UNIT 1-FEDERAL SECURITIES REGULATIONS: 1.1-1.5 (REVIEW QUESTIONS)
THE SEC ACT OF 1933-DEFINE ISSUER
-An issuer is a person who issues a security, whether or not the security is exempt. In the question, the antique dealer is issuing collectibles, not securities.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-To be in compliance with the Securities Act of 1933, the sale of which of the following securities would require delivery of a prospectus
-Any primary offering, unless the security is exempt, requires timely delivery of a prospectus. Treasury notes and private placements are exempt. Open-end investment companies are a continuous primary offering.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- an accredited investor may be:
Accredited investors are financial institutions, wealthy persons meeting specific requirements, and (for a particular issue) persons involved in the management of the issuer.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-required the registration of new issues before their offering to the public. However, the law contained a number of exemptions including that for
Although each of these is considered an exempt security under the Uniform Securities Act, only the securities of a regulated common carrier carry an exemption from federal registration.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-RED HERRING NOT TRUE
An agent is not permitted to accept funds from potential purchasers of a new issue before the effective date.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)-For purposes of the definition found in Rule 501 of Regulation D of the Securities Act of 1933, the term accredited investor would not apply to:
An individual is not an accredited investor solely by virtue of being an IAR. If that person had the net worth or income specified in the Rule, OK, but just being in the business does not qualify someone.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-a new issue of common stock is in registration, registered representatives are permitted to:
An issue in registration has not yet become effective. A preliminary prospectus may be sent and indications of interest may be accepted, but no orders or money are accepted until the effective date.
THE SEC ACT OF 1933-EXEMPTED TRANSACTIONS-To be in compliance with the Securities Act of 1933, the sale of which of the following securities would require delivery of a prospectus
Any primary offering, unless the security is exempt, requires timely delivery of a prospectus. Treasury notes and private placements are exempt. I. Primary offering of a closed-end investment company registered under the Investment Company Act of 1940. II. Primary offering of 5-year U.S. treasury notes sold to an individual investor.
THE SEC ACT OF 1933-PROSPECTUS
Any written communication that offers a security for sale-including a newspaper and media communications, such as radio and television offers-is considered a prospectus. This definition excludes individual offers made orally and discussions between an agent and a customer. A publicity release that describes a security, a newsletter from a brokerage firm announcing the availability of a security, and an advertisement in a newspaper describing the benefits of a certain mutual fund may be considered prospectuses. A telephone call from an agent to a client advising the purchase of a security is not considered a prospectus because it involves an individual telephone solicitation between an agent and a client.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Having read a tombstone advertisement for a stock, a wealthy individual calls a syndicate member to find out how to place an order. If the offering is effective, the syndicate member may:
Because the offering has become effective for public sale, the final prospectus may be sent to interested parties. The final prospectus is not released until the effective date.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Securities and Exchange Commission has the authority to:
During the cooling-off period, the SEC reviews registration statements and may issue stop orders. The SEC does not approve securities; it only clears them for distribution to the public.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-securities are exempt from the registration and disclosure provisions
I. Any interest in a railroad equipment trust certificate. II. Municipal bonds. III. U.S. government securities. IV. Commercial paper maturing in 270 days or less.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-the statute of limitations for civil liability is
In the federal regulations, the statute of limitations for a civil action is the sooner of one year after discovery or three years after the action. Under the USA, it is the sooner of two years after discovery or three years after the action.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-the statute of limitations for civil liability is:
In the federal regulations, the statute of limitations for a civil action is the sooner of one year after discovery or three years after the action. Under the USA, it is the sooner of two years after discovery or three years after the action.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC:
Issuers wishing to avail themselves of the private placement exemption offered under Regulation D of the Securities Act of 1933 must file a Form D with the SEC no later than 15 days after the first sale.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- Jim is buying stock through a private placement. Under the Securities Act of 1933, which of the following statements is TRUE?
Private placements are exempt transactions under Regulation D of the Securities Act of 1933 and are therefore exempt from registration.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Rule 482
Rule 482 describes a form of allowable mutual fund advertising, commonly referred to as an omitting prospectus.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-registration requirements NOT APPLY TO:
Securities issued by insurance companies and foreign governments are not exempt under the Securities Act of 1933. However, the registration requirements would not apply to nonsecurity products such as fixed annuities.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- 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:
Securities sold under Regulation D of the Securities Act of 1933 are private placements and, under the NSMIA, are considered federal covered securities.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-the SEC may:
The SEC has the power to make, amend, and rescind rules in administering the securities laws. The SEC may also conduct a formal investigation whenever it deems it necessary to enforce federal securities laws. In conducting a formal investigation, the SEC may administer oaths, obtain written statements, subpoena witnesses, take evidence, and require the production of books and records. The SEC does not have the power to arrest and detain suspects.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-The first of the federal securities acts was the Securities Act of 1933. This act requires persons selling a new offering to their clients to:
The Securities Act of 1933, sometimes referred to as the "paper act", requires that an effective, or final prospectus be delivered to all purchasers of a new offering no later than with confirmation of the sale. It is not required that purchasers receive a red herring prospectus and only the SEC gets copies of the registration statement. Yes, they must be properly registered to make the offer (and sale), but that comes under the "people act", the Securities Exchange Act of 1934.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-a registration statement of an issuer must contain all of the following information EXCEPT:
The names of all of the owners of the company's stock are not required. The identity and stock holdings of the officers, directors, and holders of more than 10% of the company's voting stock, as well as the principal business of the issuer and current financial information, must be disclosed.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-TRUE regarding the civil liability provisions of the Securities Act of 1933?
Under federal law, civil suits must be filed within one year of the date of discovery of the improper action or three years after the sale, whichever comes sooner. Purchasers may not waive their rights under the act for any provision. Although those who signed are liable, there is a list of others who also might be, including members of the board of directors, legal counsel, accountants, etc.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-XYZ Corporation is registering a new issue of common stock. A final prospectus must be delivered within the statutory time limits to:
Under the Securities Act of 1933 and the Uniform Securities Act, a prospectus must be given to any purchaser of a common stock, but not necessarily to those solicited by an agent. In fact, the USA only requires the prospectus to be delivered prior to the sale, not the offer.
THE SEC ACT OF 1933-NOT HAVE FEDERALLY IMPOSED EXEMPTION FROM REGISTRATION WITH THE SEC
-SHARES OF BANK HOLDING COMPANIES TRADED ON THE NYSE. -FED EXEMPTION SECURITIES: ISSUED OR GUARANTEED BY THE US GOV'T, STATE OR POLITICAL SUBDIVISION OF A STATE, COMMERCIAL PAPER W/ MATURITIES OF 9 MONTHS OR LESS
THE SEC ACT OF 1933-EXEMPT FROM ANTIFRAUD PROVISIONS
-While the Securities Act of 1933 provides exemptions from full registration for certain securities, an exempt security is exempt from the registration and prospectus delivery requirements, but not from the antifraud provisions of the act. This is the same as the Uniform Securities Act in that certain securities may be exempt from full registration and prospectus delivery requirements, but they are not exempt from the antifraud provisions of the act.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- accredited investors?
Accredited investors are financial institutions, wealthy persons, and, for a particular issue, persons involved in the management of the issuer. Certain institutional purchasers such as banks, insurance companies, investment companies, and employee benefit plans that have total assets in excess of $5,000,000 are included in the SEC's definition. In addition, any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1 million, excluding the value of the primary residence, or has earned in excess of $200,000 in each of the past 2 years and expects to earn more than $200,000 in the current year ($300,000 for married couples) is an accredited investor.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- Rule 501 of the Securities Act of 1933 creates a category of person known as an accredited investor. Included in that definition would be all of the following EXCEPT:
Although the individual IAR might personally qualify as an accredited investor, the rule does not offer a blanket inclusion to those securities professionals.
THE SEC ACT OF 1933-EXEMPTED SECURITIES- sale of stock of a state bank is exempt from which of the following?
Both the Uniform Securities Act and the Securities Act of 1933 exempt securities issued by banks, trusts, or savings and loans. While the security is exempt under both acts from registration and prospectus delivery requirements, it is never exempt from the antifraud provisions of the acts.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-issue to meet the exemptive requirements of Rule 147
-100% of the purchasers must be residents of the state in which the securities are being issued to qualify for the intrastate exemption under SEC Rule 147. I. 80% of the assets of the issuer must be within the state of issuance. II. 80% of the proceeds of the offering will be used within the state of issuance. IV. 80% of the revenue of the issuer must be derived from operations in the state of issuance
THE SEC ACT OF 1933-EXEMPTED SECURITIES-CORP DEBT SEC, MATURIES DON'T EXCEED HOW MANY DAYS (2)
-270 DAYS OR LESS
THE SEC ACT OF 1933-EXEMPTED SECURITIES-commercial paper is exempt from the prospectus delivery requirements or registration, unless its maturity is more than how many months
-9 MONTHS
THE SEC ACT OF 1933-DEFINE PROSPECTUS
-A COMMUNICATION MADE IN WRITING OR BY RADIO OR TV THAT OFFERS A SECURITY FOR SALE. -AN ORAL OFFER, TOMBSTONE ADVERTISEMENTS ARE NOT A PROSPECTUS
THE SEC ACT OF 1933-PROSPECTUS
-A prospectus is any communication that offers a security for sale, including newspaper, radio, and television offers.
THE SEC ACT OF 1933-SOLD WITH THE PROSPECTUS
-AN OPEN-END US GOV'T BOND FUND, PRIMARY OFFERING OF A CLOSED END FUND, AN OPEN END COMMON STOCK FUND -OPEN END MUST BE WITH A PROSPECTUS, BECAUSE THEY ARE CONTINUOUS PRIMARY OFFERINGS. -A CLOSED-END FUND IN THE SECONDARY MARKET ARE NOT NEW SECURITIES.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-securities are exempt
-Any interest in a railroad equipment trust is specifically listed as exempt under the Securities Act of 1933. Bonds offered and sold exclusively to persons who live in the same state in which the issuer is headquartered and does business meet the qualifications of an intrastate issue because the securities are offered and sold only to residents of the state in which the issuer itself resides, and the issuer does business in that state. Securities issued by an insurance company and securities listed on an exchange are exempt under the Uniform Securities Act, but not under the Securities Act of 1933 Act.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-following securities is required to register with the SEC
-Bank holding company securities are not exempt from registration requirements under the Securities Act of 1933. Treasury securities, agency securities (such as GNMA-pass through certificates), and municipal securities (such as revenue bonds) are exempt from registration requirements under the act.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-securities issued by charitable organizations are exempt if
-Charitable or religious organizations must be nonprofit in order to gain exemption from full registration
THE SEC ACT OF 1933-EXEMPTED SECURITIES-are exempt from the registration provisions
-Commercial bank holding companies are corporations that have to register with the SEC. State and municipal bonds do not have to be registered under the Securities Act of 1933. Commercial paper and bankers' acceptances that have maturities of no more than 270 days are exempt from the registration provisions. National and state banks are regulated by various state and federal agencies.
THE SEC ACT OF 1933-SECURITIES-THAT MUST BE REGISTERED
-PUBLICALY TRADED DPP'S, VARIABLE ANNUITIES, OPEN-END FUNDS, CLOSED END FUNDS -ALL NON EXEMPT ISSUES SOLD TO THE PUBLIC -EXEMPT ISSUES DO NOT NEED TO BE REGISTERED
THE SEC ACT OF 1933-CHARACTERISTICS
-REGULATES NEW ISSUES OF CORP SEC SOLD TO THE PUBLIC -CALLED THE TRUTH IN SECURITIES ACT, PAPER ACT, OR PROSPECTUS ACT. -REQUIRES FULL AND FAIR DISCLOSURES OF MATERIAL FACTS
THE SEC ACT OF 1933-EXEMPTED SECURITIES-NOT EXEMPT SEC (1)
-REITs are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipals are exempt.
THE SEC ACT OF 1933-EXEMPTED SECURITIES- requires securities issued by all of the following to register and be subject to prospectus provisions
-The Securities Act of 1933 does not require U.S. government securities to be issued by prospectus. The act covers the issuance of securities by companies engaged in interstate commerce. Investment company shares must be sold by prospectus. The exemption for securities issued by foreign governments is found in the Uniform Securities Act, not the federal law.
THE SEC ACT OF 1933-NOT A SECURITY
-The definition of a security does not include direct ownership of real estate, commodities futures contracts (e.g., corn, wheat), collectibles, precious metals, or life insurance or annuity contracts that have fixed payouts. -A security is any note, stock, bond, certificate of interest, or participation in any profit sharing arrangement, investment contract, certificate of deposit for a security, interest in oil, gas, or mining rights, or any investment commonly considered a security. (Generally, it is an investment contract wherein the investor is passive and expects a return on the investment through the efforts of others.)
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Under federal law, a registered agent could offer securities for sale during the underwriting period and before the effective date of registration in which of the following circumstances?
-This time in the life of an underwriting is commonly referred to as the cooling-off period, during which indications of interest may be accepted with the use of a red herring. No offers or sales may be made before the registration's effective date.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)- Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these EXCEPT
-securities issued under Rule 506(c) are federal covered while those under Rule 506(b) are not -Under the NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either (b) or (c), is considered to be a federal covered security.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-a registration statement for a security generally becomes effective how many days after it is filed?
A registration statement for a security becomes effective 20 days after it is filed, unless the SEC orders a delay.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIE-XYZ Corp. will issue a new security and distribute it through a public offering. Under the Securities Act of 1933, which of the following is NOT required to be included in XYZ's registration statement?
A registration statement must contain the identity of owners of more than 10% of the issuer's stock, an estimate of the proceeds and a description of the use to which they will be put, and the identity of the underwriter, amongst many other things. It must also identify all the issuer's officers and directors, their holdings of the issuer's securities, and their salaries. Since the description of the personnel manager does not use the term officer or director, this employee need not be identified in the registration statement.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-ABCO Materials, Inc., is in the process of raising money from the public for the first time. Which of the following must be disclosed in ABCO's registration statement filed with the SEC?
A registration statement will always include the expected use of the proceeds of the offering as well as short biographies of the members of the board of directors (and key officers as well). This question stated it was the company's IPO, so there could not be any previous stock performance, and the public offering price is not determined until the effective date.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)-accredited investors?
An accredited investor can take different forms; an individual with a net worth, excluding the value of the principal residence, greater than $1 million (the $1 million can be joint with spouse); an individual whose yearly income for the past two years exceeded $200,000 ($300,000 joint with spouse) with a reasonable expectation of earning that amount this year; and any organization not formed for the purpose of purchasing the securities being offered with a net worth in excess of $5 million. In addition, any registered investment company, bank or insurance company, regardless of size, is included in the definition of accredited investor in SEC's Rule 501.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Rule 482 of the Securities Act of 1933 permits the use of an omitting prospectus if it does NOT:
An omitting prospectus is a mutual fund tombstone advertisement. It must include information on obtaining a prospectus and may include the fund's past performance. It will never include an application to purchase shares and may or may not make mention of the fund's expense ratio.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-following would be civilly liable for false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act?
Anyone who has signed the registration statement, anyone who is named in the statement as an expert, and every underwriter may be liable to the purchasers of the securities if the statement contains false information. Although a registration statement contains the names of stockholders who own more than 10% of the issue, they are not liable unless they fall into one of the other categories (officer, director, or expert). Anyone who sells the underlying security without providing a valid prospectus, uses a prospectus that is false, or omits material information is also civilly liable to the purchaser.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Charlotte is an agent of Gibraltar Securities. Her most active customer told Charlotte that he is thinking about buying 10,000 shares of a retailer's stock for which Gibraltar will be participating in the underwriting syndicate. The SEC release date for the stock is anticipated within 10 business days. What may Charlotte send to the client today?
Because a security is in registration until released by the SEC for public sale, only the unadulterated prospectus may be sent to parties indicating interest in purchasing the stock. Orders may not be accepted for a security while in registration. Because the final prospectus is indeed an offering document, it may not be presented until the SEC has released the security for public sale (made the security effective.)
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-A broker/dealer is the lead underwriter in a new issue. During the period this new security issue is in registration, which of the following will usually be distributed?
During the period a new securities issue is in registration, the underwriters usually prepare and distribute the red herring prospectus along with forms to indicate interest in the issue. No firm orders or payment may be accepted prior to the date the issue is effective for sale.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-The SEC determines that misleading statements have been made in a registration statement. In addition, material information has been omitted. Which of the following persons could face civil liability charges?
Every person who signed the registration statement is liable under the Securities Act of 1933. In addition, any director, whether or not that individual's signature is on the registration statement; the attorney; the accountant; and the underwriter. Among the required signatures is that of the CEO.
THE SEC ACT OF 1933-EXEMPTED SECURITIES-
I.Securities issued by the U.S. government, government agencies, and any state or municipality. II.Any security issued by a religious, educational, charitable, or not-for-profit institution. III.Any security issued by a federal or state bank, savings and loan association, building and loan association, or similar institution. IV.Any interest in a railroad equipment trust.
THE SEC ACT OF 1933-SEC REG D (PRIVATE PLACEMENT EXEMPTION)-Identify the accredited investors from the list below.
Institutional investors such as insurance companies are regarded as accredited investors. An individual with a net worth of $800,000 and a salary of $150,000 does not meet either of the 2 qualification criteria for individuals, while the married couple with a net worth of $2 million, which, after excluding the value of the primary residence is still in excess of $1 million, is accredited. In order for a corporation to meet the definition, it must have a net worth of at least $5 million.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-Under the USA, each of the following materials may be distributed if an issuing company has applied for registration but is not yet cleared for sale EXCEPT:
Prior to clearance, a red herring or preliminary prospectus (a disclosure document) may be distributed in response to those customers who express interest in the offering. While rarely used before the effective date, a tombstone advertisement may be published while the issue is in registration. The red herring is only used to solicit indications of interest; no orders or funds may be accepted before the effective date.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-reviewing prospectuses and registration statements, the SEC (2)
The SEC requires full disclosure regarding a new issue so that investors can make informed decisions on the security. The SEC does not, however, guarantee the accuracy or adequacy of the information, nor does it approve or disapprove of the issue.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-has certain requirements for those selling new issues. One of those requirements is to:
The Securities Act of 1933 requires that a prospectus dealing with a new stock issue be delivered to a purchaser no later than with the confirmation of the trade. Preliminary prospectuses have no relevance once the issue is effective. The Securities Act of 1933 does not deal with the registration requirements of agents.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-who must sign the registration statement?
The principal executives of the company involved with money and a majority of the board of directors are required to sign the registration statement attesting to the facts presented as being true to the best of their knowledge and belief. This includes the chief executive officer, chief financial officer, and a majority of the board, but not the chief operating officer.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-A customer requests information on a new mutual fund and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted
The prospectus is a legal document and may not be altered.
THE SEC ACT OF 1933-REGISTRATION OF SECURITIES-a registration statement for a security must be signed by:
The underwriter's signature is not required on a registration statement, but the chief executive officer, the chief financial officer, and a majority of the board of directors must all sign.
