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1. The Securities Act of 1933 established the Securities and Exchange Commission.
a.
True
b.
False
2. A control security is stock which gives the owner a controlling interest in the company.
a.
True
b.
False
3. 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.
a.
True
b.
False
4. Under JOBS, privately held companies can sell up to $1 million in securities in any 12-month period if they sell the
securities through an approved intermediary.
a.
True
b.
False
5. Any securities offerings covered by the NSMIA must comply with state securities laws.
a.
True
b.
False
6. Premier Enterprises sold Watson unregistered stock which was not exempt. The 1933 Act imposes liability on Premier,
and Watson can demand rescission if he still owns the stock.
a.
True
b.
False
7. The 1933 Act prohibits fraud only in transactions involving registered securities.
a.
True
b.
False
8. The 1934 Act requires companies with a class of stock that is publicly traded to make ongoing, regular disclosure with
the SEC.
a.
True
b.
False
9. The SEC has enforcement powers, including the power to issue cease and desist orders, to levy fines, and to confiscate
profits from illegal transactions.
a.
True
b.
False
10. To recover for an alleged violation of SEC Rule 10(b)-5, a plaintiff is required to prove reliance on a misstatement or
omission relative to the purchase of the security.
a.
True
b.
False
11. The "tipper" of inside information can be convicted of a crime, the "tippee" cannot.
a.
True
b.
False
12. Typically, exemptions under the 1933 Act are based on either the type of security or the type of transaction.
a.
True
b.
False
13. Offerings under Regulation A of the Securities Act of 1933, although called private offerings, are really small public
offerings.
a.
True
b.
False
14. Securities offered and sold entirely within one state by a corporation of that state are exempt from registration.
a.
True
b.
False
15. Securities issued by banks are exempt from SEC registration.
a.
True
b.
False
16. The 1933 Act exempts all but which of the following from its registration requirements?
a.
Short-term notes
b.
Treasury stock
c.
Government securities
d.
Annuity contracts
17. Techno is planning a security offering under Regulation D, Rule 506. Under this rule, Techno can
a.
offer up to $5 million in securities over 12 months.
b.
offer up to $1 million in securities over 12 months.
c.
can offer an unlimited amount of securities.
d.
can only offer an amount equal to twice its initial capitalization.
18. Under what type of securities offering must the issuer determine if the investor is an accredited, sophisticated investor
and if the stock is restricted?
a.
Regulation A offering
b.
Regulation D offering
c.
Public offering
d.
An interstate offering
19. When a stock underwriter acts as the company's agent in selling stock, it is called a
a.
company underwriting.
b.
express underwriting.
c.
firm commitment underwriting.
d.
best efforts underwriting.
20. Under which of the following exemptions is there no dollar limitation?
a.
Rule 504
b.
Rule 505
c.
Rule 506
d.
Regulation A
21. Pursuant to a public offering, a CPA firm audited the financial statements. 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 auditing 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.
22. The guiding principal of federal securities law is
a.
to keep investors from making bad investments.
b.
to insure investors have full and accurate information.
c.
to avoid another stock market crash.
d.
to promote the issuance of securities.
23. Felicity brought a lawsuit under Section 11 of the 1933 Act against Mojo Corp. What will Felicity have to prove in
order to prevail?
a.
Only that she relied on the registration statement
b.
That Mojo was negligent in preparing the registration statement
c.
That there was a material misstatement or omission in the registration statement and she lost money
d.
That Mojo intentionally tried to deceive investors
24. Which of the following statements is correct?
a.
Investors generally receive a copy of the registration statement.
b.
Investors generally do not receive the company's prospectus.
c.
A registration statement and a prospectus are essentially the same thing.
d.
All investors must receive a copy of the prospectus before purchasing the stock.
25. Under the 1934 Act, an issuer must register with the SEC if
a.
it has not completed a public offering under the 1933 Act.
b.
its securities are not going to be traded on a national exchange.
c.
it will not be providing investors with a prospectus.
d.
it has at least 2,000 shareholders and total assets that exceed $10 million.
26. If the final registration statement contains a material misstatement or omission, the purchaser of the security can
recover damages from
a.
everyone who signed the registration statement..
b.
the company's directors, but not the chief officers.
c.
the experts who signed the registration statement, but not any other parties.
d.
the issuer of the security, but not the company’s directors or chief officers.
27. 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.
28. MegaCorp wishes to sell $25 million of securities. The only investors will be 20 unaccredited investors. Which of the
following applies to this offering?
a.
Rule 504, option 1 of Regulation D of the 1933 Act.
b.
Rule 505 of Regulation D of the 1933 Act.
c.
Rule 506 of Regulation D of the 1933 Act.
d.
Rule 504, option 2 of Regulation D of the 1933 Act.
29. Ed, a vice-president of Palmette Products, Inc., buys 1,000 shares of his company’s stock on June 15. His son has
medical problems in September, and Ed sells the stock at a profit. Under Section 16, Ed
a.
must turn over to Palmette any profits he made on the sale.
b.
may keep any profits on the sale since he had a good reason to sell and was not selling in order to manipulate
the market.
c.
may keep the profits from the sale as long as he reported his sale to the SEC within two business days.
d.
may keep any profits from the sale if he did not act on secret information when he sold the shares.
30. A criminal case under the Securities Act of 1933 is prosecuted by
a.
the SEC.
b.
the Justice Department.
c.
the Department of the Treasury.
d.
the FTC.
31. Section 16 of the 1934 Act prohibits short-swing trading on the part of officers, directors and controlling shareholders
who
a.
own more than twenty-five percent of the company.
b.
are also on the board of directors of the company.
c.
own more than ten percent of the company.
d.
trade their shares in order to invest in another company.
32. The 1934 Act is primarily intended to
a.
maintain the integrity of the secondary market for securities.
b.
make sure companies who wish to raise money by the sale of securities comply with disclosure requirements
for the initial offering.
c.
coordinate federal and state laws with a primary emphasis on allowing the individual states to maintain
primary control over securities law.
d.
broaden the SEC's enforcement power.
33. Under Regulation D, institutions such as banks and insurance companies are considered to be what type of investors?
a.
accredited
b.
unaccredited
c.
restricted
d.
unrestricted
34. Which of the following represents a valid Regulation A Tier 1 offering?
a.
Selling $3 million of securities in any 12-month period with a $250,000 individual investor limit
b.
Selling $10 million in securities in any 12-month period; investors can't buy more than 10% of their annual
income or net worth
c.
Selling $4 million of securities in any 12-month period with no individual investor limit
d.
Selling $20 million in securities in any 12-month period; investors can't buy more than 5% of their annual
income or net worth
35. When the underwriter buys stock from the issuer and sells it to the public it is referred to as a
a.
best efforts underwriting.
b.
firm commitment underwriting.
c.
secondary underwriting.
d.
public underwriting.
36. Which of the following is a characteristic of a restricted security?
a.
It is purchased in a private offering.
b.
It cannot be sold at any time.
c.
It is subject to reporting requirements.
d.
After six months, it is classified as a control security.
37. In determining liability for errors in a registration statement, the plaintiff must prove that there was a misstatement or
omission that was important enough to affect the plaintiff's investing decision. In other words, the misstatement or
omission needs to be
a.
material.
b.
unrefuteable.
c.
accredited.
d.
firm.
38. Section 16 of the 1934 Act addresses what type of insider trading?
a.
Classic insider trading
b.
Tipping
c.
Short-swing trading
d.
Takeovers
39. Which of the following states was not only the first state to regulate the sale of securities, but also has the term "blue
sky laws" named after it?
a.
Montana
b.
Kansas
c.
Wyoming
d.
New York
40. Which approach to state regulation of securities requires an issuer to undergo a full-blown registration complete with a
merit review?
a.
Registration by qualification
b.
Registration by notification
c.
Registration by coordination
d.
Registration by merit
41. Discuss the process an issuer follows for either an IPO or a secondary offering.
42. Countywide Metals is a small company that incorporates in the state in which it is doing business and plans to offer
and sell $100,000 worth of stock only to residents of the county in which it is doing business. Discuss the requirements
Countywide must meet for registering its securities.
43. What are the purposes of a registration statement and what information must it contain?
44. The Fallwater Partnership wants to incorporate and is considering using a DPO. Explain what a DPO is and discuss
the advantages and disadvantages of this course of action.
45. 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?
