Deck 40: Securities Regulation

Question 1

The antifraud provisions of the 1933 Act pertain to both unregistered and registered securities.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Insiders may refrain from trading on inside information rather than disclose it to avoid liability under Rule 10b-5.

Answer 3

True

Question 4

The Securities Act of 1933 is also called the "Truth in Securities Act."

Question 5

The Supreme Court in the SEC v.Edwards case held that an investment scheme promising a fixed rate of return can be an "investment contract" and thus a "security" subject to the federal securities laws.

Question 6

The Securities Exchange Act of 1934 primarily deals with secondary transactions in stock.

Question 7

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

Question 8

"Shelf registrations" have to do with delayed sales of stock.

Question 9

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

Question 10

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

Question 11

The Private Securities Litigation Reform Act sought to prevent abuses in private securities fraud lawsuits.

Question 12

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

Question 13

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

Question 14

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

Question 15

The SEC's 2005 revisions greatly restrict the rules regarding written communications before and during registered securities offerings.

Question 16

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

Question 17

"Restricted securities" are exempted from registration.

Question 18

The Securities and Exchange Commission is an independent, judicial agency which administers state and federal securities laws.

Question 19

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

Question 20

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 21

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

Question 22

If the SEC requires an amendment to a registration, the 20-day waiting period begins again.

Question 23

In 1996, Congress enacted the National Securities Markets Improvements Act which preempted state regulation of certain securities.

Question 24

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 in a registration statement.

Question 25

The 1995 Private Securities Litigation Reform Act grants authority to the SEC to bring civil actions against aiders and abettors for certain violations of the 1934 Act.

Question 26

The 2008 amendments to the SEC rules regarding registration and reporting define a small business issuer as a noninvestment company with less than $20 million in public float.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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 34

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

Question 35

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

Question 36

Accredited investors include only institutions, such as banks and investment companies, not individuals.

Question 37

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

Question 38

The Securities Enforcement and Penny Stock Reform Act of 1990 eliminated the power of the SEC to impose administrative, civil penalties up to $725,000.

Question 39

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

Question 40

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

Question 41

"Insider trading" rules pertain to:

A)tippees.
B)officers.
C)directors.
D)underwriters.
E)All of the above.

Question 42

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

A)is payable into the U.S.Treasury.
B)may be three times the profit gained or loss avoided as a result of the unlawful purchase or sale.
C)is, for a controlling person, up to the greater of $1,425,000 or three times the profit gained or loss avoided as a result of the controlled person's violation.
D)All of the above.

Question 43

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 44

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 45

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

Question 46

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 the above are exempt.

Question 47

Rule 10b-5 applies to:

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

Question 48

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, directors, and 10% shareholders.
C)requires material inside information.
D)All of the above.

Question 49

The Securities and Exchange Commission (SEC) consists of five commissioners.

Question 50

__________, 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 51

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 the above.

Question 52

The SEC established a computer system that performs automated collection, validation, indexing, acceptance, and dissemination of reports required to be filed with the SEC.It is known as:

A)ELMER.
B)EDGAR.
C)electronic delivery.
D)SEC-ELS.

Question 53

The 1933 Act imposes liability for material misstatements and omission 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 54

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 organized 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 only accredited investors who will not redistribute them.

Question 55

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

A)504
B)14(a)-(e)
C)10b-5
D)16(b)

Question 56

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

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

Question 57

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

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

Question 58

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

Question 59

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

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

Question 60

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 61

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 62

Under the SEC's 2005 revisions regarding written communications:

A)all issuers may use a free-writing prospectus after the filing of the registration statement.
B)communications by issuers more than 30 days before filing a registration statement are allowed as long as they reference a securities offering that is the subject of a registration statement.
C)well-known seasoned issuers may engage at any time only in written communications other than a free-writing prospectus.
D)unseasoned issuers may not publish forward-looking information.

Question 63

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 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

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 the above may be considered insiders.

Question 66

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

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

Question 67

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 the above.

Question 68

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.

Question 69

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

A)primarily allows 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 the above.

Question 70

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

A)government bonds.
B)securities issued by medical facilities.
C)drafts issued for working capital.
D)state-regulated insurance company annuities.

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

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)None of these are correct.

Question 73

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 74

If a lawyer were being held liable for a misstatement in a registration statement, her defense(s) would be:

A)she was only following directions.
B)she had reasonable grounds to believe and did believe her information was true.
C)she was not responsible for the portion that contained the misstatement.
D)All of the above.
E)Both (b) and (c) above are correct.

Question 75

A solicitation of proxies from holders of stock:

A)is used by dissident shareholders attempting to change corporate policy by electing their own directors.
B)includes any request not to execute a proxy.
C)registered under the 1934 Act requires the solicitor to disclose all material facts concerning the corporate issues presented on the proxies.
D)All of these are correct.

Question 76

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 77

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)None of the above.

Question 78

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 based on information gained just after the public announcement of a major development.
C)an officer or director who buys stock and options through overseas financial institutions in his own company prior to a public announcement of information which greatly enhances the value of the stock.
D)an officer or director of a company who related information for a fee to investment bankers on companies his company is planning to target for takeover.

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

Solicitation includes any request:

A)for a proxy.
B)not to execute a proxy.
C)to revoke a proxy.
D)All of the above.