Securities Regulation
Which of the following statements about the prospectus required by the Securities Act of 1933 is true? A. The prospectus is a part of the registration statement. B. The prospectus should enable the SEC to pass on the merits of the securities. C. The prospectus must be filed after an offer to sell. D. The prospectus is prohibited from being distributed to the public until the SEC approves the accuracy of the facts stated.
Answer: A Explanation: A prospectus is prepared as part of the registration statement. It is a written document proposing a sale of securities to potential investors. The prospectus should provide investors with information to make an informed investment decision. It must be given to each potential investor prior to the time of delivery of the securities.
The provisions of the Securities Exchange Act of 1934 include all of the following except the A. Requirement that firms offering securities for public sale to file a registration statement and provide a prospectus to potential investors. B. Registration of securities listed on national exchanges. C. Regulation of proxy solicitations for the election of directors or for approval of other corporate actions. D. Required disclosure of pertinent information in tender offer solicitations.
Answer: A Explanation: The 1934 act applies to the trading of securities subsequent to their initial sale. Filing a registration statement and providing a prospectus to potential investors are requirements of the Securities Act of 1933, which governs initial offerings.
What form must be filed with the Securities and Exchange Commission (SEC) by nonreporting and unseasoned issuers? A. Form S-1. B. Form 10-K. C. Form 8-K. D. Form S-3.
Answer: A Explanation: To comply with the Securities Act of 1933, an issuer of securities must prepare and publicly file both a registration statement and a prospectus. Under the SEC's integrated disclosure system, a nonreporting issuer is one who need not file reports under the Securities Exchange Act of 1934. An unseasoned issuer has reported for at least 3 consecutive years under the 1934 act. Nonreporting and unseasoned issuers must use Form S-1. However, an unseasoned issuer provides less detailed information and may include some information by reference to other 1934 act reports.
Lux Limited Partnership offered $300,000 of its limited partnership interests under Rule 504 of Regulation D of the Securities Act of 1933. The securities were registered and disclosure was made under state law. Which of the following statements is true? A. The resale of the limited partnership interests by a purchaser will not be restricted. B. The limited partnership interests may be sold only to accredited investors. C. The exemption under Rule 504 is not available to an issuer of limited partnership interests. D. The limited partnership interests may not be sold to more than 35 investors.
Answer: A Explanation: Under Rule 504, a limited offer of securities is exempt from federal registration if the aggregate price is no more than $5 million in a 12-month period. The securities issued under Rule 504 by Lux are not restricted and may be resold without registration because the securities were registered and disclosure was made under state law.
Which of the following transactions is subject to registration requirements of the Securities Act of 1933? A. The public sale by a corporation of its negotiable 10-year notes. B. The public sale by a charitable organization of 10-year bearer bonds. C. The sale across state lines of municipal bonds issued by a city. D. Issuance of stock by a publicly traded corporation to its shareholders because of a stock split.
Answer: A Explanation: Under the 1933 act, any offer or sale of a security to the public requires registration unless a specific exemption applies. Negotiable 10-year notes are securities because they provide evidence of indebtedness. Moreover, no exemption applies. For example, these notes are not commercial paper.
James Fisk recently acquired Valiant Corporation by purchasing all of its outstanding stock pursuant to a tender offer. Fisk demanded and obtained the resignation of the existing board of directors and replaced it with his own slate of nominees. Under these circumstances, A. Fisk had no right to demand the resignation of the existing board members; their resignations are legally ineffective, and they remain as directors. B. If Valiant is listed on a national stock exchange, Fisk must file his tender offer with the SEC. C. The former shareholders of Valiant are parties to a tax-free reorganization. Hence, they are not subject to federal income tax on their gain, if any, on transferring their stock to Fisk. D. If Valiant is engaged in interstate commerce, the acquisition is exempt under the antitrust laws because the SEC has jurisdiction.
Answer: B Explanation: A tender offer is an offer to shareholders to buy their stock to gain control of a corporation. Under the Securities Exchange Act of 1934, anyone who makes a tender offer that may result in the purchase of more than 5% of a class of registered equity securities must file the tender offer with the SEC. Because the acquiree is listed on a national stock exchange, its shares must be registered and the tender offer must be filed prior to acquisition.
The Jumpstart Our Business Startups (JOBS) Act of 2012 provides an exemption from registration of securities. The related rules issued by the SEC are known as Regulation A. Under these rules, which of the following is not an exempt offering? A. An offering of $18 million is made within 12 months, the issuer tests the waters with advertisements, and investors include 85 who are nonaccredited. B. An offering of $22 million is made within 12 months, each purchaser receives an offering statement, and sales may be made without approval of the offering statement by the SEC. C. An offering of $28 million is made within 12 months, periodic filings are required, and the registration requirements of state securities laws do not apply. D. An offering of $15 million is made within 12 months, the number of investors is unlimited, and the issuer makes the required filing of financial statements for the last 2 fiscal years.
Answer: B Explanation: Each offerree and purchaser must receive an offering circular with concise narrative disclosures, and sales must not be made until the SEC approves the offering statement.
For an offering to be exempt under Regulation D of the Securities Act of 1933, Rule 506 requires that A. The SEC be notified within 10 days of the first sale. B. The offering be made without general advertising if any sales are made to purchasers who are not accredited investors. C. All accredited investors receive the issuer's financial information. D. There be a maximum of 35 investors.
Answer: B Explanation: Regulation D of the 1933 act provides an exemption from registration for relatively small offerings. Under Rule 506, general solicitation and advertising are permitted if sales are to accredited investors only.
Under Regulation D of the Securities Act of 1933, which of the following conditions apply to private placement offerings? The securities A. Cannot be sold for longer than a 6-month period. B. Cannot be the subject of an immediate unregistered reoffering to the public. C. Must be sold only to accredited institutional investors. D. May be sold to no more than 20 purchasers who are not accredited investors.
Answer: B Explanation: Rule 506 of Regulation D applies to securities sold under the private placement exemption created by section 4(2) of the 1933 Act. Securities sold under this exemption are restricted securities and may be resold only by registration or in a transaction exempt from registration. The securities' certificates bear a legend that the shares of stock are restricted and purchased for personal investment.
Under the Securities Exchange Act of 1934, which of the following conditions generally will allow an issuer of securities to terminate the registration of a class of securities and suspend the duty to file periodic reports? The corporation has fewer than 500 shareholders The securities are listed on a national security exchange A. Yes, Yes B. Yes, No C. No, Yes D. No, No
Answer: B Explanation: The 1934 act requires all publicly held companies to make a one-time registration with the SEC. Following registration, an issuer must file specific up-to-date and accurate reports with the SEC to ensure fair trading practices for investors. An issuer may terminate its registration if it has fewer than 500 shareholders and less than $10 million in assets.
Integral Corp., with assets in excess of $4 million, has issued common and preferred stock and has 350 shareholders. Its stock is sold on the New York Stock Exchange. Under the Securities Exchange Act of 1934, Integral must be registered with the SEC because A. It issues both common and preferred stock. B. Its shares are listed on a national stock exchange. C. It has more than 300 shareholders. D. Its shares are traded in interstate commerce.
Answer: B Explanation: The 1934 act requires all regulated, publicly held corporations to register with the SEC. Covered corporations either (1) list shares on a national securities exchange or (2) have at least 500 shareholders of equity securities and total gross assets exceeding $10 million.
Which one of the following laws addresses the issue of insider trading? A. Federal Trade Commission Act. B. Securities Exchange Act. C. Clayton Act. D. North American Free Trade Agreement.
Answer: B Explanation: The Securities Exchange Act of 1934 addresses the issue of insider trading. Specifically, insiders must turn over to the corporation any profits earned on purchases and sales of their company's stock that fall within 6 months of each other. They also are prohibited from buying or selling stock based on inside information not available to the public.
Which of the following statements is true regarding the proxy solicitation requirements of Section 14(a) of the Securities Exchange Act of 1934? A. A corporation does not have to file proxy revocation solicitations with the SEC if it is a reporting company under the Securities Exchange Act of 1934. B. Current unaudited financial statements must be sent to each shareholder with every proxy solicitation. C. A corporation must file its proxy statements with the SEC if it is a reporting company under the Securities Exchange Act of 1934. D. In a proxy solicitation by management relating to election of officers, all shareholder proposals must be included in the proxy statement.
Answer: C Explanation: A shareholder proposal may be excluded for any one of several reasons, e.g., that the issue relates to ordinary business operations.
On May 1, Apel purchased 7% of Stork Corp.'s preferred stock traded on a national securities exchange. After the purchase, Apel owned 9% of the outstanding preferred stock. Stork is registered under the Securities Exchange Act of 1934. With respect to the purchase, Apel A. Is not required to file any report or information with the SEC because Apel owns less than 10% of the preferred stock. B. Is not required to file any report or information with the SEC because the security purchased was preferred stock. C. Must file with the SEC, the issuer, and the national securities exchange information concerning the purpose of the acquisition. D. Must file only with the SEC information concerning the source of the funds used to purchase the preferred stock.
Answer: C Explanation: As part of its regulation of tender offers, the Securities Exchange Act of 1934 requires any person who has acquired more than 5% of any registered equity security to file reports with the issuer, the exchange on which the security is traded, and the SEC. The information reported includes the identity of the purchaser, the source of funding, the purpose of the acquisition, and the number of shares owned.
Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $18 million of securities for sale during the current calendar year. Which of the following violates federal securities laws and regulations? A. Issuer sells to 50 nonaccredited investors. B. Issuer does not make annual filings. C. Issuer does not register under state blue-sky laws. D. ssuer filed financial statements for the last 2 complete fiscal years.
Answer: C Explanation: Only Tier 2 (maximum $50 million) issuers are exempt from registration and qualification under state securities (blue-sky) laws.
Universal Corp. intends to sell its common stock to the public in an interstate offering that will be registered under the Securities Act of 1933. Under the act, A. Universal can make offers to sell its stock before filing a registration statement, provided that it does not actually issue stock certificates until after the registration is effective. B. Universal's registration statement becomes effective at the time it is filed, assuming the SEC does not object within 20 days thereafter. C. A prospectus must be delivered to each purchaser of Universal's common stock unless the purchaser qualifies as an accredited investor. D. Universal's filing of a registration statement with the SEC does not automatically result in compliance with the "blue-sky" laws of the states in which the offering will be made.
Answer: D Explanation: Any issuer of a security is required by the Securities Act of 1933 to file a registration statement, unless a specific exemption applies. Each state has adopted its own securities laws, which may require more detailed disclosure than federal securities laws. Both federal and state securities laws generally must be complied with.
Which of the following statements is true about corporations subject to the reporting requirements of the Securities Exchange Act of 1934? A. The annual report (Form 10-K) need not include audited financial statements. B. The annual report (Form 10-K) must be filed with the SEC before the end of the corporation's fiscal year. C. A quarterly report (Form 10-Q) need only be filed with the SEC by those corporations that are also subject to the registration requirements of the Securities Act of 1933. D. A report (Form 8-K) must be filed with the SEC after a material important event occurs.
Answer: D Explanation: Current reports must be filed on Form 8-K describing specified material events: (1) changes in control of the registrant, (2) the acquisition or disposition of a significant amount of assets other than in the ordinary course of business, (3) bankruptcy or receivership, (4) resignation of a director, and (5) a change in the firm's certifying accountant. Also, Form 8-K is a means of making Regulation FD disclosures. This regulation requires public disclosure of material nonpublic information that the issuer discloses to certain market professionals or to shareholders likely to trade on the information. If selective disclosure is intentional, public disclosure must be simultaneous.
Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements? A. The president. B. A member of the board of directors. C. A shareholder who owns 8% of the outstanding common stock and whose spouse owns 4% of the outstanding common stock. D. An owner of 15% of the total face value of the corporation's outstanding debentures.
Answer: D Explanation: For the purposes of Section 16(b), an insider is an officer, a director, or a beneficial owner of 10% or more of any class of equity securities registered under the 1934 act. The holder of debentures (unsecured bonds) is not an insider because a debenture is a debt security, not an equity security.
Pix Corp. is making a $60 million stock offering. Pix wants the offering exempt from registration under the Securities Act of 1933. Which of the following provisions of the act would Pix have to comply with for the offering to be exempt? A. Regulation A. B. Regulation D, Rule 504. C. Regulation D, Rule 505. D. Regulation D, Rule 506.
Answer: D Explanation: Regulation A Tier 2 does not apply to this offering because it exceeds $50 million. Neither would Rule 504 ($5 million limit) apply. The offering may, however, comply with Rule 506 (no dollar limit).
Under the Securities Exchange Act of 1934, a corporation whose common stock is listed on a national stock exchange A. Is prohibited from making private placement offerings. B. Must submit Form 10-K to the SEC except in those years in which the corporation has made a public offering. C. Must distribute copies of Form 10-K to its shareholders. D. Is subject to having the registration of its securities suspended or revoked.
Answer: D Explanation: The SEC is authorized by the 1934 act to impose sanctions to enforce its provisions. The SEC may deny, suspend, or revoke registration or it may order a suspension of trading of the securities. These sanctions are in addition to civil and criminal liability imposed by the federal securities laws.