Question 1

Securities that are exempt from SEC registration are also exempt from securities laws.

Accepted Answer

Exemption from SEC registration does not mean exemption from other securities laws such as anti-fraud provisions and state securities laws.

Question 2

Accredited investors often buy private placement securities through Small Corporate Offering Registration (SCORs),which can be as small as a $1 million offering.

Accepted Answer

Accredited investors can indeed buy private placement securities through Small Corporate Offering Registration (SCORs) which can be as small as a $1 million offering.

Question 3

The private placement exemption must be issued for all securities not sold on the public securities markets (such as the New York Stock Exchange).

Accepted Answer

The private placement exemption allows certain securities to be sold without being registered with the SEC, but it is not a requirement for all securities not sold on public markets. Other exemptions and regulations may apply depending on the situation.

Question 4

Accredited investors include institutions such as banks and insurance companies.

Accepted Answer

Accredited investors can include institutions such as banks and insurance companies, as well as high net worth individuals, certain trusts, and other entities that meet certain financial and regulatory criteria.

Question 5

Even if the initial sale of securities is exempt from SEC registration,the securities are never exempt from the securities law.

Accepted Answer

Just because a sale of securities is exempt from SEC registration, it does not mean that the securities are exempt from securities law altogether. There are still regulations and laws that apply to all securities transactions, regardless of whether or not they are registered with the SEC.

Question 6

Securities issued by well-known seasoned issuers do not have to be submitted to the SEC for staff review of the offering before being sold.

Accepted Answer

This is true. Well-known seasoned issuers (WKSIs) are companies that have met certain criteria and are considered to have a track record of financial reporting and disclosure. As such, they are eligible to take advantage of more flexible regulations, including the ability to sell securities without first submitting them to the SEC for staff review.

Question 7

Private placements under Rule 144A include large dollar security sales to big institutions.

Accepted Answer

Private placements under Rule 144A are typically sold to qualified institutional buyers, such as pension funds, insurance companies, and large investment firms. These sales often involve large dollar amounts, such as hundreds of millions or even billions of dollars.

Question 8

Accredited investors often buy private placement securities through Regulation D offerings.The SEC must be informed of such offerings.

Accepted Answer

This statement is true. Regulation D offerings allow issuers to sell securities to accredited investors without having to register with the SEC, but they must still inform the SEC of the offering through Form D.

Question 9

The SEC may require that information be released about the high-risk factors of a proposed security offering.

Accepted Answer

The SEC (Securities and Exchange Commission) does require that companies disclose high-risk factors associated with a proposed security offering in order to protect investors and provide transparency in the market. This information is typically included in the company's registration statement and prospectus.

Question 10

Under Rule 144A some U.S.and foreign securities are exempt from registration requirements for the sale of stocks and bonds.

Accepted Answer

Rule 144A provides an exemption to the registration requirements for the sale of certain U.S. and foreign securities, which allows for quicker and easier access to capital markets.

Question 11

Private placement offerings are most common for large security issues sold to institutional investors.

Accepted Answer

Private placement offerings are typically used to sell securities to a small number of accredited investors, rather than to the general public. While institutional investors may be included in this group, it is not necessarily true that private placements are most common for large security issues sold to institutions. Private placements may also be used for smaller security offerings or for sales to high net worth individuals.

Question 12

An individual who is classified as an accredited investor has a net worth of at least $1 million.

Accepted Answer

According to the Securities and Exchange Commission (SEC), an accredited investor is defined as an individual with a net worth of at least $1 million, excluding the value of their primary residence, or an individual with an annual income of at least $200,000 ($300,000 for a married couple) for the past two consecutive years with the expectation of earning a similar income in the current year.

Question 13

The investment banker who markets a new security offering is called an underwriter.

Accepted Answer

This statement is true. An underwriter is responsible for marketing and selling a new security offering to potential investors.

Question 14

Accredited investors are those presumed sophisticated and wealthy enough to evaluate investment opportunities without the benefit of an SEC-approved prospectus.

Accepted Answer

Accredited investors are considered to have sufficient wealth and experience to judge investment opportunities and are therefore exempted from certain SEC registration requirements.

Question 15

The costs of registering a new security offering with the SEC and marketing the securities to the public usually runs about $25,000.

Accepted Answer

The costs of registering and marketing a new security offering with the SEC vary widely and can reach millions of dollars depending on the size and complexity of the offering.

Question 16

Suppose Google sells $1 billion in new bonds to Northwest Mutual Life.That sale of securities will probably not have to be registered.

Accepted Answer

Private placements of securities, such as sales to a specific institutional investor like Northwest Mutual Life, are usually exempt from registration requirements under US securities laws.

Question 17

Accredited investors often buy private placement securities through Regulation D offerings.They receive a private-placement memorandum,which is similar to a prospectus,even though the security is not registered.

Accepted Answer

This statement is true. Accredited investors can purchase private placement securities through Regulation D offerings and receive a private-placement memorandum, which provides information about the investment opportunity even though the security is not registered.

Question 18

Securities issued by well-known seasoned issuers can use a free-writing prospectus that can be continuously updated on the Web.

Accepted Answer

This is true according to SEC Rule 433(d)(1)(ii). Well-known seasoned issuers are able to use a free-writing prospectus that is not filed with the SEC and can be updated continuously on the Web.

Question 19

SEC examiners of a proposed securities offering can issue a "deficiency letter" if they believe the information in a prospectus is not complete.However,if the issuer responds in a timely manner,the SEC cannot delay the sale.

Accepted Answer

If the issuer promptly responds to the deficiency letter and addresses the concerns, the SEC cannot delay the sale.

Question 20

Securities issued by WKSIs are subject to fewer SEC rules than other new offerings.

Accepted Answer

Securities issued by WKSIs (well-known seasoned issuers) are subject to fewer SEC rules than other new offerings because they are considered to have an established record of financial success and investor following. This allows them to benefit from a streamlined registration process and certain exemptions from disclosure requirements.

Quiz 21: Securities Regulation