Deck 17: Investor Protection, E-Securities, and Wall Street Reform

Question 1

The ________ is a federal agency that is created by the Securities Exchange Act of 1934 and is empowered to administer federal securities laws.

A) Federal Trade Commission (FTC)
B) Interstate Commerce Commission (ICC)
C) Securities and Exchange Commission (SEC)
D) Consumer Financial Protection Bureau (CFPB)

Answer 1

Securities and Exchange Commission (SEC)

Question 2

The Securities and Exchange Commission (SEC) is an administrative agency whose members are appointed by the ________.

A) Chair of the Board of Governors of the Federal Reserve System
B) President of the United States
C) Secretary of the Treasury
D) Attorney General

Answer 2

President of the United States

Question 3

The courts apply the Howey test in determining whether an arrangement is a(n) ________ and therefore a security.

A) preorganization subscription agreement
B) interests in oil, gas, and mineral rights
C) investment contract
D) deposit receipts for foreign securities

Answer 3

investment contract

Question 4

Scissorwire Inc. sells shares of its stock to the public, with each share valued at $16. After a year, the company incurs a loss and the price of the stock drops to $5 per share. The company reveals that it had deliberately not registered with the SEC before going public and that it has no money to pay the investors. Which of the following is true in this situation?

A) Scissorwire Inc. can register with the SEC at any point after the decline in share price.
B) The U.S. government can file a criminal lawsuit against Scissorwire Inc. to seek criminal penalties.
C) The investors were negligent in failing to verify registration prior to stock purchase, and therefore cannot rescind their purchase.
D) Scissorwire Inc. is liable for violation of the Securities Exchange Act of 1934.

Question 5

An initial public offering is the sale of securities by ________.

A) an issuer to the public
B) the SEC to a stock exchange
C) a stockholder to another stockholder
D) the Federal Reserve Bank to a commercial bank

Question 6

During the review of a registration statement, the SEC ________ of the securities offered.

A) establishes the opening sale price
B) does not pass judgment on the merits
C) reports on the credit worthiness
D) estimates the bankruptcy value

Question 7

An investor who has purchased an unregistered security can ________.

A) rescind the purchase, but cannot recover damages
B) recover damages, but cannot rescind the purchase
C) both rescind the purchase and recover damages
D) neither rescind the purchase nor recover damages

Question 8

The issuance of securities by an issuer to the public is known as a(n) ________.

A) underwriting
B) stock buyback
C) stock split
D) initial public offering (IPO)

Question 9

A company that is issuing securities to the public must file a written ________ with the Securities and Exchange Commission (SEC).

A) registration statement
B) writ of certiorari
C) financial statement
D) prospectus

Question 10

Which of these factors is NOT necessary for an existing company to qualify as an Emerging Growth Company (EGC) to conduct an IPO?

A) the company must have less than $1.07 billion in annual revenue
B) the company must have fewer than 100 shareholders
C) the company must have issued no more than $1 billion in debt
D) the company must have less than $700 million in stock outstanding after an IPO

Question 11

One of the benefits for qualifying as an Emerging Growth Company (EGC) is ________.

A) an EGC may submit a draft registration statement with the SEC for review by SEC staff who immediately publish it on the public SEC website
B) an EGC may communicate with institutional accredited investors to test the waters to see if there is enough interest in its IPO before going forward with it
C) an EGC needs to provide only three years of audited financial statements when filing an IPO registration to issue securities
D) qualification allows EGCs to file for registration of securities using the same process and making the same disclosure of financial information as would a non-EGC IPO

Question 12

Outline the main benefits to a company for qualifying as an emerging growth company (EGC).

Question 13

An offering statement requires ________ disclosure compared to a registration statement.

A) more
B) much more
C) equivalent
D) less

Question 14

There are ________ resale restrictions on securities that come under Regulation A+.

A) no
B) few
C) many
D) discretionary

Question 15

Erin Corp. wants to achieve well-known seasoned investor (WKSI) status. Which of these facts about Erin Corp. will allow it to qualify as a WKSI?

A) Erin Corp. has issued $1 billion of securities in the previous three years.
B) Erin Corp. has over 5,000 shareholders.
C) Erin Corp. owns over $20 billion is assets.
D) Erin Corp. has reported over $2 billion in revenue in each of the last 3 years.

Question 16

Briefly describe what is meant by a "shelf registration"and what its main benefits are to an issuer.

Question 17

What is crowdfunding? What are some of the rules that the SEC has promulgated to regulate crowdfunding?

Question 18

Briefly describe "cryptocurrency"and an "initial coin offering"(ICO). To what extent is the SEC involved with an ICO?

Question 19

Which of the following is true of Section 11 of the Securities Act of 1933?

A) It permits injured private parties to bring criminal actions against issuers who file fraudulent registration statements.
B) It imposes liability on those who defraud investors intentionally or are negligent in not discovering the fraud.
C) It allows an issuer to assert a due diligence defense against the imposition of Section 11 liability.
D) It does not apply to a case involving the negligent omission of a material fact in a registration statement.

Question 20

The issuer is not permitted to assert a(n) ________ defense against the imposition of Section 11 liability.

A) due diligence
B) due process
C) double jeopardy
D) equal protection

Question 21

________ occurs when a company employee or company advisor uses material nonpublic information to make a profit by trading in the securities of the company.

A) Insider trading
B) Embezzlement
C) Accredited investing
D) Exempt trading

Question 22

Who is covered by the Stop Trading on Congressional Knowledge Act (STOCK Act), and what activities does it prohibit?

Question 23

Which of the following best defines short-swing profits?

A) profits made by an insider by selling shares of the corporation before the public disclosure of unfavorable information
B) profits made by an insider by personally purchasing shares of the corporation before the public release of favorable information
C) profits made by a statutory insider on trades involving equity securities of his or her corporation that occur within six months of each other
D) profits made by a tippee by personally purchasing shares of the corporation either before or after the public release of favorable information