Question 1

The Securities Act of 1933 primarily regulates the issuance of securities by corporations,limited partnerships,and companies.

Accepted Answer

A) True 
 B)False

Question 2

Smith and Company,certified public accountants,performed the audit work for a large corporation in connection with its registration statement.Smith and Company performed the work according to all appropriate professional standards,but the corporation had cleverly made the inventory look much greater than it actually was.Because the company did not have as much inventory as was indicated on the financial statements,the company was worth much less than it appeared to be.Smith and Company has been named in a lawsuit under Section 11 of the Securities Act of 1933.Even though Smith and Company properly performed the audit,and the fraud on the part of the corporation was such that it would not be uncovered by an audit,Smith and Company cannot prove any of this in court,since all of its audit working papers and computer documentation were accidentally shredded.Discuss Smith and Company's legal situation,what must be proven to establish a violation of Section 11,and any defenses available to the company and its accountants.

Accepted Answer

The answer of Smith and Company,certified public accountants,performed the audit...

Question 3

A prospectus is a written disclosure document that must be submitted to the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Question 4

A limited partnership interest is an investment contract.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true about activities allowed in connection with a public offering?

Accepted Answer

A)  Generally, the waiting period is twenty days. 
B)  During the pre-filing period, the issuer may "condition" the market. 
C)  During the waiting period, the issuer may sell and deliver securities, as long as a prospectus is provided to the investor. 
D)  After the registration statement is effective, the issuer may sell and deliver securities without giving the investor a prospectus. 
E)  The post-effective period runs until the issuer sells all of the offered securities.

Question 6

The Securities and Exchange Commission is an administrative agency composed of five (5)members who are appointed by the United States president.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true regarding the sale of unregistered securities?

Accepted Answer

A)  Investors may recover damages, but may not rescind their purchases. 
B)  The Securities Act of 1933 is not violated, so long as the sellers allow purchasers to have their money back. 
C)  Civil penalties may be imposed, but criminal penalties may not be imposed. 
D)  Only criminal penalties may be imposed. 
E)  Investors may rescind their purchases and recover damages, and criminal penalties may be imposed on any person who willfully violates the Securities Act of 1933.

Question 8

Securities issued in a corporate reorganization in which one security is exchanged for another security are exempt from registration with the SEC.

Accepted Answer

A) True 
 B)False

Question 9

The SEC requires companies,foreign and domestic,to file registration statements,periodic reports,and other forms on its electronic filing and forms system called "EDGAR."

Accepted Answer

A) True 
 B)False

Question 10

The "post-effective" period begins when the registration statement becomes effective,and runs until the issuer either sells all of the offered securities or withdraws them from sale.

Accepted Answer

A) True 
 B)False

Question 11

Zelda is a certified public accountant for Kite Company,a company that makes designer kites.An audit discloses the Kite Company's profits have doubled since the previous year,and Zelda rightfully discloses that fact to Rhonda,Kite Company's chief financial officer.The information regarding the profits is material and nonpublic until the corporation announces its earnings in ten days.Both Zelda and Rhonda buy stock in Kite Company.After the earnings information is made public,the price of the stock increases.Are Zelda and Rhonda liable for any violations of federal securities laws?

Accepted Answer

A)  They are both liable for violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. 
B)  Zelda is liable for violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, but Rhonda has committed no violations. 
C)  Rhonda is liable for violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, but Zelda has committed no violations. 
D)  Neither Rhonda nor Zelda is liable for any violation, unless it can be shown that the company's reputation was harmed by their actions. 
E)  Neither Rhonda nor Zelda is liable for any violation, unless it can be shown that the other stockholders were harmed by their actions.

Question 12

Securities and Exchange Commission rules require that original signatures be obtained for all securities-related documents,so issuing securities over the Internet is prohibited as a result.

Accepted Answer

A) True 
 B)False

Question 13

A "tippee" is liable for acting on information that the tippee should have known was not public.

Accepted Answer

A) True 
 B)False

Question 14

"Rule 144" provides that securities sold pursuant to the "private placement" or "small offering" exemption must be held for six months from the date when the securities are last sold by the issuer.

Accepted Answer

A) True 
 B)False

Question 15

An issuer of securities must provide a copy of the registration statement and a copy of the prospectus to the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Question 16

Best,Inc.wishes to issue new stock to raise capital.Best is incorporated,and does all of its business in Indiana.Best 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 Best's new stock?

Accepted Answer

A)  This transaction is exempt as an intrastate offering. 
B)  This transaction is exempt as an intrastate offering, but only if Best sells exclusively to accredited investors. 
C)  This transaction is exempt as an intrastate offering, but only if Best issues less than $1.5 million in securities. 
D)  This transaction is exempt as a private placement. 
E)  Because the securities are traded only in interstate commerce, the securities themselves are exempt.

Question 17

Under the "small offering" exemption of the Securities Act of 1933,securities can be sold to an unlimited number of accredited and unaccredited investors.

Accepted Answer

A) True 
 B)False

Question 18

The Securities and Exchange Commission has no legal authority to bring an action to obtain an injunction.

Accepted Answer

A) True 
 B)False

Question 19

The courts apply the ________ test in determining whether an arrangement is an investment contract and therefore a security.

Accepted Answer

A)  Howe 
B)  Lowe 
C)  Dewey 
D)  Howey 
E)  Cheatham

Question 20

There is no dollar limit on the amount of securities that can be sold under the "private placement" exemption.

Accepted Answer

A) True 
 B)False

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

The Securities Act of 1933 primarily regulates the issuance of securities by corporations,limited partnerships,and companies.

A prospectus is a written disclosure document that must be submitted to the Securities and Exchange Commission.

A limited partnership interest is an investment contract.

Which of the following statements is true about activities allowed in connection with a public offering?

The Securities and Exchange Commission is an administrative agency composed of five (5)members who are appointed by the United States president.

Which of the following is true regarding the sale of unregistered securities?

Securities issued in a corporate reorganization in which one security is exchanged for another security are exempt from registration with the SEC.

The SEC requires companies,foreign and domestic,to file registration statements,periodic reports,and other forms on its electronic filing and forms system called "EDGAR."

The "post-effective" period begins when the registration statement becomes effective,and runs until the issuer either sells all of the offered securities or withdraws them from sale.

Securities and Exchange Commission rules require that original signatures be obtained for all securities-related documents,so issuing securities over the Internet is prohibited as a result.

A "tippee" is liable for acting on information that the tippee should have known was not public.

"Rule 144" provides that securities sold pursuant to the "private placement" or "small offering" exemption must be held for six months from the date when the securities are last sold by the issuer.

An issuer of securities must provide a copy of the registration statement and a copy of the prospectus to the Securities and Exchange Commission.

Under the "small offering" exemption of the Securities Act of 1933,securities can be sold to an unlimited number of accredited and unaccredited investors.

The Securities and Exchange Commission has no legal authority to bring an action to obtain an injunction.

The courts apply the ________ test in determining whether an arrangement is an investment contract and therefore a security.

There is no dollar limit on the amount of securities that can be sold under the "private placement" exemption.