Deck 31: Securities Regulation

Question 1

A person with inside information must either disclose the information before trading or refrain from trading.

Answer 1

True

Question 2

When a security is sold in exempt transaction,all its subsequent sales are also covered by the exemption.

Answer 2

False

Question 3

Section 11 of the 1933 Act is considered a radical liability section because the defendant has the burden of proving that he exercised due diligence.

Answer 3

True

Question 4

The most important rule of the 1933 Act is that every transaction in securities must be registered with the SEC or be exempt from registration.

Question 5

Negligence is an important element of Rule 10b-5 violation.

Question 6

Insurance policies are exempt from both the registration and antifraud provisions of the 1933 Act.

Question 7

A bidder making a tender offer must file a tender offer statement with the SEC before the offer is made.

Question 8

The executive branch of the Securities and Exchange Commission:

A)administers only to the 1933 Act and two other securities statutes.
B)contains a mandatory disclosure which requires issuers of securities to make a one-time disclosure.
C)promulgates rules and regulations.
D)brings enforcement actions against alleged violators of the statutes.

Question 9

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

A)the prospectus
B)antifraud provisions
C)securities provisions
D)registration statement

Question 10

A wash sale is a legal practice that is designed to stimulate substantial trading activity.

Question 11

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

Question 12

Unlike the Uniform Securities Act of 1956,the new act of 1985 contained an additional provision demanding broker-dealer registration.

Question 13

The Securities Act of 1933:

A)is concerned primarily with private distributions of securities.
B)regulates the sale of securities while they are passing from the hands of the issuer into the hands of the private investors.
C)requires that issuers selling securities make necessary disclosures at the time the issuer sells the securities to the public.
D)requires that any material information about the issuer be disclosed as it is obtained by the issuer.

Question 14

The 10-K annual report is intended to update the information required in the 1934 Act registration statement.

Question 15

An investment contract:

A)is a public offer by a bidder to purchase a target company's equity securities directly from its shareholders at a specified price for a fixed period of time.
B)regulates the sale of securities while they are passing from the hands of the issuer into the hands of the public investors.
C)may be defined as an investment of money in a common enterprise with an expectation of profits from the efforts of others.
D)is a type of securities exemption that need not be registered,regardless of who sells the securities,how they are sold,or to whom they are sold.

Question 16

A registration statement is the basic selling document of a 1933 Act registered offering.

Question 17

Which of the following statements is true?

A)The Securities Exchange Act of 1934 requires periodic disclosures from issuers of securities.
B)The 1933 Act regulates the sale of securities while they are passing from the hands of the issuer into the hands of the private investors.
C)The Securities and Exchange Commission (SEC)was created by the 1933 Act.
D)Unlike other federal administrative agencies,the SEC has only legislative functions.

Question 18

The SEC requires that any person soliciting proxies from holders of securities registered under the 1934 Act furnish each shareholder with a proxy statement containing certain information.

Question 19

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.

Question 20

The definition of a security in the 1934 Act is similar to the 1933 Act definition except that it excludes notes and drafts that mature not more than nine months from the date of issuance.

Question 21

Which of the following is a feature of the Securities Exchange Act of 1934 but not the Act of 1933?

A)It has several sections prohibiting fraud in securities transactions.
B)The 1934 Act requires additional information in the registration statement.
C)It has registration provisions for issuance of securities.
D)The 1934 Act requires periodic disclosure by issuers with publicly held equity securities.

Question 22

Jack Monroe bought 200 GE common shares on the New York Stock Exchange and could easily sell them without any SEC registration because:

A)it was a small offering.
B)it wasn't an insurance policy.
C)it was a nonprofit private offering.
D)he was neither an issuer,underwriter nor dealer.

Question 23

Jodie's brother is a director at Trip Corporation.He calls her and says that Trip's earnings,as yet unannounced,will be up 75 percent and that Jodie should buy Trip common stock.Under these circumstances,Jodie:

A)can trade because she obtained public information from an insider.
B)cannot trade because she is not an insider.
C)can trade because the information will eventually be made public.
D)cannot trade because she is the relative of an insider.

Question 24

Identify the statement which is true of Rule 10b-5.

A)Securities need not be registered under the 1933 Act or the 1934 Act for Rule 10b-5 to apply.
B)The rule applies only to transactions executed on a securities exchange.
C)The rule applies only to face-to-face transactions.
D)A misstatement or omission of material fact,scienter,and reliance are not elements of Rule 10b-5.

Question 25

This is designed to stop speculative insider trading on the basis of insider information.

A)Short-swing profits regulation
B)Wash sale
C)Blue sky laws
D)Certificate of interest of participation

Question 26

______ is an important securities exemption.

A)Securities of profit issuers
B)Short-term notes and drafts
C)Private offering
D)Small offering

Question 27

Under the Securities Act of 1933,liability is imposed for improper offers and sales when:

A)a person simultaneously buys and sells the same stock in order to stimulate substantial trading activity.
B)a person offers or sells unregistered and nonexempt securities in violation of the Act.
C)the investor finds that the registration statement for the security contained an untrue statement.
D)the issuer inadvertently omits a few material facts in the registration statement.

Question 28

A prospectus:

A)makes forecasts of the annual return on a company's common stocks.
B)is the basic selling document of the 1933 Act registered offering.
C)includes statements that tout the securities.
D)is a public offer by a bidder to purchase a target company's equity securities.

Question 29

Which of the following statements is true of the registration requirements of the 1933 Act?

A)It requires the issuer of securities to register the securities with the SEC prior to their offer or sale to the public.
B)The registration statement becomes effective on its filing by the issuer.
C)It promotes the issuer's ability to communicate with prospective purchasers of the securities.
D)The registration statement excludes basic rules regarding the timing,manner,and content of offers and sales. The 1933 Act requires the issuer of securities to register the securities with the SEC prior to their offer or sale to the public.Historical and current data about the issuer and its business (including certified financial statements),full details about the securities to be offered,and the use of the proceeds of the issuance,among other information,must be included in a registration statement prepared by the issuer of the securities.The issuer must file the registration statement with the SEC.

Question 30

The U.S.Supreme Court has ruled that fraud claims under Section 10(b)and Rule 10b-5 must be brought:

A)within one year after discovery of the facts constituting the violation and not more than three years after the violation has occurred.
B)within three years after discovery of the facts constituting the violation and not more than five years after the violation has occurred.
C)within five years after discovery of the facts constituting the violation and not more than ten years after the violation has occurred.
D)within two years after discovery of the facts constituting the violation and not more than ten years after the violation has occurred.

Question 31

Which section of the 1933 Act imposes liability on any person who has violated the timing,manner,and content restrictions on offers and sales of new issues?

A)12(2)
B)17(a)
C)12(1)
D)11

Question 32

Securities sold in exempt transactions:

A)are to be registered in accordance with how they are sold.
B)are the most important 1933 Act exemptions.
C)are exempt from the registration requirements for those particular transactions only.
D)are exempt from antifraud provisions of the 1933 Act.

Question 33

According to the SEC,per se fraudulent statements include:

A)those that tout securities and make unreasonable forecasts.
B)those that specify the use of the proceeds of the issuance.
C)those that outline the annual return on an investment from the last ten years.
D)those that give full details about the securities to be offered.

Question 34

Average investors who can offer and sell the securities they own,and yet avoid the need to have the issuer register the securities are called ____.

A)nonissuers
B)issuers
C)dealers
D)brokers

Question 35

Under this theory,the investor's reliance on the integrity of the market was found to justify a presumption of reliance on the misrepresentation.

A)The classical theory.
B)The misappropriation theory.
C)The fraud-on-the-market theory.
D)The interdependence theory.

Question 36

Under this theory,a person's undisclosed,self-serving use of another's information to purchase or sell securities,in breach of a duty of loyalty and confidentiality,defrauds the individual who provided the information.

A)The classical theory of insider trading liability.
B)The misappropriation theory of insider trading liability.
C)The fraud-on the-market theory.
D)The price disparity theory.

Question 37

In a Rule 10b-5 case:

A)selective disclosure by a defendant doesn't make him liable for omission of material facts.
B)the plaintiff must prove that the defendant acted with the intent to deceive,manipulate,or defraud.
C)negligence on the part of the defendant is enough to make the defendant liable.
D)the plaintiff is generally not required to prove that she relied on the defendant's false statement.

Question 38

Under Section 11 of the 1933 Act,the issuer of securities with a defective or misleading registration statement:

A)cannot escape liability to any buyer of the securities for damages caused by the defective registration statement.
B)can escape liability if the issuer is a director who hasn't signed on the registration statement.
C)can escape liability only if the buyer proves that serious damage resulted from his reliance on the misstatements in the registration document.
D)can escape liability if the issuer proves that the buyer of the securities did not read the registration statement.

Question 39

A wash sale:

A)is a lawful manipulation of a security's price.
B)occurs when new securities are issued.
C)comes under liability provisions of the 1934 Act.
D)is a violation under Section 10(b)of the 1934 Act.

Question 40

Under the Securities Exchange Act of 1934,a 10-K annual report:

A)must include audited financial statement for the fiscal year and current information about the conduct of business.
B)must include only a summarized and unaudited operating statement.
C)requires only summarized and unaudited figures on capitalization,and shareholders' equity.
D)is required within 15 days of the end of any month in which any specified event occurs.

Question 41

What are the two types of securities that must be registered under the Securities Exchange Act of 1934?

Question 42

The public offer by a bidder to purchase a target company's equity securities directly from its shareholders at a specified price for a fixed period of time is called a(n)____.

A)bond exchange offer
B)prospectus
C)investment contract
D)tender offer

Question 43

Which of the following statements is true about blue-sky laws?

A)They are state laws that provide penalties for fraudulent sales and permit the issuance of injunctions to protect investors from anticipated fraudulent acts.
B)They are state laws that give investors the information they need to make intelligent decisions about whether to purchase securities.
C)All blue sky statutes provide civil penalties for selling fraudulent securities and conducting fraudulent transactions.
D)They give the bidder and the target company equal opportunities to present their cases to the shareholders.

Question 44

What strategies has the SEC pursued to protect U.S.investors throughout the world?

Question 45

Describe the provisions against insider trading under Rule 10b-5 of the Securities Exchange Act of 1934.

Question 46

Registration by coordination:

A)allows the issuer to file the 1933 Act registration statement with the state securities administrator.
B)is prohibited by both the 1933 and 1934 Acts.
C)increases the issuer's expense of complying with state law when making an interstate offering.
D)is concerned primarily with public distributions of securities.

Question 47

While auditing the financial statements of Foible Corp.(which are to be included in a Securities Act registration statement),Ernie,a certified public accountant,fails to review any of Foible's journal entries,does not read the details of meetings of the board of directors,and does not even speak with the comptroller of Foible.Consequently,Ernie does not discover that substantial loans,which went unmentioned in the financial statements,had been made to Foible officers.As a result,the registration statement omits any mention of the loans.Assuming the omitted fact is a material one and that Ernie is not an officer or director of Foible,does Ernie face potential liability under Section 11 of the Securities Act of 1933? Discuss the reasons for your answer.

Question 48

The Safe Harbor Legislation:

A)aims at giving the bidder and the target company equal opportunities to present their cases to the shareholders.
B)applies only when the target company's equity securities are registered under the 1934 Act.
C)holds companies immune from liability as long as they warn the public about factors that might undermine their forecasts.
D)applies to transactions executed on a securities exchange as well as face-to-face transactions.

Question 49

Why are some securities exempted from the registration provisions of the 1933 Act? Give two examples of such securities.Are they exempted from the antifraud provisions of the act as well?

Question 50

The Williams Act amendments to the 1934 Act were designed to:

A)provide penalties for fraudulent sales and permit the issuance of injunctions to protect investors from anticipated fraudulent acts.
B)give investors the information they need to make intelligent decisions about whether to purchase securities.
C)force corporations to comply with stockholder's social goals of meeting the EPA's new source emission standards.
D)give the bidder and the target company equal opportunities to present their cases to the shareholders.