Deck 46: Securities Regulation

Question 1

No private or limited offerings of securities are exempt from the SEC registration requirements.

Answer 1

False

Question 2

Exchanges, brokers, and dealers who deal in the securities traded in interstate commerce or on any national security exchange must register with the SEC unless exempted by it.

Answer 2

True

Question 3

A prospectus sets forth the key information contained in the registration statement.

Answer 3

True

Question 4

Law firms and public accounting firms that prepare fraudulent registration statements on behalf of clients are not subject to civil liability.

Question 5

The Market Reform Act of 1990 empowers the SEC to suspend all trading when markets are excessively volatile.

Question 6

Securities acquired under a SEC Regulation D exemption from registration are considered restricted securities, and their resale may require registration.

Question 7

The Securities Act of 1933 requires a seller to provide a prospectus to each potential purchaser of an original issue of securities.

Question 8

From the date of a company's filing a registration statement with the SEC to the date the registration becomes effective, at least 20 days must elapse.

Question 9

The Securities Act of 1933 prohibits the offering or sale of securities to the public in interstate commerce before a registration statement has been filed with the Securities and Exchange Commission (SEC).

Question 10

Persons or firms can be sued for false statements in a registration statement.

Question 11

State laws designed to protect the public from the sale of worthless stocks and bonds are known as "clear sky" laws.

Question 12

The Securities Act of 1933 imposes civil and criminal penalties for the making of fraudulent statements in a registration statement.

Question 13

The Securities Exchange Act of 1934 is concerned with the secondary distribution of securities in the national securities markets and in the over-the-counter markets.

Question 14

Under Regulation D, Rule 504, there are strict restrictions on the number of investors and the methods of soliciting those investors.

Question 15

Liability under the 1933 Act applies only to sellers of securities who utilize untrue statements, not to those who merely offer to sell securities using untrue statements.

Question 16

Under the United States Supreme Court's definition, an investment contract exists if the following elements are present: (1) an investment of money, (2) a common enterprise, and (3) an expectation of future profits from the efforts of others.

Question 17

Under SEC Regulation D, offerings in unlimited amount can be made solely to accredited investors and can be exempt from the registration process.

Question 18

The Securities Act of 1933 deals with the original distribution of securities by the issuing corporations.

Question 19

Under the 1990 Remedies Act, the SEC may start administrative proceedings against any person or entity, whether regulated by the SEC or not.

Question 20

Securities covered by the securities acts include not only investment instruments such as stocks and bonds but also "investment contracts."

Question 21

Any shareholder owning more than five (5) percent of any class of the corporation's equity securities is statutorily defined as an insider and must file with the SEC a disclosure statement regarding such ownership and all related transactions.

Question 22

Companies whose securities are listed on a national securities exchange and unlisted companies with assets in excess of $10 million and 500 or more shareholders are exempt from the reporting requirements of the Securities Exchange Act of 1934.

Question 23

Federal regulation of the sale of securities is based on the:

A) Securities Act of 1933 and the Securities Exchange Act of 1934.
B) Securities Act of 1933 and the Federal Trade Act of 1936.
C) Federal Trade Act of 1936 and the Blue Sky Act of 1933.
D) Fair Stock Act of 1932 and the Investment Securities Act of 1934.

Question 24

Which of the following powers is not available to the SEC pursuant to the Remedies Act?

A) The SEC may start administrative proceedings against any person or entity regulated by the SEC.
B) The SEC may start administrative proceedings against any person or entity not regulated by the SEC.
C) The SEC may order an accounting and disgorgement of ill-gotten gains.
D) All of the above powers are available to the SEC under the Remedies Act.

Question 25

State statutes designed to protect the public from the sale of worthless stocks and bonds are called:

A) antifraud acts.
B) blue sky laws.
C) clear sky laws.
D) none of the above.

Question 26

Unlisted companies that have assets less than $10 million and fewer than 500 shareholders are subject to the reporting requirements of the Securities Exchange Act of 1934.

Question 27

A "short-swing" profit is realized by a corporate insider from selling corporate securities less than one (1) year after purchase.

Question 28

The Insider Trading and Securities Fraud Enforcement Act of 1988 gave the SEC authority to bring an action against an individual purchasing or selling a security while in possession of material, inside information.

Question 29

Investors who lack inside information and have sold their stock during the relevant time period may recover damages from insiders who have made use of the undisclosed information.

Question 30

Which of the following federal laws grants the SEC the power to suspend all trading when markets are excessively volatile?

A) The Trust Indenture Act of 1939
B) The Market Reform Act of 1990
C) The Investment Advisors Act of 1940
D) The Remedies Act of 1990

Question 31

An investment contract exists if which of the following elements are present?

A) an investment of money
B) a common enterprise
C) an expectation of future profits
D) all of the above

Question 32

Under the Litigation Reform Act of 1995, issuers of forward-looking statements that were not knowingly false when made have a safe harbor from related lawsuits if appropriate cautionary language was included.

Question 33

A prospectus sets forth:

A) the key information contained in the registration statement.
B) information on stocks approved by the SEC.
C) information that the SEC has not reviewed.
D) none of the above.

Question 34

Individuals who steal valuable nonpublic information in breach of a fiduciary duty to their employers and trade in securities on that information are guilty of insider trading as "misappropriators."

Question 35

The 1988 Insider Trading Act does not establish programs rewarding informants who provide information on insider trading activity.

Question 36

The SEC requires that annual shareholder reports be submitted to shareholders in any proxy solicitation on behalf of management.

Question 37

What is the purpose of the Securities Act of 1933?

A) to assure investors a fair return
B) to give the SEC the opportunity to approve or disapprove securities as good investments
C) to provide interested investors with truthful, detailed information about originally-issued securities
D) to support compliance with the 1934 act

Question 38

The Litigation Reform Act of 1995 provides for proportionate liability, as opposed to joint and several liability, for defendants who are found not to have knowingly committed a violation of the security laws.

Question 39

In every 10b-5 situation, the plaintiff must show "reliance" on the misrepresentation and a resulting injury.

Question 40

The registration requirement of the Securities Act of 1933 applies to:

A) the issuing of stocks, bonds, and other investment securities.
B) the issuing of certificates of deposit by a national bank.
C) shares issued by nonprofit corporations.
D) issues of $1.5 million or more.

Question 41

A corporation may sue a director owning more than ten (10) percent of any class of corporate stock who makes a profit by selling any such stock:

A) if the sale is made more than six (6) months after the original purchase of the stock by the director.
B) only if the stock was originally acquired with fraudulent intent.
C) only if the stock was sold with fraudulent intent.
D) if the sale was made less than six (6) months after the original purchase of the stock by the director.

Question 42

SEC Rule 10b-5:

A) is the principal antifraud rule relating to the secondary distribution of securities.
B) provides that a civil action for damages may be brought by any private investor who purchased or sold a security and was injured because of false, misleading, or undisclosed information.
C) applies to all securities, whether registered or not, as long as use is made of the mail, interstate commerce, or a national stock exchange.
D) all of the above.

Question 43

A __________ insider is someone retained by the corporation for professional services, such as an attorney, accountant, or investment banker.

A) professional
B) corporate
C) temporary
D) virtual

Question 44

Provision for exemption from the registration requirements of the Securities Act of 1933 is made for offerings made solely to accredited investors by SEC Regulation:

A) a.
B) b.
C) c.
D) d.

Question 45

An unlawful sale under the Insider Trading Sanctions Act of 1984 can result in a civil penalty of up to how many times the profit gained or loss avoided?

A) two (2)
B) three (3)
C) four (4)
D) five (5)

Question 46

Mark Hubbard has been very successful in the cattle business over a number of years. Hubbard has decided to establish a cattle program as an investment tool. He will purchase cattle with investors' money and then provide medical care, feed, and transportation on a service contract basis. The profits then will be divided proportionately among the investors. An investment company, Money Ventures, Inc., is interested in the entire offering of Hubbard's cattle program. Hubbard is unsure as to whether the securities acts apply to him. In addition, he wonders whether his venture, as structured, is exempt if the activity is within the securities acts. Should Hubbard be concerned?

Question 47

The registration process under Section 5 of the 1933 act is divided into three time periods. In order, they are:

A) waiting, prefiling, and posteffective.
B) waiting, prefiling, and executory.
C) prefiling, waiting, and posteffective.
D) prefiling, executory, and posteffective.

Question 48

Which of the following acts was passed to ensure that public shareholders faced with a cash tender offer would not be required to respond without sufficient information?

A) the Mann Act
B) the Robinson-Patman Act
C) the Williams Act
D) the SEC Act

Question 49

The Securities Exchange Act of 1934 deals with the __________ distribution of securities.

A) primary
B) secondary
C) aftermarket
D) direct

Question 50

Under Regulation D, Rules 505 and 506, sales may be made to how many accredited investors?

A) an unlimited number
B) fewer than fifty (50)
C) fewer than thirty-five (35)
D) three (3) whose net assets collectively total at least $100 million

Question 51

Bart and his brother-in-law, Ted, owned a small corporation. Ted was basically an investor, and Bart ran the entire business. As Ted became increasingly remote from day-to-day operations, Bart began to falsify some records so that Bart could take a greater share of the profits. This continued for years with Bart mailing falsified financial statements to Ted. When Bart suddenly became ill, Ted was forced to assume a greater role in the business on a temporary basis. During this time, Ted discovered the past deceptions and sued Bart under Rule l0b-5 of the Securities Exchange Act of 1934. Bart defended on the procedural ground that the business was local and had never been involved in interstate transactions of any kind. Moreover, the corporation was not listed on any stock exchange, nor did it have assets in excess of $10 million or 500 or more shareholders. Comment on the outcome of this case.

Question 52

Taylor, a securities lawyer for a major Wall Street law firm, worked on numerous successful takeover bids of companies listed on the New York Stock Exchange. Prior to the public announcement of the takeover bids, Taylor provided information to Rogers (his stockbroker) and to Price (his mistress) about certain planned takeover bids on which he had provided legal services. Rogers, who was aware of the relationship between Taylor and Price, made purchases of the target companies on Rogers' and Price's behalf, netting them more than a million dollars in profits each. The SEC brings an action against Taylor, Rogers, and Price under Rule 10b-5 and the Insider Trading Sanctions Act of 1984. Taylor defends that he is an outsider not subject to the 1984 law and Rule 10b-5, and that he received no personal benefit. Rogers and Price defend that they were merely acting on stock market tips received from a person who did not personally benefit from the disclosure. Decide.

Question 53

Which exemption to registration requirements exempts offerings of less than $5 million to no more than 35 nonaccredited purchasers over a 12-month period?

A) Rule 504 exemption
B) Rule 505 exemption
C) Rule 506 exemption
D) Rule 507 exemption

Question 54

An individual who receives information from an insider or temporary insider is called a:

A) tippee.
B) tipper.
C) de facto insider.
D) virtual insider.

Question 55

The Litigation Reform Act of 1995 was passed because of:

A) congressional concern over an excess of frivolous private securities lawsuits.
B) the financial burdens placed on accountants and other professional advisors due to an excess of frivolous private securities lawsuits.
C) concern that the investors in a class action lawsuit have their interests fairly represented.
D) all of the above.

Question 56

A corporation or group of investors may seek to acquire control of another corporation by offering cash for all of its shares made available for sale by a certain date. This action is called a(n):

A) cash tender offer.
B) stock redemption offer.
C) stock reclamation offer.
D) offer for value.