Deck 41: Investor Protection, e-Securities, and Wall Street Reform

Question 1

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

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

Answer 1

A

Question 2

________ requires securities offered to the public through the use of the mails or any facility of interstate commerce to be registered with the 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

Answer 2

C

Question 3

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

Answer 3

A

Question 4

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 5

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

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

Question 6

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

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

Question 7

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 8

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 9

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

Question 10

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

Question 11

A "whistleblower bounty program" allows a person who provides information that leads to a successful SEC action to recover 10 percent to 30 percent of the monetary sanctions over $1 million recovered by the SEC.

Question 12

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

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

Question 13

Which of the following best defines an initial public offering?

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 sale of securities by an issuer to the public

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

A)fraud in the purchase and sale of securities
B)hedge funds and derivatives
C)reporting to the investors
D)the issuance of securities online

Question 19

A(n)________ refers to a document that an issuer of securities files with the 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 20

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

Question 21

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

Question 22

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 each share drops to $5.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 holds well in this context?

A)Scissorwire Inc. can register with the SEC at any point after the dip in shares.
B)The U.S. government can file a criminal lawsuit against Scissorwire Inc. to seek criminal penalties.
C)The investors have been negligent in not verifying registration before purchase of shares and cannot rescind their purchase.
D)Scissorwire Inc. is liable for the violation of the Securities Exchange Act of 1934.

Question 23

Small businesses can file ________ with the SEC if they plan on raising $1 million or less from the public issue of securities.

A)Form U-7
B)a registration statement
C)an operation agreement
D)a certificate of interest

Question 24

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

Question 25

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

Question 26

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

A)It imposes resale restrictions on the securities it offers.
B)It necessitates the issuers to prepare a registration statement for offers exceeding $100,000.
C)It requires the maximum disclosure of information to investors at the time of the issuance of the securities.
D)It mandates that an offering circular be provided to the investors prior to the purchase of securities.

Question 27

Which of the following is true of registration statements?

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

Question 28

Which of the following is true of Section 11 of the Securities Act of 1933?

A)It permits injured private parties to bring criminal action against fraudulent registration statements filed by issuers.
B)It imposes liability on those who are negligent in not discovering the fraud.
C)It allows an issuer to assert a due diligence defense against the imposition of Section 11 liability.
D)It cannot be imposed on cases involving negligent omission of a material fact in a registration statement.

Question 29

________ permits issuers to sell up to $5 million of securities to the public during a 12-month period,pursuant to a simplified registration with the SEC.

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 30

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

Question 31

A(n)________ is submitted along with the registration statement to the SEC and 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 32

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

Question 33

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

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

Question 34

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)date of termination of the initial public offering
D)maximum number of times a share can be sold post issue

Question 35

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

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

Question 36

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

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

Question 37

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

A)SCOR forms can only be used for raising more than $1 million through sale of securities.
B)SCOR forms are available to both domestic and foreign companies.
C)SCOR forms that have been completed act as the offering circular for potential investors.
D)SCOR forms have to be completed by the issuee before purchasing securities.

Question 38

________ is a provision of the Securities Act of 1933 that imposes civil liability on persons who intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement.

A)Section 24 of the Securities Act of 1933
B)Section 12 of the Securities Act of 1933
C)Section 11 of the Securities Act of 1933
D)SEC Rule 506

Question 39

Which of the following is true of Section 24 of the Securities Act of 1933?

A)It imposes civil liability on any person who violates the provisions of Section 5 of the act.
B)It imposes criminal liability on any person who willfully violates the 1933 act or the rules or regulations adopted.
C)It imposes civil liability on persons who intentionally defraud investors by making misrepresentations of material facts in the registration statement.
D)It exclusively regulates the sale of securities online.

Question 40

Investors who purchased unregistered securities can rescind their purchase but not recover damages.

Question 41

Section 12 of the Securities Act of 1933 provides purchasers who have been injured by securities pursuant to an unwarranted exemption to rescind the securities purchase.

Question 42

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

Question 43

Civil liability under Section 11 is imposed on issuers who are negligent in not discovering the fraud in their security offerings.

Question 44

A(n)________ is an exemption from registration that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC.

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

Question 45

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

Question 46

An issuer is permitted to assert a due diligence defense against the imposition of Section 11 liability.

Question 47

An issuer who plans on raising $1 million or less from the public must answer the questions on Form U-7,which then becomes the offering circular that must be given to prospective investors.

Question 48

Which of the following is true of small offering exemption?

A)Securities coming under this exemption cannot be advertised 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 bought by nonaccredited investors.
D)Securities coming under this exemption have no resale restrictions imposed on them.

Question 49

Electronic Data Gathering,Analysis,and Retrieval system (EDGA
R)is the world's largest electronic securities exchange.

Question 50

According to Regulation A,securities of up to $5 million can only be sold to accredited investors.

Question 51

Defendants cannot assert a due diligence defense against liabilities arising from the violation of Section 11 of the Securities Act of 1933.

Question 52

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 every time the exempt security is transferred.
D)Exempt securities cannot be traded publicly.

Question 53

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

Question 54

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

Question 55

A(n)________ is 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 SEC.

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

Question 56

The ________ is a federal statute that permits the SEC to obtain a civil penalty of up to three times the illegal benefits received from insider trading.

A)Securities Act
B)Securities Exchange Act
C)Insider Trading Sanctions Act
D)SEC Rule 506

Question 57

SEC Rule 506 is known as the ________.

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

Question 58

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

Question 59

Which of the following is an example of exempt securities?

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 60

Which of the following is enough to prove a violation of Section 10(b)and Rule 10b-5?

A)nonexemption status
B)scienter
C)aiding and abetting
D)negligent conduct

Question 61

________ 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 10b-5

Question 62

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

Question 63

Blue-sky laws are state laws that regulate the issuance and trading of securities.

Question 64

It is legal for a company employee to make a profit by personally purchasing shares of the corporation prior to public release of favorable information.

Question 65

List the securities exempt from registration with the SEC.

Question 66

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 67

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

Question 68

A 10 percent shareholder of an equity security of a reporting company is considered a statutory insider.

Question 69

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

Question 70

Which of the following constitutes insider trading?

A)an employee makes a profit by personally purchasing shares of the corporation prior to public release of favorable information
B)a manager purchases all 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 of the company to another employee without notice to the company

Question 71

Who among the following is considered a statutory insider?

A)Sharon Muller, an editor who was tipped by her friend to buy shares of KYU Corp.
B)Robert Morgan, a government employee who owns 10 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 72

A tipper cannot be held liable for the profits made by the tippee.

Question 73

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 74

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 75

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 76

What is insider trading? How is it regulated in the United States?

Question 77

State securities laws are often referred to as ________.

A)Howey laws
B)blue-sky laws
C)short-swing laws
D)tipper laws

Question 78

The ________ coordinates state securities laws with federal securities laws.

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

Question 79

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

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

Question 80

Which of the following best defines short-swing profits?

A)profits that are made by an insider by selling shares of the corporation prior to the public disclosure of unfavorable information
B)profits that are made by an insider by personally purchasing shares of the corporation prior to public release of favorable information
C)profits that are made by a statutory insider on trades involving equity securities of their corporation that occur within six months of each other
D)profits that are made by a tippee by personally purchasing shares of the corporation prior to or post public release of favorable information