Question 1

Securities issued in a private placement are called __________ securities.

Accepted Answer

Securities issued in a private placement are called restricted securities because they cannot be resold to the public without meeting certain requirements, such as registration with the SEC or finding an exemption from registration. Qualified, private, and shelf securities are not commonly used terms related to private placements.

Question 2

Fact Pattern 21-2
Alice and her general partner, Greg, own several businesses. Alice is very interested in salt water aquariums and decides that a good venture for the partnership would be the development of a business to raise tropical fish. She plans to issue stock to start the fish business with the idea that she and Greg will purchase a majority of the stock. She has a friend, Tony, a plastic surgeon with a good practice, who has expressed interest in the venture because he believes that the presence of fish in waiting rooms reduces anxiety and encourages patients to spend more money. Alice does not want to go to the expense and trouble of a formal registration under the 1933 Act and seeks advice on how to avoid that process should the partnership issue securities.
-Refer to Fact Pattern 21-2.As far as Tony is concerned,which of the following is true?

Accepted Answer

Selling to Tony would not trigger registration requirements if it can be established that his income or net worth meets amounts required to qualify him as an accredited investor under Regulation D of the Securities Act of 1933. This exemption only applies if the issuer takes reasonable steps to verify that Tony is an accredited investor.

Question 3

According to the __________ doctrine,a court may determine that the inclusion of sufficient cautionary statements in a prospectus renders immaterial any misrepresentations and omissions contained therein.

Accepted Answer

This is known as the bespeaks caution doctrine, which means that if the prospectus includes enough cautionary statements to alert the investor of potential risks or uncertainties, any misrepresentations or omissions may be deemed immaterial.

Question 4

Assuming no exemption applies,what is the penalty for a violation of section 5 of the 1933 Act through offering a security for sale without an effective registration statement or by means of a noncomplying prospectus?

Accepted Answer

The penalty for a violation of section 5 of the 1933 Act includes giving the purchaser the option to keep the shares if the investment is successful, or to get a refund within one year if the investment is unprofitable.

Question 5

A(n)__________ company is a development-stage company that has no specific business plan or has a business plan to acquire a currently unknown business.

Accepted Answer

A blank check company, also known as a Special Purpose Acquisition Company (SPAC), is a development-stage company that has no specific business plan but aims to raise funds from investors to finance the eventual acquisition of a currently unknown or unspecified business. The company is set up as a shell corporation with the purpose of going public through an initial public offering (IPO) and then using the proceeds from the IPO to acquire an operational company within a set timeframe. Therefore, choice C is the correct option.

Question 6

Which of the following was passed in 2010 and represents the most sweeping reform of U.S.financial markets since the Great Depression?

Accepted Answer

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 and is considered the most sweeping reform of U.S. financial markets since the Great Depression. The other answer choices do not exist and were invented for the purpose of this question.

Question 7

Which of the following is NOT an accredited investor under Rule 501?

Accepted Answer

Under Rule 501 of Regulation D, an accredited investor includes, among others, banks, directors of the issuer, and natural persons with a net worth (or joint net worth with the person’s spouse) exceeding $1 million at the time of the purchase, excluding the value of the primary residence. However, simply being a corporation with assets in excess of $1 million does not automatically qualify as an accredited investor; there are specific criteria that such entities must meet, such as being an entity in which all the equity owners are accredited investors or meeting other specific qualifications that are not solely based on total assets.

Question 8

In CASE 21.1 Lawson v.FMR,LLC (2014),the question before the U.S.Supreme Court was whether the __________ Act whistleblower protections extended to __________ of __________ contractors of __________ corporations.

Accepted Answer

The question is asking about whistleblower protections under a specific act, and only Sarbanes-Oxley fits this description. The question is also asking about the protections for employees of private contractors of public corporations, which is exactly what was at issue in the Lawson v. FMR case.

Question 9

If an issuer makes successive sales within a limited period of time,the SEC may __________ the successive sales,resulting in the loss of a private-offering exemption.

Accepted Answer

The SEC may integrate the successive sales, which means they will be considered as one offering and not as separate private offerings. If the total offering exceeds the limit for a private offering exemption, the issuer would lose the exemption and would need to register the offering.

Question 10

Which of the following activities are NOT regulated by the 1934 Act?

Accepted Answer

Primary securities sales are regulated by the Securities Act of 1933, not the Securities and Exchange Act of 1934, which is commonly referred to as the "1934 Act." Proxy solicitations, insider trading, and tender offers are all activities that are regulated by the 1934 Act.

Question 11

A(n)__________ is defined under the 1933 Act as any person who has purchased from an issuer with a view to,or offers or sells for an issuer in connection with,the distribution of any security.

Accepted Answer

The definition given in the question matches the definition of an underwriter, as per the 1933 Act. Therefore, the best choice would be B. The other choices such as investment banker, dealer, and secondary seller do not match the given definition.

Question 12

To which of the following is an entrepreneur likely referring when using the term "angel" in reference to an investment plan?

Accepted Answer

When an entrepreneur uses the term "angel" in reference to an investment plan, they are likely referring to family, friends, and wealthy individual investors to whom the entrepreneur first turns to seek funds. These individuals are colloquially known as "angel investors" because they typically invest in startups at the earliest stage, when the company has no revenue and no track record. They are willing to take on higher risk because they believe in the entrepreneurial vision and potential for high returns on their investment.

Question 13

Fact Pattern 21-2
Alice and her general partner, Greg, own several businesses. Alice is very interested in salt water aquariums and decides that a good venture for the partnership would be the development of a business to raise tropical fish. She plans to issue stock to start the fish business with the idea that she and Greg will purchase a majority of the stock. She has a friend, Tony, a plastic surgeon with a good practice, who has expressed interest in the venture because he believes that the presence of fish in waiting rooms reduces anxiety and encourages patients to spend more money. Alice does not want to go to the expense and trouble of a formal registration under the 1933 Act and seeks advice on how to avoid that process should the partnership issue securities.
-Refer to Fact Pattern 21-2.As far as Greg is concerned,which of the following is true?

Accepted Answer

General partners are considered accredited investors, which means that selling to Greg would not trigger registration requirements.

Question 14

Fact Pattern 21-1
Joan enjoys cross stitching, and her husband, John, makes items using a woodworking process. They would like to make more items and open a small shop selling their handiwork, but they need additional capital with which to purchase raw materials, rent space, and advertise. Joan and John discuss the idea with their neighbors during the annual neighborhood picnic. A number of the neighbors say that they would like to invest in the project. This was entirely the initial idea of the neighbors, and Joan and John did not coerce them in any way. Joan and John, however, quickly draw up contracts that the neighbors signed providing that each investor would receive a certain interest in the shop. An attorney who lived in the neighborhood and specialized in family law asked if there were some laws that John and Joan needed to satisfy in order to seek investors. The neighborhood consensus, however, was that, so long as no one was misled and acted voluntarily, no problem existed. John and Joan proceeded with the shop and made a significant amount of profit. Disagreements arose among the neighbors, however, regarding exactly who was entitled to what.
-Refer to Fact Pattern 21-1.Which of the following is true regarding the application of federal securities laws to John and Joan's situation?

Accepted Answer

Contracts involving investment in a business venture with the expectation of profit are generally considered securities and subject to federal securities laws. In this case, John and Joan drew up contracts with their neighbors providing for a certain interest in the shop, which would likely be considered securities. Therefore, federal securities laws would apply. The fact that the idea to invest came from the neighbors does not exempt John and Joan from the application of securities laws.

Question 15

If an issuer wanted to raise $100 million,and offer her company's securities to no more than 35 unaccredited investors and an unlimited number of accredited investors,she would choose to exempt her offering under the __________ exemption.

Accepted Answer

Rule 506 of Regulation D allows issuers to raise an unlimited amount of money and sell securities to an unlimited number of accredited investors and up to 35 unaccredited investors.

Question 16

Under Section 13 of the 1934 Act,any person acquiring beneficial ownership of more than _____ of the equity shares of a reporting company must file a Schedule 13D providing information regarding the acquisition within ten days after crossing the designated ownership mark.

Accepted Answer

Under Section 13 of the 1934 Act, any person acquiring beneficial ownership of more than 5% of the equity shares of a reporting company must file a Schedule 13D providing information regarding the acquisition within ten days after crossing the designated ownership mark.

Question 17

CASE 21.3In re Lehman Bros.Mortgage-Backed Securities Litigation (2011)involved a question of whetherrating agencies that helped select a pool of mortgages for a mortgage-backed security were "underwriters" under the 1933 Act or "controlling persons" under section 15 of the 1933 Act.How did the court rule?

Accepted Answer

The court ruled that the proof failed to establish that the rating agencies were either underwriters or controlling persons under the 1933 Act. The court found that the rating agencies were not involved in the marketing and sale of the securities, which is a key requirement for being considered an underwriter under the 1933 Act. Additionally, the court found that the rating agencies did not control the content of the registration statement or the prospectus, which is a key requirement for being considered a controlling person under section 15 of the 1933 Act.

Question 18

Fact Pattern 21-1
Joan enjoys cross stitching, and her husband, John, makes items using a woodworking process. They would like to make more items and open a small shop selling their handiwork, but they need additional capital with which to purchase raw materials, rent space, and advertise. Joan and John discuss the idea with their neighbors during the annual neighborhood picnic. A number of the neighbors say that they would like to invest in the project. This was entirely the initial idea of the neighbors, and Joan and John did not coerce them in any way. Joan and John, however, quickly draw up contracts that the neighbors signed providing that each investor would receive a certain interest in the shop. An attorney who lived in the neighborhood and specialized in family law asked if there were some laws that John and Joan needed to satisfy in order to seek investors. The neighborhood consensus, however, was that, so long as no one was misled and acted voluntarily, no problem existed. John and Joan proceeded with the shop and made a significant amount of profit. Disagreements arose among the neighbors, however, regarding exactly who was entitled to what.
-Refer to Fact Pattern 21-1.Which of the following is true regarding the application of state securities laws to John and Joan's situation?

Accepted Answer

State securities laws, often called blue sky laws, have not been entirely preempted by federal law. While certain aspects of state securities regulation have been preempted, states still have the power to regulate securities offerings within their borders. Therefore, John and Joan should consult state law to ensure that they comply with applicable securities regulations.

Question 19

Tina,in-house counsel for a start-up company,is asked what the company must do if it plans to offer securities for sale only outside the U.S.What advice should she give in relation to the application of Section 5/Regulation S registration requirements?

Accepted Answer

SEC Regulation S provides an exemption from the registration requirements of Section 5 of the Securities Act for offers and sales of securities made outside the United States. Therefore, if the start-up company plans to offer securities for sale only outside the U.S., it is not subject to Section 5 registration requirements.

Question 20

Which of the following may be sued under Section 11 of the Securities Act of 1933,which provides a remedy for a person who purchases a security pursuant to a misleading registration statement?

Accepted Answer

Section 11 of the Securities Act of 1933 provides remedies for any person who purchases securities pursuant to a misleading registration statement. Both underwriters and persons who gave their consent to be named in the registration statement as future directors can be sued under this section. Other officers can also be sued, but this is not mentioned in the question. Therefore, option C is the best choice.

Quiz 21: Public and Private Offerings of Securities.

Securities issued in a private placement are called __________ securities.

According to the __________ doctrine,a court may determine that the inclusion of sufficient cautionary statements in a prospectus renders immaterial any misrepresentations and omissions contained therein.

Assuming no exemption applies,what is the penalty for a violation of section 5 of the 1933 Act through offering a security for sale without an effective registration statement or by means of a noncomplying prospectus?

A(n) __________ company is a development-stage company that has no specific business plan or has a business plan to acquire a currently unknown business.

Which of the following was passed in 2010 and represents the most sweeping reform of U.S.financial markets since the Great Depression?

Which of the following is NOT an accredited investor under Rule 501?

In CASE 21.1 Lawson v.FMR,LLC (2014) ,the question before the U.S.Supreme Court was whether the Act whistleblower protections extended to of contractors of corporations.

If an issuer makes successive sales within a limited period of time,the SEC may __________ the successive sales,resulting in the loss of a private-offering exemption.

Which of the following activities are NOT regulated by the 1934 Act?

A(n) __________ is defined under the 1933 Act as any person who has purchased from an issuer with a view to,or offers or sells for an issuer in connection with,the distribution of any security.

To which of the following is an entrepreneur likely referring when using the term "angel" in reference to an investment plan?

If an issuer wanted to raise $100 million,and offer her company's securities to no more than 35 unaccredited investors and an unlimited number of accredited investors,she would choose to exempt her offering under the __________ exemption.

Under Section 13 of the 1934 Act,any person acquiring beneficial ownership of more than _____ of the equity shares of a reporting company must file a Schedule 13D providing information regarding the acquisition within ten days after crossing the designated ownership mark.

Tina,in-house counsel for a start-up company,is asked what the company must do if it plans to offer securities for sale only outside the U.S.What advice should she give in relation to the application of Section 5/Regulation S registration requirements?

Which of the following may be sued under Section 11 of the Securities Act of 1933,which provides a remedy for a person who purchases a security pursuant to a misleading registration statement?

Quiz 21: Public and Private Offerings of Securities.

Securities issued in a private placement are called __________ securities.

According to the __________ doctrine,a court may determine that the inclusion of sufficient cautionary statements in a prospectus renders immaterial any misrepresentations and omissions contained therein.

Assuming no exemption applies,what is the penalty for a violation of section 5 of the 1933 Act through offering a security for sale without an effective registration statement or by means of a noncomplying prospectus?

A(n) __________ company is a development-stage company that has no specific business plan or has a business plan to acquire a currently unknown business.

Which of the following was passed in 2010 and represents the most sweeping reform of U.S.financial markets since the Great Depression?

Which of the following is NOT an accredited investor under Rule 501?

In CASE 21.1 Lawson v.FMR,LLC (2014) ,the question before the U.S.Supreme Court was whether the __________ Act whistleblower protections extended to __________ of __________ contractors of __________ corporations.

If an issuer makes successive sales within a limited period of time,the SEC may __________ the successive sales,resulting in the loss of a private-offering exemption.

Which of the following activities are NOT regulated by the 1934 Act?

A(n) __________ is defined under the 1933 Act as any person who has purchased from an issuer with a view to,or offers or sells for an issuer in connection with,the distribution of any security.

To which of the following is an entrepreneur likely referring when using the term "angel" in reference to an investment plan?

If an issuer wanted to raise $100 million,and offer her company's securities to no more than 35 unaccredited investors and an unlimited number of accredited investors,she would choose to exempt her offering under the __________ exemption.

Under Section 13 of the 1934 Act,any person acquiring beneficial ownership of more than _____ of the equity shares of a reporting company must file a Schedule 13D providing information regarding the acquisition within ten days after crossing the designated ownership mark.

Tina,in-house counsel for a start-up company,is asked what the company must do if it plans to offer securities for sale only outside the U.S.What advice should she give in relation to the application of Section 5/Regulation S registration requirements?

Which of the following may be sued under Section 11 of the Securities Act of 1933,which provides a remedy for a person who purchases a security pursuant to a misleading registration statement?

In CASE 21.1 Lawson v.FMR,LLC (2014) ,the question before the U.S.Supreme Court was whether the Act whistleblower protections extended to of contractors of corporations.