Question 1

John operates a sailboat charter service in the United States Virgin Islands.He currently has a fleet of ten boats and would like to have a larger fleet,but he would have to obtain additional investors in order to do so,which he opposes.John is considering having investors buy sailboats,which he would maintain and operate as part of his charter fleet.He would enter into a contract that would sell the boat to an investor,obligate the investor to pay John a monthly fee for the maintenance of the boat,and share profits between John and the investor.Discuss whether this investment is a security under the Securities Act of 1933.

Accepted Answer

An investment contract in which an investor expects to make a profit in a common enterprise from the efforts of others is a security.Here,all the efforts in this boat rental enterprise are undertaken by John; thus,the arrangement likely gives rise to a security.

Question 2

Even non-employees can violate insider trading rules.

Accepted Answer

A) True 
 B)False  True

Question 3

Rule 10b-5 is not restricted to purchases and sales of securities of reporting companies.

Accepted Answer

A) True 
 B)False  True

Question 4

The business or party selling securities to the public is called the "issuee."

Accepted Answer

A) True 
 B)False

Question 5

Violations of Section 12 of the Securities Act of 1933 include selling securities pursuant to an unwarranted exemption and making misrepresentations concerning the offer or sale of securities.

Accepted Answer

A) True 
 B)False

Question 6

State securities laws are usually applied when smaller companies are issuing securities within that state.

Accepted Answer

A) True 
 B)False

Question 7

When do registration statements usually become effective?

Accepted Answer

A)   twenty business days after they are filed, unless the Securities and Exchange Commission requires additional information to be disclosed
B)   thirty business days after they are filed, unless the Securities and Exchange Commission requires additional information to be disclosed
C)   thirty-five calendar days after they are filed, unless the Securities and Exchange Commission requires additional information to be disclosed
D)   sixty business days after they are filed, unless the Securities and Exchange Commission requires additional information to be disclosed
E)   ten calendar days after they are filed, unless the Securities and Exchange Commission requires additional information to be disclosed

Question 8

In 2010,the United States Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate hedge funds,derivatives,and abusive practices in the securities industry.

Accepted Answer

A) True 
 B)False

Question 9

Negligence that results in a material misstatement will subject a party to liability under Rule 10b-5 of the Securities Exchange Act of 1934.

Accepted Answer

A) True 
 B)False

Question 10

The due diligence defense requires that the expert prove that they performed a ________ investigation of the issuer's financial statements.

Accepted Answer

A)   stringent
B)   public
C)   strict
D)   detailed
E)   reasonable

Question 11

Companies are covered under the Securities Exchange Act of 1934 only if they are in the process of making new offerings of securities.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)   Corporate insiders should not own stock in the corporation because it is a conflict of interest.
B)   Use of inside information is unfair to the other party to the transaction, and goes against the philosophy of allowing all participants in the market to have the same information.
C)   Insider trading generally leads to lower stock prices.
D)   Insider trading results in an imbalance of buyers and sellers in the market.
E)   The value of a prospectus is compromised when insider trading is conducted.

Question 13

The "pre-filing" period ends when the registration statement is filed.

Accepted Answer

A) True 
 B)False

Question 14

NASDAQ has the largest trading volume of any securities exchange in the world.

Accepted Answer

A) True 
 B)False

Question 15

Statutory insiders must file reports with the Securities and Exchange Commission disclosing their ownership and trading in the company's securities.

Accepted Answer

A) True 
 B)False

Question 16

Non-issuers of securities do not have to file a registration statement before reselling securities they have purchased.

Accepted Answer

A) True 
 B)False

Question 17

A section of the Sarbanes-Oxley Act establishes rules for separating the investment banking and securities advice functions of securities firms,thereby eliminating many conflicts of interest.

Accepted Answer

A) True 
 B)False

Question 18

Section 12 of the Securities Act of 1933 imposes civil liability on any person who violates the provisions of Section 5 of the Act.

Accepted Answer

A) True 
 B)False

Question 19

Following the stock market crash in 1939,Congress enacted a series of statutes designed to regulate securities markets.

Accepted Answer

A) True 
 B)False

Question 20

Under the Securities Act of 1933,which of the following is true about activities of the issuer during the "waiting period?"

Accepted Answer

A)   The issuer cannot "condition" the market during the "post-effective" period.
B)   The issuer can make preliminary sales to accredited investors during the waiting period.
C)   The issuer can distribute a preliminary prospectus during the waiting period.
D)   The issuer cannot place "tombstone ads" during the waiting period.
E)   The issuer cannot make any offers to sell the securities during the waiting period.

Exam 32: Investor Protection,E-Securities Transactions,and Wall Street Reform

Even non-employees can violate insider trading rules.

Rule 10b-5 is not restricted to purchases and sales of securities of reporting companies.

The business or party selling securities to the public is called the "issuee."

Violations of Section 12 of the Securities Act of 1933 include selling securities pursuant to an unwarranted exemption and making misrepresentations concerning the offer or sale of securities.

State securities laws are usually applied when smaller companies are issuing securities within that state.

When do registration statements usually become effective?

In 2010,the United States Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate hedge funds,derivatives,and abusive practices in the securities industry.

Negligence that results in a material misstatement will subject a party to liability under Rule 10b-5 of the Securities Exchange Act of 1934.

The due diligence defense requires that the expert prove that they performed a ________ investigation of the issuer's financial statements.

Companies are covered under the Securities Exchange Act of 1934 only if they are in the process of making new offerings of securities.

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

The "pre-filing" period ends when the registration statement is filed.

NASDAQ has the largest trading volume of any securities exchange in the world.

Statutory insiders must file reports with the Securities and Exchange Commission disclosing their ownership and trading in the company's securities.

Non-issuers of securities do not have to file a registration statement before reselling securities they have purchased.

A section of the Sarbanes-Oxley Act establishes rules for separating the investment banking and securities advice functions of securities firms,thereby eliminating many conflicts of interest.

Section 12 of the Securities Act of 1933 imposes civil liability on any person who violates the provisions of Section 5 of the Act.

Following the stock market crash in 1939,Congress enacted a series of statutes designed to regulate securities markets.

Under the Securities Act of 1933,which of the following is true about activities of the issuer during the "waiting period?"