Question 1

Prior to the filing of a 1933 Act registration statement, the issuer may use a Rule 134 tombstone advertisement to make investors aware of the upcoming offering of securities.

Accepted Answer

Prior to the filing of a 1933 Act registration statement (the pre-filing period),the issuer and any other person may not offer or sell the securities to be registered.

Question 2

Rule 10b-5 relating to liability to false statements in filed documents applies to only those transactions in all securities, which are registered under the 1933 Act or the 1934 Act.

Accepted Answer

Rule 10b-5 applies to all securities transactions, regardless of whether or not they are registered under the 1933 or 1934 Act.

Question 3

Which of the following instruments is NOT considered as security?

Accepted Answer

The 1933 Act defines the term security broadly as: Unless the context otherwise requires the term "security" means any note,treasury stock,security future,bond,certificate of interest or participation in any profit-sharing agreement,… investment contract,voting trust certificate,… or,in general,any interest or instrument commonly known as a "security"….In 1990,the Supreme 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.Types of notes that are not securities include consumer notes,mortgage notes,and so on.

Question 4

The maximum penalty for any person who willfully violates the Securities Act of 1933 or its rules and regulations is a $20,000 fine and 10 years' imprisonment.

Accepted Answer

The maximum penalty for any person who willfully violates the Securities Act of 1933 or its rules and regulations is a $10,000 fine and five years' imprisonment.

Question 5

The most important elements for violation of Rule 10b-5 are misstatement or omission of material fact and negligence.

Accepted Answer

The most important elements for violation of Rule 10b-5 are a misstatement or omission of material fact and scienter, which is the intent to deceive, manipulate, or defraud, not negligence.

Question 6

The judicial branch of the SEC:

Accepted Answer

The judicial branch of the SEC, which includes administrative law judges and federal courts, exists to decide whether a person has violated securities laws. They do not make new laws or promulgate rules and regulations, and while they can bring enforcement actions, that is not their primary role.

Question 7

The Securities and Exchange Commission (SEC) was created by the:

Accepted Answer

The Securities and Exchange Commission (SEC) was created by the Securities Exchange Act of 1934. The other options refer to other acts that have been implemented and regulated by the SEC, but they do not pertain to the creation of the SEC itself.

Question 8

The state of Delaware has adopted business combination moratorium statutes to deter tender offers from being made.

Accepted Answer

The state of Delaware has adopted business combination moratorium statutes.These state statutes primarily affect the ability of large shareholders to effectuate a merger after a tender offer and,therefore,may have the effect of deterring hostile acquisitions.

Question 9

As per the 1934 Act, Section 16(a) prohibits statutory insiders from disclosing their ownership of their company's securities for the first 10 days of ownership.

Accepted Answer

Section 16(a)of the 1934 Act requires statutory insiders to disclose their ownership of their company's securities within 10 days of becoming owners.

Question 10

Under the Securities Act of 1933, the definition of a security excludes a promissory note that matures not more than nine months from the date of issuance.

Accepted Answer

The 1934 Securities Exchange Act definition of security is similar to that of the Securities Act of 1933,but the 1934 Act excludes notes and drafts that mature not more than nine months from the date of issuance.

Question 11

Securities Act Rule 506 requires an issuer to sell to no more than 35 accredited investors.

Accepted Answer

Rule 506 allows for an unlimited number of accredited investors and up to 35 non-accredited investors, as long as certain disclosure and other requirements are met.

Question 12

Section 5 of the 1933 Act provides an exemption from registration for transactions of securities by any person other than an issuer, underwriter, or dealer.

Accepted Answer

Section 4(a) (1)of the 1933 Act provides an exemption from registration for transactions of securities by any person other than an issuer,underwriter,or dealer.

Question 13

The SEC does NOT have the power to:

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 14

One of the two principal regulatory components of the 1933 Act is:

Accepted Answer

The 1933 Act's principal regulatory components are registration provisions and disclosure provisions. The registration provisions require companies to register their securities offerings with the Securities and Exchange Commission (SEC) before they can be sold to the public. The disclosure provisions require issuers to provide investors with certain information about the securities being offered and the company issuing them.

Question 15

Securities Exchange Act Rule 10b-5 liability attaches to anyone who trades in securities for personal profit using confidential information misappropriated in a breach of fiduciary duty owed to the source of the information.

Accepted Answer

This statement accurately describes the scope of liability under Rule 10b-5.

Question 16

As per the test laid down by the Supreme Court (in United States v. Chiarella), the definition of insiders includes not only officers and directors of the company but also anyone who has been entrusted with corporate information for a corporate purpose.

Accepted Answer

The answer of As per the test laid down by...

Question 17

The Sarbanes-Oxley Act of 2002 extends the statute of limitations to three years after discovery of facts constituting a violation of Section 11 of the 1933 Act and seven years after the violation.

Accepted Answer

The Sarbanes-Oxley Act of 2002 arguably extends the statute of limitations to two years after discovery of facts constituting a violation of Section 11 of the 1933 Act and five years after the violation.

Question 18

Section 11 of the 1933 Act provides civil liabilities for damages when a 1933 Act registration statement on its effective date misstates or omits a material fact.

Accepted Answer

Section 11 of the 1933 Act does indeed provide civil liabilities for damages when a registration statement on its effective date misstates or omits a material fact.

Question 19

An insurance policy is exempt from registration under the 1933 Act.

Accepted Answer

This statement is true. Insurance policies are exempt from registration under the 1933 Act, which is a federal law governing securities registration and disclosure.

Question 20

The ultimate purpose of the 1934 Act is to keep investors fully informed to allow them to make investment decisions when securities are sold by an issuer to investors.

Accepted Answer

The ultimate purpose of the 1934 Act is to keep investors fully informed to allow them to make intelligent investment decisions at any time.

Quiz 45: Securities Regulation