Question 1

Which of the following securities professionals must be registered with the SEC to be able to engage in business?

Accepted Answer

A)  brokers 
B)  dealers 
C)  corporate officers 
D)  brokers and dealers 
E)  brokers, dealers and corporate officers 
A)  brokers 
B)  dealers 
C)  corporate officers 
D)  brokers and dealers 
E)  brokers, dealers and corporate officers

Question 2

Suppose Google sells $1 billion in new bonds to Northwest Mutual Life. That sale of securities will probably not have to be registered.

Accepted Answer

A) True 
 B)False

Question 3

SEC v. Howey provides the major definition for determining what investments will be deemed to be securities subject to securities law.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is NOT a reason why securities are important:

Accepted Answer

A)  they are the financial backbone of the U.S. economy 
B)  business operations rely on securities for financing operations 
C)  they are the major form of investment for pension funds 
D)  all of the other specific choices are correct 
E)  none of the other specific choices are correct 
A)  they are the financial backbone of the U.S. economy 
B)  business operations rely on securities for financing operations 
C)  they are the major form of investment for pension funds 
D)  all of the other specific choices are correct 
E)  none of the other specific choices are correct

Question 5

A proxy is when the vote of a shareholder is provided to be voted a certain way on a certain issue.

Accepted Answer

A) True 
 B)False

Question 6

The sale of securities is the primary source of corporate finance.

Accepted Answer

A) True 
 B)False

Question 7

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 chose to seek financing by a sale of stock. Which of the following statements about stock is true?

Accepted Answer

A)  each person who bought a share of Bettina now has an ownership interest in the company 
B)  each share of Bettina's represents a proportional right to the past profits of the company 
C)  each share of stock will specify what repayment method it will use 
D)  Bettina is under a legal obligation to the stockholders to make an exceptional effort to make a profit 
E)  Bettina must repay each stockholder in future dividends at least an amount of money equal to what they spent for shares 
A)  each person who bought a share of Bettina now has an ownership interest in the company 
B)  each share of Bettina's represents a proportional right to the past profits of the company 
C)  each share of stock will specify what repayment method it will use 
D)  Bettina is under a legal obligation to the stockholders to make an exceptional effort to make a profit 
E)  Bettina must repay each stockholder in future dividends at least an amount of money equal to what they spent for shares

Question 8

Liability for misstatements by corporate executives can be imposed if the executives fail to tell some fact that they should have disclosed to help investors avoid losing money.

Accepted Answer

A) True 
 B)False

Question 9

The Securities Litigation Uniform Standards Act of 1998 requires securities fraud suits involving nationally traded securities to be brought in federal court.

Accepted Answer

A) True 
 B)False

Question 10

Fraud in securities dealings may be litigated on the basis of:

Accepted Answer

A)  SEC Rule 14g 
B)  SEC Rule 10b-5 
C)  SEC Rule 246 
D)  SEC Rule 14g or Rule 10b-5 
E)  SEC Rule 14g or Rule 10b-5 or Rule 246 
A)  SEC Rule 14g 
B)  SEC Rule 10b-5 
C)  SEC Rule 246 
D)  SEC Rule 14g or Rule 10b-5 
E)  SEC Rule 14g or Rule 10b-5 or Rule 246

Question 11

The ____, which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards and discipline CPAs for misconduct.

Accepted Answer

A)  Public Executive Oversight Board 
B)  Public Investment Oversight Board 
C)  Public Corporation Regulation Board 
D)  Public and Private Accounting Monitoring Board 
E)  none of the other choices are correct 
A)  Public Executive Oversight Board 
B)  Public Investment Oversight Board 
C)  Public Corporation Regulation Board 
D)  Public and Private Accounting Monitoring Board 
E)  none of the other choices are correct

Question 12

A share of stock:

Accepted Answer

A)  is a share in the future profits (if any) of a company 
B)  must be guaranteed a minimum rate of return by the issuer 
C)  may be redeemed for purchase price 
D)  is a share in the future profits (if any) of a company and may be redeemed for purchase price 
E)  all of the other specific choices 
A)  is a share in the future profits (if any) of a company 
B)  must be guaranteed a minimum rate of return by the issuer 
C)  may be redeemed for purchase price 
D)  is a share in the future profits (if any) of a company and may be redeemed for purchase price 
E)  all of the other specific choices

Question 13

The SEC cannot rule on the merits of an offering, but can, by stop orders and other procedures, delay a proposed security offering it thinks is bad.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would be unlikely to be on the Securities and Exchange Commission staff:

Accepted Answer

A)  an attorney 
B)  an accountant 
C)  a financial analyst 
D)  both a and c are unlikely to be on the SEC staff 
E)  a, b and c are all likely to be on the SEC staff 
A)  an attorney 
B)  an accountant 
C)  a financial analyst 
D)  both a and c are unlikely to be on the SEC staff 
E)  a, b and c are all likely to be on the SEC staff

Question 15

Stockholders have a claim on future profits of a company.

Accepted Answer

A) True 
 B)False

Question 16

Under SEC rules, a "private company" is a company:

Accepted Answer

A)  with all its securities held by investment firms 
B)  with no more than 1,000 shareholders and shares not traded openly 
C)  that does not allow foreign investors to own its stock 
D)  with financial assets belonging only mutual funds 
E)  none of the other choices 
A)  with all its securities held by investment firms 
B)  with no more than 1,000 shareholders and shares not traded openly 
C)  that does not allow foreign investors to own its stock 
D)  with financial assets belonging only mutual funds 
E)  none of the other choices

Question 17

The ____ gave the SEC a statutory basis for prosecuting insider trading.

Accepted Answer

A)  Securities Act of 1933 
B)  Securities Exchange Act of 1934 
C)  Securities Fraud Regulation Act of 1995 
D)  Insider Trading Regulation Act of 1994 
E)  none of the other choices are correct 
A)  Securities Act of 1933 
B)  Securities Exchange Act of 1934 
C)  Securities Fraud Regulation Act of 1995 
D)  Insider Trading Regulation Act of 1994 
E)  none of the other choices are correct

Question 18

____ are sold through a securities dealer and have a sales commission of some percentage of the price.

Accepted Answer

A)  open mutual funds 
B)  load mutual funds 
C)  no-load mutual funds 
D)  fixed mutual funds 
E)  limited mutual funds 
A)  open mutual funds 
B)  load mutual funds 
C)  no-load mutual funds 
D)  fixed mutual funds 
E)  limited mutual funds

Question 19

Liability for misstatements or omissions under SEC Rule 10b-5 applies to both registered and unregistered securities.

Accepted Answer

A) True 
 B)False

Question 20

Which class of securities is (are) exempt from the federal securities laws?

Accepted Answer

A)  issues by governments 
B)  issues by corporations with assets under $1 million 
C)  issues by corporations with over $1 billion in assets 
D)  all of the other specific choices 
E)  none of the other choices 
A)  issues by governments 
B)  issues by corporations with assets under $1 million 
C)  issues by corporations with over $1 billion in assets 
D)  all of the other specific choices 
E)  none of the other choices

Exam 18: Securities Regulation

Which of the following securities professionals must be registered with the SEC to be able to engage in business?

Suppose Google sells $1 billion in new bonds to Northwest Mutual Life. That sale of securities will probably not have to be registered.

SEC v. Howey provides the major definition for determining what investments will be deemed to be securities subject to securities law.

Which of the following is NOT a reason why securities are important:

A proxy is when the vote of a shareholder is provided to be voted a certain way on a certain issue.

The sale of securities is the primary source of corporate finance.

Liability for misstatements by corporate executives can be imposed if the executives fail to tell some fact that they should have disclosed to help investors avoid losing money.

The Securities Litigation Uniform Standards Act of 1998 requires securities fraud suits involving nationally traded securities to be brought in federal court.

Fraud in securities dealings may be litigated on the basis of:

The ____, which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards and discipline CPAs for misconduct.

A share of stock:

The SEC cannot rule on the merits of an offering, but can, by stop orders and other procedures, delay a proposed security offering it thinks is bad.

Which of the following would be unlikely to be on the Securities and Exchange Commission staff:

Stockholders have a claim on future profits of a company.

Under SEC rules, a "private company" is a company:

The ____ gave the SEC a statutory basis for prosecuting insider trading.

____ are sold through a securities dealer and have a sales commission of some percentage of the price.

Liability for misstatements or omissions under SEC Rule 10b-5 applies to both registered and unregistered securities.

Which class of securities is (are) exempt from the federal securities laws?

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