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Series 66 > Federal Securities Acts > Flashcards

Federal Securities Acts Flashcards

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Series 66 flashcards
1
Q

What is the primary purpose of the Securities Act of 1933?

A

Provide investors with full and fair disclosure regarding new issues (prospectus)

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2
Q

True or False: The SEC judges an offering’s investment merit and provides approval.

A

False

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3
Q

Indications of interest are _______________ on both the customer and BD.

A

Indications of interest are non-binding on both the customer and BD.

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4
Q

What is the purpose of a Tombstone Ad?

A

It calls attention to the new issuance of securities and members of the syndicate.

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5
Q

What U.S. Government agency, created by the ‘34 Act, enforces securities laws?

A

The Securities and Exchange Commission (SEC)

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6
Q

What are treble damages?

A

The civil penalty for insider trading, which is three times the profit made or loss avoided

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7
Q

According to the Investment Company Act of 1940, who are considered affiliated persons of an investment company? 7

A
  1. Officers
  2. directors,
  3. Partners
  4. members of the advisory board,
  5. employees, or
  6. owners of 5% or more of the voting stock
  7. The company’s investment adviser
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8
Q

The cooling-off period for a federal securities registration is a minimum of _____ days.

A

The cooling-off period for a federal securities registration is a minimum of 20 days.

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9
Q

What information will not be found in a preliminary prospectus?

A

The final public offering price and the effective date

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10
Q

Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.

A

Accredited investors have net worth of at least $1,000,000 or pre-tax income in each of the last two years of $200,000.

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11
Q

A new issue being offered in one state only is _________ from federal registration under SEC Rule ______.

A

A new issue being offered in one state only is exempt from federal registration under SEC Rule 147.

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12
Q

The SEC may suspend trading in a security for up to _____ days.

A

The SEC may suspend trading in a security for up to 10 days.

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13
Q

Schedule _____ must be filed within _____ days if an investor acquires more than 5% of a publicly traded company.

A

Schedule 13D must be filed within 10 days if an investor acquires more than 5% of a publicly traded company.

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14
Q

Identify the acronym: SRO

A

Self-Regulatory Organization (such as FINRA)

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15
Q

Identify the acronym: FINRA

A

Financial Industry Regulatory Authority

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16
Q

What is Form 13F?

A

A report filed by investment managers with discretion over securities that exceed $100 million

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17
Q

Define omitting prospectus.

A

A written communication for mutual fund shares that contains limited information (less than a regular prospectus).

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18
Q

What are some of the forms that publicly traded companies must file with the SEC? 6

A
  1. Registration statements,
  2. 10-K,
  3. 10-Q,
  4. 8-K,
  5. proxy statements, and
  6. possibly Schedule 13D
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19
Q

The SEC may suspend trading in any security for up to ____ business days.

A

The SEC may suspend trading in any security for up to 10 business days.

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20
Q

When must a mutual fund prospectus be delivered?

A

At or prior to the time of solicitation or when marketing materials are sent.

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21
Q

How many 10-Q forms must a reporting issuer file per year?

A

Three. While 10-Q forms must be filed quarterly, a 10-K is filed at the end of the year in lieu of a fourth 10-Q.

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22
Q

The SEC may suspend trading on an exchange for up to ____ days.

A

The SEC may suspend trading on an exchange for up to 90 days.

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23
Q

What is the purpose of providing investors with a preliminary prospectus (red herring)?

A

To disclose information and obtain indications of interest

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24
Q

True or False: Private placement offerings are exempt from registration under the Securities Act of 1933.

A

True

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25
Q

True or False: An intrastate offering is exempt from registration under the Securities Act of 1933.

A

True

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26
Q

True or False: Under the Securities Act of 1933, the sale of mutual fund shares is an example of an exempt transaction.

A

False. Mutual funds are generally offered to the public, sold by prospectus, and required to be registered with the SEC.

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27
Q

If a mutual fund intends to advertise its performance figures, what must be deducted?

A

All management fees and expenses

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28
Q

If a client owns more than 5% of a publicly traded company, what form is required to be filed with the SEC?

A

Form 13D

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29
Q

Does the Investment Company Act of 1940 consider an investment company’s legal counsel an affiliated person?

A

No. An affiliated person is an officer, director, partner, employee, or 5% or greater owner of the shares.

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30
Q

Is shareholder approval required for a mutual fund’s adviser to be allowed to deviate from the fund’s investment policy?

A

Yes

31
Q

What is required for a mutual fund to be allowed to use the fund’s assets to pay the costs of distributing shares?

A

Shareholder approval

32
Q

What is NOT required to be reported on an 8-K filing?

A

The location change of a subsidiary of a company

33
Q

A corporation’s financial reports are reported to the SEC each year on Form _____.

A

A corporation’s financial reports are reported to the SEC each year on Form 10-K.

34
Q

What form is filed with the SEC to announce that a firm is filing for bankruptcy?

A

Form 8-K

35
Q

List some items that may be found on an income statement of a corporation. 3

A
  1. Revenues,
  2. expenses,
  3. net income or net loss
36
Q

True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.

A

True

37
Q

Regarding the underwriting of an issue, what is the purpose of holding a due diligence meeting?

A

To ensure the accuracy and completeness of all of the information being distributed to the public

38
Q

Under Regulation D, securities distributed through a private placement may be sold to how many non-accredited investors?

A

No more than 35

39
Q

What percentage of investors must be residents of the state for a security to be exempt under Rule 147?

A

100%

40
Q

An underwriter is most likely registered as a _____________.

A

An underwriter is most likely registered as a broker-dealer.

41
Q

Name two prohibitions that relate to being an insider.

A
  1. No shorting of the stock and

2. No keeping of short-swing profits

42
Q

Insiders must return short-swing profits, which are profits earned on stock that has been held for less than ___ months.

A

Insiders must return short-swing profits, which are profits earned on stock that has been held for less than six months.

43
Q

The criminal penalty for insider trading by an individual is a maximum of $_________ and/or ___ years in prison.

A

The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.

44
Q

What is the maximum penalty for criminal violations of the Investment Company Act of 1940?

A

Five years in prison and/or a $10,000 fine

45
Q

Criminal penalties for violating the IA Act of 1940 may not exceed $_______ and/or imprisonment not exceeding ____ years.

A

Criminal penalties for violating the IA Act of 1940 may not exceed $10,000 and/or imprisonment not exceeding five years.

46
Q

The Securities Act of 1933 regulates ____________.

A

The Securities Act of 1933 regulates new issues.

47
Q

May a preliminary prospectus (red herring) be sent during the cooling-off period?

A

Yes. The red herring is used to obtain indications of interest from potential purchasers.

48
Q

During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?

A

Return the check to the customer

49
Q

The final ________ _____ will not appear in a red herring.

A

The final offering price will not appear in a red herring.

50
Q

The Securities Exchange Act of 1934 regulates the __________ _______.

A

The Securities Exchange Act of 1934 regulates the Secondary Market.

51
Q

The SEC may suspend trading on an exchange for up to _____ days with notification to the ____________________.

A

The SEC may suspend trading on an exchange for up to 90 days with notification to the President of the U.S.

52
Q

May an agent sell mutual fund shares to a client after giving the client an omitting prospectus?

A

Yes, as long as she offers to give the customer the standard prospectus.

53
Q

If the SEC intends to suspend all trading, who must receive advance notification?

A

The President of the U.S., who must notify the SEC that he does not disapprove of the decision.

54
Q

Under Reg. D private placement, ___ is the maximum number of non-accredited investors allowed.

A

Under Reg. D private placement, 35 is the maximum number of non-accredited investors allowed.

55
Q

What must issuers have to qualify for the Rule 147 intrastate exemption?

A

The issuer must have its principal place of business in that state

56
Q

What are the three phases of the federal registration process for securities?

A
  1. The pre-registration period
  2. The cooling-off period
  3. The post-effective period
57
Q

What is happening during the pre-registration period?

A

The issuer and its underwriter(s) are preparing a registration statement for the offering. When it is ready, the issuer files it with the SEC and includes a filing fee.

58
Q

SEC Regulation D Rule 506 exempts private placement of securities from the registration requirements of the Securities Act of 1933 if what conditions are met?

A
  1. The issuer has reason to believe that the buyer is a sophisticated investor (i.e., one who is experienced enough to evaluate all risks involved),
  2. The buyer has access to the same financial information that would normally be included in a prospectus. This information is provided in a document referred to as an offering memorandum.
  3. The issuer has assurance that the buyer does not intend to make a quick sale of the securities. This is usually accomplished
  4. The securities are sold to no more than 35 non-accredited investors.
59
Q

In a Reg D offering, non-accredited investors may be required to designate a purchaser representative. What is a purchaser representative?

A

A person with knowledge and experience in financial and business matters and is capable of evaluating the risks and merits of the prospective investment.

60
Q

Companies that intend to offer their securities under the Rule 147 exemption (to avoid registration with the SEC) must meet what minimum requirements? 4

A
  1. 80% of the company’s assets are located within the state.
  2. 80% of the company’s gross revenues are generated from operations within the state
  3. 80% of the proceeds of the offering are used to operate a business within the state.
  4. 100% of the purchasers are principal residents of the state.
61
Q

What is Regulation A? 4

A

AKA The small-issue exemption

  • Provides an issue with an exemption from registration with the SEC if it limits the amount f capital raised to no more than $5 million during a 12-month period.
  • Still required to file an offering statement with the SEC
  • Must provide an offering circular (disclosure document) to prospective purchasers.
  • Advantages: lower legal fees, lower filing fees, and a short period necessary for document preparation.
62
Q

What are the three types of investment companies?

A
  1. Face-Amount Certificate Companies
  2. Unit Investment Trusts
  3. Management Companies (Open-end and closed-end
63
Q

The Investment Company Act of 1940 states that a majority of an investment company’s board must be disinterested. What does that mean?

A

A disinterested director is a person who is not associated with the mutual fund or the investment adviser in a capacity other than her position as a board member.

64
Q

Affiliated persons and promoters may not do what? 2

A
  1. Purchase securities or other property from a registered investment company except for securities issued by the investment company
  2. Borrow money or other property from a registered investment company (unless the borrower is the parent of the investment company)
65
Q

What can an investment company do only if authorized by a majority vote from its outstanding shares? 6

A
  1. Change its investment objectives and the concentration of its investments
  2. Borrow money or make loans
  3. Underwrite securities issued by others
  4. Buy or sell real estate
  5. Change the nature of its business so as to cease acting as an investment company
  6. Renew its agreement with an investment adviser.
66
Q

Open-end investment companies must always stand ready to redeem shares at what price?

A

The fund’s next calculated net asset value

67
Q

If a client redeems their shares of a mutual fund, when must the fund provide payment by?

A

Within 7 calendar days of the request

68
Q

For an open-end mutual fund, the price an investor pays is the NAV + ______________. For a closed-end fund, a __________ or ____________ is added to their current market price, which may be below, at, or above the fund’s NAV,

A

For an open-end mutual fund, the price an investor pays is the NAV + sales charge. For a closed-end fund, a commission or markup is added to their current market price, which may be below, at, or above the fund’s NAV,

69
Q

________-End funds may be sold short.

A

Closed-End funds may be sold short.

70
Q

What two things are the same for a no-load fund that aren’t the same for other share classes of a mutual fund?

A

The fund’s NAV and POP are the same.

71
Q

When soliciting sales of investment company shares, agents may not state a fund’s current yield or income without disclosing what?

A

The fund’s most recent average annual return calculated for 1-, 5-, and 10-year periods.

72
Q

Under the Investment Company Act, unless a specific exemption is provided by the SEC, investment companies are prohibited from engaging in what activities?

A
  1. Purchasing securities on margin, except for short-term credits that are needed to clean transactions
  2. Purchasing more than 3% of the outstanding voting stock of another investment company
  3. Participating in a joint account that trades securities or effecting short sales of any security, except in connection with the underwriting in which the investment company is a participant.
73
Q

An 8-K must be filed within how many days of any material event that may affect a company’s share price or financial information?

A

4 business days.

Series 66 (12 decks)

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