936.
C) Federal Trade Act of 1936 and the Blue Sky Act of 1933.
D) Fair Stock Act of 1932 and the Investment Securities Act of 1934.

Question 37

All of the following are elements of an "investment contract" except: ______.

A) an investment of money
B) a common enterprise
C) an expectation of future profits
D) a money-back guarantee

Question 38

In a 10b-5 situation, the plaintiff must show "reliance" on the misrepresentation and a resulting injury.

Question 39

The registration process under Section 5 of the 1933 act is divided into three time periods. In order, they are:

A) waiting, prefiling, and posteffective.
B) waiting, prefiling, and executory.
C) prefiling, waiting, and posteffective.
D) prefiling, executory, and posteffective.

Question 40

A "short-swing" profit is realized by a corporate insider from selling corporate securities less than one (1) year after purchase.

Question 41

The Private Securities Litigation Reform Act allows shelters from private liability for issuers who: ______.

A) clawback profits.
B) issue a prospectus.
C) issue statements regarding fraud-on-the-market.
D) use forward-looking statements.

Question 42

An unlawful sale under the Insider Trading Sanctions Act of 1984 can result in a civil penalty of up to how many times the profit gained or loss avoided?

A) two (2)
B) three (3)
C) four (4)
D) five (5)

Question 43

Under Regulation D, Rule 506, sales may be made to:

A) an unlimited number of accredited investors
B) an unlimited number of unaccredited investors
C) no more than 500 accredited investors
D) no more than 35 unaccredited investors

Question 44

Which of the following acts was passed to ensure that public shareholders faced with a cash tender offer would not be required to respond without sufficient information?

A) the Mann Act
B) the Robinson-Patman Act
C) the Williams Act
D) the SEC Act

Question 45

A __________ insider is someone retained by the corporation for professional services, such as an attorney, accountant, or investment banker.

A) professional
B) corporate
C) temporary
D) virtual

Question 46

An individual who receives information from an insider or temporary insider is called a:

A) tippee.
B) tipper.
C) de facto insider.
D) virtual insider.

Question 47

The Securities Exchange Act of 1934 deals with the __________ distribution of securities.

A) primary
B) secondary
C) aftermarket
D) direct

Question 48

All of the following are true regarding SEC Rule 10b-5 except: ______.

A) 10b-5 is the principal antifraud rule relating to the secondary distribution of securities.
B) 10b-5 provides that a civil action for damages may be brought by any private investor who purchased or sold a security and was injured because of false, misleading, or undisclosed information.
C) 10b-5 applies to all securities, whether registered or not, as long as use is made of the mail, interstate commerce, or a national stock exchange.
D) 10b-5 does not require a plaintiff to show reliance on the misrepresentations.

Question 49

A corporation or group of investors may seek to acquire control of another corporation by offering cash for all of its shares made available for sale by a certain date. This action is called a(n): ______.

A) cash tender offer.
B) stock redemption offer.
C) stock reclamation offer.
D) offer for value.

Question 50

Individuals who steal valuable nonpublic information in breach of a fiduciary duty to their employer and trade in securities on that information are guilty of insider trading as: ______.

A) aiders and abettors.
B) temporary insiders.
C) tippees.
D) misappropriators.

Question 51

Mark Hubbard has been very successful in the cattle business over a number of years. Hubbard has decided to establish a cattle program as an investment tool. He will purchase cattle with investors' money and then provide medical care, feed, and transportation on a service contract basis. The profits then will be divided proportionately among the investors. An investment company, Money Ventures, Inc., is interested in the entire offering of Hubbard's cattle program. Hubbard is unsure as to whether the securities acts apply to him. In addition, he wonders whether his venture, as structured, is exempt if the activity is within the securities acts. Should Hubbard be concerned?

Question 52

Taylor, a securities lawyer for a major Wall Street law firm, worked on numerous successful takeover bids of companies listed on the New York Stock Exchange. Prior to the public announcement of the takeover bids, Taylor provided information to Rogers (his stockbroker) and to Price (his mistress) about certain planned takeover bids on which he had provided legal services. Rogers, who was aware of the relationship between Taylor and Price, made purchases of the target companies on Rogers' and Price's behalf, netting them more than a million dollars in profits each. The SEC brings an action against Taylor, Rogers, and Price under Rule 10b-5 and the Insider Trading Sanctions Act of 1984. Taylor defends that he is an outsider not subject to the 1984 law and Rule 10b-5, and that he received no personal benefit. Rogers and Price defend that they were merely acting on stock market tips received from a person who did not personally benefit from the disclosure. Decide.

Question 53

Bart and his brother-in-law, Ted, owned a small corporation. Ted was basically an investor, and Bart ran the entire business. As Ted became increasingly remote from day-to-day operations, Bart began to falsify some records so that Bart could take a greater share of the profits. This continued for years with Bart mailing falsified financial statements to Ted. When Bart suddenly became ill, Ted was forced to assume a greater role in the business on a temporary basis. During this time, Ted discovered the past deceptions and sued Bart under Rule l0b-5 of the Securities Exchange Act of 1934. Bart defended on the procedural ground that the business was local and had never been involved in interstate transactions of any kind. Moreover, the corporation was not listed on any stock exchange, nor did it have assets in excess of $10 million or 500 or more shareholders. Comment on the outcome of this case.