49. Types of securities that are exempt from registration under the federal securities laws include:
a. securities of domestic banks.
b. securities of a charitable organization.
c. bonds issued by a city.
d. All of these are exempt.
50. Which of the following would ordinarily NOT be considered a security under the federal securities laws?
a. Bonds
b. Stocks
c. Investments in limited partnerships
d. General partnership interests
51. A registration statement requires all of the following EXCEPT:
a. financial statements certified by an independent accountant.
b. description of the business.
c. description of the management.
d. projection of future growth potential.
52. Atlas Pizza plans to sell $500,000 worth of stock in the next year. This stock will be exempt from registration under
Regulation A as long as:
a. no more than $5 million worth of stock will be sold in any 12–month period.
b. fewer than 100 shareholders presently own stock in the business.
c. the stock is sold only to current shareholders.
d. All of these.
53. Under Rule 505, the issuer must:
a. not advertise.
b. restrict the offering to thirty–five persons.
c. limit the offering to $1 million.
d. sell only to “accredited investors.”
54. A basic objective of the Securities Act of 1933 is:
a. to provide investors with material information concerning securities offered for sale to the public.
b. to prohibit misrepresentation and other fraudulent acts in the sale of only registered securities.
c. to provide disclosure requirements on publicly held corporations.
d. to regulate tender offers and proxy solicitations.
55. “Insider trading” rules pertain to:
a. employees.
b. officers.
c. directors.
d. All of these.
56. Section 16(b) 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. allows injured investors to recover damages on their own behalf.
d. All of these.
57. If Mark owns shares in General Custard Co., he may bring his proposal for a new subdivision, branching out into ice
cream, before the shareholders if he:
a. owns at least 5% of the GC Co. stock.
b. owns at least 10% of the GC Co. stock.
c. limits it to 5,000 words.
d. has not made a proposal yet this year.
58. 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 of state securities
c. An offering of limited partnership interests
d. A private offering to sophisticated investors who will not redistribute them
59. The Wall Street Reform and Consumer Protection Act of 2010:
a. removes the SEC’s power to bring enforcement actions under the 1933 Act against aiders and abettors.
b. amends the 1933 and 1934 Acts to allow recklessness as well as knowledge to satisfy the mental state
required for the SEC to bring aiding and abetting cases.
c. amends the 1933 and 1934 Acts to allow negligence to satisfy the mental state required for the SEC to bring
aiding and abetting cases.
d. sets national standards for securities class action lawsuits involving nationally traded securities.
60. Rule 10b-5 applies to:
a. any purchase or sale of any security.
b. only the purchase or sale of securities registered under the 1934 Act.
c. only publicly traded securities.
d. only securities that are involved in a secondary distribution.
61. Which of the following is NOT true about private placement exemptions that do not involve any public offering?
a. Registration or disclosure is never required
b. General solicitation of purchasers is not allowed
c. Resale of securities is restricted
d. None of these
62. The SEC’s computer system that performs automated collection, validation, indexing, acceptance, and dissemination
of reports required to be filed with the SEC is known as:
a. SEC-ELS.
b. ELMER.
c. EDGAR.
d. EDMOND.
63. Rule 10b–5:
a. applies only to seller misconduct.
b. is an SEC antifraud rule.
c. applies only to securities listed on an exchange, not those sold over the counter.
d. All of these.
64. The 1934 Securities Exchange Act requires registration of:
a. equity securities of companies traded over the counter whose corporate assets exceed $10 million and whose
equity securities include a class with 500 or more shareholders.
b. stock listed on local stock exchanges.
c. all stock sold within the U.S.
d. all domestic stock sold within the U.S.
65. The 1934 Securities Exchange Act requires certain disclosure during a “tender offer.” Which of the following best
describes this requirement?
a. Whenever stock is acquired with intent to effect a takeover
b. Whenever an offer for more than 5 percent of a class of registered equity securities is made
c. Whenever 10 percent of a target corporation’s stock is acquired
d. Whenever the acquiring company acquires a “controlling interest” in the target
66. Which of the following is correct about the sanctions and penalties under the 1934 Act, as amended?
a. Individuals may not be imprisoned for violation of the 1934 Act.
b. For individuals, conviction may carry a fine of up to $5 million.
c. A defendant who proves she was ignorant of a rule can still be imprisoned.
d. A corporation may be fined not more than $10 million.
67. Which of the following is TRUE regarding the Foreign Corrupt Practices Act of 1977?
a. It applies only to corporations whose securities are registered under the Securities Exchange Act of 1934.
b. It applies only to corporations engaged in foreign commerce.
c. The Act makes it illegal to bribe foreign officials to obtain business.
d. All of these are correct.
68. Section 16(b) of the 1934 Securities Exchange Act deals with short-swing profits of “insiders.” For purposes of the
section, which of the following are not “insiders”?
a. Attorneys with access to corporate records
b. Directors
c. Officers
d. 10 percent shareholders
69. The Securities Act of 1933 has two basic objectives, one of which is to:
a. extend protection to investors trading in securities that are already issued and outstanding.
b. grant the SEC power to impose administrative, civil penalties up to $500,000.
c. regulate disclosure requirements on publicly held corporations.
d. prohibit misrepresentation, deceit, and other fraudulent acts and practices in the sale of securities generally,
whether or not they are required to be registered.
70. SEC rules concerning fraud in securities transactions apply to:
a. the issuance or sale of all securities, even those exempted by the 1933 Act.
b. only securities registered under the 1934 Act.
c. only securities registered under the 1933 Act.
d. only publicly traded securities.
71. David is a director on a board of a corporation that is covered by the federal securities laws. He buys 1,000 shares
of stock in the corporation based upon information he has received as a director. The purchase is:
a. valid provided no fraudulent statements were made to the person from whom he purchased the shares.
b. invalid.
c. voidable regardless of whether a public announcement was made.
d. valid provided the purchase occurred after a public announcement of the information.
72. Marge wishes to raise some money to begin mass producing her prize-winning jellies and jams. She offers her
neighbors a piece of her profits if they will each invest $2,000. Is the 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.
73. All of the following are exempt from registration under the 1933 Act EXCEPT:
a. government bonds.
b. securities issued by nonprofit medical facilities.
c. certificates of deposit issued by banks.
d. insurance company annuities.
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 under duress of a threat of loss of her job if she did not agree with the statement.
d. None of these would be valid defenses.
75. A securities issuer that has reported continuously under the 1934 Act for at least three years is a(n):
a. well–known seasoned issuer.
b. seasoned issuer.
c. unseasoned issuer.
d. None of these.
76. 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
77. Recovery of damages under Rule 10b-5 requires proof of:
a. a purchase and sale of the same securities within six months.
b. scienter.
c. negligence.
d. immateriality of a statement.
78. If Terry makes tender offer to the owners of Pizza Village registered stock, he must file a statement with the SEC if
he:
a. owns 1% of Pizza Village stock.
b. will, after the acquisition, own 5% of all Pizza Village stock.
c. will, after the acquisition, own more than 5% of one class of Pizza Village voting stock.
d. will own more than half the stock in all classes.
79. The registration statement must be signed by:
a. the issuer and the chief financial officer.
b. the SEC secretary and the chief financial officer.
c. the chief financial officer only
d. the SEC secretary only.
80. Under the 1934 Act:
a. criminal sanctions may be imposed on any person who willfully violates any provision of the Act (except the
antibribery provision) or the SEC rules promulgated pursuant to the Act.
b. criminal sanctions may not be imposed.
c. conviction of an individual may result in imprisonment for up to 25 years.
d. a person who proves he had no knowledge of the rule is still subject to imprisonment.
81. Which of the following are basic objectives of the 1933 Securities Act?
a. To provide investors with material information concerning securities offered for sale to the public.
b. To 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.
c. Both of these.
d. None of these.
82. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 granted the SEC power:
a. to issue cease-and-desist orders.
b. to impose civil penalties up to $1,000,000.
c. to bring civil actions for specified violations of the 1934 Act against aiders and abettors.
d. All of these.
83. Registration calls for disclosure of which of the following?
a. A description of the registrant’s properties and business.
b. A description of the significant provisions of the security to be offered for sale and its relationship to the
registrant’s other capital securities.
c. Financial statements certified by independent public accountants.
d. All of these.
84. Which of the following are exempt transactions for issuers under the 1933 Act?
a. Private placements
b. Limited offers not exceeding $5 million under Role 505 or $1 million under Rule 504
c. Limited offers solely to accredited investors
d. All of these.
85. The Reform Act provides a safe harbor eliminating civil liability if a forward-looking statement is:
a. material.
b. made with the assumption that it was not false or misleading.
c. identified as a forward-looking statement and is accompanied by meaningful cautionary statements.
d. made in connection with an initial public offering or a tender offer.
86. Which of the following are exemptions for non-issuers?
a. Securities up to $1.5 million in any 12–month period if compliance with Regulation A is achieved.
b. Sales of restricted or nonrestricted securities by affiliates.
c. Resales of restricted securities acquired under Regulation D.
d. The 1933 Act offers no exemptions from registration for sales by non-issuers.
87. The Klodhoffer Corporation has assets amounting to $2 million and needs additional capital to finance expansion of its
marketing operation. The board of directors decides to promote an issue of $500,000 of common stock in order to
raise capital. At the time the stock is issued, Klodhoffer has 250 shareholders owning common stock. If Klodhoffer
is to trade the stock over the counter, does it need to register with the SEC?
88. The Orange Grove Limited Partnership would like to make an offering of $2 million in limited partnership interests
under either Rule 505 or Rule 506 of Regulation D of the Securities Act of 1933. Orange Grove plans to sell to 40
investors, eight of whom have net incomes in excess of $200,000 per year and net worth of more than $2 million.
The 40 investors also include five mutual funds and three insurance companies. The other investors to whom Orange
Grove plans to sell are not experienced investors. Is either Rule 505 or Rule 506 available to the Orange Grove
Partnership?
89. Hugo wishes to raise money for his restaurant. He offers to sell stock to his brothers, sisters, aunts, uncles, and
cousins. The offering is made by telephone to each of the investors and amounts to a stock offering in the dollar
amount of $1,500,000. The offering is made to a total of 38 family members and no notice is given to the SEC. Is this
a permissible offering under the federal securities laws? Explain.
90. Steve paid $500,000 for the purchase of a “franchise” in a new professional soccer league. The franchise is in the
form of a limited partnership under which Steve is not permitted to actively participate in the management of the
team. The promoters of the league are to do all of the management and to make all of the decisions regarding that
management. Steve will receive 15% of all gate receipts and revenue generated from the sale of licensed items such
as jackets and coffee mugs. Is the franchise a security within the meaning of the federal securities laws?
91. The 1933 Securities Act defines the term “security.” The courts have generally interpreted the statutory definition to
include non-traditional forms of investments. The Supreme Court of the United States has adopted a two-tier
analysis of what constitutes a security. Within this analysis the Court has used a three-part test to determine whether
a non-traditional financial transaction constitutes an investment contract and thus a security. Explain: (a) the 1933
Act’s statutory definition of security, (b) the courts’ general interpretation of the 1933 Act’s definition and (c) the
Supreme Court’s two-tier test.