Exam 21: Public and Private Offerings of Securities

Tina,in-house counsel for a start-up company,is asked what the company must do if it plans to offer securities for sale only outside the U.S. What advice should she give in relation to the application of section 5 registration requirements?

Which of the following was the result on appeal in In re Lehman Bros.Mortgage-Backed Securities Litigation,the case in the text involving whether rating agencies that helped select a pool of mortgages for a mortgage-backed security were underwriters under the 1933 Act or controlling persons under section 15 of the 1933 Act?

Set forth the three tests under which a general partnership may be found to be a security?

Fact Pattern 21-2 Alice and her general partner, Greg, own several businesses. Alice is very interested in salt water aquariums and decides that a good venture for the partnership would be the development of a business to raise tropical fish. She plans to issue stock to start the fish business with the idea that she and Greg will purchase a majority of the stock. She has a friend, Tony, a plastic surgeon with a good practice, who has expressed interest in the venture because he believes that the presence of fish in waiting rooms reduces anxiety and encourages patients to spend more money. Alice does not want to go to the expense and trouble of a formal registration under the 1933 Act and seeks advice on how to avoid that process should the partnership issue securities. -Refer to fact pattern 21-2. As far as Greg is concerned,which of the following is true?

Investment banking firms are prohibited by federal law from underwriting public offerings of securities.

Which of the following is false regarding the Sarbanes-Oxley Act?

If an issuer makes successive sales within a limited period of time,the SEC may ________ the successive sales,resulting in the loss of a private-offering exemption.

Under the Securities Act of 1933,an investor may bring a private suit for damages.

A(n)________ is defined under the 1933 Act as any person who has purchased from an issuer with a view to,or offers or sells for an issuer in connection with,the distribution of any security.

The Securities Act of 1933 is also referred to as the "blue sky" law.

Fact Pattern 21-1 Joan enjoys cross stitching, and her husband, John, makes items using a woodworking process. They would like to make more items and open a small shop selling their handiwork, but they need additional capital with which to purchase raw materials, rent space, and advertise. Joan and John discuss the idea with their neighbors during the annual neighborhood picnic. A number of the neighbors say that they would like to invest in the project. This was entirely the initial idea of the neighbors, and Joan and John did not coerce them in any way. Joan and John, however, quickly draw up contracts that the neighbors signed providing that each investor would receive a certain interest in the shop. An attorney who lived in the neighborhood and specialized in family law asked if there were some laws that John and Joan needed to satisfy in order to seek investors. The neighborhood consensus, however, was that, so long as no one was misled and acted voluntarily, no problem existed. John and Joan proceeded with the shop and made a significant amount of profit. Disagreements arose among the neighbors, however, regarding exactly who was entitled to what. -Refer to Fact Pattern 21-1. Which of the following is true regarding the application of state Securities laws to John and Joan's situation?

Under Section 13,any person acquiring beneficial ownership of more than _______ of the equity shares of a reporting company must file a Schedule 13D providing information regarding the acquisition within ten days after crossing the designated ownership mark.

Fact Pattern 21-3 Yolanda has filed the registration statement, in connection with a public offering of stock in ABC Corgi, a company dedicated to the production of clothing and toys highlighting the highly prized Welsh Corgi breed of dog. The registration statement is not yet effective. Yolanda would like to move forward with promoting the company as much as possible. She asks for advice regarding activities in which she could legally participate. She is particularly interested in making presentations to large institutional investors. -Refer to fact pattern 21-3. Which of the following is true regarding Yolanda's situation?

Set forth the two principal federal acts that regulate securities transactions and issuers. Additionally,list the three beliefs federal securities laws embody as set forth in the text. Do you believe that the securities rules that are in place are sufficient to protect investors? Why or why not? Discuss fully.

Proxies give the proxy holder the right to vote the shares owned by the person who signs the proxy card.

Assuming no exemption applies,what is the penalty for a violation of section 5 of the 1933 Act through offering a security for sale without an effective registration statement or by means of a noncomplying prospectus?

Which of the following is true regarding whether the interest of a limited partner in a limited partnership is considered a security?

A "red herring" is the popular name given to the final prospectus under the 1933 Act.

According to the SEC,a hyperlink embedded within a prospectus causes the hyperlinked information to be treated as part of the prospectus.

The completion of a public offering terminates the issuer's relationship with the SEC.