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Exam 23: Securities Regulation

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Question 1

True/False

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Issuers who make private offerings of securities are exempt from the registration process.

A) True
B) False

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verified

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Question 2

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The average investor must register securities when he or she wants to sell.

A) True
B) False

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False

Question 3

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Under the due diligence defense,the defendant must show that he or she investigated the registration statement and had reasonable grounds to believe that the statement was accurate.

________ of the Securities Exchange Act of 1934 prohibits fraud associated with the purchase or sale of all securities.

The Investment Company Act of 1940 recognizes banks,insurance companies,savings and loans,and finance companies as investment companies.

Why did the United States Congress pass the Private Securities Litigation Reform Act of 1995?

Once an issuer files a registration statement and prospectus,the ________ period begins.

In Trouble.Bruno,an issuer of stock,may be in trouble.He sold stock in a new health club venture before the effective date of registration.He did so because he was in financial trouble involving other ventures of his and needed additional funds.Bruno thought that the health club venture would be such a success that he would never get caught in regard to the stock sale.Unfortunately,he was wrong.The health club venture was going very poorly and investors were looking for some way to hold Bruno responsible.Another problem Bruno has is that he inflated information regarding the prospects of the health club in the prospectus.Investors bitterly complained.Rick,a new lawyer,told Bruno that as far as he knew,the Securities and Exchange Commission (SEC) could fine Bruno under the Securities Act of 1933 but could not send him to jail.Bruno told Rick that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture.Bruno says that he plans to rely on the due diligence defense.Bruno also asks Rick if he is aware of any other defenses.Bruno says that he has never previously been in trouble with the SEC.Which of the following is true regarding Bruno's plan to rely on the due diligence defense with regard to all charges?

Which of the following permits qualified issuers to register securities they will sell "off the shelf" on a delayed or continuous basis in the future?

Presidential Profits.Linda was president of a publicly traded tractor company,Tough Tractors.Linda became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors.The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made.Before the news was made public,Linda immediately purchased a significant number of shares in Tough Tractors.Linda also told her friend Frank about the contract to purchase assets.Frank,who knew that the information was not public,told his brother,George.Frank and George purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale.After the public announcement was made and the purchase of assets went through,Linda,George and Frank,all sold their shares in Tough Tractors and made a significant profit.Which of the following would describe Linda in providing information about the asset sale to Frank?

The Securities and Exchange Commission is headed by how many individuals?

Describe the three-part definition of a security as established by the United States Supreme Court in its SEC v.W.J.Howey Co.decision.

The United States Congress passed the ________ in an effort to prevent the exploitation of small investors.

Which of the following is a provision of the Securities Exchange Act of 1934 that prohibits the use of manipulative and deceptive devices to bypass Securities and Exchange Commission rules?

According to Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934,which of the following constitute(s) a material omission or misrepresentation during a securities transaction?

Coffee shops.Bernice wants to open a chain of coffee shops and begins by asking her friends in various states around the country to invest through the purchase of securities in the coffee shops.Her friend Robbie says that he would like to invest but that she should be sure that she satisfies requirements of the Securities and Exchange Commission (SEC) .He tells her that she has to provide information to the SEC involving a description of the securities,an explanation of how proceeds will be used,information regarding the management of the company,and other matters.He tells her that she also has to provide a document to the SEC that will be provided as an advertising tool to potential investors who can rely on it to decide whether they should buy securities.Bernice says that she does not want to do that.She explains to Robbie that insofar as the coffee shop venture is concerned,she does not want to advertise,and she wants to offer securities only to a limited number of wealthy friends.Particularly,she has in mind Scott who has a net worth of at least $3 million and Mary,a psychiatrist.Mary recently filed bankruptcy because of some bad decisions involving an elaborate decoration of her office.Although her income for the past couple of years has been in the range of $80,000,business is improving based on her recent involvement with a number of patients suffering anxiety based upon a fear of alien invasion.Considering only the information available,which of the following is a term that would describe Scott as an investor?

A person who violates the Securities Act of 1933 can be fined,but he or she cannot be subject to imprisonment.

How are the heads of the Securities and Exchange Commission chosen?

A(n) ________ investor is a private investor who is allowed to accept private securities offerings under certain specific guidelines established by the Securities and Exchange Commission.

The Securities and Exchange Commission is an independent agency whose function is to administer federal securities laws.