Federal Securities Regualtion

Question 1

Define “security”.

Answer 1

Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, etc.

Question 2

Define “catch-all categories”.

Answer 2

Investment contracts and “any interest or instrumentality commonly known as a security.”

Question 3

List the elements of an investment contract.

Answer 3

Investment of money;
In a common enterprise;
With an expectation of profit;
To be earned primarily by the actions of others.

Question 4

Define “free writing”.

Answer 4

Written advertising material that is not permissible during the waiting period.

Question 5

Define “free writing prospectus”.

Answer 5

Written literature, other than prospectus that Well-Known Seasoned Issuers and other big firms can use at any time to promote securities.

Question 6

What does the acronym WKSI stand for?

Answer 6

Well-Known Seasoned Issuers.

Question 7

Define “pre-filing period”.

Answer 7

Period before the registration statement is filed with the SEC.

Question 8

What is the length of the waiting period for the Securities and Exchange Commissions approval of a registration?

Answer 8

20 business days (theoretically).

Question 9

List some of the traditional do’s and don’ts relating to the registration process with the Securities and Exchange Commission.

Answer 9

Pre-filing period: no offers/no sales;
Waiting period: some offers/no sales;
Post-effective period: offers and sales ok

Question 10

List the distribution process for securities.

Answer 10

Issuer-Underwriter-Broker-Investor.

Question 11

What purpose does a company registration with the Securities and Exchange Commission serve?

Answer 11

This type of registration allows big firms like Well-Known Seasoned Issuers to file registration statement covering three years and sell whenever they want.

Question 12

List the key Securities and Exchange Commission securities that are exempt .

Answer 12

Bank;
Common carrier;
Bankruptcy receivers;
Insurance policies/annuities.

Question 13

List the requirements for an intrastate offering (Rule 147).

Answer 13

All offerees must be in the state;
80% of issuer’s assets in state;
80% of issuer’s revenues in state;
80% of proceeds used in state.

Question 14

List the primary Securities and Exchange Commission transactions that are exempt.

Answer 14

Small Offerings;
Private Placements;
Intrastate transactions

Question 15

True or false: State regulations can enforce antifraud rules and can regulate the merits of covered securities.

Answer 15

False.
State regulations can only enforce antifraud rules and require notice filings. However, state regulations cannot regulate merits or register “covered securities.”

Question 16

List the “Regulation D” exemptions.

Answer 16

Rule 504 (small offering-$1m);
Rule 505 (small offering-$5m);
Rule 506 (private placement-unlimited).

Question 17

List the Securities and Exchange Act §12(a)(1) remedies to violations of §5 of the Act.

Answer 17

Sale of unregistered securities;
Failure to deliver prospectus;
Use of inadequate prospectus;
Offer before filing registration statement.

Question 18

What elements must a plaintiff prove to win a §11 claim under the Securities and Exchange Act?

Answer 18

A false statement or omission of fact appeared in a registration statement, The misstatement or omission was material, Plaintiff bought securities that were issued under the defective registration statement, Plaintiff suffered damages.

Question 19

List the elements that a plaintiff must prove in a Securities Exchange Act §12(a)(2) lawsuit.

Answer 19

P must prove:
Misrepresentation or omission;
Materiality;
Tracing;
D is a "seller;" and
Damages.

Question 20

When is an accounting firm liable regarding securities with which it has done work?

Answer 20

Liable only for that part of the registration statement (financial statements) that it prepared.

Question 21

When is an accounting firm liable regarding securities with which it has done work?

Answer 21

Liable only for that part of the registration statement (financial statements) that it prepared.

Question 22

List the elements of a Securities Exchange Act §12(a)(1) lawsuit.

Answer 22

D violated Sec. 5;
D was a “seller;”
Damages.

Question 23

What are the major provisions of the Securities Exchange Act of 1934?

Answer 23

Created SEC;
Created periodic reporting system;
Punishes fraud;
Regulates securities business.

Question 24

List the elements of a Securities Exchange Act §18(a) claim.

Answer 24

False statement;
In a "filed" document;
Materiality;
Purchase or sale;
"Eyeball" Reliance;
Causation; and
Damages.

Question 25

What is the key to assuming liability under the Securities Exchange Act §18(a)?

Answer 25

False statement in a “filed document.”

Question 26

List the elements of a Securities Exchange Act §10(b) liability.

Answer 26

Misstatement;
Materiality;
Reliance;
Causation;
Purchase or sale; and
Damages.

Question 27

List the types of required reports described in the Securities Exchange Act.

Answer 27

10-Ks;
10-Qs;
8-Ks.

Question 28

What is the purpose of the Securities Exchange Act §10(b).

Answer 28

This section punishes fraud in purchase or sale of securities in violations of SEC rules, like 10b-5.

Question 29

Under what provisions of the Securities and Exchange Commission can accountants be criminally liable for any willful violation?

Answer 29

Any provision of the 1933 Act;

Any provision of the 1934 Act.

Question 30

What is the burden of proof in a criminal case?

Answer 30

Beyond a reasonable doubt.

Question 31

True or False: The Securities and Exchange Commission can bring criminal charges against companies that have a filing with the agency.

Answer 31

False.
The Commission cannot bring criminal charges but refers these cases to the Department of Justice which files and prosecutes the cases.

Question 32

Which entities are subject to the new regulation by the Consumer Financial Protection Bureau (CFPB)?

Answer 32

Most creditor providers and banks and credit unions with assets over $10 billion.

Question 33

What is the duty of the Consumer Financial Protection Bureau (CFPB)?

Answer 33

It consolidates most federal regulation of financial services.

Question 34

Describe the impact of Dodd-Frank upon the accounting profession.

Answer 34

Its impact is relatively minor.

Question 35

Describe one effect of Dodd-Frank on PCAOB

Answer 35

It authorizes the PCAOB to monitor auditors of nonpublic broker-dealers.

Question 36

What is the range of Dodd-Frank rewards for whistleblowers as a percentage of money sanctions over $1 million?

Answer 36

Reward range is 10-30%.

Question 37

Are accountants regulated by the Consumer Financial Protection Bureau?

Answer 37

No, they are not regulated by the Consumer Financial Protection Bureau.

Question 38

List three new agencies created by Dodd-Frank.

Answer 38

FSOC (Financial Stability Oversight Council);
CFPB (Consumer Financial Protection Bureau; and
A new federal insurance regulator.

Question 39

Must accounting errors that led to erroneous bonus payment be intentional in order for the Dodd-Frank executive compensation “claw back” provision to apply ?

Answer 39

No, accounting errors do not have to be intentional.