Deck 39: Securities Regulation

Question 1

"Restricted securities" are exempted from registration.

Answer 1

True

Question 2

Effective in 2010, the SEC adopted new requirements to improve the disclosure shareholders of public companies receive regarding compensation and corporate governance. These new rules require disclosure of any directorships held by each nominee at any time during the past seven years at any public company.

Answer 2

False

Question 3

"Shelf registrations" allow delayed sales of stock.

Answer 3

True

Question 4

The 1933 Securities Act differs from the 1934 Act in that the former deals with trading in stock that has already been issued and the latter has to do with the issuance of securities.

Question 5

The Securities Act of 1934 is also called the "Truth in Securities Act."

Question 6

The registration requirement of the 1934 Act pertains to the entire class of securities rather than to a specific offering.

Question 7

As amended in 2008, SEC rules define a small business issuer as a noninvestment company with less than $10 million in public float.

Question 8

In 1992, the SEC issued new rules establishing an integrated registration and reporting system for small business issuers.

Question 9

Most states require the registration of securities and regulate brokers and dealers.

Question 10

The Securities Act of 1933 regulates tender offers and proxy solicitations.

Question 11

The Sarbanes-Oxley Act requires either the chief executive officer or the chief financial officer of a company issuing securities to certify information in the issuer's annual and quarterly reports.

Question 12

A "private placement" involves no public offering and is exempt from registration.

Question 13

Every registration filed with the SEC is held in confidence until the business permits disclosure.

Question 14

The antifraud provisions of the 1933 Act pertain to only registered securities.

Question 15

Registration of securities with the SEC guarantees to a potential investor the financial soundness of the business represented by the stock.

Question 16

EDGAR is the computer system established by the SEC to perform automated collection, validation, and dissemination of required reports.

Question 17

Marshall, an agent of the North Carolina Pinery Corporation, in offering a cash payment to an official of Mexico to convince the official to use his influence to assist Pinery in obtaining a contract in Mexico, may have violated the laws of Mexico, but not the laws of the United States.

Question 18

Insiders would violate the short-swing profits rule (16b) of the 1934 Act by buying stock on January 1 and selling on May 1.

Question 19

Only civil liability may be imposed for violations of the Securities Act of 1933.

Question 20

The Dodd-Frank Act amends the 1933 and 1934 Acts to require knowledge as the mental state required for the SEC to bring aiding and abetting cases.

Question 21

In 2006, the SEC abolished the requirement that a registration statement disclose compensation paid to senior executives and directors.

Question 22

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 granted the SEC the power to issue cease and desist orders and to impose civil penalties.

Question 23

Under the Dodd-Frank Act, the SEC must issue rules requiring issuers to disclose in annual proxy statements the reasons the issuer has chosen to combine or separate the positions of CEO and chairman of the board of directors.

Question 24

The Securities Act of 1933 identifies a number of securities exemptions that are, in effect, transaction exemptions.

Question 25

There are rigorously enforced restrictions regarding both number and qualification of investors who purchase securities under Regulation A.

Question 26

The issuer of a registration statement has strict liability for its accuracy.

Question 27

Shelf registrations allow issuers to register securities that are to be offered and sold on a delayed or continuous basis in the future, but the provision allowing it does not apply to all companies.

Question 28

The tender offer is open to select holders of the class of shares subject to the tender offer.

Question 29

The due diligence defense generally requires the defendant to show that he had reasonable grounds to believe and did believe that there were no untrue statements or material omissions.

Question 30

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 granted the SEC the power to impose administrative, civil penalties up to the current inflation-adjusted amount of $725,000.

Question 31

A registration statement must be signed by the issuer, its CEO, CFO, CAO, and majority of its board of directors.

Question 32

Securities sold under Regulation A must be registered if they are resold.

Question 33

The Securities Act of 1934 imposes significant disclosure requirements upon reporting companies.

Question 34

As amended in 2008, SEC Rule 144 imposes stricter requirements on securities resales of issuers subject to 1934 Act reporting requirements than on securities resales of non-reporting issuers.

Question 35

A registration statement becomes public immediately on filing with the SEC, but a prospectus only becomes public upon signature of the chief financial officer.

Question 36

Bonds are included in the definition of the term "security."

Question 37

Rule 505, as promulgated by the SEC, provides a nonexclusive safe harbor for securing the intrastate exemption.

Question 38

The 1934 Act rules governing proxy solicitations would require a proxy statement describing the material facts relating to items to be voted upon.

Question 39

With few exceptions, an issuer must file preliminary proxy statements and forms with the SEC at least 10 days before they are sent to investors.

Question 40

The SEC may not advance the effective date of a registration statement.

Question 41

The Securities and Exchange Commission (SEC) is an independent, quasi-judicial agency consisting of five commissioners.

Question 42

Which of the following would NOT be exempt from registration under the 1933 Securities Act?

A) An offering restricted to the residents of the state in which the issuing company is a resident and doing business.
B) An offering by a noninvestment company issuer for $4 million in securities over 12 months without general advertising or general solicitation.
C) An offering of limited partnership tax shelters.
D) A private offering to sophisticated investors who will not redistribute them.

Question 43

The 1933 Act imposes liability for material misstatements and omissions in a registration statement on:

A) only the directors and certain officers.
B) only the issuers.
C) experts and underwriters as well as directors, officers, and issuers.
D) the CEO only.

Question 44

As amended in 1999 and 2017, SEC Rule 504 provides private, noninvestment company issuers with an exemption from registration for issues not exceeding $5 million within twelve months.

Question 45

Which of the following is NOT a purpose of federal securities regulation?

A) To ensure that only worthwhile securities are sold in interstate commerce.
B) To ensure adequate disclosure by issuers of securities.
C) To ensure that inside information is not abused.
D) To prevent the use of fraud in the marketing of securities.

Question 46

Rule 10b-5 applies to any:

A) buyer of a registered security.
B) seller of a registered security.
C) person who buys or sells a registered security.
D) person who buys or sells any security.

Question 47

__________, promulgated by the SEC, provides a nonexclusive safe harbor for securing the intrastate exemption.

A) Rule 506.
B) Rule 505.
C) Rule 147.
D) Rule 504.

Question 48

A defense to an action based on material omissions and untrue statements contained in a registration statement is:

A) innocent mistake.
B) due diligence.
C) constructive disclosure.
D) reasonable diligence.

Question 49

Willful violations of the Securities Act of 1933 are subject to a fine of not more than __________ and/or imprisonment of not more than __________ or both.

A) $5,000, one year.
B) $10,000, five years.
C) $100,000, five years.
D) $250,000, ten years.

Question 50

In a unanimous 2018 decision, the U.S. Supreme Court held that under the Securities Litigation Uniform Standards Act of 1998, (1) state courts have jurisdiction over class actions alleging violations of only the 1933 Act and (2) defendants are not permitted to remove such actions from state court to federal court.

Question 51

Section 16(b) of the 1934 Act differs from Rule 10b-5 in that the latter:

A) applies to transfers within 6 months of each other.
B) only applies to officers, and directors.
C) requires material inside information.
D) only applies to 10% shareholders.

Question 52

Effective in 2000, a plain English term sheet is required in all tender offers and mergers.

Question 53

"Insider trading" rules pertain to:

A) tippees.
B) officers and directors.
C) underwriters .
D) All of these.

Question 54

As mandated by the Dodd-Frank Act, the SEC issued a rule in 2015, effective for the first fiscal year beginning on or after January 1, 2017, requiring most public companies regularly to disclose the ratio of a CEO's compensation to the median compensation of the company's employees.

Question 55

Emerging growth companies (EGCs) have strict disclosure requirements and limited permissible communications to avoid a repeat of the dot-com disaster of the late 1990's.

Question 56

The Securities Act of 1934 imposes sanctions for noncompliance with its disclosure and antifraud requirements. These sanctions include:

A) civil liability to injured investors and issuers.
B) civil penalties.
C) criminal penalties.
D) All of these.

Question 57

Securities that are exempt from registration under the federal securities laws include:

A) securities of domestic banks.
B) annuity contracts issued by state-regulated insurance companies.
C) bonds issued by a city.
D) All of these are exempt.

Question 58

The rule that prohibits schemes and devices to defraud investors is Rule:

A) 504
B) 144
C) 10b-5
D) 16(b)

Question 59

Which of the following would ordinarily NOT be considered a security under the federal securities laws?

A) Bonds.
B) Stocks.
C) Investments in limited partnerships.
D) An investment in a nonprofit venture based on one's own entrepreneurial efforts.

Question 60

A registration statement generally includes all of the following EXCEPT a:

A) financial statement certified by an independent public accountant.
B) description of the business.
C) description of the management.
D) projection of future growth potential.

Question 61

Under the Securities Exchange Act of 1934 and the Williams Act, a tender offer:

A) must be disclosed if the offeror's acquisition would give him 3 percent of the target's stock.
B) must be disclosed only to the shareholders of the target corporation.
C) disclosure is informational to ensure that investors may make an informed decision.
D) is valid only up to 40% of the target's stock.

Question 62

Solicitation includes any request:

A) for a proxy.
B) not to execute a proxy.
C) to revoke a proxy.
D) All of these are solicitations.

Question 63

Prohibited bribery can result in fines and imprisonment under the antibribery provision of :

A) the Private Securities Litigation Reform Act.
B) the Foreign Corrupt Practices Act.
C) the Securities and Exchange Commission.
D) the US Constitution.

Question 64

The antifraud provisions of the 1934 Act would prohibit which of the following?

A) Lying about the value of the firm's assets to sell stock.
B) Disclosing that the firm has discovered oil on its property in order to sell stock.
C) Telling about the bad health of the CEO in a transaction to purchase stock.
D) Not disclosing the salaries of secretaries of a large firm whose stock is being sold.

Question 65

The Securities Act of 1933 has two basic objectives, one of which is to:

A) extend protection to investors trading in outstanding, issued securities.
B) grant the SEC power to impose administrative, civil penalties up to $600,000.
C) regulate disclosure requirements on publicly held corporations.
D) prohibit misrepresentation, deceit, and other fraudulent acts and unfair practices in the sale of securities generally, whether or not they are required to be registered.

Question 66

If a company has assets of over $10 million but trades its stock over the counter, it is nevertheless required to comply with the 1934 Act if it has:

A) 500 or more shareholders.
B) one class of stock with 500 or more shareholders.
C) 500 or more shares of stock outstanding.
D) 500 different investors.

Question 67

All of the following are exempt from registration under the 1933 Act except:

A) government bonds.
B) securities issued by for-profit medical facilities.
C) notes with a maturity of not more than nine months when issued for working capital.
D) state-regulated insurance company annuities.

Question 68

If Terry makes a tender offer to the owners of Pizza Village's registered stock, he must file a statement with the SEC if he:

A) owns 1% of Pizza Village stock.
B) will, after the acquisition, own 5% of all Pizza Village stock.
C) will, after the acquisition, own 5% of one class of Pizza Village stock.
D) will own more than 3% of the stock in all classes.

Question 69

The provisions of Section 17(a) of the 1933 Act:

A) primarily allow for a private right of action for persons injured by the act.
B) make it unlawful to engage in any transaction, practice, or course of business that operates as deceit upon the issuer.
C) make it unlawful in the offer or sale of any securities to obtain property by any statement that omits a material fact without which the information is misleading.
D) None of these are true.

Question 70

All of the following are types of illegal insider trading EXCEPT:

A) officers or directors who pass valuable information to someone who trades in the company's stock and then is repaid in some way.
B) an officer or director who makes a direct profit on an investment just after the public announcement of a major development related to that investment.
C) a director who buys through overseas financial institutions stocks and options in his own company prior to a public announcement of information which greatly enhances the value of the stock.
D) an officer of a company who, for a fee, related to investment bankers information about companies her company is planning to target for takeover.

Question 71

A signed writing by a shareholder authorizing a named person to vote his stock at a specified meeting of shareholders is a(n):

A) control.
B) affiliate.
C) proxy.
D) registration statement.

Question 72

The civil penalty for a person who trades on inside information:

A) is payable into the U.S. Treasury.
B) must be imposed as a result of an action brought within three years after the date of the purchase or sale.
C) is, for a controlling person, up to the greater of $1 million or two times the profit gained or loss avoided as a result of the controlled person's violation.
D) is determined by the board of directors of the injured corporation.

Question 73

The 1934 Securities Exchange Act requires registration of:

A) all regulated publicly held companies.
B) securities being issued initially.
C) statutory outsiders.
D) tippees.

Question 74

Recovery of damages under Rule 10b-5 requires proof of:

A) reliance on a misstatement or omission.
B) materiality.
C) connection with the purchase or sale of a security .
D) All of these are required for recovery of damages.

Question 75

Section 11 of the Securities Act of 1933 imposes liability on:

A) the issuer.
B) all persons who signed the registration statement.
C) every director or partner, and all underwriters.
D) All of these.

Question 76

Which of the following is not one of the situations in which the 1934 Securities Exchange Act requires disclosure during a "tender offer"?

A) When a person or group acquires more than 5 percent of a class of voting securities registered under the 1934 Act.
B) When a person makes a tender offer for more than 5 percent of a class of registered equity securities.
C) When a company makes a tender offer for any voting stock in another company.
D) When the issuer makes an offer to repurchase its own registered shares.

Question 77

For purposes of Section 16(b) of the 1934 Securities Exchange Act, which of the following are not "insiders"?

A) Shareholders owning more than 10 percent of the stock of a corporation listed on a national stock exchange or registered with the SEC.
B) Directors.
C) Officers.
D) All of these may be considered insiders.

Question 78

A solicitation of proxies from holders of stock:

A) is comprehensively regulated by the SEC.
B) includes a request for a proxy, but not a request to revoke a proxy.
C) gives any security holder entitled to vote the opportunity to communicate with other security holders. Upon written request, the corporation must mail the communication at the corporation's expense along with the solicitation.
D) is required for any vote that involves money or issuance of shares.

Question 79

SEC regulations concerning fraud in securities transactions apply to:

A) all securities transactions involving interstate commerce.
B) only securities registered under the 1934 Act.
C) only securities registered under the 1933 Act.
D) securities registered under both the 1933 and 1934 Acts.

Question 80

Marge wishes to raise some money to begin mass producing her prize-winning jellies and jams. She offers her neighbors a portion of her profits if they will put up $2,000 each towards her endeavor. Is their investment a "security"?

A) Yes, since Marge will do all the work.
B) Yes, because her neighbors will have a security interest in the jelly.
C) No, since the neighbors are putting no effort into it.
D) No, because Marge is not issuing stock certificates.