Question 1

The Securities Act of 1933 is concerned primarily with public distributions of securities.

Accepted Answer

The Securities Act of 1933 aims to protect investors by requiring public companies to disclose financial information before selling their securities to the public. It regulates the offer and sale of securities through the use of the prospectus and registration statements. Therefore, it is primarily concerned with public distributions of securities.

Question 2

One of the principal regulatory components of the 1933 Act is _____.

Accepted Answer

The 1933 Act has two principal regulatory components: (1) registration provisions and (2) antifraud provisions. The various antifraud provisions in the 1933 Act impose liability on sellers of securities for mistaking or omitting facts of material significance to investors.

Question 3

The executive branch of the Securities and Exchange Commission:

Accepted Answer

Like other federal administrative agencies, 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 statutes and their rules and regulations, and its judicial branch decides whether a person has violated the securities statutes.

Question 4

The classical theory of insider trading liability holds that a person violates Section 10(b) and Rule 10b-5 when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the individual from whom he learned of the information.

Accepted Answer

The answer of The classical theory of insider trading liability...

Question 5

The mandamus is the basic selling document of a 1933 Act registered offering.

Accepted Answer

The mandamus is not a selling document in a 1933 Act registered offering. The basic selling document is the prospectus.

Question 6

Securities of nonprofit issuers are exempted from the registration provisions of the 1933 Act.

Accepted Answer

This is true. Nonprofit issuers are exempted from the registration provisions of the 1933 Act if they meet certain requirements, such as being organized for religious, charitable, educational, or scientific purposes. However, the securities must still comply with anti-fraud provisions and state securities laws.

Question 7

An investment contract:

Accepted Answer

The term investment contract is broadly defined by the courts as an investment of money in a common enterprise with an expectation of profits from the efforts of others.

Question 8

Under the 1934 Act, any profit made by an insider is recoverable by the issuer if the profit resulted from the purchase and sale (or the sale and purchase) within less than a three-year period of any class of the issuer's equity securities.

Accepted Answer

Under the 1934 Act, specifically Section 16(b) of the Securities Exchange Act of 1934, any profit made by an insider is recoverable by the issuer if the profit resulted from the purchase and sale (or sale and purchase) within a six-month period, not a three-year period.

Question 9

Under the classical theory of insider trading liability, Section 10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information.

Accepted Answer

This is the definition of insider trading liability under the classical theory. Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 prohibit insider trading and make it illegal for anyone to use material, nonpublic information for trading purposes.

Question 10

If a manager of an unprofitable business induces shareholders to sell their stock to him by representing that the business will fail, although he knows that the business has become potentially profitable, he violates Rule 10b-5.

Accepted Answer

This scenario involves the manager making a material misstatement (representing that the business will fail) with knowledge of its falsity, in order to induce shareholders to sell their stock to him. This would be considered fraud and a violation of Rule 10b-5, which prohibits such conduct in connection with the purchase or sale of securities. The fact that the business has become potentially profitable is also significant, as it would likely be a material fact that shareholders would consider in deciding whether to sell their stock.

Question 11

Section 11 of the 1933 Act provides civil liabilities for damages resulting in an investor who finds, after purchasing the security, that the registration statement for the security contained an untrue statement or omitted a material fact.

Accepted Answer

Section 11 of the 1933 Act indeed provides civil liabilities for damages resulting in an investor who finds, after purchasing the security, that the registration statement for the security contained an untrue statement or omitted a material fact.

Question 12

Securities must be registered under the 1933 Act or the 1934 Act for Rule 10b-5 to apply.

Accepted Answer

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

Question 13

Which of the following statements is true of securities regulation?

Accepted Answer

The Securities and Exchange Commission (SEC) was created by the 1934 Act. The mandatory disclosure provision of the Securities Exchange Act of 1934 (1934 Act) requires periodic disclosures from issuers of securities.

Question 14

The 1933 Act does not require the issuer of securities to register the securities with the Securities and Exchange Commission (SEC) prior to their offer or sale to the public.

Accepted Answer

The 1933 Act requires issuers to register securities with the SEC prior to their offer or sale to the public, with certain exemptions available.

Question 15

Section 16(b) of the 1934 Act requires that insiders individually file a statement disclosing their holdings of any class of equity securities of the issuer.

Accepted Answer

Section 16(b) of the 1934 Act requires insiders to individually file a statement disclosing their holdings of any class of equity securities of the issuer.

Question 16

The Securities Act of 1933 is a one-time disclosure statute, although some of its liability provisions purport to cover all fraudulent sales of securities.

Accepted Answer

The Securities Act of 1933 requires issuers to make certain disclosures about securities being offered for sale, but it does not require ongoing reporting obligations. The liability provisions of the act can be used to pursue claims related to fraudulent sales of securities, even after the initial offering.

Question 17

The Securities Act of 1933:

Accepted Answer

The Securities Act of 1933 (1933 Act) is concerned primarily with public distributions of securities. Issuers selling securities publicly must make necessary disclosures at the time the issuer sells the securities to the public.

Question 18

The mandatory disclosure provision of the Securities Exchange Act of 1934 requires periodic disclosures from issuers of securities.

Accepted Answer

The mandatory disclosure provision of the Securities Exchange Act of 1934 does indeed require periodic disclosures from issuers of securities.

Question 19

Under Section 11 of the 1933 Act, the purchaser need not prove that the defendant negligently or intentionally misstated or omitted a material fact.

Accepted Answer

Section 11 of the 1933 Act provides for strict liability of the issuer, underwriter, and other relevant persons for any material misstatements or omissions in the registration statement. The burden of proof is on the defendant to prove that they conducted reasonable investigation and had reasonable grounds to believe that there were no untrue statements or omissions in the registration statement. The purchaser need not prove any intent or negligence on the part of the defendant.

Question 20

"These are the best securities you can buy" is an example of a per se fraudulent statement.

Accepted Answer

A per se fraudulent statement is one that is inherently misleading and cannot be reasonably relied upon by investors. The statement "These are the best securities you can buy" is an example of a per se fraudulent statement because it is an unqualified and unsubstantiated claim that cannot be reasonably relied upon by investors.

Quiz 31: Securities Regulation