Exam 32: Investor Protection,E-Securities Transactions,and Wall Street Reform

The primary purpose of federal and state securities statutes that regulate the issuance and trading of securities is to promote full disclosure to investors and to prevent fraud.

Criminal prosecutions of violations of federal securities laws are brought by state attorneys general.

The Small Corporate Offering Registration Form is a "question-and-answer" disclosure form that small businesses can complete and file with the Securities and Exchange Commission,if they plan to generate $2 million or less from the public issue of securities.

Which of the following is true regarding the "pre-filing period?"

Mary is an assembly line worker at a computer company.Mary becomes aware that an improvement is being made to the company's primary computer that will significantly increase profits.Mary tells a friend to buy stock in the company,but instructs her not to tell anyone else.The friend buys stock,but tells two other persons to do the same.The company's profits increase greatly,and all three who purchased stock sell at a tremendous profit.Discuss this situation.

Under the Howey test,an arrangement is considered an investment contract if there is an investment of money by an investor in a common enterprise and the investor expects to make profits based on the sole or substantial efforts of the promoter or others.

Which of the following is false regarding a prospectus?

"Short-swing" profits pertain to trades involving equity securities occurring within one year of each other.

A person who willfully violates the Securities Act of 1933 Act may be fined or imprisoned for up to five years,or both.

It is necessary to discuss the degree of competition in the issuer's industry in a registration statement.

________ is an electronic stock market.

The Interstate Commerce Commission (ICC)has the responsibility to investigate alleged securities violations and bring enforcement actions against suspected violators.

The Securities and Exchange Commission was created as part of the Securities Act of 1933.

All defendants except the issuer may assert a "due diligence" defense against the imposition of Section 11 liability.

Short-term notes and drafts that have a maturity date of less than nine (9)months must be registered with the SEC.

The SEC may bring a civil action to recover monetary damages from violators of securities laws.

Prior to the 1920s and 1930s,the securities markets in the United States were not regulated by the federal government.

Pre-organization subscription agreements,interests in oil,gas,and mineral rights,and deposit receipts for foreign securities are examples of common securities.

Are the rules on "short-swing" profits under Section 16(b)of the Securities Exchange Act of 1934 too restrictive,or not restrictive enough? Merely because one is a statutory insider,is it proper to limit his or her ability to make a profit on the company's stock? Alternatively,should the six-month period be longer? What is the theory behind making the short-swing profits belong to the corporation?

The purchaser's remedy for violation of Section 12 of the Securities Act of 1933 is either to rescind the purchase or to sue for damages.