law 300 chapter 18
Which of the following is NOT a type of investment company as defined by the Investment Company Act:
"no-load" company
The SEC does not allow markups of more than ____ above their market value on securities.
10%
Registration of a prospectus for a new stock offering becomes effective:
20 days after it is filed
The ____ increases regulatory oversight of financial markets, but not the way securities are issued or generally handled.
Dodd-Frank Act
What law gives the SEC a basis for prosecuting insider trading?
Insider Trading Sanctions Act
The ____ gave the SEC a statutory basis for prosecuting insider trading.
Insider Trading Sanctions Act of 1984
The ____ requires investment companies to register as such with the SEC, which then makes the companies subject to regulations of their activities and holds them liable to the SEC, and to private parties, for violations.
Investment Company Act of 1940
The ____, which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards and discipline CPAs for misconduct.
Public Company Accounting Oversight Board
Fraud in securities dealings may be litigated on the basis of:
SEC Rule 10b-5
The Public Company Accounting Oversight Board, which has authority to set accounting standards and discipline CPAs for misconduct, was established by the:
Sarbanes-Oxley Act of 2002
The ____ requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of large companies that have publicly traded stock personally certify that financial reports made to the SEC comply with SEC rules and that the information in the reports is accurate.
Sarbanes-Oxley Act of 2002
Which of the following would be considered an accredited investor under Regulation D:
a bank
Which of the following is NOT a securities professional:
a scalper
Securities are important because:
all of the other specific choices are correct
Which of the following is a securities professional:
all of the other specific choices are correct
Which of the following is NOT a type of investment company as defined by the Investment Company Act:
all of the other specific choices are types of investment companies
When investors establish accounts with investment firms or stockbrokers, they usually sign a standard form that states that disputes must be:
arbitrated
The primary dispute resolution mechanism between investors and brokers is:
arbitration
The Supreme Court held that binding arbitration agreements between investors and investment firms:
are legal
"No-load" mutual funds:
are sold directly to the public by mail or by the Internet
To reduce possible conflicts of interest, the Investment Company Act requires that boards of directors:
be composed of at least 40% outsiders
The CEO of Big Ships knows his company has won a $2 billion contract to build ships for the Navy. He is told by the Navy to keep this quiet until the official announcement. Knowing that Big Ships stock will rise when the announcement is made, he tells his children to buy as much Big Ships stock as they can right away. He does not buy any stock. The CEO may:
be sued for insider trading because he gave out inside information he had a fiduciary duty to keep secret
A securities professional who engages in the business of buying and selling securities for the accounts of others is a(n):
broker
Which of the following securities professionals must be registered with the SEC to be able to engage in business?
brokers and dealers
Under the securities law, liability for misstatements:
can be imposed for overly optimistic statements made by executives that are not soundly grounded
When a securities professional buys and sells excessive amounts of stock for a client's account to make extra-large commissions from the trades, she is:
churning
Fraud in securities dealings may be litigated under:
common law fraud rules or SEC Rule 10b-5
Under securities law, knowingly making a misstatement in company reports is a:
criminal offense with fines up to $5 million and up to 20 years in prison
A securities professional who engages in the business of buying and selling securities for their own account is a(n):
dealer
Suppose there has been securities fraud in the preparation of materials sent to investors, who then lose money. Potentially, which of the following may be liable?
directors of the company and high-level officers of the company
Suppose there has been securities fraud in the preparation of materials sent to investors, who then lose money. Potentially, which of the following may be liable?
directors of the company and high-level officers of the company and accountants, lawyers and other professionals who helped prepare the material
SEC Rule 10b-5 holds it illegal for anyone involved in securities dealings to:
employ any device, scheme, or artifice to defraud or make any untrue statement of a material fact or to omit to state a material fact
Insider trading laws in Europe:
exist, but are generally not enforced as much as the law is in the U.S.
A company that issues debt securities paying a fixed return would be defined by the Investment Company Act as a(n):
face-amount certificate company
Under the Investment Company Act, investment companies must:
hold their capital and debts in ways approved by the SEC
Insider trading is:
illegal when insiders trade based on information they have a fiduciary duty not to trade on
Since 1970 the volume and value of stock transactions has:
increased by about 30 times
A securities registration statement consists of:
information about risks involved in a business venture and a prospectus
The buying or selling of stock by persons who have access to information affecting the value of the stock that has not yet been revealed to the public is called:
insider trading
A securities professional who are in the business of charging fees for recommendations on investments is a(n):
investment adviser
Someone who does not have a fiduciary duty to the shareholders of a company and uses inside information to make a profit with company stocks:
is probably not guilty of insider trading
The rationale behind prohibiting insider trading is that:
it gives people in high positions in a company an unfair advantage
Studies indicated that the enactment of the Sarbanes-Oxley Act has:
led to corporate business shifting away from the U.S. to competitors such as London
____ are sold through a securities dealer and have a sales commission of some percentage of the price.
load mutual funds
The arbitration decisions from disputes involving investment firms or stockbrokers are:
made public
SEC Rule 10b-5 holds it illegal for anyone involved in securities dealings to:
make any untrue statement of a material fact or to omit to state a material fact
All the relevant information that an investor would want to know about a company before investing in it is known as:
material information
Someone who engages in insider trading:
may be prosecuted by the SEC
The most common investment management company is the:
mutual fund
You work for a securities firm matching orders to buy and sell stocks in small companies. A customer places an order to buy 100 shares of X Corp. when they sell for $40 a share. You find a seller at $39 per share. May you buy the shares yourself at $39 and then sell them for $40 to you client?
no, specialists cannot deal for their own benefit
____ are sold directly to the public through the mail or Internet with no sales commission.
no-load mutual funds
Chiarella worked at a company that printed financial documents. In one documents, he read confidential information that allowed him to buy stock and make a nice profit because of his knowledge. When sued by the SEC for insider trading, the Supreme Court found Chiarella:
not guilty of insider trading because he had no fiduciary duty not to use the information
Investment companies (that are in the business of investing or trading in securities) are:
not subject to the Investment Company Act if they are insurance companies or if they are only involved in internal investing, such as banks
Overly optimistic statements by executives are:
one of the most common grounds for private suits seeking damages based on a claim of securities fraud
The Investment Company Act of 1940 regulates:
open-end companies (mutual funds)
Under securities law, misleading information that would reasonably affect investment decisions by securities owners includes:
overly optimistic statements by executives
According to SEC rules, a company that has fewer than 500 shareholders and does not allow its securities to be openly traded is called a:
private company
Jones works at an investment firm that helps corporations merge with other companies. Because of her work, she knows that two clients of her firm are going to merge. She also knows that when the announcement is made, the price of stock in these companies will jump. She buys stock in the companies before the announcement. She is:
probably guilty of insider trading
You are on the subway in New York when you overhear two people you do not know talking about an upcoming merger, news not yet public. They seem to know their stuff. If you buy stock based on this information, and profit when the information turns out true, you have:
profited, but are an outsider and so your actions are probably not illegal
A(n) ____ is a document providing the legal offering of the sale of a security.
prospectus
The SEC may sue those alleged to be violating securities laws. Most SEC actions in these cases are:
public and so expose the involved parties to publicity
Under the 1934 Securities Exchange Act liability may be imposed on corporate officials for misstatements or omissions made in which of the following?
public statements by the officials and SEC disclosure documents and press releases issued by the company
The Investment Company Act requires that at least 40% of the board of directors of an investment company must be outsiders to:
reduce possible conflicts of interest
Merrill Lynch and other brokerage firms, in an effort to reduce conflicts of interest inside the company, have established policies:
restricting trading in securities by analysts who comment on those securities
When the SEC reviews a prospectus for a new stock offering it may not:
rule on the merits of the offering
When a securities professional buys stock for her own account, then urges investors to buy the same stock so that the price will rise, and benefit her, has engaged in:
scalping
The detailed arbitration records from disputes involving investment firms or stockbrokers are:
secret
Securities are important to businesses because:
securities are an important source of financing for operations
The stock exchanges are:
self-regulating but subject to SEC control
Firms that generally do not deal directly with the public and instead handle transactions for brokers are known as:
specialist firms
Insider trading is:
the buying or selling of stock by persons who have access to information, not yet revealed to the public, that affects the value of the stock
The buying and selling of futures and options is called:
trading of derivatives
A company that offers a fixed portfolio of securities would be defined by the Investment Company Act as a(n):
unit investment trust
The SEC's Rule 10b-5:
was adopted under Section 10(b) of the 1934 Act concerns securities fraud and prohibits "manipulative" deceptive device and applies to registered and unregistered securities
Companies are required to release material information to the public, rather than to reveal such information selectively under:
Regulation Fair Disclosure (FD)
The securities registration process requires all the following information to be provided to prospective investors except:
SEC analysis of the offering
Under ____, any person who buys a security covered by a registration statement that contains false or misleading information, or that omits information that was important to a decision to purchase, may sue to recover losses incurred in that purchase.
Section 11 of the 1933 Securities Act
The ____ requires that investors be given material information about new securities and it prevents misrepresentation in the sale of securities.
Securities Act of 1933
The ____ regulates trading in existing securities and imposes disclosure requirements on corporations that have issued publicly held securities.
Securities Exchange Act of 1934
The federal agency that has the most to do with regulation of the securities markets is the:
Securities and Exchange Commission
Which of the following would be unlikely to be on the Securities and Exchange Commission staff:
a, b and c are all likely to be on the SEC staff
According to SEC rules, 10-K reports must be filed:
annually
A new or an existing company may be financed by:
debt and equity
Securities differ from other assets in that they:
have no intrinsic value in themselves
A private-placement memorandum is:
information to investors in unregistered securities that is similar to a prospectus
A debt is a financial obligation a firm. It is:
often incurred by selling bonds
A tender offer takes place when:
one company attempts to take over another company
Some securities are sold under the provisions of Rule 144A. About what fraction of securities offerings have recently been offered subject to this Rule?
one in five
A proxy is best described as:
permission by a stockholder to someone else to vote their shares a certain way
Securities offerings on the Internet are:
permitted by the Capital Markets Efficiency Act but are not common
Although securities sold under a private placement exemption are exempt from registration, the law requires that investors be given a ____, which is similar to a prospectus.
private-placement memorandum
According to SEC rules, 10-Q reports must be filed:
quarterly
Securities sold in private placements:
require the SEC to be notified and the investors to be given a private-placement memorandum
Under SEC rules, a "publicly held company" is a company:
that has issued securities that are publicly traded
What is not an element in the Supreme Court's SEC v. Howey definition of securities:
where profits are earned
Under SEC rules, a "private company" is a company:
with fewer than 500 shareholders and shares not openly traded
To be considered an accredited, investor an individual must have a net worth of at least:
$1 million
To be considered an accredited, investor an individual must have an annual income of at least:
$200,000
To be considered accredited investors, a couple must have an annual income of at least:
$300,000
The ____ is an extensive audited financial statement similar in content to the information provided in the registration process under the 1933 Act.
10-K annual report
Kansas enacted the first securities statute in:
1911
____ is the raising of funds through the sale of company stock.
Equity financing
The first state to have securities regulation was:
Kansas
The first regulation of securities in the U.S. was the:
Kansas blue sky law
The SEC rule that requires public companies to release material information to the public rather than release the information on a selective basis, such as in meetings with security analysts, is called:
Regulation Fair Disclosure (FD)
U.S. and foreign security issuers are exempt from registration requirements for the sale of bonds and stocks to institutions with a portfolio of at least $100 million in securities under the provisions of:
Rule 144A of the 1933 Securities Act
Scott invests money in fixing up his house, an endeavor that he expects will generate profits because he will be able to rent it out as a bed and breakfast run by his sister. This is not a security subject to federal regulation because:
Scott's investment is in his own property and not in a common enterprise
The most common Regulation D offerings for private placements are called:
Small Corporate Offering Registration
What financial disclosure report is not required of traded securities regulated by the SEC?
a biannual 8-Q report
A prospective issuer of securities must hire which of the following:
a securities attorney
Which of the following is not considered a security under the 1933 Securities Act:
all of the other choices are considered securities under the 1933 Act
A 10-K report is:
an extensive audited annual financial statement
Which of the following would be considered an accredited investor under Regulation D:
an insurance company
Accredited investors, under SEC Regulation D for private placements include:
banks and insurance companies and individuals with annual incomes over $200,000 or a net worth of at least $2.5 million
Which of the following securities would NOT be exempt from regulation:
debts issued by a corporation with assets of more than $1 billion
In SEC v. Howey, the Supreme Court:
defined a security as an investment of money in a common enterprise with the expectation of profits being earned by the efforts of other persons
A red herring:
is a preliminary version of a prospectus
Securities that are on shelf registration:
may be sold at any time over the next three years
Since it is not practical for many stock owners to attend corporate meetings at which shareholders vote to approve major decisions, shareholders are sent ____ to be voted on their behalf.
proxies
Which of the following are exempt from the Securities Exchange Act of 1933:
securities issued by banks and securities issued by religious and other charitable organizations and insurance policies
The registration requirement of the Securities Act of 1933 applies to:
securities issued by mutual funds
A prospective issuer of securities must hire which of the following:
a printer for the prospectus
A possible way to save the expenses of registering a new security offering is to keep a security exempt from registration. One of these exemptions is called:
a private placement exemption
Corporations must have annual stockholder meetings at which major business decisions of the firm are determined. Since many stockholders are not at meetings, the way they vote their shares is called:
a proxy
A share of stock represents the right to:
a share of future profits of a firm
When a company wants to take over another, it may issue:
a tender offer
An investor who is presumed sophisticated and wealthy enough to evaluate investment opportunities without an SEC-approved prospectus is known as a(n):
accredited investor
The elements of a security, as the Supreme Court ruled in the SEC v. Howey case include:
an investment of money in a common enterprise
The elements of a security, as the Supreme Court ruled in the SEC v. Howey case include:
an investment of money in a common enterprise with the expectation that profits will be generated by the efforts of others
If you own a security in a company, such as common stock in IBM, you have:
an undivided interest in the company
If you own a security in a company, such as common stock in IBM, you have:
an undivided interest in the company and a security subject to federal regulation
In a suit for fraud against the issuer of a security, which element would not have to be shown?
bad information was contained in an SEC filing
Accredited investors, under SEC Regulation D for private placements include:
banks and insurance companies
A security is sold to the public under a private placement exemption. Later a suit is filed under federal securities law claiming securities fraud. This suit will:
be allowed since all securities are subject to the law
The 1946 case Securities and Exchange Commission v. Howey, the Supreme Court established a test to determine when an investment is a security for the purposes of federal regulation. The test has:
four basic elements
Equity financing differs from security financing in that, with equity financing, a company:
has no liability to repay shareholders the amount they have invested
Most securities fraud cases arise from:
information obtained during later disclosure, such as public statements made by corporate representatives
The idea behind the disclosure provisions contained in federal securities law is that:
investors need sufficient and accurate information on material facts concerning securities they might buy
A share of stock:
is a share in the future profits (if any) of a company
Under Regulation D and Rule 504, Small Corporate Offering Registrations can be used for stock issues sold without full registration if the money being raised:
is no more than $1 million
When bonds are sold, there is often a(n) ____ of a certain amount.
issue
In the event that the SEC staff believes that a prospectus that has been submitted for review does not adequately explain the high-risk factors of an offering, it can:
issue a deficiency letter delaying the offering until more detail is provided
The Securities and Exchange Commission has the power to:
issue a deficiency letter ordering the security issuer to amend the filing before sales
Which class of securities is (are) exempt from the federal securities laws?
issues by governments
Section 11 of the 1933 Securities Act imposes civil liability for:
misleading statements in securities registration material
Regulation Fair Disclosure (FD) requires:
public companies to release material information to the public rather than to selected individuals
The Securities Act of 1933 regulates:
public offerings of securities when they are first sold
According to the SEC rules, a company that has issued securities that are publicly traded is a:
publicly held company
The SEC allows for a private placement exemption because:
purchasers of these securities are sophisticated and more able to protect themselves when purchasing unregistered securities
Before the final version of a prospectus is approved by the SEC, the document is called a(n):
red herring
Under Rule 144A, the SEC permits an exemption from:
registration for security issuers selling to institutions worth $100 million or more
The financial future of most people is tied to securities because:
securities are the major form of investment for pension funds
Most securities are issued by well-known seasoned issuers who do not have the right to:
sell without SEC notification
Having an undivided interest in a company means that:
shareholders may not divide company property amongst themselves unless they liquidate the company
Which of the following laws regulates the buying and selling of traded securities?
the 1934 Securities and Exchange Act
The truth-in-securities law refers to:
the Securities Act of 1933
Which of the following is NOT true about the Securities and Exchange Commission:
the agency has three members appointed by Congress for three-year terms
Which of the following is NOT true about the Securities and Exchange Commission:
the agency is not bi-partisan
Which of the following is NOT true about the Securities and Exchange Commission:
the agency is not independent
The most important federal statutes regulating securities were enacted in:
the early 1930s
A corporate debt instrument usually specifies:
the length of the debt period and the debt repayment method and rate of interest
Securities financing is:
the raising of funds through the sale of company stock
The term "red herring" that is used for a prospectus before it is approved by the SEC comes from:
the traditional red ink and reddish paper used in writing a prospectus
In a public security offering, the party hired to market the securities to the public is called:
the underwriter
Most securities are issued by firms that can use a quicker registration process. These are:
well-known seasoned issuers that have issued at least $1 billion in securities previously
