Exam 18: Securities Regulation

Insider trading is:

SEC Rule 10b-5 holds it illegal for anyone involved in securities dealings to:

The Financial Industry Regulatory Authority (FINRA):

The 1933 Securities Act primarily concerns issuing of new securities, not the regulation of existing securities.

The Securities Act of 1934 prevents the trading of securities of risky companies.

Which of the following would be considered an accredited investor under Regulation D:

"Material information" in an SEC disclosure is defined to mean the management structure of an issuer of securities.

Specialist firms are regulated by the SEC, to prevent fraud or the exploitation of the unique position that specialists have in market trades.

Fact Pattern 21-1 In 2005, Bettina opened Bettina Brownies in a shopping mall. The brownies were a hit and soon Bettina was operating shops in several malls in Illinois. By 2012 she had expanded operations to Indiana and she decided that it was time to finance expansion through the equity markets. With an investment banker, she prepared for the initial offering of Bettina Brownies. She sold 50,000 shares of stock at $10 a share. Expansion continued. Keebler determined that Bettina was a well-run company with an attractive financial position. It began secret negotiations with Bettina to buy her interest in the business. News of the negotiations leaked. Mr. Little, CEO of Keebler, denied that they were pursuing a deal with Bettina. A month later Bettina sold her share of the business to Keebler. Shortly before Bettina sold her interest to Keebler, Joe Kelso, a carpet cleaner was working at Bettina office when he overheard discussion of the sale to Keebler. Joe bought a large number of shares in Bettina. After the Keebler sale was completed, Joe sold his stock for a substantial profit. -Refer to Fact Pattern 21-1. Bettina decides that Rob's advice is not very good and opts to offer stock for sale. What must Bettina do in order to insure that her offering is legal?

The ____ requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of large companies that have publicly traded stock personally certify that financial reports made to the SEC comply with SEC rules and that the information in the reports is accurate.

Fact Pattern 21-1 In 2005, Bettina opened Bettina Brownies in a shopping mall. The brownies were a hit and soon Bettina was operating shops in several malls in Illinois. By 2012 she had expanded operations to Indiana and she decided that it was time to finance expansion through the equity markets. With an investment banker, she prepared for the initial offering of Bettina Brownies. She sold 50,000 shares of stock at $10 a share. Expansion continued. Keebler determined that Bettina was a well-run company with an attractive financial position. It began secret negotiations with Bettina to buy her interest in the business. News of the negotiations leaked. Mr. Little, CEO of Keebler, denied that they were pursuing a deal with Bettina. A month later Bettina sold her share of the business to Keebler. Shortly before Bettina sold her interest to Keebler, Joe Kelso, a carpet cleaner was working at Bettina office when he overheard discussion of the sale to Keebler. Joe bought a large number of shares in Bettina. After the Keebler sale was completed, Joe sold his stock for a substantial profit. -Refer to Fact Pattern 21-1. The SEC discovers that Joe Kelso made a lot of money on the sale of his stock in Bettina Brownies. Under what provision of the federal securities laws might Joe be prosecuted?

Regulation Fair Disclosure requires that when public companies release material information, they may not release it to securities professionals before releasing the information to the public.

The costs of registering a new security offering with the SEC and marketing the securities to the public usually runs about $25,000.

Fact Pattern 21-1 In 2005, Bettina opened Bettina Brownies in a shopping mall. The brownies were a hit and soon Bettina was operating shops in several malls in Illinois. By 2012 she had expanded operations to Indiana and she decided that it was time to finance expansion through the equity markets. With an investment banker, she prepared for the initial offering of Bettina Brownies. She sold 50,000 shares of stock at $10 a share. Expansion continued. Keebler determined that Bettina was a well-run company with an attractive financial position. It began secret negotiations with Bettina to buy her interest in the business. News of the negotiations leaked. Mr. Little, CEO of Keebler, denied that they were pursuing a deal with Bettina. A month later Bettina sold her share of the business to Keebler. Shortly before Bettina sold her interest to Keebler, Joe Kelso, a carpet cleaner was working at Bettina office when he overheard discussion of the sale to Keebler. Joe bought a large number of shares in Bettina. After the Keebler sale was completed, Joe sold his stock for a substantial profit. -Refer to Fact Pattern 21-1. Rob DuMase, Bettina's investment banker, told her it costs a lot to comply with the federal securities laws. Rob suggested Bettina might avoid these requirements by calling the shares in her company something other than a "stock," for example "brownie squares," since they are not mentioned in the securities law. If Bettina took Rob's advice, what would the consequences be?

In general, restrictions on insider trading did not become common in Europe until the 1980s or later.

The Securities Litigation Reform Act of 1995:

Which of the following is NOT true about the Securities and Exchange Commission:

A private-placement memorandum is:

Securities dealers may only trade for their own advantage if they first alert the SEC.

Investment companies may not use funds invested with them for deals that are not "arm's length," that is, with persons affiliated with the company.