Government Regulation of Business

Question 1

What does the Securities Act of 1933 apply to?

Answer 1

sales of securities, including stocks, bonds, notes that are issued for periods over 9 months.

Question 2

What is a security

Answer 2

When a person invests in an enterprise that is primarily managed by another, the investment will probably qualify as a security

Question 3

what is a warrant

Answer 3

the right to purchase corporate stock for a limited time at a fixed price

Question 4

WKSI

Answer 4

Well known seasoned issuers - they can offer their shares without regard to the rules mentioned before bc the market is always well informed about them.

Question 5

FWPs

Answer 5

Few writing prospectus - WKSI’s can file them if they file them with the SEC.

Question 6

What must be contained in a non-WKSI issuer’s securities-registration statement filed under the Securities Act of 1933?

Answer 6

A description of the security
How the corp will use of proceeds of the sale
Description of the registrants biz and mgmt
FS

Question 7

What is included in the prospectus

Answer 7

Describes the issuing corp
risks
type of security being sold

Question 8

What kinds of places are exempt from registering under the 1933 act?

Answer 8

Charities, railroad companies, farmers cooperatives, bank

Question 9

When may Rule 504 be used?

Answer 9

when a companys total offerings for a year are under $1M and the company is not an investment co. Also, the SEC must be notified within 15 days of the first sale to qualify for this exemption.

Question 10

What types of securities are exempt from registration under 1933?

Answer 10

Governmental securities (municipal bonds)

Question 11

Under Rule 505 and 506,

Answer 11

can make an unlimited number of offers, but can sell to no more than 35 non-accredited investors (and an unlimited number of accredited investors). The 35 must be either sophisticated or acting thru a purchaser representative.

Question 12

How many non accredited investors may one have under Rule 504?

Answer 12

unlimited

Question 13

is resale restricted under 504?

Answer 13

yes, unless either (a) the securities are registered under a state law requiring public filing and delivery of a substantive disclosure document to investors, or (b) the securities are issued under a state-law exemption that permits general solicitation, so long as sales are made only to accredited investors.

Question 14

what does rule 506 require?

Answer 14

merely requires that the securities not be advertised to the general public and not be sold to more than 35 non-accredited investors. Any type of security may qualify for this exemption, including stocks and debentures. There is no limit on the dollar value of the issue, so long as the other restrictions are complied with.

Question 15

1933

Answer 15

The 1933 Act gives many exemptions to registration. One of them (in Rule 147) involves intrastate issues. If an offering is made by an issuer who resides in the state, and the offering is made entirely to residents of that state, then registration is unnecessary. There are important requirements contained in Rule 147 that must be met, including that 80% of the funds raised must be used in the state.

Question 16

what does the JOBS act allow

Answer 16

allows firms to engage in general solicitation in a Reg D Rule 506 private placement so long as they sell only to accredited investors.

Question 17

what is the maximum amount a firm can raise in a given year through crowdfunding

Answer 17

$1M

Question 18

what benefits does an EGC receive?

Answer 18

Need not comply with SOX 404(b) requirement of audit for internal controls.
Need not comply with the new PCAOB rules.
Reduced disclosure regarding executive compensation

Question 19

General solicitation will be allowed under 506 and 505 Reg D offerings only

Answer 19

if the issuer takes reasonable steps to insure that it sells only to accredited investors

Question 20

what is the maximum amount a person can invest in crowdfunded ventures during the course of a single year

Answer 20

$100,000

Question 21

under the JOBS act, can foreign companies use the crowdfunding exemption?

Answer 21

nada

Question 22

what benefits does an EGC receive during its IPO?

Answer 22

reduced requirement for audited financial statements

confidential review of its registration statements by the SEC

Question 23

In what circumstance brought against a CPA who issues an audit report containing an unqualified opinion on materially misstated financial statements, may a plaintiff prevail without proving reliance on the audit report?

Answer 23

With minor exceptions, a plaintiff in a Section 11 suit need not provide reliance in order to prevail.

Question 24

Do plaintiffs need to establish reliance or negligence to win a section 11 case?

Answer 24

Nope

Question 25

what is a necessary element for a plaintiff to recover damages if there has been a material misstatement in a registration statement?

Answer 25

that the plaintiff suffered a loss.

Question 26

a purchaser may recover under section 11 of the 1933 act only if the purchaser….

Answer 26

brings a civil action within 1 year of the discovery of the omission and within 3 years of the offering date

Question 27

what does section 10(b) require

Answer 27

an intent to defraud

Question 28

which securities act created the SEC?

Answer 28

1934

Question 29

under the periodic disclosures system reporting companies include firms that are

Answer 29

exchange-listed

have 500 shareholders and $10M in assets

Question 30

What is Section 10(b)

Answer 30

the most significant securities law provision in the world. it punishes fraudulent statements and omissions in the purchase and sale of securities

Question 31

what must a plaintiff prove in order to win a section 10b case?

Answer 31

False statement or omission
Materiality
Reliance
Causation
Purchase or Sale
Damages
A CPA must have (1) intentionally or recklessly (2) made a misstatement of material fact or omitted a material fact (3) that was relied upon by the defendant.
Does NOT have to show that plaintiff was an intended user.

Question 32

What is a defense to 10b

Answer 32

statute of limitations

Question 33

Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acts

Answer 33

without good faith

Question 34

What are victims of fraudulent misstatement entitled to?

Answer 34

entitled to rescind the transaction or recover losses caused by their reliance on the false statments

Question 35

What does Dodd Frank attempt to do?

Answer 35

Limit risk
Limit proprietary trading
Increase transparency in the OTC market
Increase disclosure by hedge funds

Question 36

what did the Dodd Frank create?

Answer 36

the financial stability oversight council FSOC

consumer financial protection bureau CFPB

Question 37

How does the Dodd Frank impact accoutnants?

Answer 37

It authorizes the PCAOB to regulate accountants who audit non-public broker-dealers.

Question 38

what are some aspects of Dodd frank

Answer 38

• Increased the regulation of insurance companies
• prohibits banks from engaging in proprietary trading
• requires mortgage originators to retain an economic interest in a portion of the credit risk of any securitized asset that they create and sell.

Question 39

who does the dodd frank require independence for

Answer 39

All members of the compensation committee of the board of directors