Unit 8
An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sales of its securities in a specific state? A) Notice filing B) Coordination C) Registration D) Qualification
A) Notice filing Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.
Under the Uniform Securities Act, all of the following conditions must exist in order for a private placement to be considered an exempt transaction except: A) noninstitutional clients must not make payment for their purchases B) broker-dealers and their agents must reasonably believe that noninstitutional clients are buying the securities for investment purposes and not for resale C) the offer must be directed to no more than 10 individuals during any 12-month period D) commissions may not be paid to sales agents of the broker-dealer offering the securities to noninstitutional clients
A) noninstitutional clients must not make payment for their purchases For a private placement to remain an exempt transaction under the Uniform Securities Act, the offer may be directed to no more than 10 individuals during any 12-month period. Additionally, no commissions may be paid to agents of the offering broker on sales to noninstitutional buyers, and there must be reasonable belief that the purpose in buying the securities by noninstitutional clients is for investment rather than resale purposes. However, just as with any other securities purchase, payment must be made in accordance with industry standards.
Under the Uniform Securities Act, an example of a nonissuer transaction is: A) the purchase and sale of shares of common stock on the NYSE B) a Regulation D private placement sale of limited partnership interests C) the issuance of mutual fund shares D) an initial public offering of common or preferred stock
A) the purchase and sale of shares of common stock on the NYSE In a nonissuer transaction, the proceeds do not flow to the issuer; rather, the proceeds are credited to selling shareholders. A secondary market trade, such as a transaction executed on the floor of an exchange, is a nonissuer transaction. An IPO, the purchase of mutual fund shares, and the purchase of limited partnership interests all benefit the issuer and are called issuer transactions.
According to the Uniform Securities Act, each of the following is a security except: A) an interest in a condominium project with a rental pool B) a contract in soybean futures C) a U.S. Treasury bill D) a limited partnership in an oil and gas exploration program
B) a contract in soybean futures Interests in a condominium complex that has a rental pool feature, U.S. Treasury bills, and limited partnership interests in oil and gas exploration programs are securities under the USA. The USA excludes certain financial instruments from the term security, such as term and whole insurance policies, commodity futures contracts, and collectibles.
Barzell Manufacturing Works (BMW) produces structural steel. To raise additional capital to modernize its plant, BMW decides to go public by issuing shares. Doing so would make BMW: A) a manufacturer B) an issuer C) a broker-dealer D) a commodities dealer
B) an issuer When a company issues shares to the public, it is an issuer. Yes, BMW is also a manufacturer, but the question asks about the effect of issuing shares—answer the question being asked.
Under the Uniform Securities Act, securities issued by charitable organizations are exempt if: A) the net earnings from the organization are paid to fewer than 10 private stockholders B) the organization is a nonprofit company C) no commissions are paid on the distribution of shares D) the organization is funded by government grants
B) the organization is a nonprofit company Charitable or religious organizations must be nonprofits in order to gain exemption from full registration.
An offer to sell which of the following need not comply with the prospectus delivery requirements of the Securities Act of 1933? A) Open-end investment company shares B) A new issue of a nonexempt security with warrants attached C) A private placement D) A publicly offered real estate limited partnership
C) A private placement In a private placement, an offering document, not a prospectus, is required. In all the other choices, a prospectus is required.
A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Peruvian copper mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should: A) wait for firm approval before processing the order B) inform the client that no orders for this stock may be accepted until it is properly registered in the state C) continue to process the order because this is an exempt transaction D) continue to process the order because this is an exempt security
C) continue to process the order because this is an exempt transaction Transactions resulting from unsolicited orders are exempt under the USA. Therefore, this order may be taken as placed.
When claiming an exemption from the requirement to register under the Uniform Securities Act, the burden of proof is on: A) the investor B) the Administrator C) the party claiming the exemption D) the SEC
C) the party claiming the exemption As in all legal matters, the burden of proving that one is exempt from a requirement is placed upon the person claiming the exemption.
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 U.S. government bond C) A high-quality corporate promissory note maturing in 180 days D) An equity security issued in only one state and solely to residents of that state
A) A new stock being offered in three states 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.
Which of the following are securities under the Uniform Securities Act? (Multiple answers) A) A variable annuity B) A subscription right to purchase common stock C) A condominium purchased solely as a place of residence D) Certificate of interest or participation in an oil, gas, or mining partnership
A) A variable annuity B) A subscription right to purchase common stock D) Certificate of interest or participation in an oil, gas, or mining partnership Securities include stocks, bonds, notes, certificates of interest in any profit-sharing agreement or participation plan (oil, gas, mining, lease, or real estate partnerships), preorganization certificates or subscription agreements, certificates of deposit for a security, evidence of indebtedness, warrants, rights, options, variable annuities, commodity options, and multilevel distributorships. Excluded from the definition are insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of a trade, futures contracts, real estate held as a personal residence, currencies, precious metals, and collectibles.
Under the Uniform Securities Act, which of the following would be considered an exempt transaction? (2 answers) A) An existing client calls his agent with an order to purchase 1,000 shares of a common stock that is not registered in this state B) At the suggestion of the agent handling her account, a client purchases some U.S. Treasury bonds for inclusion in her IRA C) Shares of a technology company's IPO are sold to an institutional client D) Shares of an insurance company's IPO are sold to an individual client
A) An existing client calls his agent with an order to purchase 1,000 shares of a common stock that is not registered in this state C) Shares of a technology company's IPO are sold to an institutional client 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 the transaction was solicited by an agent to an individual client, it is not an exempt transaction.
Under Regulation D, accredited investors in a private placement must meet minimum standards that may include which of the following? (2 answers) A) Annual income in excess of $200,000 for at least the last two years B) Annual income in excess of $100,000 for at least the last two years C) Net worth, excluding the primary residence, in excess of $1 million D) Net worth, excluding the primary residence, in excess of $200,000
A) Annual income in excess of $200,000 for at least the last two years C) Net worth, excluding the primary residence, in excess of $1 million The requirement for an accredited investor under the private placement exemption is either a net worth, excluding the primary residence, in excess of $1 million, or annual income in excess of $200,000 in the last two years and the same or more income expected this year, or $300,000 for joint incomes.
All of the following situations are exempt transactions complying with the requirements of the Uniform Securities Act except: A) Broker-Dealer B offers a private placement to 15 regular public customers and closes the offering at the end of 30 days B) Mammoth Mutual Fund purchased 250,000 shares of common stock in a nonissuer transaction C) the executor of an estate liquidates 1,000 shares of IBM held by the estate D) Broker-Dealer A has put together a syndicate of 15 insurance companies and pension funds to purchase the entire issue of XYZ Corporation's preferred stock
A) Broker-Dealer B offers a private placement to 15 regular public customers and closes the offering at the end of 30 days Under the Uniform Securities Act, an unregistered private placement may be offered to no more than 10 prospective purchasers, with the exception of financial institutions and other broker-dealers. Transactions by executors, the sheriff, marshals, receivers, trustees in bankruptcy, guardians, or conservators are exempt. Sales to financial institutions, such as mutual funds and insurance companies, are also exempt.
When describing exempt transactions under the Uniform Securities Act, which of the following are fiduciaries? (2 answers) A) Executor of an estate B) Administrator in intestacy C) Custodian for a minor in an UTMA account D) An agent with authority over time and price execution
A) Executor of an estate B) Administrator in intestacy Both executors and administrators are fiduciaries. An agent is a fiduciary if the agent has discretionary authority over the assets in the account, but time and price authority is not considered discretion. A sale made by the custodian for a minor in an UGMA or UTMA account does not qualify as an exemption transaction under the USA, even though, as a matter of law, the custodian is functioning in a fiduciary capacity.
Securities of which of the following issuers are exempt under the Uniform Securities Act? (Multiple answers) A) National banks B) State banks C) Bank holding companies D) Federal savings and loan associations
A) National banks B) State banks D) Federal savings and loan associations Under the USA, the registration exemption for bank-issued securities is justified by strict financial requirements imposed on banks by banking industry regulators such as the FDIC, the Comptroller of the Currency, and the Federal Reserve. Both federal and state banks and federal savings and loan associations are subject to such regulation. However, bank holding companies (as separate legal or corporate entities) are subject to state registration if not otherwise exempt. Thus, securities issued by bank holding companies are not exempt securities under the act.
The RAN Corporation's common stock is listed on the New York Stock Exchange. To raise additional working capital, RAN's board of directors has authorized the sale of $75 million in subordinated debentures. Under the Uniform Securities Act, which of the following is not a true statement? A) The Administrator can require the RAN Corporation to register the debentures prior to an offering in the state B) The Administrator can bring an enforcement action against the issuer if it is deemed that the issue is fraudulent C) The Administrator may require a filing fee to be paid prior to sales taking place in the state D) The Administrator can require that the issuer provide a notice filing in the state
A) The Administrator can require the RAN Corporation to register the debentures prior to an offering in the state Because the RAN Corporation's common stock is listed on the NYSE, it (and any security equal or senior to it) is a federal covered security. As such, the state has no registration authority over the security. However, notice filing and payment of fees may be required. The Administrator always has the power to enforce antifraud statutes.
Which of the following transactions is not included in the definition of exempt transaction under Section 402(b) of the Uniform Securities Act? A) The sale of Treasury bills to an individual client B) Isolated nonissuer transactions C) Transactions between issuers and underwriters D) Unsolicited nonissuer transactions effected through a broker-dealer
A) The sale of Treasury bills to an individual client Even though the Treasury bill is an exempt security, the sale to an individual is not an exempt transaction. Isolated nonissuer transactions, unsolicited transactions effected through a broker-dealer, and transactions between issuers and underwriters are exempt transactions under the provisions of the USA.
Under the provisions of the Uniform Securities Act, all of the following transactions are exempt except: A) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made B) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10 C) transactions by executors D) liquidation of a security pledged as collateral for a loan
A) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made A transaction pursuant to an offer by an issuer to no more than 10 noninstitutional persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All the other transactions are exempt.
When a stock is listed on the New York Stock Exchange, it is: A) exempt from state registration requirements B) certain to pay dividends C) guaranteed to appreciate in value D) approved for sale in the state of New York
A) exempt from state registration requirements Securities listed on the New York Stock Exchange (NYSE), NYSE American LLC (formerly known as the American Stock Exchange [AMEX]), or Nasdaq Stock Market are federal covered securities and do not need registration in any state under the Uniform Securities Act.
All of the following are exempt from state registration except: A) variable annuities issued by a major insurance company B) fixed-income securities issued by a bank C) common stock in Mutual Savings Bank D) fixed annuities issued by a small insurance company
A) variable annuities issued by a major insurance company Fixed annuities are not securities, so there is no registration required. Of the other choices listed, only variable annuities are required to be registered.
Which of the following are issuers of securities? (Multiple answers) A) ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months B) Dot.Com, Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public C) XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment D) YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering
All of the above ABC Manufacturing Corp. is an issuer raising debt capital, whereas Dot.Com, Inc., is an issuer raising equity capital. YYY Corp. is an issuer raising equity capital by selling additional new shares in a public primary offering. XYZ Corp. is an issuer despite its failure to sell any shares. The USA defines an issuer as a person that issues or proposes to issue a security. It is not necessary that an issuer actually issue the shares it proposes to issue.
Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category? (Multiple answers) A) Any isolated, nonissuer transaction B) Any sale to a financial institution C) Any transaction by the executor of an estate D) Any transaction between an issuer and underwriters
All of the above All four options describe exempt transactions. Exempt transactions are not subject to the advertising and sales literature filing requirements of the Administrator.
Which of the following transactions would be included in the USA's definition of exempt transaction? (Multiple answers) A) A banker liquidating stock pledged as collateral for a loan that has gone into default B) An offer to purchase a new stock made to 5 individuals and 15 institutional investors in this state during the past 12 months C) An isolated nonissuer transaction D) The sale of preorganization certificates to 10 individuals with no commission being paid
All of the above All of these are included in the USA's definition of an exempt transaction. Sales made by a bona fide pledgee are exempt. Even though the number of offerees in the private placement exceeds 10, that limitation does not apply to institutional investors. A preorganization certificate may be sold to as many as 10 persons, while a private placement may not be offered to more than 10 (not counting institutional investors).
Which of the following securities are federal covered and exempt from state registration? (2 answers) A) Bonds of an issuer whose common stock is listed on the NYSE B) Bonds of an issuer whose common stock is listed on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) C) Stock traded on Nasdaq D) Registered investment company securities
All of the above All securities of an issuer whose common stock is listed on any national exchange or any tier of the Nasdaq Stock Market are exempt from state registration, including any securities of the same issuer senior to such securities. All registered investment company securities are also exempt from state registration.
Which of the following financial instruments are considered securities under the Uniform Securities Act? (Multiple answers) A) Collateral trust certificates B) Investment contracts, including interests in oil and gas drilling partnerships C) Options listed on the Chicago Board Options Exchange D) Foreign currency options contracts traded on the Philadelphia Stock Exchange
All of the above Collateral trust certificates, investment contracts, options, and option contracts, regardless of the underlying asset, are identified as securities in the Uniform Securities Act and are subject to its provisions. Currencies are not securities, but options on currencies are. The key to questions like this is to remember those things that are not securities.
Which of the following securities are exempt from registration at the state level? (Multiple answers) A) Bonds issued by the American Red Cross B) U.S. Treasury bonds C) American Advisers Unit Investment Trust D) Common stock in AAA Commercial Bank, member of the FDIC
All of the above Securities offered by nonprofit organizations, the U.S. government, or investment companies registered under the Investment Company Act of 1940, as well as securities issued by commercial banks, are exempt from registration with the states under the Uniform Securities Act and the NSMIA.
The James Henry Company (JHC), an SEC-registered securities broker-dealer with offices in Chicago and Los Angeles, limits its clientele to banks and trust companies. JHC makes a sale of U.S. government securities to the Wall Street Bank located in New York City. Which of the following statements is true under the Uniform Securities Act? (Multiple answers) A) The security itself is exempt from registration B) The transaction is exempt C) The broker-dealer is not required to be registered in the state of New York
All of the above The sale involves a U.S. government security, which is exempt from the registration requirements under the act. The transaction itself is also exempt because it involves a sale to a financial institution. Remember, in an exempt transaction, the security subject of the transaction need not be registered with the state in which the transaction takes place. In this example, the security was already exempt, but that does not diminish the fact that the transaction is exempt. The fact that the firm limits its clientele to financial institutions, such as banks, and that the broker-dealer has no office in New York means that, under the Uniform Securities Act, the firm is not considered a broker-dealer in that state. Therefore, the broker-dealer is not required to be registered in the state of New York.
In which of the following situations did an agent commit fraud? A) An agent sold an excellent growth company to a client by omitting immaterial information during the discussion, so as not to distract the client from purchasing a suitable security B) An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved C) A client claims an agent sold him unsuitable securities D) On review of his files, an agent discovered he had sold a nonexempt, unregistered security to a retail client
B) An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved Fraud requires the intent to deceive. The agent knowingly deceived the client by selling unregistered securities, therefore committing a securities fraud. An agent is not required to discuss all information, only that which is material information. The term retail client refers to individual or noninstitutional clients.
A notice filing would be most appropriate for which of the following new issues? A) Railroad equipment trust certificate B) Open-end investment company shares C) Federal credit union shares D) Intrastate offering
B) Open-end investment company shares Investment companies registered under the Investment Company Act of 1940 are exempt from registration with the states under the NSMIA. However, most states require notice filing and the payment of fees. Federal credit union shares and railroad equipment trust certificates are exempt securities, and intrastate issues would have to register using qualification.
Parsimonious Planning Associates (PPA), an investment adviser with over $250 million in assets under management, is accused of violating the antifraud provisions of the Uniform Securities Act. Which of the following statements is true? A) Because PPA is a federal covered adviser, only the SEC has the jurisdiction to investigate the charge B) The Administrator of the state where the alleged fraud occurred may investigate the charge C) The Administrator of the state where PPA's principal office is located is the only person authorized to investigate the charge D) No investigation may take place until the charges are proven true
B) The Administrator of the state where the alleged fraud occurred may investigate the charge Once an investment adviser's AUM reaches $110 million, registration with the SEC is required. That makes PPA a federal covered adviser. Although covered advisers are exempt from the jurisdiction of the state for most things, one area in which they are not is when the antifraud provisions of the USA are breached. In that case, jurisdiction will usually rest with the Administrator of the state where the alleged fraudulent activity took place. In some states, the Administrator will refer the charges to the Administrator of the state where the investment adviser's principal office is located, but that is not mandatory. Because the violation is of the USA, the SEC has no jurisdiction. Without an investigation, how can the charges be proven true (or false)?
The Equity Protective Life Insurance Company (EPLIC) is authorized to do business in State K. As such, which of the following securities would be exempt from registration with the State K Administrator? A) Variable life insurance policies issued by EPLIC B) The issuance of three million shares of the company's $100 par value preferred stock C) Fixed index annuities issued by EPLIC D) Variable annuities issued by EPLIC with a guaranteed income rider
B) The issuance of three million shares of the company's $100 par value preferred stock When an insurance company is authorized to do business (sell its policies) in a state, any securities it issues (such as stock or bonds) are exempt from registration under the Uniform Securities Act. That exemption does not apply to products sold by the insurance company; it applies solely to securities issued for the purpose of raising capital. Aren't fixed index annuities exempt from registration? Well, they are excluded from the definition of a security, and the question specifically asks about securities being exempt.
Under the Uniform Securities Act, which of the following statements are true regarding private placements? (Multiple answers) A) They may be offered to no more than 10 persons in a state in a 12-month period B) They may be offered to an unlimited number of institutional investors C) Institutional buyers need not be purchasing for investment
B) They may be offered to an unlimited number of institutional investors C) Institutional buyers need not be purchasing for investment With the exception mentioned shortly, private placements are transactions resulting from offers to no more than 10 noninstitutional persons (retail clients) in 12 months for investment purposes only. The offeror must be convinced that retail clients are purchasing for investment purposes. This means no immediate resale intentions are allowed on the buyer's part. No commissions may be paid, directly or indirectly, for these transactions. The exception is that sales to institutional purchasers are exempt from the limitations regarding number of offers, immediate resale restrictions, and commissions. They may, therefore, be offered to more than 10 persons. (Remember that the term person is defined very broadly in the act.)
An issuer properly files Form D in accordance with Rule 503 of Regulation D of the Securities Act of 1933. As such, the securities that are the subject of any transaction are: A) available only to institutional purchasers B) federal covered securities C) required to register with the SEC D) required to register with the state(s) in which they are sold
B) federal covered securities Securities sold under Regulation D of the Securities Act of 1933 are private placements and, under the NSMIA, are considered federal covered securities.
The National Securities Markets Improvement Act of 1996 (NSMIA) affects federal and state laws in that: A) federal laws and state laws remain the same B) federal securities laws preempt state laws C) the Uniform Securities Act supersedes the Investment Advisers Act of 1940 D) state law preempts federal law
B) federal securities laws preempt state laws The NSMIA defines the functions and respective responsibilities of the SEC and state Administrators. State law does not preempt federal law, and the NSMIA requires states to adapt their securities laws to comply with the standards required by the NSMIA.
Each of the following statements regarding registration of securities by coordination is true except: A) the Administrator may reduce the required time that the registration statement must be on file prior to becoming effective B) state registration must be effective prior to federal registration C) the registration becomes effective at the state level concurrent with SEC registration if the Administrator has not entered an order to deny it D) the registration statement must contain or be accompanied by consent to service of process
B) state registration must be effective prior to federal registration State registration must be coordinated with federal registration. In most cases, the registration statement must be on file with the Administrator for 10 days, but the Administrator has the power to shorten that period. The registration statement becomes effective concurrent with the SEC and must contain or be accompanied by consent to service of process.
Because many different securities qualify for an exemption from registration under the Uniform Securities Act, proof of qualification for an exemption is the responsibility of: A) the Administrator B) the person requesting the exemption C) none of these—the exemptions are automatic D) any interested investor
B) the person requesting the exemption The USA provides for exemption from registration in a number of cases. If the exemption is challenged by the Administrator, it is up to the person—usually the issuer—requesting the exemption to prove that it is merited.
In the SPAC process: A) the SPAC is generally a company with complicated operations B) the targeted private company becomes public by virtue of a merger with an SPAC C) the private company becomes public but could do so more easily through a traditional IPO D) founders of the SPAC are not allowed to increase their share in the company once the acquisition process starts
B) the targeted private company becomes public by virtue of a merger with an SPAC After the SPAC has its IPO, the SPAC then merges with a private company, making it a publicly traded security. A major benefit is that becoming a public company as a result of being acquired by an SPAC is accomplished with little of the time and hassle of a traditional IPO. It is incorrect to say that SPACs have complicated operations because they generally have limited or no operations. SPAC founders may invest in or receive private placement warrants. The warrants let investors increase their stake in cases of a successful acquisition and motivate founders to find a good acquisition target.
All of the following are exempt from state registration under the Uniform Securities Act except: A) securities issued by a nonprofit organization B) variable annuities or other variable insurance products offered by an insurance company authorized to do business in the state C) bonds issued by a bank that is a member of the Federal Reserve System D) debt securities issued by or guaranteed by an insurance company licensed to do business in this state
B) variable annuities or other variable insurance products offered by an insurance company authorized to do business in the state A variable annuity (or other variable insurance product) offered by an insurance company is a nonexempt security under the Uniform Securities Act. Securities issued by or guaranteed by an insurance company are covered by extensive state insurance regulations and are exempt from state securities registration. Securities issued by banks are exempt because banks are covered by extensive state and federal banking regulations.
Which of the following statements regarding unsolicited, nonissuer transactions is true? A) An agent may only accept unsolicited orders with prior approval of a principal B) An agent can only accept unsolicited orders in exempt securities C) An Administrator may require representatives to obtain customer signatures acknowledging that orders were unsolicited D) An agent may not accept unsolicited orders unless the transaction directly benefits the issuer
C) An Administrator may require representatives to obtain customer signatures acknowledging that orders were unsolicited Administrators are authorized by the USA to require agents to obtain written client acknowledgment of unsolicited transactions. An agent may accept unsolicited orders in secondary transactions in either exempt or nonexempt securities. An agent may accept unsolicited orders without prior approval of a principal; approval is necessary after the trade.
Which of the following financial instruments is not considered a security? A) Tradable collateralized credit card trust certificate B) Ginnie Mae certificate C) Home mortgage D) Collateralized mortgage obligation (CMO)
C) Home mortgage A home mortgage is a pledge by the mortgagor, or homebuyer, and no security is issued. Ginnie Maes, CMOs, and collateralized credit card trust certificates are collateral-backed securities issued and sold to third-party investors who own an interest in the collateral pool; they trade in markets like any other security.
Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator in which of the following ways? A) Notification B) Condemnation C) Qualification D) Coordination
C) Qualification Securities of a nonexempt corporate issuer that do not have a federal registration must be registered with the Administrator by qualifying with the Administrator. This process is called registration by qualification.
Which of the following statements regarding state registration of securities is true? A) Notice filing is effective when ordered by the Administrator B) Registration by qualification is effective after 30 days C) Registration by coordination is effective concurrent with federal registration D) Registration by coordination is effective on the 10th day after filing with the Administrator
C) Registration by coordination is effective concurrent with federal registration Coordination is the method used to register a security simultaneously under the Securities Act of 1933 and under the USA in a state. If the security's federal registration is pending and the Administrator has received all of the required material, the two registrations can be declared effective at the same time.
Which of the following would not be included in the USA's definition of exempt transaction? A) Isolated nonissuer transactions B) Limited offerings to no more than 10 retail clients in the state during a 12-month period C) Sales of registered nonexempt securities by agents to their individual clients D) Transactions initiated by fiduciaries
C) Sales of registered nonexempt securities by agents to their individual clients The term exempt transaction includes sales by fiduciaries, private placements, and isolated nonissuer transactions. Any solicited sale to an individual client, even of a properly registered security, is not an exempt transaction.
Which of the following is an example of a nonissuer transaction? A) Primary issue of corporate stock B) Private placement by an issuer C) Secondary offering by an institutional seller D) Preemptive rights offering
C) Secondary offering by an institutional seller Investors or shareholders routinely receive the proceeds from a secondary transaction. About the only time a secondary offering is an issuer transaction is if the issuer were reselling treasury stock because the proceeds go to the issuer.
Registration statements for securities: A) need not be filed with the Administrator if the securities are only sold in one state B) expire on December 31 of each year and must be renewed if further sales are to be continued C) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed D) are effective for at least two years from their effective dates, or longer if the securities are still under distribution by the underwriters
C) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed Registration of securities under the USA may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and initial offering prices have not changed. Securities registration statements remain effective for one year from their effective date and do not expire on December 31 of each year. Registration statements are effective for one year from their effective dates (or longer if the securities are still under distribution by the underwriters).
To be exempt under Rule 506(b) of Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of: A) agents authorized to sell the security B) broker-dealers who offer the securities C) nonaccredited investors to whom the security is sold D) shares issued
C) nonaccredited investors to whom the security is sold Rule 506(b) of Regulation D provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. There is a limit to neither the number of shares that can be issued nor the number of accredited investors who may purchase the shares. It is Rule 506(c) of Regulation D that permits advertising as long as the issue is sold exclusively to accredited investors.
As defined in the Uniform Securities Act, an issuer is any person who issues, or proposes to issue, a security for sale to the public. Based on that definition, which of the following is not an issuer? A) The U.S. government announcing an offering of 20-year Treasury bonds B) The City of Chicago, which is involved in a distribution of tax-exempt highway improvement bonds C) AAA Manufacturing Company, which proposes to offer shares to the public but has not completed the offering D) A partner in the AAA Oil and Gas Partnership selling his interest in the investment
D) A partner in the AAA Oil and Gas Partnership selling his interest in the investment The Uniform Securities Act defines an issuer as any person who issues, or proposes to issue, a security. The resale of a partnership interest by an investor is a nonissuer sale because the investor is not the issuer. Examples of issuers are municipalities such as the City of Chicago, which issues tax-exempt highway improvement bonds; AAA Manufacturing Company, which proposes to offer shares to the public even though it has not completed the offering; and the United States government, when it offers Treasury bonds.
Under the Uniform Securities Act, which of the following statements is true regarding the Administrator's power to deny or revoke an exemption? A) The Administrator may not revoke the exemption of securities issued by a nonprofit corporation B) The revocation may apply to a period prior to the date on which the revocation order was issued C) In a proceeding to revoke an exemption, it is assumed that the exemption applies and the Administrator must prove that it does not apply D) An order revoking an exemption may be issued without prior notice to the persons affected
D) An order revoking an exemption may be issued without prior notice to the persons affected An order revoking an exemption, sometimes called a summary order, may be made effective without prior notice. The injured party may request a hearing in writing, which must be granted within 15 business days of receipt of the request. No denials or revocations may be made on a retroactive basis. The Administrator does have the power to revoke the exemption granted to securities issued by nonprofit entities. In any proceeding, the burden of proving an exemption is on the person claiming it, not the Administrator.
Under the Uniform Securities Act, which of the following would be least likely to be civilly liable for making false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act? A) Any and every person who has signed the registration statement B) Every underwriter of the security C) Every expert who is named in the registration statement D) Every stockholder named in the registration statement
D) Every stockholder named in the registration statement 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 10% or more 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.
All of the following describe exempt transactions except: A) First National Bank sells its entire publicly traded bond portfolio to Amalgamated National Bank B) ABC Securities, a registered broker-dealer functioning as an underwriter, purchases securities from XYZ Corporation C) Amalgamated National Bank sells its publicly traded bond portfolio to ABC Insurance Company D) Joe, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state
D) Joe, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state The purchase of securities from a broker-dealer by an employee of a bank is a nonexempt transaction because it is a sale of a security by a broker-dealer to a member of the public. Transactions between broker-dealers and issuers, between banks, and between banks and insurance companies are exempt because they occur between financial institutions. Exempt transactions are most often identified by the transaction's parties, rather than the type of security involved.
What is the procedure by which federal covered securities, registered under the Investment Company Act of 1940, file their offerings with state securities Administrators? A) Qualification B) Coordination C) Federal covered securities need not file with state securities Administrators D) Notice filing
D) Notice filing Notice filing primarily applies to securities issued by investment companies, such as mutual funds, registered under the Investment Company Act of 1940. Offerings of securities that are not federal covered securities must be registered with the states by either coordination or qualification, unless exempt.
Which of the following transactions are not exempt from registration? A) Unsolicited nonissuer transactions B) Transactions with pension or profit-sharing trusts C) Isolated nonissuer transactions D) Transactions with intrastate manufacturing companies
D) Transactions with intrastate manufacturing companies A transaction with a corporation that is not a financial institution is neither an exempt transaction nor exempt from the registration rules.
The Uniform Securities Act would consider which of the following insurance products to be a security? A) Fixed annuity B) Modified endowment life insurance C) Mortgage life insurance D) Variable life insurance
D) Variable life insurance The key is the word variable. Insurance products are excluded from the definition of a security unless the word variable is part of the description. So, variable life and variable annuities are securities—the rest are not.
Section 402 of the Uniform Securities Act contains a listing of those securities that are granted an exemption from the registration and advertising filing requirements of the act. Excluded from the listing would be: A) bonds issued by a Canadian province B) bonds issued by the District of Columbia C) securities issued by a credit union authorized to do business in the state D) corporate debentures
D) corporate debentures Unless some other condition is given, such as the issuer's common stock is listed on an exchange or Nasdaq (making it federal covered), a corporate debenture is not an exempt security. State and local issues (the USA includes the District of Columbia in its definition of state) and Canadian provinces are exempt. Any security issued by a federally chartered credit union or one that is authorized to do business in the state is exempt.
All of the following are exempt transactions under the Uniform Securities Act except: A) a securities transaction by an executor B) a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator C) a rescission offer, sale, or purchase D) initial sale of shares to in-state residents of a local manufacturing company
D) initial sale of shares to in-state residents of a local manufacturing company An initial sale of shares to in-state residents is an intrastate initial public offering and must be registered with the state securities Administrator. A securities transaction by an executor; a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator; or a rescission offer, sale, or purchase are exempt transactions.
Under the Securities Act of 1933, securities issued by a charitable organization are exempt if: A) the organization is operated by funds through government grants B) no commissions are paid on sales of its securities C) a minimum of 5% of its assets are distributed each year D) the organization is a nonprofit
D) the organization is a nonprofit The Securities Act of 1933 exempts securities issued by charitable or religious organizations from the registration and prospectus delivery requirements as long as the organizations are nonprofits.
One method of securities registration under the Uniform Securities Act is qualification. The effective date of a security registered using this method is: A) by noon of the 30th day following the filing of the application B) when the offering is made effective by the SEC C) within 2 business days of the filing of maximum and minimum proposed offering prices D) when so ordered by the Administrator
D) when so ordered by the Administrator Registration by qualification becomes effective on the date set by the Administrator. It is the registration of a security by coordination, where the effective date is contingent upon SEC effectiveness. Coordination also has the requirement of submitting the maximum and minimum offering prices at least two business days before the effective date. It is the registration of securities professionals that is effective at noon of the 30th day after the filing of a complete application.
