Deck 13: Securities Regulation and Compliance

Question 1

Many states permit withdrawal by an attorney when the highest authority of the corporation insists on a criminal action that will substantially injure the corporation and this is called reporting up.

Answer 1

False
Explanation: Many states permit withdrawal by an attorney when the highest authority of the corporation insists on a criminal action that will substantially injure the corporation and this is called reporting out. To report up means the report has to be made to a chief legal officer or qualified legal compliance committee.

Question 2

Companies carryout initial public offering (IPO) for distributing bonus shares to existing investors.

Answer 2

False
Explanation: If and when a corporation decides to "go public" it offers its shares for sale through an initial public offering (IPO).

Question 3

A proxy solicitation is a writing signed by a shareholder of a corporation authorizing a named person to vote his or her shares of stock at a specified meeting of the shareholders.

Answer 3

True
Explanation: A proxy solicitation is a writing signed by a shareholder of a corporation authorizing a named person to vote his or her shares of stock at a specified meeting of the shareholders.

Question 4

At the time of public offering, securities that are filed under "Registration D" are usually sold to a select group of individuals, called accredited investors.

Question 5

Debt securities are represented by stocks and other instruments that qualify as assets.

Question 6

A registered stock can be negotiated by whoever possesses the stock.

Question 7

Debt securities are also known as shares.

Question 8

All public offerings of securities must be registered with the SEC.

Question 9

The Securities Exchange Act of 1933 regulates secondary trades of securities between persons having no relationship to the original issuer.

Question 10

The _____ oversees all the U.S. stock exchanges and any organization connected with the selling of securities.

A) Domestic Policy Council
B) Securities Exchange Commission (SEC)
C) Council of Economic Advisers
D) Commission on Civil Rights

Question 11

In the context of insider trading liability, section 16 applies to all securities, registered or nonregistered, debt or equity.

Question 12

A security is defined as a negotiable instrument that represents financial value.

Question 13

The primary difference between debt and equity is that debt represents money owed while equity represents an asset owned.

Question 14

Management's Discussion and Analysis (MD&A) is often the most important disclosure item in the annual report.

Question 15

A red herring prospectus is issued before the sale is actually consummated.

Question 16

In 2007, the market essentially collapsed due to:

A) the collapse of the telecommunication industry.
B) the dot-com burst.
C) the mortgage and credit crises.
D) the collapse of the automobile industry.

Question 17

SEC guarantees accuracy of the information printed in the prospectus.

Question 18

In the context of insider trading, those who receive insider information from the issuer in connection with other duties such as accountants or lawyers are also considered insiders under Rule 10b-5.

Question 19

Rule 10b-5 requires intent to deceive.

Question 20

Any suit alleging a Rule 10b-5 violation arises in state court.

Question 21

The Securities Act of 1933 is directed primarily at the:

A) selling of financial products.
B) distribution of debt securities.
C) original distribution of securities into the market.
D) distribution of dividend to the shareholders.

Question 22

A security is defined as a _____ that represents financial value.

A) negotiable instrument
B) contract
C) deed
D) chattel paper

Question 23

Which of the following statements is definitely true regarding a tombstone ad?

A) It is an offer for the sale.
B) It can be published only after the registration becomes effective.
C) It is just an announcement of the upcoming sale.
D) It is a part of the registration statement that needs to be filed with the SEC.

Question 24

When a company decides to go public, it must file a registration statement with the SEC. Which of the following statements is true regarding this registration process?

A) A registration becomes effective 10 days after the final change has been submitted to the SEC.
B) Tombstone ads can be published before the registration becomes effective.
C) Securities can be sold before the registration becomes effective.
D) The financial statements submitted for the registration process must be certified for the past six years. A registration becomes effective 20 days after the final change has been submitted to the SEC. No securities can be sold before the registration becomes effective however the tombstone ads can be published. However, tombstone ads may be published to announce the anticipated offering.

Question 25

If and when a corporation decides to "go public" it offers its shares for sale through a(n) _____.

A) initial public offer
B) equity carve-out
C) follow-on public offer
D) book closure

Question 26

Securities filed under "Regulation D" are:

A) not exempt from registration with the SEC.
B) sold to accredited investors.
C) securities of federal government.
D) offerings of a limited size that are sold strictly intrastate. Not all public offerings of securities must be registered with the SEC. Some offerings, like those filed under a "Regulation D" exemption, are exempt because the offering is being made to a select group of individuals, called accredited investors.

Question 27

Bank note is an example of _____.

A) debt securities
B) bills receivables
C) forward rate agreements
D) chattel papers

Question 28

Which of the following statements is definitely true regarding a nonregistered stock?

A) It can be negotiated by whoever possesses the stock.
B) It exists in the form of a stock certificate.
C) It is a type of a debt security.
D) It represents a loan to the company which the company promises to repay with interest.

Question 29

When going public, full compliance with the Securities Act of 1933 involves the filing of a(n) _____ with the SEC.

A) incorporation agreement
B) compliance statement
C) terms of agreement
D) registration statement When going public, full compliance with the Securities Act of 1933 involves the filing of a registration statement with the SEC.

Question 30

Which of the following statements is definitely true regarding a registered stock?

A) A registered stock is a type of a debt security.
B) A registered stock is not a negotiable instrument.
C) A registered stock exists in the form of noncertificated stock.
D) The only person who has a right to negotiate it is the person whose name is registered on the books of the corporation as the owner.

Question 31

Stock is a type of _____.

A) receipt
B) bill
C) cheque
D) security

Question 32

In the context of initial public offering, prior to the final prospectus being filed with the SEC, the company must issue a(n) _____ which is a preliminary prospectus whose purpose is to give potential investors as much information as possible before the sale is actually consummated.

A) annual report
B) proxy solicitation
C) article of incorporation
D) red herring prospectus

Question 33

Which of the following acts represents the federal government's first involvement in the sale of stocks and other securities?

A) Revenue Act of 1932
B) Securities Act of 1933
C) Budget and Accounting Procedures Act of 1950
D) Freedom of Information Act

Question 34

While going public, the company will have to file a registration statement. The registration form will include all of the following EXCEPT:

A) a description of the company's property and business.
B) voting procedures.
C) a description of the security to be offered for sale.
D) information about the management of the company.

Question 35

Which of the following statements is true regarding equity securities?

A) Equity securities represent loans to companies which companies promise to repay with interest.
B) A share is an example of equity securities.
C) Equity securities are represented by bank notes.
D) Equity securities do not fall into the category of negotiable instruments as they represent ownership in companies.

Question 36

When going public, for full compliance with the Securities Act of 1933, the companies need to include a document in the registration statement which would be distributed to potential and actual investors. This document is known as a(n) _____.

A) incorporation statement
B) chattel paper
C) prospectus
D) terms of agreement

Question 37

Which of the following statements is true regarding debt securities?

A) They are represented by stocks.
B) They are also known as shares.
C) They are negotiable instrument.
D) They represent buying ownership in a company.

Question 38

The financial statements file by an organization at the time of going public must be certified for the past _____ years.

A) three
B) four
C) five
D) six

Question 39

Which of the following best represents an illegal pyramid scheme?

A) Embezzlement
B) Window dressing
C) Insider trading
D) Ponzi scheme

Question 40

Which of the following statements is true regarding a security?

A) A security is a type of chattel paper.
B) Stock is one type of security.
C) Debt securities represent investors buying ownership in a company.
D) A security is not a negotiable instrument.

Question 41

Which of the following information is most likely to be included in a proxy statement?

A) Share prices for the past one year
B) Background information about the company's nominated directors
C) A description of the company's property
D) Financial statements certified by independent accountants

Question 42

The SEC alone cannot enforce all aspects of the securities market so Congress empowers _____ as an enforcement agency.

A) a self-regulatory organization (SRO)
B) Department of Commerce (DOC)
C) Comptroller of the Currency Office
D) Chief Financial Officers Council

Question 43

Which of the following statements is definitely true regarding transactions that are called short swing profits?

A) These transactions involve buying and selling of those securities that are exempt from registration under "Regulation
B) These transactions take place when the securities are being offered to the accredited investors.
C) These are in-and-out transactions that might be used to manipulate securities.
D) These transactions involve buying and selling of securities by the directors of the company.
D)"

Question 44

Many states permit withdrawal by an attorney when the highest authority of the corporation insists on a criminal action that will substantially injure the corporation. This is called _____.

A) reporting up
B) external reporting
C) reporting out
D) proxy solicitation

Question 45

What is a security?

Question 46

A(n) _____ is a statement required of a U.S. corporation when soliciting shareholders' votes.

A) proxy statement
B) article of incorporation
C) red herring prospectus
D) registration statement

Question 47

Which of the following statements is true regarding insider liability under section 16?

A) Section 16 requires that the insider possesses material nonpublic information.
B) Section 16 only applies to transactions within six months of each other.
C) Section 16 applies to nonregistered equities.
D) Section 16 applies to debt securities.

Question 48

This federal law enacted in reaction to a number of major corporation and accounting scandals. The Act established new standards for all U.S. company boards of directors, management, and accounting firms. Identify the federal law in the discussion.

A) Congressional Accountability Act
B) McKinney-Vento Act
C) Regulatory Flexibility Act
D) Sarbanes-Oxley Act

Question 49

Which of the following statements is true regarding a proxy solicitation?

A) It needs to be filed with the SEC along with the registration statement before the initial public offering.
B) It is used at the time of initial public offering to announce the upcoming sale of securities.
C) It is a writing signed by a shareholder of a corporation authorizing a named person to vote his or her shares of stock at a specified meeting of the shareholders.
D) It is a part of the red herring prospectus.

Question 50

Purchasers who discover a false or misleading statement in a prospectus cannot bring an action if more than _____ have passed since the purchase of the security.

A) two months
B) six months
C) two years
D) three years

Question 51

In the context of insider trading liability, Section 16 applies to transactions involving _____ securities.

A) nonregistered debt
B) nonregistered equity
C) registered debt
D) registered equity

Question 52

Which of the following sections is NOT one of the eleven sections of the Sarbanes-Oxley Act Of 2002?

A) Analyst conflicts of interest
B) Corporate responsibility
C) Accuracy of forward looking statement
D) White Collar Crime Penalty Enhancement

Question 53

What is a Ponzi Scheme?

Question 54

Which of the following is the principal document used by most public companies to disclose corporate information to their shareholders?

A) Red herring prospectus
B) Annual report
C) Proxy solicitation
D) Registration statement

Question 55

Which of the following best represents a writing signed by a shareholder of a corporation authorizing a named person to vote his or her shares of stock at a specified meeting of the shareholders?

A) Red herring prospectus
B) Registration statement
C) Proxy statement
D) Proxy solicitation

Question 56

What is the difference between debt securities and equity securities?

Question 57

Which of the following statements is true regarding Rule 10b-5?

A) Any suit alleging a Rule 10b-5 violation arises in state court.
B) It is not applicable to those corporations whose shares are traded on the stock market.
C) It is not applicable to privately held corporations.
D) Rule 10b-5 requires intent to deceive.

Question 58

If a corporation is holding an annual meeting for the purpose of voting on a board of directors, Rule 14 requires that the proxy be accompanied by a(n) _____ containing financial information on the corporation.

A) annual report
B) statement of information
C) registration statement
D) red herring prospectus

Question 59

Which of the following organizations is responsible for regulatory oversight of all securities firms that do business with the public?

A) Office of Special Counsel
B) Financial Industry Regulatory Authority
C) Chief Financial Officers Council
D) Federal Accounting Standards Advisory Board

Question 60

According to the Sarbanes-Oxley Act, an attorney has the duty to "report up" any evidence of material violation by an issuer, its officer, director, employee or agent. Here reporting up means:

A) filing suit against the directors for the violation.
B) reporting the violations to a chief legal officer or qualified legal compliance committee.
C) publishing the violation in the media.
D) informing the shareholders about the violation.

Question 61

Discuss the following statement "Not all public offerings of securities must be registered with the SEC."

Question 62

Discuss the significance of the annual reports.

Question 63

Discuss the Regulation Dexemption.

Question 64

What is a tombstone ad?

Question 65

What are the two objectives of the Securities Act of 1933?

Question 66

In the context of Sarbanes-Oxley Act, what is meant by reporting up and reporting out?

Question 67

Explain following terms: registered stock and nonregistered stock.

Question 68

Discuss the following statement "Management's Discussion and Analysis (MD&A) is often the most important disclosure item in the annual report."

Question 69

What is a red herring prospectus?

Question 70

What are the two major parts of a registration statement that a company needs to file with the SEC at the time of going public?

Question 71

What is a stock?

Question 72

Discuss liability arising under Rule 10b-5.

Question 73

According to some critics, what are the various disadvantages of The Sarbanes-Oxley Act?

Question 74

In the context of insider trading liability, discuss the differences between Rule 10b-5 and Section 16.

Question 75

What is a proxy solicitation?