Deck 41: Corporations: Securities and Investor Protection

Question 1

A security includes all but which of the following?

A) stocks and bonds
B) Debentures
C) warrants
D) checks
E) oil and gas interests

Answer 1

D

Question 2

[Wrongful Discharge] Monique worked as an administrative assistant for B&B Corporation. According to paragraph 16 of B&B's employee handbook's progressive discipline policy, an employee whose performance is unsatisfactory may be discharged if no improvement is shown within thirty days after receiving a written warning. Monique was having difficulty learning the software program required for her job. On July 1, she met with her supervisor, who told her that her performance needed improvement and gave her a written warning which referenced paragraph 16 of the employee handbook. Monique stayed up late each night trying to learn the new program. She was away from her job for one week for jury duty. On her return to work from jury duty on July 20, Monique was terminated for poor performance. Monique called B&B's Human Resources Department, but was told she has no case for wrongful discharge because she was an employee-at-will and can be terminated at any time for any reason.
If a violation of federal securities laws is serious enough to merit criminal prosecution, the Fraud

Answer 2

False

Question 3

Government did not regulate securities prior to the Great Depression, and fraudulent transactions were common.

Answer 3

True

Question 4

Which is the correct term for the practice of an owner of a particular stock telling other investors about the virtues of the stock, which artificially increases the demand for the stock and causes an increase in the price, only to sell it for a quick profit?

A) Pumping and dumping
B) Marketing and selling
C) Pushing and pulling
D) Increasing and decreasing
E) Inflating and deflating

Question 5

Which of the following is true regarding examples of securities?

A) Debentures, warrants, bonds, and stocks are all securities.
B) Warrants and stocks are securities, but debentures and bonds are not.
C) Stocks, warrants, and bonds are securities, but debentures are not.
D) Stocks, warrants, and debentures are securities, but bonds are not.
E) Stocks and bonds are securities, but debentures and warrants are not.

Question 6

SEC regulations do not apply to online advertising and security transactions.

Question 7

If Danbondson Corporation wants to expand, it can issue ________, stocks and bonds issued by corporations to raise capital.

A) temperaments
B) securities
C) options
D) funding securities
E) agreement bonds

Question 8

[Wrongful Discharge] Monique worked as an administrative assistant for B&B Corporation. According to paragraph 16 of B&B's employee handbook's progressive discipline policy, an employee whose performance is unsatisfactory may be discharged if no improvement is shown within thirty days after receiving a written warning. Monique was having difficulty learning the software program required for her job. On July 1, she met with her supervisor, who told her that her performance needed improvement and gave her a written warning which referenced paragraph 16 of the employee handbook. Monique stayed up late each night trying to learn the new program. She was away from her job for one week for jury duty. On her return to work from jury duty on July 20, Monique was terminated for poor performance. Monique called B&B's Human Resources Department, but was told she has no case for wrongful discharge because she was an employee-at-will and can be terminated at any time for any reason.
The SEC issues opinions regarding the worth of securities.

Question 9

Which of the following is false regarding the Mexican Securities Market?

A) Existing laws permit non-Mexican entities to issue securities.
B) Existing laws do not limit investments in securities outside Mexico by Mexican individuals or companies.
C) The Mexican Stock Exchange is a private sector corporation owned and operated by authorized brokerage dealers.
D) The Mexican Stock Exchange requires that dealers complete all transactions on a cash basis and settle them within a 48-hour period.
E) The National Security Commission (CNV) regulates public offerings and securities trading.

Question 10

Executive officers are not considered statutory insiders under the Securities Exchange Act of 1934.

Question 11

Laws that regulate interstate securities are called blue-sky laws.

Question 12

[Wrongful Discharge] Monique worked as an administrative assistant for B&B Corporation. According to paragraph 16 of B&B's employee handbook's progressive discipline policy, an employee whose performance is unsatisfactory may be discharged if no improvement is shown within thirty days after receiving a written warning. Monique was having difficulty learning the software program required for her job. On July 1, she met with her supervisor, who told her that her performance needed improvement and gave her a written warning which referenced paragraph 16 of the employee handbook. Monique stayed up late each night trying to learn the new program. She was away from her job for one week for jury duty. On her return to work from jury duty on July 20, Monique was terminated for poor performance. Monique called B&B's Human Resources Department, but was told she has no case for wrongful discharge because she was an employee-at-will and can be terminated at any time for any reason.
In Sweden, banks oversee the issuance of shares and bonds themselves.

Question 13

The average investor does not have to register securities when he or she wants to sell.

Question 14

A person who violates the 1933 Securities Act can be fined and sent to prison for up to 5 years.

Question 15

Before filing a registration statement and prospectus with the SEC, an issuer cannot make any offers to sell securities.

Question 16

An investor is entitled to bring a civil suit to recover his or her losses if the investor purchased securities and suffered damages as a result of an issuer's false or misleading statement.

Question 17

The SEC may issue bounty payments to insider-trading whistle-blowers.

Question 18

Issuers are subject to either federal securities regulations or state securities laws, known as blue-sky laws, but not both.

Question 19

In most situations, an issuer of securities usually files a written registration statement and a prospectus with the SEC.

Question 20

Any security offered or sold to a permanent resident of the single state where the issuer of the security resides and does business is exempt under the 1933 act.

Question 21

Which of the following permits the SEC to exempt persons, securities, and transactions from securities regulations?

A) The Sarbanes-Oxley Act of 2002
B) The Securities Acts Amendments of 1990
C) The Market Reform Act of 1990
D) The Securities Enforcement Remedies and Penny Stock Reform Act of 1990
E) The National Securities Markets Improvement Act of 1996

Question 22

When does a waiting period begin?

A) When an issuer files a registration but is waiting to issue the prospectus
B) Once an issuer files a registration statement and prospectus
C) When the SEC is made aware that a company wants to issue stocks
D) It depends on the state statutes where the stock will be issued.
E) 30 days after a registration statement and prospectus are filed.

Question 23

________ is how the five individuals of the Securities and Exchange are selected.

A) Presidential appointment
B) Popular vote
C) Two-thirds vote of the Senate
D) A majority of state governors
E) The head of the IRS

Question 24

Which of the following regulates how companies issue securities?

A) The Securities Act of 1933
B) The Securities Exchange Act of 1934
C) The Depression Act of 1932
D) The Oversight Act of 1935
E) The Stock and Bond Act of 1930

Question 25

Which of the following is true regarding exempt transactions?

A) Limited offers, intrastate issues, and resales of securities are all exempt transactions.
B) Intrastate issues and limited offers are exempt transactions, but resales of securities are not.
C) Resales of securities and intrastate issues are exempt transactions, but limited offers are not.
D) Limited offers and resales of securities are exempt transactions, but intrastate issues are not.
E) Limited offers are exempt transactions, but intrastate issues and resales of securities are not.

Question 26

During the waiting period, the issuer may publish a(n) ________, a brief ad with a format similar to that of a tombstone.

A) Temperament advertisement
B) special offering
C) unsolicited offering
D) approved offering
E) tombstone advertisement

Question 27

Securities and Exchange Commission members serve ________.

A) five-year terms.
B) as long as the president allows.
C) for an eight-year time commitment.
D) as long as the US Supreme Court allows them to serve.
E) life appointments.

Question 28

Which of the following created SEC oversight over the Public Company Accounting Oversight Board to regulate public accounting firms?

A) The Sarbanes-Oxley Act of 2002
B) The Securities Acts Amendments of 1990
C) The Market Reform Act of 1990
D) The Securities Enforcement Remedies and Penny Stock Reform Act of 1990
E) The National Securities Markets Improvement Act of 1996

Question 29

________ are profits made from the sale of company stock by a statutory insider within any six-month period.

A) Short-term profits
B) Short-swing profits
C) Insider profits
D) Bounty payments
E) Tippee payments

Question 30

________ is the period that begins when an issuer starts to think about issuing securities and ends when the issuer files the registration statement and prospectus with the SEC.

A) The initial filing period
B) The beginning filing period
C) The prefiling period
D) The required filing period
E) The waiting period

Question 31

Which of the following allows the SEC to suspend securities trading if prices vary excessively in a short time period?

A) The Sarbanes-Oxley Act of 2002
B) The Securities Acts Amendments of 1990
C) The Market Reform Act of 1990
D) The Securities Enforcement Remedies and Penny Stock Reform Act of 1990
E) The National Securities Markets Improvement Act of 1996

Question 32

Which of the following is true regarding federal acts regulating securities transactions?

A) The Securities Act of 1933, the Securities Exchange Act of 1934, and the Anti-Fraud Securities Act of 2001 are all federal acts regulating securities transactions.
B) The Securities Exchange Act of 1934 and the Securities Act of 1933 are federal acts regulating securities transactions, but the Anti-Fraud Securities Act of 2001 is not.
C) The Anti-Fraud Securities Act of 2001 and the Securities Exchange Act of 1934 are federal acts regulating securities transactions, but the Securities Act of 1933 is not.
D) The Anti-Fraud Securities Act of 2001 and the Securities Act of 1933 are federal acts regulating securities transactions, but the Securities Exchange Act of 1934 is not.
E) The Securities Act of 1933 is a federal act regulating securities transactions, but the Securities Exchange Act of 1934 and the Anti-Fraud Securities Act of 2001 are not.

Question 33

The Securities and Exchange Commission is headed by ________?

A) 5 individuals
B) Congress
C) States
D) A commission of Congress
E) the President

Question 34

The Securities and Exchange Act oversees ________.

A) the purchase and sale of securities.
B) the right of banks to issue stocks.
C) the right of people to sue the federal government for bad stock trades.
D) the way stocks and bonds are selected for the New York Stock Exchange.
E) the right of the FDIC to control a bank.

Question 35

Which of the following begins when the SEC declares the registration statement effective, and ends when the issuer sells all securities offered or withdraws them from sale?

A) The posteffective period
B) The acknowledgement period
C) The approved period
D) The sell period
E) The investment period

Question 36

Which of the following terms is associated with an investment banking firms that purchases securities from an issuing corporation with the intent of selling them to brokerage houses?

A) Underwriters
B) Bank credit writers
C) Issue writers
D) Public purchasers
E) Purchasers of stock

Question 37

The Securities and Exchange Commission was created by which of the following acts?

A) The Securities Act of 1933
B) The Securities Exchange Act of 1934
C) The Exchange Commission Act of 1932
D) The Oversight Act of 1935
E) The Stock and Bond Act of 1930

Question 38

Which of the following is known as a prospectus with a warning written in red print at the top of the page warning investors registration is complete with the SEC but the SEC has not yet approved the registration?

A) Blue law disclosure
B) Red-herring
C) Red-line disclosure
D) Registration redline
E) Black listed

Question 39

Which of the following permits the SEC to seek punishment of violators of foreign securities laws?

A) The Sarbanes-Oxley Act of 2002
B) The Securities Acts Amendments of 1990
C) The Market Reform Act of 1990
D) The Securities Enforcement Remedies and Penny Stock Reform Act of 1990
E) The National Securities Markets Improvement Act of 1996

Question 40

Which of the following terms means that qualified issuers can register securities that they will sell "off the shelf" on a delayed or continuous basis in the future?

A) Shelf delayed securities
B) Registrations off the shelf
C) Determined registrations
D) Shelf registrations
E) Delayed Filings

Question 41

Which of the following, if any, is a securities regulation term that would describe Annaliese as an investor?

A) Approved
B) Sophisticated
C) Accredited
D) Superior
E) There is no specific term to describe Annaliese, as she is considered the same as any other investor.

Question 42

Which of the following is not considered an accredited investor?

A) Any natural person whose annual income has been at least $200,000 for the two previous years and expects to make at least $200,000 in the current year.
B) Any corporation or partnership with total assets in excess of $5 million.
C) Insiders of the issuers, such as executive officers or directors.
D) Colleges and universities.
E) Any natural person who has a net worth of at least $500,000.

Question 43

[In Trouble] Isaiah, an issuer of stock, may be in trouble. He sold stock in a new health club venture before the effective date of registration. He did so because he was in financial trouble due to other projects. Isaiah thought that the health club venture would be such a success that he would never get caught. Unfortunately, he was wrong. The health club venture has significant problems, and investors are looking for some way to hold Isaiah responsible. Another problem Isaiah has is that he inflated information regarding the prospects of the health club in the prospectus. Rafal, a new lawyer, told Isaiah that as far as he knew, Isaiah could be fined for violations under the Securities Act of 1933, but he could not be sent to prison. Isaiah told Rafal that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture. Isaiah says that he plans to rely on the due diligence defense. Isaiah also asks Rafal if he is aware of any other defenses. Isaiah says that once before he was held liable for a violation of the Securities Act of 1933, and he does not want to be in trouble again.
Is Rafal correct in that the SEC would have no authority to send Isaiah to prison?

A) Rafal is correct because there are no criminal penalties for violating the 1933 act.
B) Rafal is incorrect because the SEC criminally prosecutes some violators although the action would only be a misdemeanor.
C) Rafal is correct in that the SEC itself would not send Isaiah to prison, but the SEC could recommend criminal action to the Department of Justice resulting in imprisonment for up to five years for a violation.
D) Rafal is incorrect because the SEC criminally prosecutes some violators, and a violation of the act is considered a felony.
E) Rafal is correct in that the SEC itself would not send Isaiah to prison, but the SEC could recommend criminal action to the Federal Bureau of Investigation resulting in imprisonment for up to ten years for a violation.

Question 44

Which of the following is true regarding the case opener, the case in which Martha Stewart was charged with insider trading after selling stock in a company based on information that her stockbroker gave her that the CEO of the company and his daughter had just sold all of their company stock?

A) She was not convicted of insider trading and sentenced to prison.
B) After a jury trial she was found innocent of insider trading and did not go to prison for anything.
C) She was not convicted of insider trading, but she went to prison for convictions relating to statements made to SEC investigators.
D) She pled guilty to lesser offenses on all counts, paid a large fine, and all charges were dismissed.
E) Charges were dismissed after she agreed to repurchase all shares of stock.

Question 45

[Presidential Profits] Aurelia was president of a publicly traded tractor company, Tough Tractors. Aurelia became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made. Before the news was made public, Aurelia immediately purchased a significant number of shares in Tough Tractors. Aurelia also told her friend Johan about the contract to purchase assets although she told him to keep it quiet because it had not been made public yet. Nevertheless, unable to keep a secret, Johan told his brother, Charlie. Johan and Charlie purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement was made and the purchase of assets went through, Aurelia, Charlie, and Johan all sold their shares in Tough Tractors and made a nice profit.
By purchasing the shares after she found out about the merger, in which of the following prohibited practices, if any, was Aurelia engaged?

A) Insider trading
B) Outlaw trading
C) Presidential trading
D) Officer profiting
E) She did not engage in any prohibited practices because as president, she had the legal right to profit from the upcoming sale.

Question 46

[Presidential Profits] Aurelia was president of a publicly traded tractor company, Tough Tractors. Aurelia became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made. Before the news was made public, Aurelia immediately purchased a significant number of shares in Tough Tractors. Aurelia also told her friend Johan about the contract to purchase assets although she told him to keep it quiet because it had not been made public yet. Nevertheless, unable to keep a secret, Johan told his brother, Charlie. Johan and Charlie purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement was made and the purchase of assets went through, Aurelia, Charlie, and Johan all sold their shares in Tough Tractors and made a nice profit.
Considering Aurelia provided information about the asset sale to Johan, which of the following terms best describes Aurelia's role?

A) Tipper
B) Provider
C) Providee
D) Tippee
E) There is no descriptive term for Aurelia because she did nothing wrong.

Question 47

[Coffee Shops] Marley wants to open a chain of coffee shops but needs some investors. Her friend Marc tells her that she should be sure that she satisfies the requirements of the SEC. Marc tells her that she has to provide information to the SEC involving a description of the securities, an explanation of how proceeds will be used, information regarding the management of the company and other matters. He tells her that she also has to provide a document to the SEC that will be provided as an advertising tool to potential investors who can rely on it to decide whether they should buy the securities. Marley says that she does not want to do that. She explains to Marc that insofar as the coffee shop venture is concerned, she does not want to advertise, and she only wants to offer securities to a limited number of wealthy friends. Particularly, she has her friend Annaliese in mind, who has a net worth of at least $3 million.
Which of the following is the term for the document referenced by Marc which contains information provided to the SEC including a description of the securities, an explanation of how proceeds will be used, information regarding the management of the company and other matters?

A) Marc was wrong, and there is no such document.
B) A confirmation statement.
C) A registration statement.
D) An acknowledgement statement.
E) A reference statement.

Question 48

[In Trouble] Isaiah, an issuer of stock, may be in trouble. He sold stock in a new health club venture before the effective date of registration. He did so because he was in financial trouble due to other projects. Isaiah thought that the health club venture would be such a success that he would never get caught. Unfortunately, he was wrong. The health club venture has significant problems, and investors are looking for some way to hold Isaiah responsible. Another problem Isaiah has is that he inflated information regarding the prospects of the health club in the prospectus. Rafal, a new lawyer, told Isaiah that as far as he knew, Isaiah could be fined for violations under the Securities Act of 1933, but he could not be sent to prison. Isaiah told Rafal that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture. Isaiah says that he plans to rely on the due diligence defense. Isaiah also asks Rafal if he is aware of any other defenses. Isaiah says that once before he was held liable for a violation of the Securities Act of 1933, and he does not want to be in trouble again.
Which of the following, if any, may be defenses for Isaiah?

A) For any alleged violations, Isaiah could raise the defense that a plaintiff was aware of the omission or false statement when the security was purchased; but no defense is available based on the theory that omitted or false statements were immaterial to the sale of the security.
B) For any alleged violations Isaiah could raise the defenses that a plaintiff was aware of the omission or false statement when the security was purchased, and that any omitted or false statement was immaterial to the sale of the security.
C) Except for the violation of selling securities before the effective registration date, Isaiah could raise the defense that a plaintiff was aware of the omission or false statement when the security was purchased; but no defense is available based on the theory that omitted or false statements were immaterial to the sale of the security.
D) Except for the violation of selling securities before the effective registration date, Isaiah could raise the defenses that a plaintiff was aware of the omission or false statement when the security was purchased, and that any omitted or false statement was immaterial to the sale of the security.
E) No defenses are available to Isaiah because he had already been held liable to the SEC once.

Question 49

[In Trouble] Isaiah, an issuer of stock, may be in trouble. He sold stock in a new health club venture before the effective date of registration. He did so because he was in financial trouble due to other projects. Isaiah thought that the health club venture would be such a success that he would never get caught. Unfortunately, he was wrong. The health club venture has significant problems, and investors are looking for some way to hold Isaiah responsible. Another problem Isaiah has is that he inflated information regarding the prospects of the health club in the prospectus. Rafal, a new lawyer, told Isaiah that as far as he knew, Isaiah could be fined for violations under the Securities Act of 1933, but he could not be sent to prison. Isaiah told Rafal that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture. Isaiah says that he plans to rely on the due diligence defense. Isaiah also asks Rafal if he is aware of any other defenses. Isaiah says that once before he was held liable for a violation of the Securities Act of 1933, and he does not want to be in trouble again.
Which of the following is true regarding Isaiah's plan to rely on the due diligence defense?

A) He will be able to do so only if he can establish that the purchasers would have had reasonable grounds to question the registration statement had they reviewed it with due diligence.
B) He will be able to do so only if he can establish that the purchasers would have had reasonable grounds to question the prospectus had they reviewed it with due diligence.
C) He will be able to do so if he can establish that the purchasers would have had reasonable grounds to question either the registration statement or the prospectus had they reviewed them with due diligence.
D) He will not be able to use that defense unless he can establish that he reviewed the registration statement and the prospectus, and had reasonable grounds to believe that the registration statement was accurate with no omission of material facts.
E) He will not be able to rely on that defense because he is an issuer.

Question 50

[Coffee Shops] Marley wants to open a chain of coffee shops but needs some investors. Her friend Marc tells her that she should be sure that she satisfies the requirements of the SEC. Marc tells her that she has to provide information to the SEC involving a description of the securities, an explanation of how proceeds will be used, information regarding the management of the company and other matters. He tells her that she also has to provide a document to the SEC that will be provided as an advertising tool to potential investors who can rely on it to decide whether they should buy the securities. Marley says that she does not want to do that. She explains to Marc that insofar as the coffee shop venture is concerned, she does not want to advertise, and she only wants to offer securities to a limited number of wealthy friends. Particularly, she has her friend Annaliese in mind, who has a net worth of at least $3 million.
Which of the following is the term for the document referenced by Marc to be provided to the SEC that will be used as an advertising tool to potential investors who can rely on it to decide whether they should buy securities?

A) An advertising statement
B) A prospectus
C) An inventory
D) A proposed income statement
E) A securities advertisement

Question 51

________ are profits made from the sale of company stock within a six-month period by a statutory insider to the company.

A) Short-swing profits
B) Short-term profits
C) Insider traded profits
D) Profiteering profits
E) Contemplated profits

Question 52

[Presidential Profits] Aurelia was president of a publicly traded tractor company, Tough Tractors. Aurelia became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made. Before the news was made public, Aurelia immediately purchased a significant number of shares in Tough Tractors. Aurelia also told her friend Johan about the contract to purchase assets although she told him to keep it quiet because it had not been made public yet. Nevertheless, unable to keep a secret, Johan told his brother, Charlie. Johan and Charlie purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement was made and the purchase of assets went through, Aurelia, Charlie, and Johan all sold their shares in Tough Tractors and made a nice profit.
Considering Johan received the information from Aurelia and acted upon it by purchasing stock, which of the following terms best describes Johan's role?

A) Tipper
B) Provider
C) Providee
D) Tippee
E) There is no descriptive term for Johan because he did nothing wrong

Question 53

[In Trouble] Isaiah, an issuer of stock, may be in trouble. He sold stock in a new health club venture before the effective date of registration. He did so because he was in financial trouble due to other projects. Isaiah thought that the health club venture would be such a success that he would never get caught. Unfortunately, he was wrong. The health club venture has significant problems, and investors are looking for some way to hold Isaiah responsible. Another problem Isaiah has is that he inflated information regarding the prospects of the health club in the prospectus. Rafal, a new lawyer, told Isaiah that as far as he knew, Isaiah could be fined for violations under the Securities Act of 1933, but he could not be sent to prison. Isaiah told Rafal that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture. Isaiah says that he plans to rely on the due diligence defense. Isaiah also asks Rafal if he is aware of any other defenses. Isaiah says that once before he was held liable for a violation of the Securities Act of 1933, and he does not want to be in trouble again.
Which of the following is true regarding Isaiah's sale of securities before the effective date of registration?

A) He will be able to avoid liability if he can establish the due diligence defense.
B) He will be able to avoid liability if he can establish that the investors who purchased stock early were aware that the securities were sold before the effective date of registration.
C) He will be able to avoid liability if he can establish that the sales before the effective date did not directly result in any losses to investors.
D) It is not a violation of the securities laws.
E) He will almost certainly be liable because the 1933 act provides no defenses for that violation.

Question 54

Assuming requirements are satisfied, which of the following, if any, may allow Marley to avoid registration with the SEC if she proceeds with her plan to offer securities only to friends without advertisement?

A) The limited exemption
B) The accredited exemption
C) The unadvertised exemption
D) The private placement exemption
E) There is no such exemption to registration requirements

Question 55

The Private Securities Litigation Reform Act of 1995, provides a(n) ________ from liability for publicly held issuers who make financial forecasts as long as the forecasts are accompanied by meaningful cautionary statements.

A) safe harbor
B) investment prospectus
C) immunity clause
D) limited reprieve
E) protection incentive

Question 56

A(n) ________ is a person who controls, is controlled by, or is in common control with the issuer.

A) affiliate
B) associate
C) partner
D) intervenor
E) trainer

Question 57

Which of the following is not a requirement for the application of the exemption involving intrastate issues?

A) Issuers must do at least 80 percent of their business within the state.
B) Issuers must have at least 80 percent of their assets within the state.
C) Issuers must plan to use at least 80 percent of the profits within the state.
D) Issuers must have their main offices in the state.
E) Issuers must conduct at least 80 percent of advertising in the state.

Question 58

To prevent exploitation of ________, Congress passed the Investment Company Act of 1940.

A) small investors
B) large investors
C) state governments
D) federal government agencies
E) the Securities and Exchange Commission

Question 59

The term associated with state securities laws is known as ________.

A) state investor laws
B) blue-sky laws
C) red-line laws
D) security-by-state laws
E) blacklist laws

Question 60

The Securities Litigation Uniform Standards Act of 1998 limits what?

A) The ability of a state to bring a class action law suit
B) Officers and directors to be sued
C) Shareholders' ability to bring class action suits against nationally traded companies
D) The ability of public accounting firms to claim liability for missed fraudulent transactions
E) Congressional oversight on securities litigation

Question 61

[Cosmetic Securities] Alessia, the President of Quik Cosmetics, wanted to take her company public. She begins meeting with underwriters and sends out a press release mentioning the potential issuance of securities. She then files a registration document and prospectus. In her registration document, she described the securities, how the money from the sale of the securities will be used, described her business and property, and included information about a pending lawsuit in the process of being settled.
The Board of Directors of Faith Church, Inc. wants to issue securities to raise funds. Its attorney tells the Board that it does not need to file a registration document with the SEC. Is the attorney correct?

A) No, because the transaction is not exempt.
B) Yes, even though the securities themselves are not exempt, the transaction is exempt.
C) Yes, because the securities are exempt because the issuer is a non-profit organization.
D) No, securities issued by governmental bodies are exempt, securities issued by non-profit organizations are not.
E) Yes, because securities can only be issued by a corporation.

Question 62

[RockOut Investors] Kassie, the president of RockOut, Inc., intends to line up celebrities in the music industry to invest in her recording company. Kassie has targeted 70 individuals to whom RockOut will make the private offer, although she knows not all of them are millionaires. Kassie is thrilled when her attorney tells her she does not have to register with the SEC and she does not have to waste her time providing financial information, in fact, the SEC does not ever have to be involved because it is a private offering. Kassie's attorney also suggests spreading the word about the securities in an effort to obtain more investors.
Should Kassie take her attorney's suggestion to spread the word about the securities so she can obtain more investors?

A) No, issuers who make private offerings cannot advertise the securities to the general public.
B) Yes, as long as she does not exceed thirty-five accredited investors.
C) Yes, as long as she does not exceed thirty-five unaccredited investors.
D) Yes, as long as she does not exceed thirty-five total investors.
E) Yes, the private placement exemption, allows firms to issue an unlimited number of securities to an unlimited number of accredited investors.

Question 63

[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
DotCom, Inc., told an investor that it had hired an investment firm to take the company public. However, DotCom had not in fact hired an investment firm and instead went bankrupt a year after the investor's purchase of significant shares. When the investor sues, DotCom claims that its prospectus includes the cautionary statements required by law, and thus cannot be held liable under the safe harbor provision of the Private Securities Litigation Reform Act. Would DotCom likely be held liable for the investor's loss?

A) No, because the prospectus contained the appropriate language.
B) No, unless the cautionary language in the prospectus was hidden or unclear.
C) No, but only if DotCom can prove that the investor had been provided with a copy of the prospectus.
D) Yes, because DotCom was not a public company and thus the safe harbor provision is inapplicable.
E) Yes, the cautionary statements only protect against forward-looking statements, not misrepresentations about the past or present.

Question 64

For which of the following is Charlie liable?

A) His own profits and also the profits of Johan.
B) His own profits and also the profits of both Johan and Aurelia.
C) His own profits regardless of whether he knew he was trading in information that had not been made public.
D) Only his own profits and those of Aurelia.
E) Only his own profits and then only if it can be shown that he knew or should have known that the material information was not public.

Question 65

[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
Noelle, a Montana resident, purchases Valley Vineyard securities in January. In July, after the restaurant opens, Noelle wants to sell the securities to a well-known investor from Idaho. Is the sale permissible?

A) Yes, Noelle can resell after six months from the time of sale, regardless of the residency of the purchaser.
B) Yes, Noelle can resell to a nonresident after six months from the time of sale.
C) Yes, Noelle can resell to a nonresident after three months from the time of sale.
D) No, Noelle cannot resell to a nonresident for at least twelve months after the period of sale.
E) No, Noelle cannot resell to a nonresident for at least nine months after the period of sale.

Question 66

[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
Under the Private Securities Litigation Reform Act of 1995, publicly held issuers of publicly held securities cannot be held liable when actual corporate earnings fall short of forecasted earnings as long as ________.

A) the forecasts are made in good faith.
B) the forecasts are accompanied by meaningful cautionary statements.
C) the forecasts are filed with the SEC.
D) the forecasts are fully disclosed to the public and reasonable in scope.
E) the forecasts had been verified by an independent public accountant.

Question 67

[Cosmetic Securities] Alessia, the President of Quik Cosmetics, wanted to take her company public. She begins meeting with underwriters and sends out a press release mentioning the potential issuance of securities. She then files a registration document and prospectus. In her registration document, she described the securities, how the money from the sale of the securities will be used, described her business and property, and included information about a pending lawsuit in the process of being settled.
If a company has consistently satisfied registration requirements, do they receive any benefit for future registrations?

A) Yes, the filing fees are waived.
B) Yes, the registration requirements are more relaxed.
C) Yes, the registration requirements are waived for any company that has satisfied the requirements in the past.
D) No, the SEC does not monitor past registrations.
E) No, they are subject to the same strict requirements.

Question 68

[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
If Valley Vineyard is not required to register with the SEC, how much capital can it raise?

A) Valley Vineyard can raise up to one million dollars.
B) Valley Vineyard can raise up to five million dollars.
C) There is no limit.
D) Valley Vineyard can raise up to ten million.
E) Valley Vineyard can raise up to five million dollars the first year, and then it is unlimited.

Question 69

[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
Are the Valley Vineyard securities exempt from registration with the SEC?

A) Yes.
B) Yes, but only if the securities are offered or only sold to permanent residents of Montana and they plan to use at least 80% of the profits within Montana.
C) Yes, but only if the securities are offered or only sold to permanent residents of Montana.
D) No, because they plan to open a business in Florida.
E) No, because they want to use their profits outside Montana.

Question 70

[RockOut Investors] Kassie, the president of RockOut, Inc., intends to line up celebrities in the music industry to invest in her recording company. Kassie has targeted 70 individuals to whom RockOut will make the private offer, although she knows not all of them are millionaires. Kassie is thrilled when her attorney tells her she does not have to register with the SEC and she does not have to waste her time providing financial information, in fact, the SEC does not ever have to be involved because it is a private offering. Kassie's attorney also suggests spreading the word about the securities in an effort to obtain more investors.
Is Kassie's attorney correct that she does not have to provide financial information contained in the registration statement because the proposed offering is a private placement offering?

A) She does not have to disclose any information because it is a private offering.
B) All issuers must, at a minimum, disclose the information that would have been in a registration statement.
C) If Kassie offers securities to any investor, then she must provide all investors with the basic information that would be contained in a registration statement.
D) If Kassie offers securities to any unaccredited investor, then she must provide all investors with the basic information that would be contained in a registration statement.
E) If Kassie offers securities to any unaccredited investor, then she must provide the unaccredited investors with the basic information that would be contained in a registration statement.

Question 71

[Presidential Profits] Aurelia was president of a publicly traded tractor company, Tough Tractors. Aurelia became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made. Before the news was made public, Aurelia immediately purchased a significant number of shares in Tough Tractors. Aurelia also told her friend Johan about the contract to purchase assets although she told him to keep it quiet because it had not been made public yet. Nevertheless, unable to keep a secret, Johan told his brother, Charlie. Johan and Charlie purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement was made and the purchase of assets went through, Aurelia, Charlie, and Johan all sold their shares in Tough Tractors and made a nice profit.
Considering Johan provided information about the asset purchase to Charlie, which of the following terms best describes Johan's role?

A) Tipper
B) Provider
C) Providee
D) Tippee
E) There is no descriptive term for Johan because he did nothing wrong.

Question 72

Who prosecutes criminal violations of security laws?

A) The SEC
B) State Attorney Generals
C) Department of Justice
D) The FBI
E) Congress

Question 73

[Cosmetic Securities] Alessia, the President of Quik Cosmetics, wanted to take her company public. She begins meeting with underwriters and sends out a press release mentioning the potential issuance of securities. She then files a registration document and prospectus. In her registration document, she described the securities, how the money from the sale of the securities will be used, described her business and property, and included information about a pending lawsuit in the process of being settled.
Was Alessia's press release prior to the filing of her registration document and prospectus permissible?

A) No, because it did not go to all prospective shareholders.
B) No, an issuer cannot offer to sell securities during the prefiling period.
C) Yes, an long as it was not an express offer to sell securities.
D) Yes, as long as the information included the names of the underwriters.
E) Yes, as long as the information was truthful.

Question 74

[Cosmetic Securities] Alessia, the President of Quik Cosmetics, wanted to take her company public. She begins meeting with underwriters and sends out a press release mentioning the potential issuance of securities. She then files a registration document and prospectus. In her registration document, she described the securities, how the money from the sale of the securities will be used, described her business and property, and included information about a pending lawsuit in the process of being settled.
Were Alessia's negotiations with underwriters permissible?

A) Yes.
B) Yes, but only if the negotiations occurred after filing the registration document. Yes, but
C) Yes, but only if the negotiations occurred within the thirty days prior to filing the registration document.
D) Yes, but only if the negotiations occurred within the sixty days prior to filing the registration document.
E) No, an issuer cannot negotiate with underwriters prior to the filing of the registration document.

Question 75

[RockOut Investors] Kassie, the president of RockOut, Inc., intends to line up celebrities in the music industry to invest in her recording company. Kassie has targeted 70 individuals to whom RockOut will make the private offer, although she knows not all of them are millionaires. Kassie is thrilled when her attorney tells her she does not have to register with the SEC and she does not have to waste her time providing financial information, in fact, the SEC does not ever have to be involved because it is a private offering. Kassie's attorney also suggests spreading the word about the securities in an effort to obtain more investors.
Is Kassie's attorney correct that she does not have to register with the SEC?

A) Yes, the private placement exemption allows firms to issue an unlimited number of securities to an unlimited number of investors.
B) Yes, the private placement exemption allows firms to issue an unlimited number of securities to an unlimited number of accredited investors.
C) Yes, but only if she has no more than 65 unaccredited investors.
D) Yes, but only if she has no more than 55 unaccredited investors.
E) Yes, but only if she has no more than 35 unaccredited investors.

Question 76

For which of the following is Aurelia liable?

A) Her own profits only.
B) Her profits and those of Johan only.
C) Her profits, the profits of Johan, and also the profits of Charlie.
D) Her profits only plus a 10% penalty.
E) Nothing because she acted legally.

Question 77

[Cosmetic Securities] Alessia, the President of Quik Cosmetics, wanted to take her company public. She begins meeting with underwriters and sends out a press release mentioning the potential issuance of securities. She then files a registration document and prospectus. In her registration document, she described the securities, how the money from the sale of the securities will be used, described her business and property, and included information about a pending lawsuit in the process of being settled.
What information is missing from Quik Cosmetics' registration statement?

A) Information about the management of the company.
B) Financial statements certified by an independent public accountant.
C) Information about the management of the company and financial statements certified by the board of directors.
D) Information about the management of the company and financial statements certified by an independent public accountant.
E) No information is missing.

Question 78

[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
The concept of ________ is based on the misappropriation theory of tort law.

A) insider trading
B) blue-sky trading
C) red-herring
D) securities
E) bond negotiations

Question 79

Which of the following statements is false about securities and securities regulation?

A) Congress passed securities laws after the stock market crash in 1929.
B) Without securities regulations, corporations could easily commit fraud by issuing securities and refusing to repay them.
C) A security has intrinsic value.
D) The government heavily regulates securities.
E) Securities regulation is relatively new.

Question 80

[RockOut Investors] Kassie, the president of RockOut, Inc., intends to line up celebrities in the music industry to invest in her recording company. Kassie has targeted 70 individuals to whom RockOut will make the private offer, although she knows not all of them are millionaires. Kassie is thrilled when her attorney tells her she does not have to register with the SEC and she does not have to waste her time providing financial information, in fact, the SEC does not ever have to be involved because it is a private offering. Kassie's attorney also suggests spreading the word about the securities in an effort to obtain more investors.
Is Kassie's attorney correct that the SEC does not have to be involved because this is a private placement situation?

A) Yes, under the private placement exemption, issuers do not have to register securities with the SEC.
B) Yes, under the private placement exemption, issuers are permitted, but not required, to notify the SEC of any sales made under the exemption.
C) No, under the private placement exemption, while issuers do not have to register securities with the SEC, issuers must notify the SEC of any sales made under the exemption.
D) No, under the private placement exemption, issuers must register securities with the SEC and notify the SEC of any sales made under the exemption.
E) No, under the private placement exemption, issuers must either register securities with the SEC or notify the SEC of any sales made under the exemption.