Unit 8

Under the Securities Act of 1933, which of these may be an accredited investor? I. A bank, insurance company, investment company, or employee benefit plan valued in excess of $5 million II. A wealthy person, in some cases III. Partners, officers, and directors of the issuer for a particular issue

*Accredited investors are financial institutions, wealthy persons meeting specific requirements, and (for a particular issue) persons involved in the management of the issuer.

If securities of an issuer registered with the state are outstanding, how long after the effective date of registration must an issuer wait before the registration may be withdrawn? A) 12 months B) 18 months C) Only at the Administrator's discretion D) 6 months

12 months A

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file Form D with the SEC A) no later than the time of the first sale. B) no fewer than 20 days prior to the first expected date of sale. C) no later than 30 days after the first sale. D) no later than 15 days after the first sale.

27 Rule 503(a) states that any issuer that offers or sells securities in reliance on Rules 504, 505, or 506 of Regulation D must file Form D with the SEC within 15 days after the first sale of the securities in the offering D

Which of the following is an exempt security under the Uniform Securities Act? A) Shares of a U.S.-based insurance company not authorized to sell policies in that particular state. B) Negotiable certificates of deposit with $100,000 denominations. C) Commercial paper maturing in 12 months. D) Common stock traded on the London Stock Exchange.

A negotiable certificate of deposit issued by a bank is an exempt security. Insurance company shares are nonexempt if the issuer is not authorized to do business in that particular state. While debt securities issued by the United Kingdom are exempt, corporate securities issued by British companies are not. Commercial paper loses its exemption if the maturity is longer than 270 days. B

Which of the following is not an accredited investor? A) Any organization not formed for the purpose of purchasing securities with a net worth in excess of $5 million. B) An individual with a net worth, including the value of her primary residence, that is greater than $1 million. C) An individual whose income was greater than $200,000 in each of the 2 most recent years with a reasonable expectation of reaching that level again this year. D) A registered open-end investment company with net asse

An accredited investor can take different forms: an individual with a net worth, excluding the value of the principal residence, greater than $1 million (the $1 million can be joint with spouse); an individual whose yearly income for the past 2 years exceeded $200,000 ($300,000 joint with spouse) with a reasonable expectation of earning that amount this year; and any organization not formed for the purpose of purchasing the securities being offered with a net worth in excess of $5 million. In addition, any registered investment company, bank or insurance company, regardless of size, is included in the definition of accredited investor in SEC's Rule 501. B

Under the USA, which of the following would be considered an exempt transaction?I. an existing client calls you to purchase 1,000 shares of a common stock that is not registered in this state.II. at the suggestion of the agent handling her account, a client purchases some US Treasury bonds for inclusion in her IRA.III. Shares of a bank's IPO are sold to an institutional client.IV. Shares of an insurance company's IPO are sold to an individual client.

Ans. I and III.A client calling to purchase stock is an unsolicited transaction, probably the most common of the exempt transactions. Any sale to an institutional client is an exempt transaction, whereas those to individuals, unless unsolicited, generally are not. Please note, even though the Treasury bonds are an exempt security, because of the transaction was solicited by an agent to an individual client, it is not an exempt transaction.

The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would not be eligible for an exemption in your state? A) Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state but not authorized to do business in your state B) Bonds issued by the Province of Alberta C) Common stock issued by the XYZ Trust Company, organized under the laws of a neighbori

Any issue from a state or Canadian province is always exempt. Equipment trust certificates issued by any regulated common carrier are always exempt. Banks, savings institutions, and trust company securities are also exempt as long as they are organized under the laws of the United States or any state. However, securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state. A

As referred to in the NSMIA, the term "federal covered security" would apply to: I. preferred stock in the XYZ Corporation whose common stock is listed on the NYSE. II. common stock in ABCD, Inc., a stock traded on the OTC Link. III. Springfield, Illinois, municipal bonds sold to a resident of Springfield, Illinois. IV. Springfield, Illinois, municipal bonds sold to a resident of Springfield, Missouri A) I and IV. B) III and IV. C) I and II. D) II and III.

Any security equal or senior to one listed on the NYSE is a covered security. Municipal bonds are a covered security except in their state of issuance. Pink Sheet and OTC Bulletin Board securities are not considered covered. A) I and IV

A discussion referring to blue-sky laws would include all of the following except A) forms requiring issuers selling securities in the state to comply with state securities laws. B) a state securities law that grants state securities Administrators the power to deny or revoke a broker-dealer's or an agent's registration within its state. C) state laws that are designed to protect the public against fraud in securities sales within a state. D) the Securities Act of 1933 and Securities Exchange Ac

Blue-sky laws are state securities laws. The Securities Act of 1933 and the Securities Exchange Act of 1934 are federal securities laws. D

The U.S. Supreme Court case resulting in the decision that an investment contract is a security is the A) Golub case B) Muller case C) Howey case D) Steiner case

C

Which of the following is NOT classed as a security under the Uniform Securities Act? A) Options on stocks. B) Stocks. C) Heating oil futures D) Bonds issued by a foreign country.

C) Heating oil futuresCommodity futures on items such as gold, silver, wheat, heating oil, and pork bellies are not securities. Options on stocks, and stocks and bonds are securities.​

A client wants to purchase commercial paper. The licensed agent may indicate to the client that the security need not be registered if which of these are true? I. The minimum denomination is $50,000. II. The maximum maturity is 270 days. III. It is rated in one of the three highest rating categories by a recognized rating agency. IV. It is in book-entry form. A) I and III B) I, II, and III C) II, III, and IV D) I and II

Commercial paper may qualify as an exempt security if the minimum denomination is $50,000, has a maturity of not more than 270 days, and is rated in one of the three highest rating categories by a nationally recognized rating agency. It may or may not be in book-entry form (electronic records with no paper certificate); that has nothing to do with an exemption from registration. How do we know this is referring to the exemption under the Uniform Securities Act instead of the Securities Act of 1933, which has no rating requirement? The first reason, and most important, is that this is the NASAA exam; by default, unless stated otherwise, all questions refer to the USA and NASAA model rules. The second is the use of the term agent. That is a registration designation found only in state law. B) I, II, and III

ABC Furniture Company wishes to raise capital by issuing some securities in its home state. The CEO of the company feels that registration with the Administrator is unnecessary because the issue is exempt. Should ABC be ordered to appear at a hearing, the burden of proving its issue is exempt is on A) the Administrator. B) the company. C) the hearing panel. D) the CEO.

Explanation In any case where there is a question as to the legality of a specific exemption, the burden of proof is always on the party requesting the exemption. B

Which of the following securities is not exempt from the registration provisions of the Securities Act of 1933? A) A new stock being offered in three states B) A high-quality corporate promissory note maturing in 180 days C) An equity security issued in only one state and solely to residents of that state D) A U.S. government bond

Government securities, money market instruments (the promissory note is another way of saying commercial paper), and intrastate offerings are exempt from the registration provisions of the 1933 Act. A stock being offered in three states would have to register with the SEC and possibly with those states. A

Which of the following are exempt from state registration? I. A common stock traded on the OTC Link whose bonds are listed on the NYSE II. An isolated nonissuer transaction III. A transaction by an administrator of an estate IV. A transaction with no commissions, directed by the offeror to no more than 50 persons in the state who buy the security for investment purposes only

Isolated nonissuer transactions and transactions by an administrator of an estate are included in the list of exempt transactions. With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities.

All of the following must be specified in the state registration statement of the security except A) the total amount of the security that will be offered in each state B) a stop order from any other state that affects the offering of the security within that state C) the total amount of the security that will be offered in this state D) all other states where the security is currently registered or will be registered

It is not necessary to list the total amount of the security to be offered in all states. However, for filing fee purposes, the amount to be sold in this state must be disclosed.

Under the Uniform Securities Act, which of the following statements regarding private placements is true? A) The security ​that is the subject of the private placement ​need not be registered. B) The offering must be made to fewer than 15 noninstitutional persons. C) Being an exempt transaction, the antifraud provisions do not apply. D) A prospectus must be provided before the offering.

Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly. Such transactions are exempt from registration requirements. The fraud provisions apply to any person involved with the purchase or sale of a security, whether registered or exempt, and the prospectus delivery requirements apply to registered securities. Please note that when it comes to institutional clients, there are no numerical limitations on offers, no required holding periods, and no restrictions on payment of commissions. A

Which of the following securities are not subject to state registration under the Uniform Securities Act? Equipment trust certificates issued by a railroad subject to federal regulation Preferred stock of a bank holding company listed on the New York Stock Exchange Subordinated convertible debentures issued by the Dominion Electric Company of Canada, a public utility regulated by the Canadian federal government Shares of a savings and loan association authorized to do business in the state A) I

Securities exempt under the USA include bank issues, savings and loan issues, and common carriers or public utilities regulated by the U.S. or Canadian federal government. Securities issued by bank holding companies that trade on SEC-regulated exchanges are federal covered securities and are not subject to state registration. B) I, II, III, and IV

Which of the following statements regarding the private placement exemption under the USA are TRUE? I. There may be no more than ten offers to noninstitutional purchasers during any consecutive 12-month period. II. The seller reasonably believes that the retail buyer is purchasing for investment only. III. No investors may resell stock acquired in a private placement without a prescribed holding period. IV. Commissions may be paid on sales to noninstitutional purchasers. A) II and III. B) I and

There is a limit of 10 offers during any 12 months to noninstitutional (retail) purchasers. Because the purchase is "for investment purposes only", the seller must have reason to believe that retail buyers intend to hold the security rather than turn it over quickly. However, that holding period is only for retail buyers; there is no holding period for institutional purchasers and it is only on institutional transactions that commissions may be paid. D) I & II

Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these except A) all purchasers of the Rule 506(c) securities must be accredited investors as defined in Rule 501, whereas Rule 506(b) permits a limited number of sophisticated but not accredited investors. B) general solicitation is permitted under Rule 506(c) offerings; no advertising is permitted under Rule 506(b). C) the issuer must take "reasonable steps

Under the NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either (b) or (c), is considered to be a federal covered security. D

Which of the following does not have a federally imposed exemption from registration with the SEC? A) Securities issued or guaranteed by a state or political subdivision of a state B) Shares of bank holding companies traded on the New York Stock Exchange C) Securities issued or guaranteed by the U.S. government D) Promissory notes and bankers' acceptances with maturities of nine months or less, where the proceeds are not used for capital expenditures

Under the Securities Act of 1933, shares of bank holding companies listed on the NYSE are not exempt securities and they must be registered with the SEC. However, securities of commercial banks are exempt because they are regulated by the Controller of the Currency or some other banking agency. What might be confusing is that these NYSE listed shares are federal covered securities which makes them exempt from registration with the states. Securities issued or guaranteed by the U.S. government are exempt from registration under federal law. All securities issued or guaranteed by a state or political subdivision of a state qualify for a federal exemption. Promissory notes and bankers' acceptances with maturities of 9 months or less where the proceeds are used for working capital purposes rather than the purchase of fixed assets also have federally imposed exemptions. B