rules and regulations

Under Regulation Crowdfunding, which of the following investments would exceed the crowdfunding dollar limit per issuer?

$1,250,000 in a 12-month period, of which all is from crowdfunding

Which of the following is not a directed selling effort under Regulation S?

A tombstone advertisement is not considered a directed selling effort under Regulation S if the advertisement contains no more information than the issuer's name, amount and title of the securities being sold, indication of the issuer's general type of business, price of the securities, yield of the securities, name and address of the person placing the advertisement and whether such person is participating in the distribution, names of the managing underwriters, the dates upon which the sales commenced and concluded, whether the securities are part of a rights offering, and any legend required by a foreign or U.S. regulatory body.

SEC Rule 147 provides for which of the following?

According to SEC Rule 147, for an intrastate offering to be exempt from the registration requirements of the '33 Act, the issuer must be incorporated in the state, have at least 80% of its sales and assets and use of the proceeds within the state, and the buyers of the offering must be residents of the state.

All of the following would be defined as affiliates EXCEPT

Affiliates, also called corporate insiders, are defined as officers, directors, or 10% shareholders of an issuer. The spouse of a corporate insider is also considered a corporate insider.

Which of the following are requirements of an issuer to pursue an exempt offering under Rule 147?

For an intrastate exemption under Rule 147, the issuer's principal place of business must be in the state. Also, at least 80% of the assets, revenues, or proceeds from the sale of securities must be used in the state.

ABC Enterprises has been in business for four years, and it now wishes to raise capital via crowdfunding, by selling its shares. How must it disclose key financial data to prospective investors?

Information for the current and prior year must be included in Form C

An investor who purchased Rule 147 securities can sell the securities

Investors who purchase securities under Rule 147 are required to hold them for 6 months before the securities can be sold to non-state residents. They may be sold to other state residents immediately after purchase.

A crowdfunding solicitation to investors is made through a website site is known as

Issuers that wish to raise equity via crowdfunding must approach investors through an intermediary, not directly. Regulation Crowdfunding defines two types of intermediaries: 1) registered broker-dealers; and 2) a FINRA-registered funding portal.

A prospective investor wants to know if a crowdfunding offering in which she is interested has been vetted by an intermediary in an extensive "due diligence" process. The answer is

Only broker-dealers are required to conduct extensive due diligence on issuers and the offering, prior to participating in the offering or making any recommendations. For funding portals, due diligence is optional. However, all intermediaries, including funding portals, must conduct background checks on the issuer's officers, directors and participants to identify any bad actors, as defined by the SEC.

Which of the following types of information is not allowed in a public notice sent to prospective investors by a crowdfunding issuer?

Only very basic information can be provided in a notice from the issuer, and no advertising is allowed. Risk factors, economic projections and other similar information must come from the intermediary, in the Form C filing/disclosure.

All of the following statements regarding a purchaser representative in a Regulation D transaction are true EXCEPT

Purchaser representatives are required to assist non-accredited investors in evaluating the merits and risks of a Reg D investment, if the non-accredited investor does not have experience with these types of transactions. Purchaser representatives are required to assist accredited investors in evaluation of the merits and risk of the investment

Rule 144 applies to which of the following?

Rule 144 pertains to owners of securities that were not originally sold under SEC registration. Corporate insiders include officers or directors of the issuers, as well as any entity owning greater that 10% of the company's outstanding common stock.

An issuer intending to distribute securities under Rule 147

Rule 147 permits intrastate issuers to sell securities without registration with the SEC to residents of that state. The securities must be held for 9 months before they can be sold to non-state residents.

Who is responsible for assuring that an investor does not exceed the annual limit (for individual investors) on crowdfunding investment in a calendar year?

The intermediary is responsible for ensuring an investor does not exceed the annual limit. This applies to both broker-dealers and registered funding portals. The issuer does not have this responsibility, unless it has reason to know an individual has exceeded the limit.

A crowdfunding issuer wishes to offer its stock to the public in a way that prospective investors will have access to investment advice and recommendations before committing. How can this be done?

Use a broker-dealer as intermediary

To maintain eligibility for a Regulation A+ exemption from SEC registration requirements, issuers must

limit the issue to $50 million in size. provide investor disclosure through an offering circular.

An issuer intending to distribute securities under Regulation D

may sell securities without filing a registration statement with the SEC

What type of investor may participate in a securities offering marketed under Rule 144A of the Securities Act of 1933?

"Qualified institutional buyers" (QIBs) are defined under Rule 144A of the 33 Act. They include insurance companies, investment companies, employee benefit plans, investment advisers, investment companies or trust funds holding at least $100 million of securities.

A small company wants to issue a private placement under Rule 504 of Regulation D. To avoid public registration, the offering must

A Rule 504 private placement is restricted in size ($5 million per 12 months) and may be advertised to the general public. Securities must be restricted from resale to the public without registration. Often, these offerings are registered some time after capital is raised, so that holders can resell them into the public market.

Which of the following would be classified as a QIB?

A hedge fund with assets under management of $1 billion would be a qualified institutional buyer as the threshold is assets under management of at least $100 million.

A Regulation D offering in excess of $5mm may be sold to

A private placement under Regulation D may be sold to an unlimited number of investors who meet the definition of accredited investors. However, no more than 35 non-accredited investors may be purchasers in a Regulation D offering. For private placements of less than $5mm, there is no limit to the number of non-accredited investors.

During a Regulation A+ offering, the issuer will aggregate transactions over what period of time for purposes of reporting to the SEC?

During a Regulation A+ offering, the issuer will aggregate transactions over what period of time for purposes of reporting to the SEC?

An affiliate must file a notice of a proposed sale under Rule 144 with the SEC under which of the following scenarios?

An affiliate must file notice with the SEC on Form 144 if he/she wishes to sell 5,000 shares or $50,000 in aggregate in any three-month period. In addition, the sale must take place within three months of filing the Form.

Under Rule 902 of Regulation S, which of the following would be a debt security?

An asset-backed security, defined as representing an ownership interest in a pool of discrete assets, secured by one or more assets, or other assets that by their terms convert into cash over a finite period of time would be considered a debt security under Regulation S.

XYZ Media seeks to raise a target of $800,000 through crowdfunding. The company files its Form C disclosure with the SEC on Sept. 1. However, the information substantially changes on Oct. 1. On Nov. 1, the company reaches the $400,000 mark in its fund-raising. On Dec 1, it reaches $600,000 and on Jan 1 it reaches the full $800,000. When is the first time the company must update its Form C?

Any changes in the Form C information must be updated within five business days after reaching 50% of the target raise, and then again five business days after reaching 100% of the target raise. So, if any information has changed by November 1, the company must update it within five business days. Remember that it's the 50% and 100% thresholds (based on the target raise) that trigger the updating requirement.

The document that is circulated to inform accredited investors of the terms of a private placement is typically referred to as a(n)

Private Placement Memorandum

Section 4(a)(5) of the Securities Act of 1933 refers to:

Private placements to accredited investors.

Tom and Betty are a married couple with combined net worth $1.2 million in and $200,000 in steady annual income. They want to invest in a private limited partnership. Which of the following is TRUE about their status, under the SEC's Regulation D?

They qualify as accredited investors on the basis of their net worth

BigKangarooCo (BKC) is an Australian company listed on the Australian Stock Exchange. BKC would like to raise capital in the United States, avoid SEC registration, and target accredited Australian investors currently residing in the U.S. BKC could best achieve these objectives by

Any company seeking to target accredited investors in the U.S. would issue via a Regulation D private placement. Reg D allows the issuer to solicit an unlimited under of accredited investors. Rule 144A involves Qualified Institutional Buyers (QIBs), not accredited investors. Regulation S is for companies issuing securities only to non-U.S. residents.

Which type of investing allows large numbers of individuals to invest in small private businesses, usually in small amounts?

Equity crowdfunding

To qualify as a "reporting issuer," which of the following conditions must be met by the issuer?

If the issuer of the securities is, and has been for a period of at least 90 days immediately before the sale, subject to the reporting requirements of Section 13 or 15(d) of the '34 Act, the issuer qualifies as a reporting company.

Under a tender offer scenario, restricted shares

In the event of a tender offer, restricted securities may be tendered by the holder without Rule 144 compliance.

Restricted and control securities under Rule 144 are

Investors traditionally are granted or receive restricted securities through private placement offerings, Regulation D offerings, Employee Stock Ownership Plans (ESOPs), as compensation for professional services, or in exchange for providing venture capital funding. Control securities are owned by a corporate insider and can be acquired either via a private sale or in the open market. acquired in the open market or in a private placement

Which type of advertising or public notice is allowed by issuers for their registered crowdfunding offers?

Issuers can't advertise crowdfunding offers. Optionally, they can only provide a basic notice that directs investors to the intermediary. The notice may disclose the amount being raised, price per share, and basic information about the issuer.

If an issuer wishes to raise equity via crowdfunding and does not offer through a registered broker-dealer, what other alternative is available?

Issuers that wish to raise equity via crowdfunding must approach investors through an intermediary, not directly. Regulation Crowdfunding defines two types of intermediaries: 1) registered broker-dealers; and 2) a FINRA-registered funding portal.

Securities issued under Regulation A+ are exempt from SEC registration if they are

Regulation A+ exempts securities from registration if they are part of an issue of less than $50 million in a 12 month period. Advantages to the issuer include reduced legal fees and shorter preparation time for offering documents.

An issuer intending to distribute securities under Regulation A+

Regulation A+ permits an exemption from filing a registration statement with the SEC for U.S. and Canadian issuers if the sum of all cash and other consideration to be received for the securities does not exceed $50,000,000.

An investor has a net worth of $500,000 and wants to invest $20,000 in a crowdfunding deal. This is the only crowdfunding deal in which the investor will participate this year. To achieve this, the investor's annual income must be at least how much?

The highest level of investment allowed is 10% of the lesser of annual income or net worth. It is only available if both factors (annual income and net worth) are $107,000 or above. To invest $20,000, this investor would need an annual income of $200,000 or above. 10% of $200,000 = $20,000.

Which entities have a responsibility to identify any bad actors associated with a crowdfunding issuer, before offering the investment to the public?

The issuer and both types of intermediaries funding portals and broker-dealers

Which of the following transactions would be required to register under the Securities Act of 1933?

There are a number of exemptions available under the '33 Act. Exempt securities include treasuries, municipal bonds, commercial paper and commercial bank. Exempt transactions include small offerings (Reg A), Private Placements (Reg D), intrastate offerings (Rule 147) and overseas offerings (Reg S). Open-end funds (i.e. mutual funds) are required to be registered.

What is the maximum number of accredited investors allowed in a private placement offering?

There is no limit on the number of accredited investors in a private placement.

Which of the following is true regarding private placements under Section 4(a)2 of the Securities Act of 1933?

There is no limit to the amount of money that can be raised.

Accredited investors include all of the following EXCEPT

Under Regulation D, a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase is an accredited investor.

Shares acquired from the spouse of an affiliate in a private placement would be considered

Under Rule 144, shares acquired via a private transaction directly from the spouse of an affiliate are considered restricted securities if the spouse shares the same home as the affiliate.

To participate in a private placement under Regulation D as an "accredited investor," a married couple must have total assets above $1 million or combined annual income above

$300,000 in each of the two most recent years

Rule 506 says that if investors are non-accredited, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.

Any material changes in Form C disclosures must be updated twice: Once within five business days of reaching 50% of the company's target raise and then again within five days after reaching 100% of the target raise. Remember that the target raise amount is the key, because it triggers Form C updating requirements.

Investors typically receive restricted securities through which of the following?

Any stock received that has not been SEC registered is, by definition, restricted stock. In addition, venture capital firms providing start-up funds for the issuer may also receive restricted shares.

Under Regulation A+, the maximum amount of capital that can be raised is referred to as the

As defined under Regulation A+, the aggregate offering price shall not exceed $50 million, of which no more than $15 million can be offered by selling security holders. In addition, in a case where a combination of cash and non-cash consideration is received, the aggregate offering price is based on the cash price for the securities.

ABC Grocers, Inc. is a private company that wishes to raise investment capital from its thousands of customers in small amounts via crowdfunding. Its target raise is $500,000. By regulation, what is the maximum number of investors to whom it can sell stock in a crowdfunding offering, assuming the target is reached?

Crowdfunding is a very flexible way to raise capital, especially among an existing base of customers, acquaintances, investors, etc. There is no limit on the number of investors who can participate or the maximum or minimum amount of stock that each investor may purchase (subject to an annual limit per issuer). An unlimited number of investors can participate.

In general, the exemptions provided by Rule 147, Regulation A and Regulation D accomplish which of the following?

Enable issuers to sell securities to the public at less of an expense, if certain conditions are met.

A former affiliate of an issuer may sell their shares under Rule 144 after meeting which of the following conditions?

I. The individual has not been an affiliate of the issuer for three months II. The individual has held the restricted securities for at least one year

To sell securities under Regulation A an issuer

I. must file a Form 1-A with the SEC. IV. is required to provide an offering circular to investors.

To qualify for an exemption under Section 4(a)(2) of the Securities Act, the purchasers of the securities must do/have all of the following EXCEPT

Investors in private offerings under Section 4(2) of the Securities Act must be "sophisticated investors," who can evaluate the risk and merits of the investment and bear the investment's economic risk. They must also receive detailed information about the offering, but they are not required to be Qualified Institutional Buyers ($100mm in assets).

A company wishes to raise $5 million through crowdfunding. Which of the following is true?

It is possible only if the amounts do not exceed $1,070,000 in any 12-month period

Which one of the following methods for soliciting crowdfunding investments is NOT allowed by regulation?

Offering directly to investors via social media websites

PrivateCompanyA (PCA) issues warrants to a number of institutional investors. The institutional investors are told that, at some point in the future, PCA plans on registering additional warrants. At that time, the institutional investors will be permitted to sell their warrants to the public at the issuer's expense. This is an example of

Piggyback registration rights allow an investor to utilize the issuer's registration statement, at the issuer's expense, to sell their previously unregistered securities to the public. The difference between piggyback registration rights and demand registration rights is that demand registration rights allow the investor to force the issuer to register whereas piggyback registration rights allow the issuer to choose when the shares are registered.

In a Regulation A+ offering the issuer must

Regulation A+ permits exemptions for issuers of no more than $50 million in a 12 month period. Issuers must provide an offering circular for disclosure to potential buyers. Issuers are not required to file an S-1 registration statement, which is the full-blown registration statement required for non-exempt offerings. distribute an offering circular to prospective buyers issue no more than $50 million during a 12 month period

The rules of Regulation S address stock that is sold

Regulation S covers the sale of unregistered securities in off-shore transactions. If transactions take place within the Regulation S safe harbor, registration is not necessary when securities are sold outside of the U.S. and no directed selling efforts are made in the United States.

The immediate resale of securities offered under Rule 147 is permitted ONLY to

Resale of securities offered under Rule 147 are only permitted to residents of the state of incorporation or to other purchasers nine months after the termination of the Rule 147 offering.

Rule 144 applies to the sale of securities that

Rule 144 allows public resale of restricted and control securities if a number of conditions are met. Restricted securities are those securities that have been acquired through a private placement or other exempt transaction (i.e. Regulation S for overseas offerings), and are not registered. Control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as a director or large shareholder, in a relationship of control with the issuer. Control securities are not always subject to a holding period. They must satisfy a holding period only if they are also restricted. Securities acquired by non-affiliates through an open market transaction are neither restricted nor control stock, and are not subject to Rule 144. were acquired by investors through unregistered, private transactions were acquired by non-affiliates through an open market transaction

To qualify as an "accredited investor" under the SEC's Regulation D, a single person would need to have income of

The Regulation D income test is based on sustainable income over the two most recent years, with an expectation of maintaining similar income in the future. The threshold is $200,000 for a single person or $300,000 for a married couple.

Joe Schmo recently acquired unregistered stock of a company as compensation for consulting services. Four months later, Joe queries his registered representative as to how he can subsequently sell the shares in the market. The rep could accurately reply that Joe can

Rule 144 permits the sale of unregistered stock of an existing public company after a six-month holding period. In this case, the shares have only been held for four months, making them ineligible for sale under Rule 144. Rule 144A allows the sale of unregistered securities to Qualified Institutional Buyers (QIBs) with no holding period. A QIB is generally defined as an institutional investor with $100mm in assets.

All of the following are provisions of Rule 147 EXCEPT

Rule 147 addresses intrastate offerings. An issuer is eligible to distribute securities under Rule 147 if its principal office is in the state and it derives at least 80% of its gross revenues from business in that state, 80% of the assets are located in the state orif it uses 80% of the proceeds of the sale of securities in the state. Securities under Rule 147 can be offered only to residents of the state who must hold the securities for 6 months before they can be sold to non-state residents.

The SEC rule that provides an exemption from the registration requirements of the Securities Act of 1933 for intrastate offerings is

Rule 147 offers an intrastate offering exemption from Section 3(a)(11) of the Securities Act of 1933. It requires companies to satisfy the 80/80/80 test and offer the entire issue only to state residents.

According to the specifications of Rule 506 of Regulation D, a sophisticated investor is

Rule 506 says that if investors are non-accredited, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.

Rule 144 provides which of the following?

SEC Rule 144 provides a safe harbor permitting the sale of restricted and affiliate securities, in limited amounts without requiring registration of the securities sold.

The maximum amount of capital an individual investor can invest on an annual basis in all crowdfunding offerings is determined by

SEC rules limit the amount an individual can invest on an annual basis in all crowdfunding issuers. The limit is based on an individual's annual income and net worth.

The individual investor limit on crowdfunding investment is based on

SEC rules limit the amount an individual can invest on an annual basis in all crowdfunding issues. The limit is based on an individual's annual income and/or net worth. For this purpose, "annual" means over any trailing 12-month period.

Which of the following is the best brief description of a company that is a good candidate to raise capital via equity crowdfunding?

Small U.S. private company with an operating plan and good reputation

Under Regulation S, which of the following is not a listed "designated offshore securities market?"

The NYSE is domiciled in the U.S., and, as such is not an offshore securities market. Securities sold under Regulation S can trade on offshore securities exchanges immediately after issuance.

Rule 504 of Regulation D allows companies to sell a maximum of

The Rule 504 exemption is only available for private placements (not advertised to the public), and securities must be restricted from resale to the public without registration. The maximum offering size is $5 million in a 12-month period. Take note, that the threshold was recently increased from $1 million.

A crowdfunding issuer wishes to solicit investment from individuals through a FINRA-registered funding portal. In addition to the portal's identity, what other information about the portal must be disclosed to prospective investors?

The amount paid to the portal

Which of the following statements is true about the limitation of crowdfunding, as a means of raising capital?

The amounts that can be raised are capped

All of the following investors would be considered Qualified Institutional Buyers EXCEPT

Under Rule 144A, Qualified Institutional Buyers (QIBs) are defined as: -Insurance Companies -Investment Companies -Business Development Companies -Investment Advisers -Broker dealers owning and investing discretionary assets of at least $10 million -Any other institution with discretionary assets of at least $100 million

For the purposes of Regulation D, an accredited investor is defined as someone who meets which of the following qualifications?

Under the Securities Act of 1933, an accredited investor is any natural person who had income in excess of $200,000 or individual net worth, or joint net worth with that person's spouse, at the time of the purchase, in excess of $1,000,000. A married couple with $300,000 in income is also an accredited investor.

An investor has an annual income of $100,000 and a net worth of $1 million. What is the annual limit that this investor can invest in all crowdfunding offerings?

Unless both income and net worth are $107,000 or above, the limit is the greater of $2,200 or 5% of the lesser of annual income or net worth. In this case, income is below the threshold and 5% of $100,000 = $5,000