Chapter 41

Question 1

Security

Answer 1

(1) An interest or instrument that is common stock, preferred stock, a bond, a debenture, or a warrant; (2) an interest or instrument that is expressly mentioned in securities acts; and (3) an investment contract.

Question 2

Securities and Exchange Commission (SEC)

Answer 2

The federal administrative agency that is empowered to administer federal securities laws. The SEC can adopt rules and regulations to interpret and implement federal securities laws.

Question 3

Intrastate Offering Exemption

Answer 3

An exemption from registration that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC.

Question 4

Private Placement Exemption

Answer 4

An exemption from registration that permits issuers to raise capital from an unlimited number of accredited investors and no more than 35 non accredited investors without having to register the offering with the SEC.

Question 5

Small Offering Exemption

Answer 5

An exemption from registration that permits the sale of securities not exceeding $1 million during a 12-month period.

Question 6

Securities Act of 1933

Answer 6

A federal statute that primarily regulates the issuance of securities by corporations, partnerships, associations, and individuals.

Question 7

Registration Statement

Answer 7

A document that an issuer of securities files with the SEC that contains required information about the issuer, the securities to be issued, and other relevant information.

Question 8

Prospectus

Answer 8

A written disclosure document that must be submitted to the SEC along with the registration statement and given to prospective purchases of the securities.

Question 9

Prefiling Period

Answer 9

A period of time that begins when the issuer first contemplates issuing securities and ends when the registration statement is filed. The issuer may not condition the market during this period.

Question 10

Regulation A

Answer 10

A regulation that permits the issuer to sell securities pursuant to a simplified registration process.

Question 11

Section 12

Answer 11

A provision of the Securities Act of 1933 that imposes civil liability on any person who violates the provisions of Section 5 of the act.

Question 12

Section 11

Answer 12

A provision of the Securities Act of 1933 that imposes civil liability on person who intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement or who are negligent for not discovering the fraud.

Question 13

Due Diligence Defense

Answer 13

A defense to a Section 11 action that, if proven, makes the defendant not liable.

Question 14

Section 21

Answer 14

A provision of the Securities Act of 1933 that imposes criminal liability on any person who willfully violates the 1933 act or the rules or regulations adopted thereunder.

Question 15

Securities Exchange Act of 1934

Answer 15

A federal statute that primarily regulates the trading in securities.

Question 16

Section 10(b)

Answer 16

A provision of the Securities Exchange Act of 1934 that prohibits the use of manipulative and deceptive devices in the purchase or sale of securities in contravention of the rules and regulations prescribed by the SEC.

Question 17

Rule 10b-5

Answer 17

A rule adopted by the SEC to clarify the reach of Section 10(b) against deceptive and fraudulent activities in the purchase and sale of securities.

Question 18

Scienter

Answer 18

Intentional conduct. Scienter is required for there to be a violation of Section 10(b) and Rule 10b-5.

Question 19

Insider Trading Sanctions Act

Answer 19

A federal statute that permits the SEC to obtain a civil penalty of up to three times the illegal benefits received from insider trading.

Question 20

Section 32

Answer 20

A provision of the Securities Exchange Act of 1934 that imposes criminal liability on any person who willfully violates the 1934 act or the rules or regulations adopted thereunder.

Question 21

Insider Trading

Answer 21

A situation in which an insider makes a profit by personally purchasing shares of the corporation prior to public release of favorable information or by selling shares of the corporation prior to the public disclosure of unfavorable information.

Question 22

Tipper

Answer 22

A person who discloses material nonpublic information to another person.

Question 23

Tippee

Answer 23

A person who receives material nonpublic information from a tipper.

Question 24

Section 16(b)

Answer 24

A section of the Securities Exchange Act of 1934 that requires that any profits made by a statutory insider on transactions involving short-swing profits belong to the corporation.