Legal and Social Chapter 22*

Issuer

A company that sells its own stock

Security

Any transaction in which the buyer invests money in common enterprise and expects to earn a profit predominantly from the efforts of others

Purchaser representatives

Have enough knowledge and experience to evaluate stock purchases

Restricted stock

Securities purchased for investment purposes

Firm commitment underwriting

The underwriter buys stock from the issuer and resells it to the public

After the SEC completes its review of a preliminary registration statement, it sends the issuer a comment letter setting forth changes that must be made (T/F)

True

Securities offered and sold entirely within one state of corporation of the state are exempt from registration (T/F)

True

Regulation D

a set of small offering exemption rules [Rules 504 and 506] which permit sales without registration

Regulation A

a shortcut method of registration for small offerings

Section 16 of the 1934 Act prohibits short-swing trading on the part of officers, directors, and controlling shareholders who a. own more than 10% b. trade their shares in order to invest in another company. c. own more than 25% of the company. d. are also on the board of directors of the company.c. own more than ten percent of the company.

a. own more than 10%

Which of the following is included in the definition of a security under the Securities Act of 1933? Select 3 answers. a. publicly traded stocks and bonds b. stock options, puts, and calls c. an interest in real estate d. an investment contract that meets the Howey test

a. publicly traded stocks and bonds b. stock options, puts, and calls d. an investment contract that meets the Howey test

A debt issued by a company as a negotiable instrument with a term of 9 months or less is a security that is exempt from registration and is called: a. short-term commercial paper. b. a short-swing trade. c. short-term private placement. d. a short-term offering.

a. short-term commercial paper.

Under Section 10(b) of the 1934 Act, all of the following would be considered a "corporate insider" EXCEPT a. the janitorial company who cleans the corporate offices b. a major shareholder of the corporation c. a member of the board of directors d. All of these are correct

a. the janitorial company who cleans the corporate offices

Private offering

A sale of securities in which the issuer provides less disclosure in return for selling less stock to fewer investors than in a public offering

Registration statement

The document that an issuer files with the SEC to initiate a public offering of securities

Crowdfunding

a cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause or invest in a business venture

Rule 504

a part of Regulation D; excludes the company from the registration requirements of the federal securities laws; applies to offeterm-29rings of $5 million or less [within any 12-month period]

Prospectus

A document that provides potential investors with information about a security

Due Diligence

An investigation of the registration statement by someone who signs it

Secondary offering

Any public sale of securities by an issuer after the initial public offering

Accredited investors

Institutions (such as banks and insurance companies) or financially qualified individuals

Sophisticated investors

People who can assess the risks of an offering

Control security

Stock held by any shareholder who owns more than 10% of a class of stock or by any officer or director of the company

Restricted securities

Stock purchased in a private offering

Best efforts underwriting

The underwriter does not buy the stock from the issuer but instead acts as the issuers agent in selling the securities

Rule 506

a part of Regulation D; excludes the company from the registration requirements of the federal securities laws; does not have dollar limitation, but the number and type of investors are limited

In addition to describing the securities being offered for sale, a registration statement must meet which of the following requirements? Select 3 answers. a. It must be filed with the Security and Exchange Commission (SEC) online. b. It must contain specific information about the company's management, assets, liabilities, and risk factors. c. It must state how the corporation intends to use the proceeds from the sale of its securities. d. It must be mailed to all investors.

a. It must be filed with the Security and Exchange Commission (SEC) online. b. It must contain specific information about the company's management, assets, liabilities, and risk factors. c. It must state how the corporation intends to use the proceeds from the sale of its securities.

Any person who knowingly fails to include a material fact on a registration statement can be held liable under: a. Section 11 of the Securities Act of 1933. b. Section 12(a)(2) of the Securities Act of 1933. c. Section 20A of the Securities Exchange Act of 1934. d. no section of the Securities Act of 1933.

a. Section 11 of the Securities Act of 1933.

Which of the following is one of the elements of liability under Section 10(b) of the Securities Exchange Act of 1934? a. Use of the mail or facilities of interstate commerce b. Falsification of a registration statement c. Failure to certify a financial document d. Oral communication of a deceptive statement

a. Use of the mail or facilities of interstate commerce

Which of the following securities are exempt from registration under the Securities Act of 1933? Select 3 answers. a. a corporate promissory note with a term of 9 months or less b. tax-exempt bonds issued by a charitable organization c. securities issued by a corporation when the company has issued less than $70 million in securities in the past 12 months d. federal government bonds

a. a corporate promissory note with a term of 9 months or less b. tax-exempt bonds issued by a charitable organization d. federal government bonds

The Securities Exchange Act of 1934 controls the public trading of stocks in which of the following ways? Select 2 answers. a. by requiring annual disclosures of financial information b. by requiring public companies to file one initial disclosure of financial information c. by creating the Securities and Exchange Commission (SEC) d. by requiring private companies with over 200 employees to register their stock

a. by requiring annual disclosures of financial information c. by creating the Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) was established to perform which of the following functions? Select 3 answers. a. enforcing securities laws b. regulating the securities market c. regulating efforts to raise capital by public companies, but not private companies d. protecting investors from fraud and misrepresentation in securities transactions

a. enforcing securities laws b. regulating the securities market d. protecting investors from fraud and misrepresentation in securities transactions

Any security must be registered before it can be sold, unless: Select 2 answers. a. the transaction qualifies for an exemption. b. the security is unlikely to result in financial harm. c. the security qualifies for an exemption. d. the issuer selling the security maintains certain transaction records.

a. the transaction qualifies for an exemption. c. the security qualifies for an exemption.

Which of the following issuers must register with the SEC under the Securities Exchange Act of 1934? Select 2 answers. a. Companies with no shareholders b. Companies who complete a public offering c. Companies who trade on a national exchange d. Privately held companies with less than 10 shareholders

b. Companies who complete a public offering c. Companies who trade on a national exchange

Noncompliance with federal securities laws may subject an individual or a company to which of the following penalties? Select 3 answers. a. "blue sky law" fines b. disgorgement of profits c. imprisonment d. civil fines per act or omission

b. disgorgement of profits c. imprisonment d. civil fines per act or omission

During the registration waiting period, an issuer may: Select 2 answers. a. sell securities. b. distribute a preliminary prospectus. c. distribute a final prospectus. d. offer to sell securities.

b. distribute a preliminary prospectus. d. offer to sell securities.

A corporate officer who buys or sells his or her company's stock based on non-public information may be committing which type of securities fraud? a. Ponzi scheme b. insider trading c. embezzlement d. misappropriation

b. insider trading

Blue sky laws apply to what type of securities transaction? a. sales of stocks from fictitious companies b. state-regulated securities offerings c. stocks traded on a national stock exchange d. stock offerings that exceed $1,000 per share

b. state-regulated securities offerings

When securities are being offered by a company only to residents of the state in which the company has its principal place of business, the securities may be exempted from registration under: a. Regulation D, Rule 504. b. Regulation A. c. SEC Rule 147. d. Regulation D, Rule 506.

c. SEC Rule 147.

Which of the following securities are exempt from registration because of their type? Select 2 answers. a. Public offerings in the initial public offering of a company b. Private offerings under SEC Rule 147 c. Short-term commercial paper d. Government securities

c. Short-term commercial paper d. Government securities

The 1933 Act exempts all but which of the following from its registration requirements? a. Annuity contracts b. Short-term notes c. Treasury stock d. Government securities

c. Treasury stock

Which of the following does the SEC evaluate in a registration statement? a. The quality of the security b. The likelihood of financial return for investors c. Whether appropriate disclosures have been made d. The level of financial risk to investors

c. Whether appropriate disclosures have been made

Which of the following are among the five periods identified by the Securities and Exchange Commission (SEC) rules in the registration process? Select 2 answers. a. a prospectus period b. a selling period c. a pre-filing period d. a waiting period

c. a pre-filing period d. a waiting period

If the final registration statement contains a material misstatement or omission, the purchaser of the security can recover damages from a. the issuer of the security, but not the company's directors or chief officers b. the experts who signed the registration statement, but not any other parties c. everyone who signed the registration statement d. the company's directors, but not the chief officers

c. everyone who signed the registration statement

The 1934 Act is primarily intended to a. make sure companies who wish to raise money by the sale of securities comply with disclosure requirements for the initial offering b. coordinate federal and state laws with a primary emphasis on allowing the individual states to maintain primary control over securities law. c. broaden the SEC's enforcement power. d. maintain the integrity of the secondary market for securities

d. maintain the integrity of the secondary market for securities

What is the legal term meaning that someone has acted with intent to deceive or with deliberate recklessness as to the possibility of misleading investors? a. fraud b. negligence c. omission d. scienter

d. scienter

SEC Rule 147

rule that allows a company to raise funds without registering the sale of a security with the SEC under certain conditions Securities that are sold only to residents of the state which is the issuer's principal place of business