Exam 41: Investor Protection and Online Securities Transactions

Spruce,Inc.wishes to issue new stock to raise capital.Spruce is incorporated,and does all its business in Indiana.Spruce intends to offer and sell its new stock only to residents of Indiana,and to restrict sales to individuals from other states for the proper time.Which of the following best describes the status of Spruce's new stock?

Under Section 16 of the Securities Act of 1934,a statutory insider includes any shareholder owning 5 percent or more of an equity security of a corporation.

The Securities Act of 1933 primarily regulates the issuance of securities.

What is the general reason for restrictions against insider trading under the Securities Exchange Act of 1934?

An insider may be a representative hired by a company on a temporary and nonemployee-type status.

Under Rule 10b-5,if a non-insider (the tippee)receives material nonpublic information from an insider (the tipper),the tippee:

Under Rule 10b-5,an insider with material nonpublic information:

Securities transactions not made by an issuer are exempt from registration.

For an investment contract,why is one of the requirements for the contract to be classified as a security that the arrangement be one where the profits are made through the efforts of others?

The omission of a material fact on a registration statement may be a violation of Section 11 of the Securities Act of 1933 unless the defendant utilizes the due diligence defense.

Mary wants to invest in some rental property near a major university.Mary approaches Sally and proposes that Sally invest half the down payment in an apartment complex.Mary would devote the majority of the efforts in managing the apartments.Sally would devote some time to managing the complex and would receive 30 percent of the profits.They plan to operate the complex as a partnership.Is Sally's investment in the apartment complex a security under the 1933 and 1934 Securities Acts?

David has put together a limited partnership to invest in oil exploration.He wants to sell limited partnership interests to investors.David plans to sell these interests to both accredited and non-accredited investors.Which of the following best describes the status of David's partnership interests as to the 1933 Securities Act?

The SEC is composed of five members who are appointed by the President.

Why were the Securities Acts passed,given that ordinary contract law provides many remedies for persons who have been the victim of fraud,and other such crimes?

Which of the following is not one of the functions of the Securities and Exchange Commission?

Which of the following are securities?

A tippee is liable for acting on information that he or she should have known was not public.

Mary is an assembly-line worker at a computer company.Mary becomes aware that an improvement is being made in the company's primary computer,which will significantly increase profits.Mary tells a friend to buy stock in the company.The friend does so and tells two other persons to do the same.The Company's profits increase greatly,and all three who purchased stock sell at a great profit.Discuss the liability of the parties.

Wondercures,Inc.is a drug research and manufacturing firm.Wondercures is currently a privately held corporation.The owners of Wondercures believe that they could greatly increase the company's profitability with an infusion of new capital.This would have to come by issuing stock to additional investors.The owners of Wondercures believe that they would need about $20 million in order to carry out their expansion plans.Discuss the options available to Wondercures,and the advantages and disadvantages of each.

A prospectus is used as a selling tool by the issuer.