Series 79 Practice Quiz Section 2

A Regulation A+ Tier 2 exemption covers A) an offering of letter stock. B) a private offering. C) an offering of $50 million or more in 12 months. D) an offering of $50 million or less in 12 months.

D A Regulation A+ filing under the Securities Act of l933 exempts the security from registration and limits offerings to $50 million or less within a 12-month period.

Which of the following statements are true regarding Regulation D, Section 506 (b) exempt offerings? There are limitations on the number of purchasers, either accredited or nonaccredited. There are no limitations on the number of accredited purchasers but are for nonaccredited. General solicitation or advertising is permitted for marketing securities. All purchasers must receive "restricted securities." A) II and III B) I and III C) I and IV D) II and IV

D A Rule 506(b) offering can raise an unlimited amount of money and sell securities to an unlimited number of accredited investors. But the offering can sell to no more than 35 nonaccredited investors. The offering under Rule 506(b) is subject to the following requirements: - Securities may not be sold to more than 35 nonaccredited investors. - Purchasers in the offering receive "restricted securities." - The offerings are subject to "bad actor" disqualification provisions. - They may not use general solicitation or advertising for marketing the securities. - SEC Form D must be filed within 15 days after the first sale of the securities.

ABC Corporation is offering 500,000 units to the public at $5 per unit. Each unit consists of 2 shares of ABC preferred stock and 1 perpetual warrant for ½ common share of ABC exercisable at $5. How much capital was raised by the initial sale of the issue? A) $7.5 million B) $1.25 million C) $5 million D) $2.5 million

D Because the issuing corporation is offering 500,000 units to the public at $5 per unit, the total amount of capital to be raised by this sale will be $2.5 million (500,000 units × $5 per unit).

For a new issuer, notification of a sale under Regulation A+ in the form of an offering circular must be filed with the SEC how many calendar days before the initial offering? A) 30 B) 5 C) 10 D) 21

D Companies that have not previously sold securities under a qualified Regulation A+ offering may submit a draft offering statement for confidential SEC staff review. The nonpublic draft offering statement and any amendments to it must be publicly filed on EDGAR no less than 21 calendar days before the qualification of the public filing.

Which of the following statements are true regarding PIPE transactions? Accredited investors purchase restricted shares in a privately held company. Accredited investors purchase restricted shares in a publicly traded company. The shares purchased are immediately registered with the SEC by the issuer. The shares purchased are registered with the SEC after a 6-month holding period. A) I and III B) II and IV C) I and IV D) II and III

D In a PIPE, investors purchase restricted securities from a publicly traded issuer. After the closing of the transaction, the issuer immediately prepares a registration statement for the securities issued in the PIPE. Once the registration is effective, public resale of the PIPE securities may begin.

Under the Sarbanes-Oxley Act of 2002, the officers signing the financial statements of a reporting company must certify that they have evaluated their internal controls within the previous A) 30 days. B) 60 days. C) 120 days. D) 90 days.

D Section 302 of SOX requires that signing officers certify that they have reviewed all periodic financial reports, that they do not contain any material untrue statements or omissions of material facts, and that they have evaluated their internal controls within the previous 90 days and have reported on their findings.

All of the following are subject to interpretation of fairness by FINRA except A) compensation of the underwriters. B) the underwriting spread. C) reimbursement of expenses from issuer to underwriter. D) the public offering price.

D The Corporate Financing Department is responsible for determining whether the underwriter's compensation in an offering is fair and reasonable. Factors taken into account when making this determination include the size of the offering, the type of securities being issued, as well as the type of underwriting arrangement (i.e., firm commitment or best efforts). Factors not considered by the committee in determining the reasonableness of underwriter compensation include the public offering price, the current market conditions, and the current financial condition of the underwriter.

Under Sarbanes-Oxley, which of the following officers of a publicly traded issuer must certify that the firm's periodic financial reports do not contain any material untrue statements or omissions of material facts? The chairman of the board The chief executive officer The chief financial officer The chairman of the audit committee A) I and IV B) II and IV C) I and III D) II and III

D The signing officers, under Section 302 of Sarbanes-Oxley, are the CEO and the CFO.

A well-known seasoned issuer files a shelf registration statement with the SEC. The WKSI wishes to sell up to $250 million of convertible preferred over the next three years as market conditions permit. SEC registration fees A) must be paid within 20 days of filing. B) may be paid at the expiration of the shelf registration. C) must be paid upon filing. D) may be paid on a "pay as you go" basis.

D WKSIs may pay filing fees at the time of filing or on a "pay as you go" basis.

The letter of intent in a corporate underwriting is typically signed by which of the following parties? - Issuer - Managing underwriter - Syndicate members - Selling group members A) III and IV B) I and III C) II and IV D) I and II

D The letter of intent initiates the underwriting process and is signed by the issuer and managing underwriter.

If the SEC has cleared an issue, which of the following statements is true? A) The lead underwriter has filed a standard registration statement. B) The SEC has guaranteed the accuracy of the financial information in the final prospectus. C) The SEC has endorsed the common stock issuance of a well-known seasoned issuer (WKSI). D) The SEC has conditionally guaranteed the issue.

A

A corporate offering of 200,000 additional shares to existing stockholders may be made through A) a rights offering. B) a secondary offering. C) a tender offer. D) a warrant.

A A rights offering is an offering of additional shares of stock to existing shareholders.

Under SEC rules, a well-known, seasoned issuer is one that has a common equity market capitalization of at least A) $700 million. B) $500 million. C) $1 billion. D) $800 million.

A A well-known, seasoned issuer must have a market capitalization of at least $700 million held by nonaffiliates. Alternatively, an issuer may qualify if, during the preceding three years, it issued, in the aggregate, $1 billion or more of nonconvertible securities other than common equity.

Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club A) is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO). B) is a restricted account but will be allowed to purchase equity shares of an IPO. C) is not a restricted account but will not be allowed to purchase equity shares of an IPO. D) is a restricted account and will not be allowed to purchase equity shares of an IPO.

A Because the restricted person's interest in the club's brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.

Under SEC rules, customer checks deposited into an escrow account in connection with a contingent offering may be invested in all of the following except A) a negotiable CD. B) a deposit obligation of a bank. C) securities guaranteed by the U.S. government. D) a money market fund.

A Deposited proceeds may be held in cash, invested in a money market fund, or invested in any security with guaranteed principal and interest by the U.S. government.

As a general business practice, FINRA's Conduct Rules permit selling concessions and discounts A) to member broker-dealers engaged in the investment banking or securities business. B) to no one. C) as consideration for services rendered by nonmember broker-dealers in obtaining business. D) to anyone who deals in securities transactions.

A FINRA's Conduct Rules permit member broker-dealers to allow concessions and discounts only to other members.

If the customers of a selling group member sell into a penalty stabilizing bid, the selling group member must pay back to the underwriter A) the concession. B) the spread. C) the give up. D) the reallowance.

A If selling group members liquidate into the stabilizing bid, they may be required to return the concession they were originally paid.

Regulation S permits the sale of unregistered securities by A) U.S.-based issuers to non-U.S. residents. B) non-U.S.-based issuers to U.S. residents. C) U.S.-based issuers to U.S. residents. D) non-U.S.-based issuers to non-U.S. residents.

A Regulation S provides a safe harbor for U.S.-based issuers that sell securities outside the United States. As long as the provisions of Regulation S are met, the securities are exempt from registration with the SEC. To get the exemption, the issue must be sold in an offshore transaction to non-U.S. residents.

The Act of 1934 applies to all of the following except A) regulation of new issues. B) registration of broker-dealers. C) secondary market trading. D) the extension of credit on purchase of securities.

A The Act of 1933 deals with new issues. The Act of 1934 created the SEC, required the registration of broker-dealers, empowered the Federal Reserve to control the extension of credit on securities transactions, and created rules dealing with secondary market trading.

Under federal law, which act regulates the activities of broker-dealers and associated persons? A) Securities Exchange Act of 1934 B) Trust Indenture Act of 1939 C) Uniform Securities Act D) Investment Company Act of 1940

A The Securities Exchange Act of 1934 regulates the secondary market and its employees and firms.

Which of the following is typically the largest component of a corporate underwriting spread and is received by members of the selling group? A) Concession B) Underwriting fee C) Reallowance D) Manager's fee

A The concession tends to be the largest component of a corporate underwriting spread. That is paid to the members of the selling group. The manager's fee is generally the smallest component.

A security purchased under the provisions of Regulation S may be resold A) immediately in any SEC-designated offshore securities market. B) in the United States after being held for two years. C) only after regulatory approval from the SFA. D) in any non-U.S. jurisdiction after being held for 180 days.

A There is a holding period of 12 months before a security sold pursuant to Regulation S may be resold in the United States. However, the security may be resold immediately in any SEC-designated offshore securities market.

If XYZ Corporation intends to offer stock in a public offering, it must do all of the following except A) publish a tombstone advertisement. B) issue a prospectus. C) file a registration statement. D) register the securities with the SEC.

A Tombstones are advertisements often appearing in business newspapers to publicize new issues and are generally placed by a syndicate manager. They are not required.

Under the Securities Act of 1933, a registration statement of an issuer must contain all of the following information except A) the identity of the officers and directors and the extent of their holdings in the issuer. B) the names of all the owners of the company's stock. C) the current balance sheet and profit/loss statements. D) the business of the issuer.

B The names of all 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.

As a registered representative, you can use a preliminary prospectus to A) solicit orders from investors for the purchase of a new issue. B) obtain indications of interest from investors. C) obtain FINRA's authorization to sell the issue. D) solicit an approval of the offering from the SEC.

B A preliminary prospectus is used to obtain indications of interest from investors.

Under the Securities Act of 1933, which of the following are accredited investors? Insurance companies Banks Employee benefit plans with over $5 million in assets Investment companies A) I and III B) I, II, III, and IV C) III and IV D) II and IV

B 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 or has earned in excess of $200,000 in each of the past two years and expects to earn more than $200,000 in the current year ($300,000 for married couples) is an accredited investor.

A Green Shoe clause in an underwriting agreement allows the syndicate to sell up to A) 20% more shares than registered. B) 5% more shares than registered. C) 15% more shares than registered. D) 10% more shares than registered.

C A Green Shoe clause in an underwriting agreement allows the underwriters to sell up to 15% more shares than registered. The additional shares are provided by the issuer. Over-allotment provisions must be disclosed in both the registration statement and the final prospectus.

Under Regulation D, Rule 504 offerings deal with a sale of securities A) not exceeding $1 million. B) not exceeding $5 million. C) not exceeding $10 million. D) without regard to dollar amount.

C Regulation D offerings are exempt transactions under the Act of 1933. Rule 504 deals with private placements in which the dollar amount to be sold is $10 million or less. Rule 506(b) and 506(c) deal with private placements in which there is no ceiling on the dollar amount sold

Which of the following acts requires full and fair disclosure of all material information about nonexempt securities and debt securities offered to the public for the first time? A) Securities Exchange Act of 1934 B) Trust Indenture Act of 1939 C) Securities Act of 1933 D) Securities Investor Protection Act of 1970

C The Securities Act of 1933 regulates new issues of nonexempt securities sold to the public.

Under the Securities Exchange Act of 1934, registration is required for A) initial public offerings (IPOs). B) securities. C) broker-dealers. D) foreign securities exchanges.

C Under the Securities Exchange Act of 1934, broker-dealers and domestic exchanges are required to register with the Securities and Exchange Commission (SEC). Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act. The SEC does not have authority over foreign exchanges.

Bond trust indentures are required only for A) municipal revenue bonds. B) Treasury securities. C) corporate debt securities. D) municipal general obligation bonds.

Municipal and government bonds are exempt from the trust indenture requirement of the Trust Indenture Act of 1939. Revenue bonds are frequently issued with a trust indenture, but no legal requirement to do so exists. The Trust Indenture Act of 1939 requires that corporate bond issues of $50 million or more sold interstate must be issued with a trust indenture.

Regarding the sale of a new issue, a customer becomes a restricted person if he is A) the grandfather of an associated person of a member firm. B) a private investigator collecting information on one of the issuing firm's officers. C) a salesperson who works for a supplier of the issuing corporation. D) a salesperson who works for the issuing firm's underwriter.

Restricted persons include FINRA member firms and their associated persons, plus immediate family members.

A person must file a statement with the SEC if which of the following occurs? When an unaffiliated entity acquires more than a 5% equity interest in a reporting company. When a person obtains more than a 5% interest in the equity securities of an issuer with no view or purpose of effecting a change or influence in the control of a public reporting company. When a registered investment company acquires more than a 5% equity interest in a public reporting company. When an issuer purchases more than 3% of its common stock through a 10b-18 corporate buyback. A) I and II B) I, II, and III C) I only D) I, II, III, and IV

B Each of these persons must file a statement. Schedules 13D and 13G are referred to as a "beneficial ownership report." When a person or persons acting in concert acquire beneficial ownership of more than 5% of a company's equity securities registered under the SEA of 1934, they are required to file a Schedule 13D with the SEC. If a person is, for example, a bank, a broker-dealer, or an investment company, they too have to file but only the abbreviated Schedule 13G because they are largely precluded from purposefully effecting changes in control or influencing control of the company. Schedule 13D reports must be filed within 10 days after the purchase. The schedule is filed with the SEC and the issuer, as well as each exchange where the security is traded. Any material changes in the facts contained in the two schedules require a prompt amendment.

All the following would be considered restricted investors, according to Rule 5130, and therefore could not purchase an IPO except A) a family member of the lead underwriter. B) a family member of an employee of a broker-dealer who is not an underwriter on that particular transaction. C) an employee of a broker-dealer without an underwriting division. D) a broker-dealer who is not an underwriter on the deal.

B FINRA Rule 5130 prohibits restricted persons from investing in IPOs. Restricted persons are FINRA member firms and their employees, attorneys, and accounts for the margining underwriter, portfolio managers for their personal accounts and family members of restricted persons. There are a few exemptions available, including to employees of the issuer, accounts where a restricted person owns no more than 10% and family members of employees of firms who are not working on the deal.

If a person sells securities in a company in which that person has a 10% controlling interest, which form must be filed with the SEC? A) Form 14A B) Form 4 C) Form BD D) Form FD

B Form 4 is used to report changes in the holdings of an officer, a director, or a 10% shareholder within two business days from the time of the change. This does not preclude other filings, such as Form 144.

A final prospectus must include the effective date of the registration. whether the underwriter(s) intends to stabilize the issue. a statement indicating that the SEC has not approved the issue. disclosure of material information concerning the issuer's financial condition. A) I and II B) I, II, III, and IV C) II and III D) I and IV

B If the underwriter intends to engage in activities designed to stabilize the security's market price, disclosure in the prospectus is required. The SEC disclaimer must appear on every prospectus and state that the SEC has neither approved nor disapproved the issue. The effective date must be printed on the final prospectus. Its purpose is full disclosure about the issuer and security being issued.

In an undivided syndicate, liability for unsold securities rests with A) the syndicate manager. B) the syndicate members on a pro rata basis. C) the issuer. D) the syndicate members that failed to sell their allotment.

B In an undivided (Eastern) account, liability for unsold securities rests with each syndicate member based on its participation percentage. For example, if a syndicate member has a 10% participation, that member would be responsible for 10% of any unsold securities (even if that member sold all of its participation). Sales do not affect undivided accounts.

Your firm is a syndicate member in an additional offering of the common stock of ABC, a listed company. The effective date of the offering is tomorrow, and the one-day restricted period begins today. One of your clients calls and places a market order to buy 200 shares of ABC. You should A) place the order once the distribution is complete. B) place the order. C) refuse the order until the client receives a red herring. D) wait until the offering is effective before placing the order.

B Rule 101 of Regulation M mandates that syndicate members cannot purchase, make a bid for, or induce the purchase of the security during the restricted period. They may, however, execute unsolicited orders.

Under SEC rules, a selling group is formed A) after syndicate formation, but before the filing of the registration statement. B) after the filing of the registration statement. C) at the same time the syndicate is formed. D) at the same time the registration statement is filed.

B Under SEC rules, a selling group cannot be formed until after the registration statement is filed with the SEC.

A member firm receives an order from an investment adviser to purchase shares in a common stock IPO. Regarding restricted persons, the member must A) refuse to accept the order. B) obtain a representation from the investment adviser that the purchaser is not a restricted person. C) obtain a list of all of the adviser's clients to determine eligibility. D) obtain a list of the client(s) whose account(s) will be credited with the shares to determine eligibility.

B When receiving an order to buy a new equity issue from a bank, investment adviser, or other conduit, a member must obtain a representation from the conduit that all purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).