Deck 33: Regulation of Issuance: The Securities Act of 1933

Question 1

The primary scope of the Securities Act of 1933 is the regulation of original issuance (and reissuance) of securities to investors by business venture issuers.

Answer 1

True

Question 2

The Securities Act of 1933 provides special exemptions for issuance of securities to relatively large groups of qualified investors.

Answer 2

False

Question 3

The centerpiece of the Securities Act of 1933 is Section 5, which makes it illegal to sell any security by use of mail or facilities of interstate commerce unless the security has been registered or unless the security fits into one of the statutory exemptions.

Answer 3

True

Question 4

The Securities Act of 1933 and the Department of Labor regulations require extensive documentation even before the registration statement is filed.

Question 5

To assist business ventures seeking smaller amounts of capital from the public investment community, the securities laws allow a number of exemptions from registration for larger issuers.

Question 6

From a federal standpoint, the most common exemption is for public offerings to a limited number of sophisticated investors who have prior business relationships with the issuer or who privately negotiate their securities purchases.

Question 7

The law required the SEC to carve out a niche in securities laws that permitted crowdfunding as a fundraising tool for small business.

Question 8

A company issuing securities in reliance on Regulation Crowdfunding (the issuer) may raise a maximum aggregate amount of $500,000 during a 12-month period.

Question 9

Section 11 of the Securities Exchange Act of 1933 is the primary anti-fraud provision.

Question 10

Section 12(a)(2) of the Securities Exchange Act of 1933 is the anti-fraud provision that triggers rescissionary liability that is limited to sellers of public offerings and typically focuses on whether a prospectus was used to make material misstatements or omissions.

Question 11

Businesses that have issued stock in a public or private sale (both exempt and nonexempt) and are alleged to have violated the anti-fraud provisions of the Securities Exchange Act of 1933 have one defense at their disposal.

Question 12

An issuer may avoid liability or penalties by successfully asserting that the transaction is immune from liability through a statutory safe harbor.

Question 13

The Private Securities Litigation Reform Act of 1995 imposed significant procedural rules and substantive standards that made it more difficult to pursue litigation under the securities laws based solely on written or oral statements by the company's officers and directors.

Question 14

The definition of materiality is significant because the import and truthfulness of information that is disclosed in a prospectus is at the very heart of statutory requirements.

Question 15

If an investor should have known about a particular fact that was available in the total mix of information, the investor can later claim that the undisclosed fact was a material omission.

Question 16

The Securities Act of 1933 mandates a registration filing for any venture selling securities to the __________.

A) private corporations
B) business world
C) public
D) All of the choices are correct.

Question 17

The Securities Act of 1933 mandates certain __________ concerning the issuer's governance and financial condition.

A) redactions
B) disclosures
C) materials
D) maximums

Question 18

The Securities Act of 1933 mandates regulatory oversight over the registration and __________ of securities.

A) issuance
B) obligations
C) rights
D) None of the choices are correct.

Question 19

The Securities Act of 1933 is designed to give potential investors a transparent view of the business entity's:

A) financial information
B) potential liabilities
C) management practices
D) All of the choices are correct.

Question 20

The Securities Act of 1933 is designed to give potential investors a transparent view of a business entity's pertinent information that a business venture is required to disclose in its __________ materials.

A) closing
B) re-sale
C) registration
D) None of the choices are correct.

Question 21

The Securities Act of 1933 was the first of several pieces of legislation enacted after the financial collapse in 1929, which resulted in stocks losing more than __________ their value by 1933.

A) ten percent
B) twenty-five percent
C) thirty-three percent
D) fifty percent

Question 22

The Securities Act of 1933 was designed to protect __________ by requiring a procedure that would test the soundness of securities to be sold to the general public.

A) counties
B) corporations
C) states
D) investors

Question 23

The centerpiece of the Securities Act of 1933 is Section __________, which makes it illegal to sell any security by use of mail or facilities of interstate commerce unless the security has been registered or unless the security fits into one of the statutory exemptions.

A) 1
B) 3
C) 5
D) 7

Question 24

What is commonly referred to as a __________ is actually a process of registration and disclosure mandated by the Securities Act of 1933.

A) liquid offering
B) private offering
C) public offering
D) None of the choices are correct.

Question 25

In addition to mandates set out in the Securities Act of 1933, the __________ has added significant requirements pursuant to its authority as an independent regulatory agency.

A) Commission on Securities
B) Securities and Exchange Standards Review Board
C) Commission on Securities and Regulation
D) Securities and Exchange Commission

Question 26

The Securities Act of 1933's requirements for registration only apply to a limited number of __________.

A) issuers
B) performers
C) buyers
D) dealers

Question 27

Required documentation before registration includes:

A) letter of intent, comfort letters, and an underwriting agreement
B) letter of intent, express letters, and an underwriting agreement
C) letter of declaration, comfort letters, and an underwriting agreement
D) None of the choices are correct.

Question 28

Registering a security is a relatively complex process that is divided into __________ phases.

A) two
B) four
C) five
D) six

Question 29

The form of the registration statement is prescribed by SEC regulations and is broken down into two parts, the first part being the:

A) expectations
B) descriptions
C) petition
D) prospectus

Question 30

During the waiting period, the SEC may issue a __________ that prevents the registration from taking effect.

A) refusal order
B) petition order
C) sale order
D) control order

Question 31

__________ issued by insurance companies are exempt from full SEC registration requirements.

A) Certificates
B) Negotiable instruments
C) Annuities
D) Sales contracts

Question 32

A(n) __________ investor is one who has experience, business savvy, and knowledge of the market to the extent that the law imputes a certain cognizance of investment risk and the ability to protect his or her own interests.

A) accredited
B) certified
C) non-accredited
D) None of the choices are correct.

Question 33

An__________ is a professional in the securities market that agrees to facilitate the sale of stock to the public for a fee.

A) seller
B) offeror
C) underwriter
D) All of the choices are correct.

Question 34

__________ is a method of fundraising and is subject to securities laws.

A) Selling
B) Crowdfunding
C) Underwriting
D) All of the choices are correct.

Question 35

Crowdfunding gained a significant boost after the passage of the __________ of 2012.

A) Small Business Startups (SBS) Act
B) Reinvigorate Business Startups (RBS) Act
C) Jumpstart Our Business Startups (JOBS) Act
D) None of the choices are correct.

Question 36

In __________, the SEC adopted rules that attempt to balance concerns about protecting relatively unsophisticated investors from fraud with helping to grow the economy by making more capital available from the investing public.

A) 2010
B) 2012
C) 2013
D) 2015

Question 37

__________ Crowdfunding also sets out investment limits for individuals based on net worth and income.

A) Code
B) Partisan
C) Regulation
D) Rule-based

Question 38

A company issuing securities in reliance on Regulation Crowdfunding, the issuer, may raise a maximum aggregate amount of __________ during a 12-month period.

A) $500,000
B) $1,070,000
C) $1,500,000
D) $1,750,000

Question 39

Once the crowdfunding campaign has started, the issuer must provide an update on its progress toward meeting the target offering amount within __________ business days after reaching 50 percent and 100 percent of its target offering amount.

A) two
B) three
C) five
D) ten

Question 40

If either of an investor's annual income or net worth is less than $107,000, then the investor's investment limit is the greater of (a) __________or (b) __________% of the lesser of the investor's annual income or net worth.

A) $2,200 or 5
B) $2,300 or 6
C) $2,500 or 7
D) $2,900 or 8

Question 41

During the 12-month period, the aggregate amount of securities sold to an investor through all Regulation Crowdfunding offerings may not exceed __________, regardless of the investor's annual income or net worth.

A) $100,000
B) $105,000
C) $107,000
D) $110,000

Question 42

In cases of misrepresentations or omissions, investors have an automatic right of action to sue the __________ for damages.

A) holder
B) offeree
C) issuer
D) buyer

Question 43

Section __________ is the primary anti-fraud provision of the Securities Act of 1933.

A) 4
B) 7
C) 9
D) 11

Question 44

The most important determination in a case alleging false statements under Section 11 is whether the statement is actually one of fact or one of __________.

A) puffing
B) lying
C) opinion
D) None of the choices are correct.

Question 45

If a registration statement omits material facts about the issuer's inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a __________ investor would take from the statement itself, then the statement violates Section 11's omissions clause.

A) reasonable
B) seasoned
C) experienced
D) licensed

Question 46

In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund et al., the U.S. Supreme Court: __________.

A) reversed the appellate court's decision and remanded the case back to the trial court
B) affirmed the appellate court's decision in part and remanded the case back to the trial court
C) reversed the appellate court's decision and dismissed the case with prejudice
D) None of the choices are correct.

Question 47

__________ liability is liability of a wrongdoer to an innocent party whereby the proper legal remedy is to rescind the transaction and set the parties back to their pre transaction position.

A) Rescissionary
B) Restitutionary
C) Removal
D) Reformation

Question 48

As is the case with many securities law protections, __________ must show either a material untruth or the omission of a material fact necessary to make what is said not misleading.

A) buyers
B) sellers
C) investors
D) offerees

Question 49

One of the SEC's most powerful weapons in enforcing anti-fraud provisions is the broad coverage provided by Section __________, which applies to public, private, and exempt offerings of securities.

A) 17(a)
B) 17(f)
C) 19(a)
D) 19(c)

Question 50

Businesses that have issued stock in a public or private sale (both exempt and nonexempt) and are alleged to have violated the anti-fraud provisions of the Securities Act of 1933 Act have __________ categories of defenses at their disposal.

A) two
B) three
C) four
D) six

Question 51

The issuer may avoid liability or penalties by successfully asserting that both the transaction and issuer are immune from liability through a __________.

A) regulatory safe harbor
B) statutory safe harbor
C) statutory safe delivery
D) regulatory safe delivery

Question 52

With the anti-fraud provisions, the __________ may avoid liability through the common law defenses of materiality or the bespeaks caution doctrine.

A) issuer
B) buyer
C) seller
D) offeree

Question 53

The Private Securities Litigation Reform Act of__________ (PSLRA) imposed significant procedural rules and substantive standards that made it more difficult to pursue litigation under the securities laws based solely on written or oral statements by the company's officers and directors.

A) 1995
B) 1997
C) 1999
D) 2000

Question 54

The centerpiece of the PSLRA is its __________ provision, which shields the issuer from liability based on statements and forecasts contained in the prospectus or made by executive management and authorized spokespersons of the issuer.

A) safe-delivery
B) preventative-harbor
C) harbor-delivery
D) safe-harbor

Question 55

Companies who have entered into an agreement with the SEC to settle fraud-related charges are not eligible for safe-harbor protections for a period of __________ years.

A) two
B) three
C) four
D) five

Question 56

Congress enacted the Securities Litigation Uniform Standards Act of __________ which requires that class actions involving allegations of securities fraud by a publicly traded company under any securities statute be litigated exclusively in federal courts.

A) 1995
B) 1996
C) 1998
D) 1999

Question 57

Non-PSLRA issuers may assert several defenses to allegations of __________.

A) misrepresentation
B) mistake
C) retaliation
D) None of the choices are correct.

Question 58

An issuer is not liable to a private investor if the alleged misrepresentations are not __________.

A) provable
B) significant
C) material
D) designated

Question 59

Materiality is rooted in whether an objectively reasonable __________ would require that fact to make a decision in purchasing a security.

A) offeree
B) offeror
C) investor
D) seller

Question 60

If an investor should have known about a particular fact that was available in the total mix of information, she cannot later claim that the undisclosed fact was a __________ omission.

A) provable
B) significant
C) material
D) designated

Question 61

Although omission of material facts is the most frequent allegation in an anti-fraud case against an issuer, too much information may also trigger liability under the __________ doctrine.

A) buried facts
B) deep facts
C) buried omissions
D) deep inconsistencies

Question 62

In Lowinger v. Pzena Investment Mgmt., the court held that liability for misrepresentation under Sections 11 and 12(a)(2) accrues

A) at the time and place that delivery occurs
B) if the registration statement or prospectus includes any untrue statement of a material fact
C) if the registration statement or prospectus includes any untrue statement of a designated fact
D) if the registration statement or prospectus includes any true statement of a material fact

Question 63

One of the most powerful defenses of an issuer is the judicially created __________ doctrine.

A) bespeaks caution
B) buried omissions
C) wherewithal
D) recessionary

Question 64

Explain what the Securities Act of 1933 mandates and required disclosures.

Question 65

Explain the three stages of the process leading to issuance of original securities under the Securities Act of 1933.

Question 66

How does the Private Securities Litigation Reform Act of 1995 shield issuers from liability based on statements and forecasts contained in the prospectus or made by executive management and authorized spokespersons of the issuer? Please explain.