1. The Securities Act of 1933 is also referred to as the “blue sky” law.
a.
True
b.
False
2. Because of the complexity of federal securities laws, a recognized defense to a charge of violation of federal securities
laws is ignorance of the specific law or laws involved.
a.
True
b.
False
False
Moderate
3. Under the Securities Act of 1933, an investor may bring a private suit for damages.
a.
True
b.
False
True
Moderate
21–1a The 1933 Act
4. Investors are prohibited under the Securities Act of 1933 from making highly speculative investments.
a.
True
b.
False
False
Moderate
5. The SEC has the statutory authority to approve or disapprove an offering on its merits.
False
Easy
21-3 State Blue Sky Laws
a.
True
b.
False
6. CASE 21.4 Escott v. BarChris Construction Corp. (1968) dealt with the issue of due diligence as a defense in the
offering process.
a.
True
b.
False
False
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
21-14d Defenses
Blooms: Application
7. The Securities Act of 1934 requires continuous disclosure of certain information regarding publicly traded securities.
a.
True
b.
False
True
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–1b The 1934 Act
Blooms: Comprehension
8. A “red herring” is the popular name given to the final prospectus under the 1933 Act.
a.
True
b.
False
False
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–5d Registration Period
Blooms: Comprehension
9. A well-seasoned issuer is a firm that either has at least $100 million public worldwide common equity float held by
nonaffiliated, OR has issued an aggregate of at least $100 million of registered non-convertible debt securities in the past
False
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21-5 Registration of Securities Offerings
Blooms: Knowledge
three years.
a.
True
b.
False
10. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board.
a.
True
b.
False
True
Moderate
21–1e Sarbanes-Oxley Act of 2002
11. “Crowdfunding” is an internet-based, fund-raising method certain startups and other small businesses can use to raise
relatively small amounts of money from a large number of individuals.
a.
True
b.
False
True
Moderate
21–9e Section 4(a)(6) Crowdfunding
12. Investment banking firms are prohibited by federal law from underwriting public offerings of securities.
a.
True
b.
False
False
Moderate
13. Shelf registration under the Securities Act of 1933 allows registration of a number of securities at one time for
False
Challenging
21–5d Registration Procedure
issuance later.
a.
True
b.
False
14. Any security offered by the United States Government or any national bank would be considered an exempt security
under the 1933 Act’s registration requirements.
a.
True
b.
False
15. A secondary offering is the subsequent offering of securities by the original issuer.
a.
True
b.
False
False
Moderate
21-5 Registration of Securities Offerings
16. The term “security,” for purposes of the Securities Act of 1933, is narrowly interpreted to include only such traditional
investments as a stock or a bond.
a.
True
b.
False
False
Moderate
21–4a Security
True
Moderate
21-7 Shelf Registration
17. The definition of “offer” under the Securities Act of 1933 is much broader than that in contract law.
a.
True
b.
False
18. Proxies give the proxy holder the right to vote the shares owned by the person who signs the proxy card.
a.
True
b.
False
True
Moderate
21–12c Other Sections of the 1934 Act
19. Mere promotion of a security makes a person a seller and, therefore, liable under section 5 of the 1933 Act based upon
the sale of a security without an effective registration statement or by means of a noncomplying prospectus.
a.
True
b.
False
False
Moderate
21–13c Who May Be Sued
20. Seasoned issuers may make automatic shelf registration offerings which are effective immediately on filing a
registration statement with the SEC.
a.
True
b.
False
True
Moderate
21-7 Shelf Registration
True
Moderate
21–4b Offer
21. A company that decides to abandon a proposed public offering due, for example, to a lack of investor interest, must
wait at least eighteen months before shifting to a private offering.
a.
True
b.
False
22. A prospectus is a selling document as well as a disclosure document.
a.
True
b.
False
True
Moderate
23. The completion of a public offering terminates the issuer’s relationship with the SEC.
a.
True
b.
False
False
Moderate
24. According to the SEC, a hyperlink embedded within a prospectus causes the hyperlinked information to be treated as
part of the prospectus.
a.
True
b.
False
True
Moderate
21–5b Registration Statement
False
Challenging
21–9c Integration of Offerings
25. Which of the following is true regarding uniform state regulation of securities?
a.
Federal law has entirely preempted the area, and there is no state regulation of securities.
b.
Many states have adopted the Uniform Securities Act.
c.
Many states have adopted the Proposed Uniform Trading Act.
d.
There is no proposed uniform act in regard to securities, and state regulation is inconsistent.
26. Which of the following is NOT true regarding the Sarbanes-Oxley Act?
a.
The Act mandates the composition and authority of audit committees at public companies.
b.
The Act prohibits personal loans to executives.
c.
The Act requires corporations to disclose whether they have a code of ethics applicable to senior financial
officers and, if not, to disclose why not.
d.
The Act gives the SEC the authority to prohibit unfit persons from serving as officers or directors of a public
company for a period of five years.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–1e Sarbanes-Oxley Act of 2002
Blooms: Comprehension
27. Under the Sarbanes-Oxley Act, discriminating against or discharging an informant is:
a.
punishable by a fine only.
b.
punishable by a substantial fine or imprisonment for as long as ten years, but not both.
c.
punishable by a substantial fine or imprisonment for as long as ten years, or both.
d.
not addressed.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–1e Sarbanes-Oxley Act of 2002
Blooms: Comprehension
28. A key step in preparing the registration statement is the process of __________, whereby the company, the
underwriters, and their respective counsel assemble and review the information about the company in the registration
statement.
a.
due diligence
b.
reasonable review
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21-3 State Blue Sky Laws
Blooms: Comprehension
c.
strict scrutiny
d.
proofing
29. Any transaction that involves an investment of money in a common enterprise with profits to come solely from the
efforts of others is deemed to be a(n) __________ and thus a security.
a.
stock issuance
b.
investment contract
c.
secured sale
d.
committed sale
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–4a Security
Blooms: Comprehension
30. Which of the following is NOT part of the Howey test?
a.
Scienter
b.
An investment of money
c.
Common enterprise
d.
Profits obtained solely through the efforts of others
a
Easy
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–4a Security
Blooms: Comprehension
31. A __________ offering of securities is a subsequent offering by a person other than the issuer.
a.
secondary
b.
restricted
c.
blank check
d.
shelf
a
Moderate
United States – BUSBROG: – Analytic
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–5c Due Diligence
Blooms: Comprehension
32. The __________ is the private offering counterpart to the prospectus.
a.
private registration prospectus
b.
red-herring prospectus
c.
private-placement memorandum
d.
restricted sale
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–10 Private Placement Memorandum
Blooms: Comprehension
33. Assuming requirements are met, Rule 144A permits the resale of unregistered securities to qualified:
a.
issuers.
b.
underwriters.
c.
institutional buyers.
d.
federal banks.
c
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21-11d Rule 144A
Blooms: Comprehension
34. CASE 21.2 SEC v. Edwards (2004) involved sales of interests in pay telephones with a question before the U.S.
Supreme Court of whether a moneymaking scheme falls outside the definition of an investment contract because the
promised rate of return is fixed, rather than variable. How did the Court rule?
a.
The Court held that a promise of a fixed rate of return did not prevent the arrangement from being an
investment contract.
b.
The Court held that a promise of a fixed rate of return prevented the arrangement from being an investment
contract.
c.
The Court held that a promise of a fixed rate of return did not prevent the arrangement from being an
investment contract, but only because the underlying company went into bankruptcy.
d.
The Court held that a promise of a fixed rate of return prevented the arrangement from being an investment
contract, but only because the underlying company went into bankruptcy.
a
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–4a Security
DISC: – AICPA: BB-Legal
21-5 Registration of Securities Offerings
Blooms: Comprehension
35. Which of the following is true regarding whether the “common enterprise” element of the SEC v. W.J. Howey Co. case
requires horizontal or vertical commonality?
a.
The federal circuits are in agreement that there must be horizontal commonality even if vertical commonality
can be shown.
b.
The federal circuits are in agreement that there must be vertical commonality even if horizontal commonality
can be shown.
c.
There is a split in the federal circuits as to whether the common enterprise element of the test can be met by
showing horizontal commonality or whether there must be vertical commonality.
d.
There is a split in the federal circuits as to whether the common enterprise element of the test can be met by
showing vertical commonality or whether there must be horizontal commonality.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–4a Security
Blooms: Analysis
36. Which of the following is true regarding whether the interest of a limited partner in a limited partnership is considered
a security?
a.
Such an interest is considered a security only if the limited partnership involves an investment in real estate.
b.
Such an interest is not considered a security because a partnership, not an investment scheme, is involved.
c.
Such an interest is rarely considered a security because limited partners, to protect their limited liability, are
prohibited by law from taking part in the control of the partnership business.
d.
Such an interest is almost always considered a security because limited partners, to protect their limited
liability, are prohibited by law from taking part in the control of the partnership business.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–4a Security
Blooms: Comprehension
37. The __________ Act permits __________ companies to make a(n) __________ public offering without meeting all
the onerous SEC registration requirements.
a.
JOBS, emerging growth, secondary
b.
JOBS, farming, initial
c.
Sarbanes-Oxley, multinational, secondary
d.
JOBS, emerging growth, initial
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
Blooms: Analysis
38. The __________ is the disclosure document that an issuer of securities provides to each prospective purchaser under
the 1933 Act.
a.
registration statement
b.
prospectus
c.
investment contract
d.
placement memorandum
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21-5 Registration of Securities Offerings
Blooms: Comprehension
39. Assuming Rule 504 of Regulation D otherwise applies, it exempts offerings of up to __________ within a
__________ period, and there may be __________ purchasers.
a.
$2 million; six-month; up to 100
b.
$500,000; two-year; up to 500
c.
$1 million; twelve-month; an unlimited number of
d.
$100,000; three-month; up to 50
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21–9b Regulation D Safe-Harbor Exemptions
Blooms: Application
40. Which of the following is NOT considered a traditional shelf offering?
a.
Securities offered pursuant to employee benefit plans
b.
Securities offered pursuant to dividend reinvestment plans
c.
Securities issued to alter voting rights for shareholders
d.
Securities issued in connection with business combination transactions
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
21-7 Shelf Registration
41. 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.
21–5d Registration Procedure
Blooms: Application