Unit 8.4 Registration of Securities (Series 65)

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) 10 days. C) 30 days. D) 31 days.

Answer: A A registration statement for a security becomes effective 20 days after it is filed, unless the SEC orders a delay. Reference: 8.4.2 in the License Exam Manual.

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

Answer: A 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. Reference: 8.4.4 in the License Exam Manual.

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 managing underwriter of the issuer. B) a majority of the members of the board of directors. C) the chief executive officer of the issuer. D) the chief financial officer of the issuer.

Answer: A 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. Reference: 8.4 in the License Exam Manual.

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

Answer: A 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. Reference: 8.4.6 in the License Exam Manual.

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 identity of the underwriter. B) The name and address of XYZ's personnel manager. C) The name and address of Jan Michael, who owns 11% of XYZ's stock. D) An estimate of the proceeds that will be raised through the offering and how that money will be used.

Answer: B 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. Reference: 8.4 in the License Exam Manual.

Under the Securities Act of 1933, which of the following would be civilly liable for false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act? I. Any and every person who has signed the registration statement. II. Every expert who is named in the registration statement. III. Every underwriter of the security. IV. Every stockholder named in the registration statement. A) I, II, III and IV. B) I, II and III. C) I and III. D) I, III and IV.

Answer: B Anyone who has signed the registration statement, anyone who is named in the statement as an expert, and every underwriter may be liable to the purchasers of the securities if the statement contains false information. Although a registration statement contains the names of stockholders who own more than 10% of the issue, they are not liable unless they fall into one of the other categories (officer, director, or expert). Anyone who sells the underlying security without providing a valid prospectus, uses a prospectus that is false, or omits material information is also civilly liable to the purchaser. Reference: 8.4.5 in the License Exam Manual.

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 final prospectus. B) The preliminary prospectus. C) The preliminary prospectus and a reprint of a popular advertisement placed by the issuing corporation. D) An order request.

Answer: B 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.) Reference: 8.4.3 in the License Exam Manual.

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

Answer: B 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. Reference: 8.4.6 in the License Exam Manual.

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) II and III. B) II and IV. C) I and III. D) I and IV.

Answer: B Indications of interest are not binding on either party. Reference: 8.4.3 in the License Exam Manual.

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) a preliminary prospectus. B) an application with a request for a down payment. C) tombstone advertising. D) a red herring.

Answer: B 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. Reference: 8.4.3 in the License Exam Manual.

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). A) I, II, III and IV. B) I, III and IV. C) I and IV. D) I, II and IV.

Answer: B 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. Reference: 8.4 in the License Exam Manual.

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 who is employed by the issuer. B) any person who purchases shares of the issue. C) any person solicited by a registered agent. D) any person who has submitted an indication of interest.

Answer: B 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. Reference: 8.4.4 in the License Exam Manual.

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. A) II and III. B) III and IV. C) I, II and IV. D) I and IV.

Answer: C 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. Reference: 8.4 in the License Exam Manual.

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

Answer: C 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. Reference: 8.4.3 in the License Exam Manual.

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

Answer: C 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. Reference: 8.4.1 in the License Exam Manual.

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

Answer: C Anyone who is approached about a new issue prior to the effective date must receive a preliminary prospectus. Reference: 8.4.2 in the License Exam Manual.

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

Answer: C 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. Reference: 8.4.4.1 in the License Exam Manual.

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 a copy of the registration statement no later than with confirmation of the sale. B) be properly registered prior to making the offer. C) deliver an effective (final) prospectus no later than with confirmation of the sale. D) deliver a preliminary (red herring) prospectus prior to the sale.

Answer: C 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. Reference: 8.4.4 in the License Exam Manual.

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) I and IV. B) II and III. C) II and IV. D) I and III.

Answer: C 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. Reference: 8.4.4.1 in the License Exam Manual.

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

Answer: D 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. Reference: 8.4.4.1 in the License Exam Manual.

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 and II. B) II and III. C) I, II and III. D) I and III.

Answer: D 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. Reference: 8.4.2 in the License Exam Manual.

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. A) I and II. B) II and III. C) III and IV. D) II and IV.

Answer: D 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. Reference: 8.4.3 in the License Exam Manual.

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

Answer: D 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. Reference: 8.4.1 in the License Exam Manual.

A customer requests information on a new mutual fund and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted A) if approved by a principal B) if accompanied by an unmarked prospectus C) without restriction D) under no circumstances

Answer: D The prospectus is a legal document and may not be altered. Reference: 8.4.3 in the License Exam Manual.

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

Answer: A 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. Reference: 8.4 in the License Exam Manual.

Which of the following statements regarding a red herring is NOT true? A) Additional information may be added to a red herring at a later date. B) 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. C) A red herring is used to accept indications of interest from investors. D) The final offering price does not appear in a red herring.

Answer: B An agent is not permitted to accept funds from potential purchasers of a new issue before the effective date. Reference: 8.4.2 in the License Exam Manual.

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

Answer: D Rule 482 describes a form of allowable mutual fund advertising, commonly referred to as an omitting prospectus. Reference: 8.4.4.1 in the License Exam Manual.