Deck 36: Securities Regulation

Question 1

A control security is stock which gives the owner a controlling interest in the company.

Answer 1

False

Question 2

Any securities offerings covered by the NSMIA must comply with state securities laws.

Answer 2

False

Question 3

With regard to a corporation's delivery of securities documents to investors and to the SEC:

A) the SEC does not permit issuers of securities to deliver documents to investors electronically since the issuer cannot assume that all investors have computers and want to receive data this way.
B) almost all filings with the SEC must be made electronically using the EDGAR system.
C) companies have the option of communicating with investors by simply posting information on their Web sites.
D) filing with the SEC can be done electronically only if the standards of consent, notice, and access are met.

Answer 3

B

Question 4

The 1933 Act exempts all but which of the following from its registration requirements?

A) Short-term notes.
B) Treasury stock.
C) Government securities.
D) Annuity contracts.

Question 5

The 1934 Act requires companies with a class of stock that is publicly traded to make regular filings with the SEC.

Question 6

Typically,exemptions under the 1933 Act are based on either the type of security or the type of transaction.

Question 7

The Sarbanes-Oxley Act makes it a crime to retaliate against someone who blows the whistle on any federal offense.

Question 8

Securities offered and sold entirely within one state by a corporation of that state are exempt from registration.

Question 9

Under what type of securities offering must the issuer determine if the investor is an accredited,sophisticated,or unaccredited investor?

A) Regulation A offering.
B) Regulation D offering.
C) Public offering.
D) An interstate offering.

Question 10

Securities issued by banks are exempt from SEC registration.

Question 11

Techno is planning a security offering under Regulation D,Rule 506.Under this rule,Techno can:

A) offer up to $5 million in securities over 12 months.
B) offer up to $1 million in securities over 12 months.
C) can offer an unlimited amount of securities.
D) can only offer an amount equal to twice its initial capitalization.

Question 12

The 1933 Act prohibits fraud only in transactions involving registered securities.

Question 13

The Securities Act of 1933 established the Securities and Exchange Commission.

Question 14

After the SEC completes its review of a preliminary registration statement,it sends the issuer a comment letter setting forth changes that must be made.

Question 15

Premier Enterprises sold Watson unregistered stock which was not exempt.The 1933 Act imposes liability on Premier,and Watson can demand rescission if he still owns the stock.

Question 16

Offerings under Regulation A of the Securities Act of 1933,although called private offerings,are really small public offerings.

Question 17

To recover for an alleged violation of SEC Rule 10(b)-5,a plaintiff is required to prove reliance on a misstatement or omission relative to the purchase of the security.

Question 18

The SEC has enforcement powers,including the power to issue cease and desist orders,to levy fines,and to confiscate profits from illegal transactions.

Question 19

The "tipper" of inside information can be convicted of a crime,the "tippee" cannot.

Question 20

When a stock underwriter acts as the company's agent in selling stock,it is called a:

A) company underwriting.
B) express underwriting.
C) firm commitment underwriting.
D) best efforts underwriting.

Question 21

If a registration statement contains a material misstatement or omission:

A) the company is liable and has no defense.
B) anyone other than the company who signed the statement is liable and has no defense.
C) all experts are liable and have no defense.
D) the company is liable unless it can show due diligence.

Question 22

Felicity brought a lawsuit under Section 11 of the 1933 Act against Mojo Corp.She will have to prove that:

A) she relied on the registration statement.
B) Mojo was negligent in preparing the registration statement.
C) there was a material misstatement or omission in the registration statement and she lost money.
D) All of the above.

Question 23

Section 16 of the 1934 Act prohibits short-swing trading on the part of any person who is:

A) an officer of a corporation.
B) a director of a corporation.
C) any shareholder who owns ten percent or more of the corporate stock.
D) All the above.

Question 24

The guiding principal of federal securities law is:

A) to keep investors from making bad investments.
B) to insure investors have full and accurate information.
C) to avoid another stock market crash.
D) to promote the issuance of securities.

Question 25

The 1934 Act is primarily intended to:

A) maintain the integrity of the secondary market for securities.
B) make sure companies who wish to raise money by the sale of securities comply with disclosure requirements for the initial offering.
C) coordinate federal and state laws with a primary emphasis on allowing the individual states to maintain primary control over securities law.
D) All the above are correct.

Question 26

Under the 1934 Act,an issuer must register with the SEC if:

A) it completes a public offering under the 1933 Act.
B) its securities are traded on a national exchange.
C) it has at least 500 shareholdres and total assets that exceed $10 million.
D) All of the above.

Question 27

The SEC creates law in all but which of the following ways?

A) Bringing cease and desist orders.
B) Issuing releases.
C) Promulgating rules.
D) Writing no-action letters.

Question 28

A defense to a civil action brought under Section 10(b)and Rule 10b-5 of the 1934 Act would be:

A) that the statute of frauds was not observed.
B) that the seller of the securities was not in privity of contract with the plaintiffs.
C) that the sellers did not intentionally or recklessly make a false representation.
D) All of the above.

Question 29

Ed,a vice-president of Palmette Products,Inc.,buys 1,000 shares of his company's stock on June 15.His son has medical problems in September,and Ed sells the stock at a profit.Ed:

A) must turn over to Palmette any profits he made on the sale.
B) may keep any profits on the sale since he had a good reason to sell and was not selling in order to manipulate the market.
C) may keep the profits from the sale as long as he reported his sale to the SEC within two business days.
D) may keep any profits from the sale if he did not act on secret information when he sold the shares.

Question 30

Which of the following requires companies to file annual reports containing audited financial statements?

A) The 1933 Act.
B) The 1934 Act.
C) Regulation A.
D) Regulation B.

Question 31

MegaCorp wishes to sell $25 million of securities.The only investors will be 20 institutional buyers.Which of the following applies to this offering?

A) Rule 504 of Regulation D of the 1933 Act.
B) Rule 505 of Regulation D of the 1933 Act.
C) Rule 506 of Regulation D of the 1933 Act.
D) None of the above apply to this $25 million offering.

Question 32

An individual engaged in illegal insider trading could be:

A) fined.
B) given a prison sentence.
C) required to pay the SEC three times the profit made.
D) All the above are correct.

Question 33

Under which of the following exemptions is there no dollar limitation?

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

Question 34

The Foreign Corrupt Practices Act makes it a crime:

A) for U.S. companies to sell unregistered stock in other countries.
B) for non U.S. companies to sell unregistered securities in the U.S.
C) to "bribe" foreign governments or officials.
D) to conspire to defraud stock purchasers in other countries.

Question 35

Which of the following statements is correct?

A) Investors generally receive a copy of the registration statement.
B) Investors generally do not receive the company's prospectus.
C) A prospectus provides disclosure about the offering but does not include as much information as the registration statement, such as information that would be of interest to the SEC but not the typical investor.
D) All the above.

Question 36

A criminal case under the Securities Act of 1933 is prosecuted by:

A) the SEC.
B) the Justice Department.
C) the Department of the Treasury.
D) the FTC.

Question 37

If the final registration statement contains a material misstatement or omission,the purchaser of the security can recover damages from:

A) everyone who signed the registration statement..
B) the company's directors, but not the chief officers.
C) the experts who signed the registration statement, but not any other parties.
D) the issuer of the security, but not the company's directors or chief officers.

Question 38

The Foreign Corrupt Practices Act:

A) applies only to corporations registered under the federal Securities Exchange Act.
B) makes it illegal to bribe U.S. and foreign officials.
C) applies to any U.S. corporations.
D) applies only to foreign corporations.

Question 39

Pursuant to a public offering,a CPA firm prepared an unqualified opinion as to the financial statements.After the offering,omissions and misstatements were found.The CPA firm is now being sued by the purchasers of the stock.The purchasers are alleging that the erroneous financial statements in the registration statement caused them to suffer a monetary loss.The CPA firm can avoid liability if it can prove:

A) that it used due diligence in preparing the financial statements.
B) the corporation was the party who made misstatements and omissions.
C) the firm believed that the statements were accurate.
D) None of the above will avoid liability.

Question 40

Larry was working at his job at the landfill when he got off his tractor to take a break.He noticed some papers on the ground and went to throw them on a trashpile.As he held the papers he saw a confidential report from MegaCorp stating it would be announcing the development of a new super computer in two weeks.Larry has no relationship with MegaCorp.Larry mortgaged his house and borrowed all the money he could to purchase $200,000 worth of MegaCorp stock.Larry bought the stock for $32 a share.When the announcement was made public,MegaCorp's stock skyrocketed.Larry sold his stock a few weeks later and made a huge profit.Larry has:

A) committed a criminal act.
B) violated SEC regulations but not the criminal law.
C) committed an act of improper insider trading.
D) done nothing legally wrong.

Question 41

Jackie learned of insider trading information while talking to Mark,a director of a large corporation.She took advantage of the information to buy stock and make a huge financial gain.If she is accused of violating securities law,what must the government prove in order to gain a conviction against Jackie?

Question 42

Countywide Metals is a small company that incorporates in the state in which it is doing business and plans to offer and sell $100,000 worth of stock only to residents of the county in which it is doing business.Discuss the requirements Countywide must meet for registering its securities.

Question 43

The Fallwater Partnership wants to incorporate and is considering using a DPO.Explain what a DPO is and discuss the advantages and disadvantages of this course of action.

Question 44

What are the three primary ways the SEC creates law?

Question 45

What information must be contained in a registration statement?