Series 63: Ch 4 Q&A
Which of the following securities is NOT federal covered? - A REIT that is listed on the Nasdaq Capital Market - A real estate limited partnership listed on the Nasdaq Global Market - A fund of funds issued by a registered investment company - A hedge fund, offered under Section 505 of Regulation D
- A hedge fund, offered under Section 505 of Regulation D All securities listed on Nasdaq (both the Global and Capital Markets) are federal covered securities, choices (a) and (b). A fund of funds, choice (c), is a type of mutual fund, which is also a federal covered security. Regulation D is a group of SEC rules that provide safe harbors for private securities offerings (private placements). Securities issued under Section 505 of Regulation D are NOT federal covered securities. Securities issued under Section 506 of Regulation D, however, are federal covered securities. Rule 505 offerings are capped at $5 million. In contrast, Rule 506 allows an issuer to sell an unlimited amount of securities. Unaccredited investors who purchase securities that are part of a Rule 506 offering must either be sophisticated or have an independent purchaser representative.
All of the following securities are considered federal covered, EXCEPT a(n): - Regulation D, Rule 505 offerings - Regulation D, Rule 506 offerings - Investment companies registered under the Investment Company Act of 1940 - Bank holding companies listed on national exchanges
- Regulation D, Rule 505 offerings Securities issued under Rule (Section) 505 of Regulation D are *not* federal covered securities. They *must* be registered in every state in which they are sold, unless they qualify for another exemption. Securities issued under Rule 506 of Regulation D, however, are federal covered. *All securities listed on the national exchanges are federal covered securities*.
Registration by coordination is used in conjunction with which of the following Acts? - The Securities Act of 1933 - The Securities Exchange Act of 1934 - The Investment Company Act of 1940 - The Investment Advisers Act of 1940
An issuer that uses registration by coordination *must also register the same offering with the SEC* under the Securities Act of 1933.
The Administrator has the right to deny, revoke, or suspend the registration statement of an issuer of securities. Under the Uniform Securities Act, which issuer(s) may be subject to this action? i) A company whose securities are listed on the Canadian National Exchange ii) A nonprofit corporation iii) A credit union iv) A municipality I only I and II only I, II, and III only I, II, III, and IV
I only The other entities listed issue exempt securities. As a result, they would not be required to file a registration statement
Under the Uniform Securities Act, which of the following issuers are NOT required to file a registration statement with the state Administrator? - Companies with stock quoted on the Over-The-Counter Bulletin Board (OTCBB) - Federal savings and loan associations - Registered investment companies - Companies registered with the Securities and Exchange Commission (SEC) II and III only I and IV only II, III, and IV only I, II, III, and IV
II and III only Choice (II) is an exempt issuer and would not be required to file a registration statement. Choice (III) is an issuer of federal covered securities and would not be required to file a registration statement. It may, however, need to notice-file with the Administrator. Notice filing applies to certain federal covered securities. The notice filing includes the Consent to Service of Process, payment of a filing fee, and may include copies of material filed with the SEC as part the issuer's federal registration. This is NOT considered a registration. With regards to choices (I) and (IV), companies that register with the SEC may still be required to file a registration statement with the Administrator for—example, securities that are quoted on the Over-The-Counter Bulletin Board (OTCBB).
Which of the following investors are considered accredited under Regulation D of the Securities Act of 1933? I) A portfolio manager at a mutual fund company II) Banks III) Any senior officer of a publicly traded company IV) Individuals with a net worth of $1 million or more I and II only II and IV only III only I, III, and IV only
II and IV only Regulation D is a federal regulation, but still required knowledge for the exam. Institutions, such as banks, are specified in the regulation. A person who meets the financial test of either annual income of $200,000, or a net worth of $1 million, is also considered accredited. ***While it is possible that a portfolio manager or a senior officer would be accredited in real life, no single professional is specified in the definition of an accredited investor. Senior officers are included only if they are senior officers of the issuer of the Regulation D offering. Just being a senior officer of any institution is not enough to be included in the definition.***
Under the USA, which of the following transactions would NOT be considered exempt? I) An offer to an investment company II) A transaction by an executor of an estate III) An unsolicited issuer transaction effected through a registered broker-dealer IV) A transaction by a trustee that is involved in a bankruptcy proceeding
III) An unsolicited issuer transaction effected through a registered broker-dealer Under the Uniform Securities Act, any offer to an investment company or other institutional investor, a transaction by an executor of an estate, or a trustee involved in a bankruptcy, *would be defined as an exempt transaction*. An unsolicited *nonissuer* transaction *may qualify* as an exempted transaction.
Under the Uniform Securities Act, which of the following issuers must file a registration statement with the state Administrator? I) Corporations with stock listed on the Toronto Stock Exchange II) Federal Savings and Loan Associations III) Federal credit unions IV) For-profit corporations I and IV only II and III only I, II, and III only IV only
IV only Choices (II) and (III) are exempt issuers and would not be required to file a registration statement. Nonexempt securities would be subject to this rule. Stock listed on most foreign exchanges must be registered, but there is an exemption for stock listed on the Toronto Stock Exchange, choice (I), and TSX Venture Exchange. Stock issued by for-profit companies would need to be registered.
According to the Uniform Securities Act, which of the following statements is NOT TRUE concerning private placements? - The offer may not be made to more than 10 persons in that state during any 12-month period - The offer may be made to 35 or fewer persons in that state during any 12-month period - The offer may be made to any number of institutional investors during any 12-month period - Commissions may not be paid if the buyers are noninstitutional customers
Not True: the offer may be made to 35 or fewer persons in that state during any 12-month period. - True: *Under the Uniform Securities Act, any transaction involving no more than 10 persons (there is no limit on institutional accounts) during any 12-month period is considered an exempt transaction known as a private placement, if the following conditions are met. The seller believes that all the noninstitutional buyers are purchasing for investment purposes only and no commission or other remuneration is paid for soliciting noninstitutional buyers*. Choice (b) refers to a situation for private placements under Regulation D of the Securities Act of 1933.
Which of the following actions would NOT be prohibited under the Uniform Securities Act? - Telling clients that they are buying municipal general obligation bonds when they are really buying municipal revenue bonds - Knowingly backdating a confirmation - Telling a client that certain securities issued by banks are exempt and that a prospectus is not required - Soliciting transactions in unregistered, nonexempt securities while acting as an agent of a broker-dealer
Telling a client that certain securities issued by banks are exempt and that a prospectus is not required Securities issued by banks are exempt from registration and a prospectus is not required. All of the other activities are prohibited.
What information may an issuer change by amending its registration statement after it receives an effective date? The public offering price The number of shares The underwriting spread Nothing
The number of shares
A hedge fund is being sold to investors as a private placement under Regulation D. An agent believes that this fund would be an excellent investment opportunity for several of his clients. The agent may discuss the fund with which of the following clients? - A newly retired man, whose annual income last year was $200,000 - A middle-aged couple who are both physicians with a joint annual income of $400,000 - A young, aggressive investor with a net worth of $500,000 and an annual income of $150,000 - A couple that just won the lottery, whose annual income this year was $500,000 and whose net worth is $550,000
- A middle-aged couple who are both physicians with a joint annual income of $400,000 Many hedge funds are issued as private placements under Regulation D. In order to qualify for the exemption, they must be offered only to accredited investors, and no more than 35 nonaccredited investors may participate in the offering. Accredited investors include: Individuals with an annual income of at least $200,000 during the last two years who reasonably expect to continue to earn that much in the future A married couple with a joint income of at least $300,000 who reasonably expect their income to continue at the same level in the future An individual or a couple with a net worth of at least $1 million The investor in choice (a) meets the income requirement but his income will probably drop now that he is retired. While this is an assumption, it is still not the best answer compared to choice (b). The investor described in choice (c) does not meet either the income or the net worth requirements. The couple described in choice (d) just won the lottery. Therefore, their income is probably much higher this year than normal, and it is unlikely to remain at the same level. Only the couple described in choice (b), two doctors in their prime earning years, can reasonably expect to continue making the same income.
Which of the following securities offerings would use registration by coordination? - An IPO that will be listed on the New York Stock Exchange - An offering of preferred stock by an issuer whose stock currently trades on the Nasdaq Global Market - An IPO that will be distributed in 12 states and not listed on any of the national exchanges - An IPO that will be distributed to the residents of one state only
- An IPO that will be distributed in 12 states and not listed on any of the national exchanges Choices (a) and (b) describe offerings of securities that are listed or authorized for listing on a national stock exchange. These are examples of *federal covered securities* that are *generally exempt from state registration and notice filing*. However, other issuers may be required to notice-file by the states. This means that they will need to file copies of the prospectus and other documents that they file with the SEC, with the states as well. Since choice (d) will be distributed only in one state, the issuer would probably use registration by qualification.
Which of the following activities is an exempt transaction according to the Uniform Securities Act? - An agent sells securities listed on the Toronto Stock Exchange - A broker-dealer solicits 35 retail investors within the state regarding a private placement during a 12-month period - An agent sells unregistered, nonexempt securities to a client on a solicited basis - There is a sale of securities by a bona fide pledgee, the purpose of which is to circumvent the Act
- An agent sells securities listed on the Toronto Stock Exchange Choice (a) would qualify as an exempt transaction according to the NASAA Model Rule on Secondary Market Trading Exemptions for Qualifying Canadian Securities. Note that in order to qualify for this exemption, the transaction *must be effected through* the agent of a broker-dealer, the securities must be listed on the Toronto Stock Exchange (*or the TSX Venture Exchange*), and *the issuer must have been a reporting company in Canada for at least the previous six months*. Sales of private placements, choice (b), are not exempt transactions *if* they are offered to more than 10 retail investors during a 12-month period. Sales of unregistered, nonexempt securities are exempt *if* done on an unsolicited basis, choice (c). Transactions by a bona fide pledgee are normally exempt, *but* not if the purpose of the sale is to evade the requirements of the USA
Which of the following activities would NOT meet the definition of an exempt transaction under the Uniform Securities Act? - A bankruptcy trustee liquidates a debtor's securities and divides the proceeds among its creditors - An agent sells a client shares in a Canadian venture capital fund after the client agrees to sign a form stating that the transaction was unsolicited - An agent sells units in a Canadian limited partnership to several of her clients - An issuer distributes shares in an IPO to the lead underwriter
- An agent sells units in a Canadian limited partnership to several of her clients In choice (c), the sales appear to have been solicited and there is no indication that the partnership qualifies for any other exemption. As an aside, you may be required to know that nonissuer transactions in certain Canadian securities are exempt, but the securities must be (1) issued by an entity that files reports with the Canadian regulators and be (2) listed on the Toronto Stock Exchange. Choice (b) is exempt because the sale is unsolicited. Transactions by a trustee as part of bankruptcy proceedings are exempt, choice (a), as is a transaction between an issuer and an underwriter, choice (d).
An issuer is going to sell a federal covered security in State A. The Administrator of State A may ask the issuer to do all of the following, EXCEPT: - File a Consent to Service of Process - Provide copies of all documents filed with the SEC - Furnish additional information that was not required by the SEC - Pay a registration fee
- Furnish additional information that was not required by the SEC The National Securities Markets Improvement Act (NSMIA) places limits on states' power to regulate federal covered securities. State securities Administrators may still require these issuers to file Consents to Service of Process and to file all the documents that they file with the SEC, choices (a) and (b). The states may also require the issuers of some federal covered securities to pay registration fees, choice (d). ***(Securities listed on a national exchange, such as the NYSE or Nasdaq, are exempt from state fees, but other federal covered securities, such as mutual funds, still may be required to pay them.)*** Generally, states may not require an issuer of a federal covered security to furnish more information than the SEC requires, choice (c). The states retained the right to investigate all issuers that sell securities within their states and reserve the right to bring enforcement actions against any violators
Which of the following statements is TRUE concerning a federal covered security? - The Administrator may require the issuer to pay a registration fee - The Administrator may subject the issuer to a state review - The Administrator may not require the issuer to file a consent to service of process - The Administrator may not bring enforcement action if fraud is involved
- The Administrator may require the issuer to pay a registration fee The Uniform Securities Act sets limits on the powers of the Administrator concerning federal covered securities. The Administrator may require: the paying of a registration fee, the filing of a Consent to Service of Process, the filing of certain documentation previously filed with the SEC. The Administrator may bring enforcement action if fraud or deceit is used in the sale of a security. The Administrator may not subject the issuer to a state review. This occurs when a state has the authority to allow or disallow a security to be offered in a state and is sometimes referred to as a merit review. (
The Securities Administrator of the State of Alaska had declared the registration statement of Ketchikan Solar Power Company effective. What part of its registration statement may the issuer change by amendment without being required to file a new registration statement with the state? - The reallowance paid to the selling group - The underwriting discount - The price of the securities - The number of shares
- The number of shares Under the Uniform Securities Act, an issuer may amend its registration statement after it becomes effective to change the number of shares in the offering. The issuer does not need to file a new registration statement to effect this change. The issuer may not amend its registration statement to reflect a change in the price of the securities, choice (c), or in the compensation that the underwriters or the selling group will receive, choices (b) and (a)
Advertising and sales-related materials would need to be filed with the Administrator in which of the following circumstances? - The materials relate to transactions with institutional investors - The securities were issued by a common carrier - The securities are listed on a foreign exchange - The materials relate to federal covered securities
- The securities are listed on a foreign exchange ***In general, all advertising and sales-related materials created by broker-dealers and investment advisers must be filed with the Administrator. If the security or the transaction is exempt under the Act or is a federal covered security, the materials do not need to be filed with the Administrator. Any transaction with an institutional investor is an exempt transaction. A security issued by a common carrier is an exempt security. As a reminder, a common carrier is an entity that moves people or products between states, and is regulated by the Interstate Commerce Commission, for example, freight companies, railroads, and airlines. According to the NASAA Model Rules, securities listed on the Toronto Exchange, and the TSX Venture Exchange (Canada) are exempt. Securities listed on other foreign exchanges are not exempt automatically.***
When a security is sold under an exemption from registration under the Uniform Securities Act, the burden of proof for establishing the exemption is on the: Administrator Person claiming the exemption SEC Purchaser
The person claiming the exemption has the burden of proof for the exemption
A purchaser wishes to take action against a seller to recover money paid for securities issued in violation of blue-sky laws. Under the Uniform Securities Act, the burden to prove that the stock was sold in violation is on the: Administrator Purchaser State administrative court Broker-dealer
The purchaser must prove that the stock was sold in violation of blue-sky laws.
