Question 1

Hearings held by the SEC are held before a(n)________,who is an employee of the SEC.

Accepted Answer

The SEC is empowered to investigate violations of the 1933 Act and 1934 Act and to hold hearings to determine whether the acts have been violated.Such hearings are held before an administrative law judge (ALJ),who is an employee of the SEC.The administrative law judge is a finder of both fact and law.

Question 2

Section 12(a)(1)of the 1933 Act imposes liability on any person who violates the provisions of Section 5.Liability extends to any purchaser to whom an illegal offer or sale was made.Which of the following describes the purchaser's remedy?

Accepted Answer

Section 12(a) (1)of the 1933 Act imposes liability on any person who violates the provisions of Section 5.Liability extends to any purchaser to whom an illegal offer or sale was made.The purchaser's remedy is rescission of the purchase or damages if the purchaser has already resold the securities.

Question 3

Which of the following is not a basic purpose of either the Securities Act of 1933 or the Securities Exchange Act of 1934 as discussed in the text?

Accepted Answer

The Securities Act of 1933 and the Securities Exchange Act of 1934 have three basic purposes: to (1)require the disclosure of meaningful information about a security and its issuer to allow investors to make intelligent investment decisions; (2)impose liability on those persons who make inadequate and erroneous disclosures of information;and (3)regulate insiders,professional sellers of securities,securities exchanges,and other self-regulatory securities organizations.

Question 4

The Uniform Securities Act permits an issuer to register by coordination,which means the issuer:

Accepted Answer

The Uniform Securities Act permits an issuer to register by coordination which means an issuer can file the 1933 Act registration statement with the state securities administrator instead of filing a registration statement under the Securities Act of 1933 and a different one as required by state law.

Question 5

The legislative branch of the SEC:

Accepted Answer

The SEC has legislative,executive,and judicial functions.Its legislative branch promulgates rules and regulations;its executive branch brings enforcement actions against alleged violators of the securities statutes and their rules and regulations;its judicial branch decides whether a person has violated the securities laws.

Question 6

Which of the following was created in response to widespread misstatements and omissions in corporate financial statements?

Accepted Answer

The Sarbanes-Oxley Act was a response to widespread misstatements and omissions in corporate financial statements.

Question 7

The Supreme Court uses the family resemblance test developed in Reves v.Ernst & Young to determine whether:

Accepted Answer

In 1990,the Supreme Court adopted the family resemblance test from Reves v.Ernst & Young to determine whether promissory notes were securities.The Supreme Court held that it is inappropriate to apply the Howey test to notes.Instead,applying the family resemblance test,the Court held that notes are presumed to be securities unless they bear a "strong family resemblance" to a type of note that is not a security.

Question 8

The Supreme Court's Howey test defines ________ as an investment of money in a common enterprise with an expectation of profits solely from the efforts of others.

Accepted Answer

While typical securities like common shares,preferred shares,bonds,and debentures are defined as securities,the definition of a security also includes many contracts that the general public may believe are not securities.This is because the term investment contract is broadly defined by the courts.The Supreme Court's three-part test for an investment contract,called the Howey test,has been the guiding beacon in the area for more than 50 years.The Howey test states that an investment contract is an investment of money in a common enterprise with an expectation of profits solely from the efforts of others.

Question 9

Which of the following is correct concerning the Foreign Corrupt Practices Act (FCPA)?

Accepted Answer

The FCPA makes it a crime for any American firm-whether or not it has securities registered under the 1934 Act-to offer,promise,or make payments or gifts of anything of value to foreign officials and certain others.Directors,officers,employees,or agents participating in violations are liable for fines of up to $100,000 and prison terms of up to five years.Facilitating or grease payments are not prohibited by the FCPA.

Question 10

Which of the following can the SEC issue that directs a defendant to stop violating the securities laws and abstain from future violations?

Accepted Answer

The SEC has the power to impose civil penalties up to $500,000 and to issue cease and desist orders.A cease and desist order directs a defendant to stop violating the securities laws and to desist from future violations.The SEC does not have the power to issue injunctions;only courts may issue injunctions.

Question 11

Which of the following demonstrates the timeline of decision makers from the initial SEC hearing to the final appeal?

Accepted Answer

SEC hearings are held before an administrative law judge (ALJ),who is an employee of the SEC.The administrative law judge is a finder of both fact and law.Decisions of the ALJ are reviewed by the commissioners of the SEC.Decisions of the commissioners are appealed to the U.S.Court of Appeals.

Question 12

Which of the following statements about an SEC no-action letter is false?

Accepted Answer

Because a no-action letter is issued by the SEC's staff and not the commissioners,it is not binding on the commissioners.

Question 13

Rule ________ of the SEC prohibits insider trading on nonpublic corporate information.

Accepted Answer

Rule 10b-5 of the SEC prohibits insider trading on nonpublic corporate information.

Question 14

Criminal actions under the 1933 Act are brought by the ________.

Accepted Answer

Section 24 of the 1933 Act provides for criminal liability for any person who willfully violates the Act or its rules and regulations.The maximum penalty is a $10,000 fine and five years' imprisonment.Criminal actions under the 1933 Act are brought by the attorney general of the United States,not by the SEC.

Question 15

Provisions contained in the ________ impose new powers and responsibilities on the Securities and Exchange Commission,increase regulation of brokers and investment advisers,regulate asset-backed securities,require shareholder approval of executive compensation,and strengthen shareholder rights in director elections.

Accepted Answer

Provisions contained in the Dodd-Frank Act of 2010 impose new powers and responsibilities on the Securities and Exchange Commission,increase regulation of brokers and investment advisers,regulate asset-backed securities,require shareholder approval of executive compensation,and strengthen shareholder rights in director elections.

Question 16

In addition to an injunction,the SEC may also ask the courts to grant ________ relief,which may include the disgorgement of profits that a defendant has made in a fraudulent sale or in an illegal insider trading transaction.

Accepted Answer

The SEC may also ask the courts to grant ancillary relief,a remedy in addition to an injunction.Ancillary relief may include,for example,the disgorgement of profits that a defendant has made in a fraudulent sale or in an illegal insider trading transaction.

Question 17

The executive branch of the SEC:

Accepted Answer

The SEC has legislative,executive,and judicial functions.Its legislative branch promulgates rules and regulations;its executive branch brings enforcement actions against alleged violators of the securities statutes and their rules and regulations;its judicial branch decides whether a person has violated the securities laws.

Question 18

The "fraud-on-the-market-theory" used in some cases to establish liability under Rule 10b-5 of the Securities Act of 1934 is an indirect way of establishing which of the following elements of proof?

Accepted Answer

Under Rule 10b-5,private plaintiffs alleging damages caused by misstatements by the defendant must prove that they relied on the misstatement of material fact.Several courts have held that an investor's reliance on the availability of the securities on the market satisfies the reliance requirement of Rule 10b-5 because the securities market is defrauded as to the value of the securities.This fraud-on-the-market theory is based on the hypothesis that,in an open and developed securities market,the price of a company's stock is determined by the available material information regarding the company and its business.

Question 19

Which of the following is true about the Williams Act?

Accepted Answer

The aim of the Williams Act is to protect investors and to give the bidder and the subject company equal opportunities to present their cases to the shareholder.The intent is to encourage an auction of the shares with the highest bidder purchasing the shares.

Question 20

Instead of litigating an SEC action,the SEC often issues ________,by which the defendant promises not to violate the securities laws in the future but does not admit to having violated them in the past.

Accepted Answer

Most SEC actions are not litigated.Instead,the SEC issues consent orders,by which the defendant promises not to violate the securities laws in the future but does not admit to having violated them in the past.

Quiz 45: Securities Regulation

Hearings held by the SEC are held before a(n) ________,who is an employee of the SEC.

Section 12(a) (1) of the 1933 Act imposes liability on any person who violates the provisions of Section 5.Liability extends to any purchaser to whom an illegal offer or sale was made.Which of the following describes the purchaser's remedy?