Deck 31: Securities Regulation

Question 1

Section 10(b)of the 1934 act prohibits fraud in connection with the purchase and sale of any security as long as the latter is registered under the Act.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

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

Question 6

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

Question 7

A security may be defined as any transaction in which the buyer (1)invests money in a common enterprise and (2)expects to earn a profit predominantly from the efforts of others.

Question 8

The Supreme Court's decision United States v.O'Hagan was about insider trading.

Question 9

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

Question 10

The resale of which two types of securities does SEC Rule 144 limit?

A)Exempt securities and control securities.
B)Government securities and restricted securities.
C)Control securities and restricted securities.
D)Control securities and government securities.

Question 11

Premier Enterprises sold Watson unregistered stock which was not exempt.The 1933 Act imposes liability on Premier,and Watson's sole remedy is damages.

Question 12

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 13

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 14

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

Question 15

The guiding principle of federal securities law is that:

A)it is important for the government, through the SEC, to keep investors from making bad investments.
B)investors can make reasoned decisions on whether to buy or sell securities if they have full and accurate information.
C)effective securities legislation will avoid another stock market crash.
D)effective securities legislation should promote the issuance of securities.

Question 16

The SEC regulates the securities industry but cannot create law.

Question 17

The 1933 Act prohibits fraud in any securities transaction,not just transactions involving public offerings.

Question 18

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

Question 19

Under Rule 504,a restricted security:

A)can be sold at any time.
B)cannot be sold within nine months of its offering.
C)cannot be resold, either publicly or privately, for one year.
D)cannot be sold until the SEC issues a release letter allowing it to be sold.

Question 20

The Stonebridge Investment Partners,LLC v.Scientific-Atlanta,Inc.case discusses liability under Section 10(b)of the 1934 Act.

Question 21

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 22

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

A)the SEC.
B)the Department of the Treasury.
C)the Justice Department.
D)Any of the above may prosecute.

Question 23

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 24

Ted is the vice-president in charge of marketing for Barnard Basketry.In any three-month period,he may sell:

A)any amount of stock he owns in Barnard Basketry.
B)no more than 10 percent of the stock he owns in Barnard Basketry.
C)only an amount of stock equal to the average weekly trading volume for the prior four weeks or one percent of the number of shares outstanding, whichever is greater, under Rule 144.
D)any amount of stock he owns in Barnard Basketry as long as it has been more than six months since a private offering of the stock was made.

Question 25

Under the National Securities Markets Improvement Act,states may regulate offerings of securities that are:

A)traded on a national stock exchange.
B)Exempt under Rule 506
C)Sold to qualified purchasers.
D)None of the above.

Question 26

Margo,treasurer of Zachariah Products,Inc.,bought 500 shares of her company's stock on February 23.Her son had health problems in May and she sold the stock at a profit to help pay his medical expenses.Margo:

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

Question 27

Which of the following statements is correct?

A)Investors generally do not receive a copy of the registration statement.
B)Investors generally 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 28

Under the 1933 Act,what remedy may the purchaser of an unregistered security obtain?

A)Rescission only.
B)Damages only.
C)Rescission or damages.
D)He may not obtain any remedy.

Question 29

Under Section 14 of the 1934 Act or SEC rules:

A)a company must solicit proxies from shareholders at least 30 days prior to any shareholder meeting.
B)a company must provide detailed information about officers and directors when soliciting proxies from shareholders.
C)the CEO of a publicly traded company must certify that the information in the annual report is accurate.
D)All of the above.

Question 30

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

Question 31

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 32

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 pile.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 $300,000 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 33

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

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

Question 34

Pursuant to a public offering,a CPA firm prepared an unqualified opinion as to the financial statements of Merrick Co.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 35

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 U.S.corporations, whether reporting under the 1934 Act or not.
D)applies only to foreign corporations bribing U.S.officials.

Question 36

In the Rombach v.Chang case,the court held that:

A)Section 11 was not violated as the registration statement provided adequate warnings to investors.
B)the defendants violated Section 11 by issuing a misleading registration statement.
C)the defendants were not entitled to sell unregistered securities.
D)the defendants violated Rule 506.

Question 37

Which of the following is a characteristic of a DPO?

A)It is more expensive and slower than a regular public offering done through an underwriter.
B)It can be an effective marketing tool because shareholders tend to become more loyal customers.
C)Setting up a system to permit trades is unnecessary because the purchases are long-term investments.
D)The issuer can make a DPO only under Rule 147 or Regulation D.
E)All of the above.

Question 38

Valdon brought a lawsuit under Section 11 of the 1933 Act against Kennedy Corp.He will have to prove that:

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

Question 39

Section 11 of the 1933 Act establishes:

A)the requirements for a public offering to be valid.
B)the penalties for any errors in a registration statement.
C)the intrastate offering exemption.
D)the liability of the seller of unregistered securities.

Question 40

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 41

Define a direct public offering.What are its advantages?

Question 42

What are the three primary ways the SEC creates law?

Question 43

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 44

What is the purpose of a registration statement and what information must be contained in it?

Question 45

Identify and explain three options that ease the process of complying with state securities requirements.