Exam 39: Securities Regulation

The Klodhoffer Corporation has assets amounting to $2 million and needs additional capital to finance expansion of its operation. The board of directors decides to promote an issue of $1.5 million of common stock in order to raise capital. At the time the stock is issued, Klodhoffer has 250 shareholders owning common stock. If Klodhoffer is to trade the stock over the counter, does it need to register with the SEC?

Under the Dodd-Frank Act, the SEC must issue rules requiring issuers to disclose in annual proxy statements the reasons the issuer has chosen to combine or separate the positions of CEO and chairman of the board of directors.

The antifraud provisions of the 1934 Act would prohibit which of the following?

The rule that prohibits schemes and devices to defraud investors is Rule:

Rule 505, as promulgated by the SEC, provides a nonexclusive safe harbor for securing the intrastate exemption.

Effective in 2010, the SEC adopted new requirements to improve the disclosure shareholders of public companies receive regarding compensation and corporate governance. These new rules require disclosure of any directorships held by each nominee at any time during the past seven years at any public company.

The Securities Act of 1934 imposes significant disclosure requirements upon reporting companies.

Section 14(e) of the Securities Act of 1934 makes it unlawful for any person to:

The Sarbanes-Oxley Act requires either the chief executive officer or the chief financial officer of a company issuing securities to certify information in the issuer's annual and quarterly reports.

In 1992, the SEC issued new rules establishing an integrated registration and reporting system for small business issuers.

The 1933 Act imposes liability for material misstatements and omissions in a registration statement on:

A registration statement must be signed by the issuer, its CEO, CFO, CAO, and majority of its board of directors.

The 1934 Act rules governing proxy solicitations would require a proxy statement describing the material facts relating to items to be voted upon.

Effective in 2000, a plain English term sheet is required in all tender offers and mergers.

All of the following are exempt from registration under the 1933 Act except:

The 1934 Securities Exchange Act requires registration of:

The provisions of Section 17(a) of the 1933 Act:

"Restricted securities" are exempted from registration.

The 1933 Securities Act defines the term "security." The Supreme Court of the United States has adopted a two-tier analysis of what constitutes a security. Within this analysis the Court has used a three-part test to determine whether a non-traditional financial transaction constitutes an investment contract and thus a security. Explain (a) the 1933 Act's statutory definition of security, (b) the courts' general interpretation of the 1933 Act's definition and (c) the Supreme Court's two-tier test. Use case law to illustrate your explanation, if appropriate. Also, why do you think the Supreme Court had to devise such an analysis?

The issuer of a registration statement has strict liability for its accuracy.