1.4 - Registration of Securities

Under the Securities Act of 1933, a registration statement for a security generally becomes effective how many days after it is filed? A) 20 days. B) 31 days. C) 10 days. D) 30 days.

A) 20 days. A registration statement for a security becomes effective 20 days after it is filed, unless the SEC orders a delay.

Which of the following statements regarding a red herring is NOT true? A) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. B) A red herring is used to accept indications of interest from investors. C) Additional information may be added to a red herring at a later date. D) The final offering price does not appear in a red herring.

A) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. An agent is not permitted to accept funds from potential purchasers of a new issue before the effective date.

An investment company offering securities registered under the Act of 1933 may make which of the following statements? I. "The SEC has passed on the merits of these securities as an investment.". II. "The SEC has released our securities for sale to the public.". III. "The SEC has passed on the accuracy of the information in our prospectus.". IV. "The SEC has declared this prospectus effective.". A) II and IV. B) I and III. C) II and III. D) I and IV.

A) II and IV. When a security registers with the SEC, the date sales are allowed is known as the effective date. The SEC neither approves nor disapproves an issue, nor does it pass on the accuracy or adequacy (completeness) of the information presented in a prospectus.

Rule 482 of the Securities Act of 1933 permits the use of an omitting prospectus if it does not: A) contain an application to purchase shares of the fund. B) describe how and where to obtain the fund's prospectus. C) omit a statement of the fund's expense ratio. D) make reference to the mutual fund's past performance.

A) contain an application to purchase shares of the fund. An omitting prospectus is a mutual fund tombstone advertisement. It must include information on obtaining a prospectus and may include the fund's past performance. It will never include an application to purchase shares and may or may not make mention of the fund's expense ratio.

The first of the federal securities acts was the Securities Act of 1933. This act requires persons selling a new offering to their clients to A) deliver an effective (final) prospectus no later than with confirmation of the sale. B) deliver a preliminary (red herring) prospectus prior to the sale. C) be properly registered prior to making the offer. D) deliver a copy of the registration statement no later than with confirmation of the sale.

A) deliver an effective (final) prospectus no later than with confirmation of the sale. The Securities Act of 1933, sometimes referred to as the "paper act", requires that an effective, or final prospectus be delivered to all purchasers of a new offering no later than with confirmation of the sale. It is not required that purchasers receive a red herring prospectus and only the SEC gets copies of the registration statement. Yes, they must be properly registered to make the offer (and sale), but that comes under the "people act", the Securities Exchange Act of 1934.

A broker-dealer is the lead underwriter in a new issue. During the period this new security issue is in registration, which of the following will usually be distributed? I.Subscription forms enabling clients to place a down payment on the issue. II.A red herring prospectus. III.The company's latest research report on that stock. IV.Indication of interest forms.

B) II and IV. During the period a new securities issue is in registration, the underwriters usually prepare and distribute the red herring prospectus along with forms to indicate interest in the issue. No firm orders or payment may be accepted prior to the date the issue is effective for sale.

Which of the following statements is TRUE regarding the civil liability provisions of the Securities Act of 1933? A) Purchasers may waive their rights to suit under the civil liability provisions if done so by the purchase contract. B) If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied. C) The statute of limitations for civil suits is three years from the date of discovery. D) Only those who actually signed the registration statement are exposed to potential liability.

B) If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied. Under federal law, civil suits must be filed within one year of the date of discovery of the improper action or three years after the sale, whichever comes sooner. Purchasers may not waive their rights under the act for any provision. Although those who signed are liable, there is a list of others who also might be, including members of the board of directors, legal counsel, accountants, etc.

Charlotte is an agent of Gibraltar Securities. Her most active customer told Charlotte that he is thinking about buying 10,000 shares of a retailer's stock for which Gibraltar will be participating in the underwriting syndicate. The SEC release date for the stock is anticipated within 10 business days. What may Charlotte send to the client today? A) The preliminary prospectus and a reprint of a popular advertisement placed by the issuing corporation. B) The preliminary prospectus. C) An order request. D) The final prospectus.

B) The preliminary prospectus. Because a security is in registration until released by the SEC for public sale, only the unadulterated prospectus may be sent to parties indicating interest in purchasing the stock. Orders may not be accepted for a security while in registration. Because the final prospectus is indeed an offering document, it may not be presented until the SEC has released the security for public sale (made the security effective.)

According to the Securities Act of 1933, all of the following statements are true EXCEPT: A) the SEC has the authority to conduct formal investigations in the interest of investor protection. B) an omitting prospectus may not be used as an advertisement. C) a futures contract is not considered a security under the act. D) a sale of securities includes any security given as a bonus for making a purchase.

B) an omitting prospectus may not be used as an advertisement. An omitting prospectus is used by a registered investment company to advise readers of the availability of a full prospectus and where it may be obtained. It is allowed under SEC Rule 482 as advertising, provided the ad is not accompanied by an application and proper advertising caveats are used.

An agent must deliver a preliminary prospectus for an IPO within a prescribed period of time to any person who has: A) regularly purchased similar new issues in the past. B) been approached about buying this new issue while the issue is in registration. C) has an account with his firm. D) attended the due diligence meeting.

B) been approached about buying this new issue while the issue is in registration. Anyone who is approached about a new issue prior to the effective date must receive a preliminary prospectus.

The federal Securities Act of 1933 has certain requirements for those selling new issues. One of those requirements is to: A) be properly licensed prior to making the offering. B) deliver a final prospectus no later than with confirmation of the sale. C) deliver a copy of the prospectus prior to the sale. D) deliver a preliminary prospectus to any person who has purchased the new issue.

B) deliver a final prospectus no later than with confirmation of the sale. The Securities Act of 1933 requires that a prospectus dealing with a new stock issue be delivered to a purchaser no later than with the confirmation of the trade. Preliminary prospectuses have no relevance once the issue is effective. The Securities Act of 1933 does not deal with the registration requirements of agents.

Under the Securities Act of 1933, a registration statement for a security must be signed by: A) a majority of the issuer's board of directors and the underwriter. B) the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors. C) a majority of the issuer's board of directors only. D) the issuer's chief executive officer and the underwriter.

B) the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors. The underwriter's signature is not required on a registration statement, but the chief executive officer, the chief financial officer, and a majority of the board of directors must all sign.

Rule 482 of the Securities Act of 1933 deals with: A) omitting prospectuses. B) intrastate offerings. C) registration under coordination. D) private placements.

A) omitting prospectuses Rule 482 describes a form of allowable mutual fund advertising, commonly referred to as an omitting prospectus

When a new issue of common stock is in registration, registered representatives are permitted to: A) furnish prospects with a final prospectus. B) send a copy of the preliminary prospectus. C) receive indications of interest along with a good faith deposit. D) accept tentative orders.

B) send a copy of the preliminary prospectus. An issue in registration has not yet become effective. A preliminary prospectus may be sent and indications of interest may be accepted, but no orders or money are accepted until the effective date.

Which of the following describe indications of interest secured during the 20-day cooling-off period? I.Binding on the customer. II.Nonbinding on the customer. III.Binding on the broker-dealer. IV.Nonbinding on the broker-dealer. A) I and III. B) I and IV. C) II and III. D) II and IV.

D) II and IV Indications of interest are not binding on either party.

XYZ Corp. will issue a new security and distribute it through a public offering. Under the Securities Act of 1933, which of the following is NOT required to be included in XYZ's registration statement? A) The name and address of Jan Michael, who owns 11% of XYZ's stock. B) The identity of the underwriter. C) The name and address of XYZ's personnel manager. D) An estimate of the proceeds that will be raised through the offering and how that money will be used.

C) The name and address of XYZ's personnel manager. A registration statement must contain the identity of owners of more than 10% of the issuer's stock, an estimate of the proceeds and a description of the use to which they will be put, and the identity of the underwriter, amongst many other things. It must also identify all the issuer's officers and directors, their holdings of the issuer's securities, and their salaries. Since the description of the personnel manager does not use the term officer or director, this employee need not be identified in the registration statement.

XYZ Corporation is registering a new issue of common stock. A final prospectus must be delivered within the statutory time limits to: A) any person solicited by a registered agent. B) any person who has submitted an indication of interest. C) any person who purchases shares of the issue. D) any person who is employed by the issuer.

C) any person who purchases shares of the issue. Under the Securities Act of 1933 and the Uniform Securities Act, a prospectus must be given to any purchaser of a common stock, but not necessarily to those solicited by an agent. In fact, the USA only requires the prospectus to be delivered prior to the sale, not the offer.

In reviewing prospectuses and registration statements, the SEC: A) certifies the accuracy of the disclosures made in a prospectus. B) guarantees the adequacy of the disclosures made in a prospectus. C) does not approve or disapprove of the issue. D) passes on the merits of a particular security covered by a registration statement.

C)does not approve or disapprove of the issue. The SEC requires full disclosure regarding a new issue so that investors can make informed decisions on the security. The SEC does not, however, guarantee the accuracy or adequacy of the information, nor does it approve or disapprove of the issue.

Under the Securities Act of 1933, the Securities and Exchange Commission has the authority to: I. issue stop orders. II. approve new issues. III. review standard registration forms. A) I, II and III. B) I and II. C) II and III. D) I and III.

D) I and III. During the cooling-off period, the SEC reviews registration statements and may issue stop orders. The SEC does not approve securities; it only clears them for distribution to the public.

Under the USA, each of the following materials may be distributed if an issuing company has applied for registration but is not yet cleared for sale EXCEPT: A) tombstone advertising. B) a red herring. C) a preliminary prospectus. D) an application with a request for a down payment.

D) an application with a request for a down payment. Prior to clearance, a red herring or preliminary prospectus (a disclosure document) may be distributed in response to those customers who express interest in the offering. While rarely used before the effective date, a tombstone advertisement may be published while the issue is in registration. The red herring is only used to solicit indications of interest; no orders or funds may be accepted before the effective date.

Under federal law, the statute of limitations for civil liability is: A) one year after discovery of the action. B) two years after discovery or three years after the action, whichever is sooner. C) two years after the action. D) one year after discovery or three years after the action, whichever is sooner.

D) one year after discovery or three years after the action, whichever is sooner. In the federal regulations, the statute of limitations for a civil action is the sooner of one year after discovery or three years after the action. Under the USA, it is the sooner of two years after discovery or three years after the action.

Under the Securities Act of 1933, all of the following must sign a registration statement for a new issue of nonexempt securities EXCEPT: A) the chief financial officer of the issuer. B) a majority of the members of the board of directors. C) the chief executive officer of the issuer. D) the managing underwriter of the issuer.

D) the managing underwriter of the issuer. The registration statement, which is an issuer document, must be signed by members of the board as well as by the CEO and the CFO. It is also signed by the lawyers and accountants representing the issuer who express their opinions on the legal and accounting aspects of the proposed new issue.

Under the Securities Act of 1933, a registration statement of an issuer must contain all of the following information EXCEPT: A) the identity of the officers and directors and the extent of their holdings in the issuer. B) the current balance sheet and profit/loss statements. C) the business of the issuer. D) the names of all the owners of the company's stock.

D) the names of all the owners of the company's stock. The names of all of the owners of the company's stock are not required. The identity and stock holdings of the officers, directors, and holders of more than 10% of the company's voting stock, as well as the principal business of the issuer and current financial information, must be disclosed.

ABCO Materials, Inc., is in the process of raising money from the public for the first time. Which of the following must be disclosed in ABCO's registration statement filed with the SEC? I.Biographical sketches of each of the members of the board of directors as well as ABCO's principal officers. II.Expected use of the proceeds of the offering. III.Performance of the company's stock over the last five years or since the founding of the company, whichever is the shorter period. IV.Expected range of the public offering price.

I, II and IV A registration statement will always include the expected use of the proceeds of the offering as well as short biographies of the members of the board of directors (and key officers as well). This question stated it was the company's IPO, so there could not be any previous stock performance, although the public offering price is not determined until the effective date, the expected range is indicated to the SEC.

Under the Securities Act of 1933, when registering securities with the SEC, who must sign the registration statement? I. The chief executive officer (CEO). II. The chief operating officer (COO). III. A majority of the board. IV. The chief financial officer (CFO).

I. The chief executive officer (CEO). The principal executives of the company involved with money and a majority of the board of directors are required to sign the registration statement attesting to the facts presented as being true to the best of their knowledge and belief. This includes the chief executive officer, chief financial officer, and a majority of the board, but not the chief operating officer.