Chapter 2 Part 2

Question 1

Congress passed the Securities Act of 1933 to regulate the

Answer 1

interstate sales of securities and also make it illegal to offer or sell securities in a state without complying with state law.

Question 2

According to the Securities Act of 1933, companies that want to sell securities publicly must

Answer 2

file a registration statement with the SEC.

Question 3

The Securities Act of 1933 is designed to provide

Answer 3

purchasers of new issues of securities with information (full and fair disclosure) regarding the issuer, and to prevent fraud in the sale of securities.

Question 4

The Securities Act of 1933 The Securities and Exchange Commission (SEC) is the federal regulatrny agency that

Answer 4

has the responsibility for enforcing the Act.

Question 5

The Securities Act of 1933 the SEC does not

Answer 5

approve new issues, nor does it rule on the investment merits of an issue.

Question 6

The Securities Act of 1933 The SEC requires issuers to file a

Answer 6

registration statement if the mail or other channels of interstate commerce are used to sell the security.

Question 7

“The Securities Act of 1933 In addition to registration, the Act requires issuers of securities to
provide potential purchasers with”

Answer 7

a prospectus that gives detailed information about the issuer and the securities.

Question 8

SEC’s non approval clause

Answer 8

The front page of the prospectus includes a statement indicating that the SEC does not pass on the adequacy or accuracy of information in the prospectus and that any statement to the contrary is a criminal offense. This is known as the SEC’s non approval clause.

Question 9

are responsible for the information in the documents provided to the SEC and potential purchasers

Answer 9

issuer and the issuer’s underwriter

Question 10

he SEC will, however, review the registration statement and the prospectus to

Answer 10

determine whether the documents appear complete or include misleading information.

Question 11

If an individual sells a security based on untruthful statements, or the omission of material facts, he may be held liable to

Answer 11

the purchaser for any monetary damages sustained.

Question 12

However, the seller will not be held liable if

Answer 12

if he can demonstrate that reasonable care (due diligence) was used and that he was not aware of untruthful statements or omissions.

Question 13

Unless exempt, a registration statement must be filed with the SEC to register securities at the federal level. The statement is signed by the

Answer 13

issuer’s principal executive officers, principal financial officers, principal accounting officers, and a majority of its board of directors.

Question 14

The registration statement provides

Answer 14

detailed information about the company and is a matter of public record.

Question 15

The SEC may exempt an issuer from providing any part of the required information if it finds that

Answer 15

certain information does not apply to a particular issuer and that the information disclosed is adequate. At the time of filing, the issuer must also include a filing fee.

Question 16

filing date

Answer 16

The date that the registration statement is received by the SEC

Question 17

cooling-off period

Answer 17

This period is often known as the 20-clay cooling-off period because the SEC has a minimum of 20 clays to review the documentation

Question 18

red herring is

Answer 18

a preliminary disclosure document (prospectus) given to potential investors in a new security issue. This document is provided before the selling price has been set and before the issuer’s registration statement has been deemed effective by the SEC

Question 19

red herring may be distributed to

Answer 19

potential purchasers during the cooling-off period.

Question 20

a red herring has a legend on the cover page informing the potential investor that

Answer 20

a registration statement has been filed with the SEC but has not yet become effective. Since the final offering price has not yet been determined, the red herring may instead indicate a price range–for example, $14 to $17 per share.