M3-Federal Securities Regulation

Question 1

A plaintiff under Rule 10b-5 must prove what?

Answer 1

Reliance on a misstatement and that the defendant acted with scienter (intent to deceive or reckless disregard for truth which is also known as gross negligence). Negligence is insufficient to establish scienter.

Question 2

An action under the Securities Act of 1933 Section 11 need only show that the plaintiff did what?

Answer 2

1) Acquired the stock,
2) that there was a misstatement in the financial statement that was signed by the defendant
3) and that the plaintiff suffered damages.

If the defendant acted negligently, it cannot prove the defense of due diligence.

The plaintiff need not prove reliance or fraud

Question 3

Negligence is insufficient to establish scienter. (true or false)

Answer 3

true

Question 4

Publicly traded corporations must register with the SECF and make certain periodic reports under the 1934 act. These reports include business reports (10-K, 10-Q, and 8-K), insider trading tender offers and proxy solicitations. (true or false)

Answer 4

true

Question 5

Under Regulation D of the Securities Act of 1933, a company may only resell if the resale transaction continues to fall under the registration exemptions found in Section 3 of the 1933 Act. (true or false)

Answer 5

true

Regulation D prohibits immediate reoffering to the public regardless of whether the reoffering is an interstate transaction or not.

Question 6

While the securities of a not for profit corporation are indeed exempt from registration, where a prospectus is issued and contains material misrepresentations, liability can be imposed under the 1933 Act. (true or false)

Answer 6

true

The 1933 Act imposes liability on the negligent issuer for making material misrepresentations in any written offer, and a prospectus is considered to be a written offer under the 1933 Act.

Question 7

The reporting requirements of the 1934 Act apply to any company:

Answer 7

1. whose shares are traded on a national exchange, or

2. which has at least 500 shareholders in anyone class who are not accredited and more than $10 million in assets

Question 8

Shelf registrations are permitted when the issuer, for example, a well-known seasoned issuer (WKSI), is frequently issuing securities on a national exchange. The original registration statement must be kept current in order to provide accurate information to investors, and the SEC will not allow an issuer to use shelf registrations unless the issuer has a history of issuing securities. SA Rule 415 . (true or false)

Answer 8

true

Question 9

A corporation registered under the 1934 Act must file quarterly reports (form 10-Q) and proxy solicitations by management. (true or false)

Answer 9

true

The 1934 Act (section 13) requires persons making a tender offer to shareholders of a registered corporation to file a report with the SEC, and the 1934 Act (section 14) prohibits anyone from soliciting proxies in a registered company without filing a report with the SEC.

Question 10

The 1933 Act generally is concerned with sales by issues, underwriters, or dealers. Sales by other persons are exempt. (true or false)

Answer 10

true

There is no exemption from registrations for issuances of nonvoting stock.

Question 11

The registration statement is divided into two parts:

Answer 11

Part 1) is the prospectus;
Part 2) contains other information about the securities being issued

the prospectus merely gives an investor information on which to make an investment decision.

the registration statement, including the prospectus, must be filed before any offer to sell may be made.

the SEC does not review the accuracy of the prospectus, but merely assures that it contains the required information.

Question 12

Under Regulation A, an offering circular must be filed with the SEC. (true or false)

Answer 12

true

Question 13

Persons who own more than ____% of a corporation’s stock must file an annual report with the SEC. (true or false)

Answer 13

true

Question 14

Rule 506 allows offerings of an unlimited amount to be made as long as all the other requirements of this rule are satisfied. (true or false)

Answer 14

true

• There can be no more than 35 unaccredited investors under a Rule 506 offering. Note that the 35 unaccredited investors must be sophisticated investors.
• There may be an unlimited number of ACCREDITED investors under rule 506 under Regulation D.

Rule 504 offerings are limited to $1 million.
-There may be an unlimited number of investors under rule 504 of regulation D

Rule 505 offerings are limited to $5 million.

• The SEC must be notified within 15 days after the first sale of the offering under regulation D.
• Rule 505 offerings can be sold to an unlimited number of accredited investors, but there can be no more than 35 unaccredited investors.

Question 15

The 1933 Act generally requires issuances of securities to be registered unless a securities or transaction exemption applies. The 1933 Act includes a securities exemption for bonds issued by a municipality for governmental purposes and for securities issued by a not-for-profit charitable organization (and for certain other securities, too). (true or false)

Answer 15

true

Question 16

Under Rule 504 the issuance of securities may not exceed $5 million in a 12 month period. Rule 506 permits an unlimited amount of stock to be issued. 506 is often referred to as a private placement because that rule exempts transactions not involved in a public offering. (true or false)

Answer 16

true

Question 17

Under rule 506 of regulation D, if ONLY accredited investors invest, no prospectus need be given. (true or false)

Answer 17

true

Question 18

Only monetary damages are available under Section 11 of the 1933 Act. (true or false)

Answer 18

true

Rescission is NOT available under Section 11 of the 1933 Act (but is available under the 1934 Act)

Question 19

Under Rule 506 of Regulation D, any type of security , including debentures, of an unlimited amount, may be sold without registration so long as:

Answer 19

1. There is no general solicitation;
2. The buyer’s right to resell is restricted for two years;
3. Non-accredited investors are:
   a. Limited in number to 35 investors,
   b. Sophisticated
   c. Provided with an audited balance sheet and other financial statements

Question 20

The registration requirements of the Securities Act of 1933 are intended to ensure that investors are provided with adequate information on which to base investment decisions. (true or false)

Answer 20

true

Question 21

Regulation A is a short form registration that only requires an offering statement (which consists of a “notification” and an “offering circular”). (true or false)

Answer 21

true

Question 22

The securities act of 1933 provides an exception in the case of intrastate issues. Rule 147 provides that for 9 months after the last sale by the issuer, resales can only be made to residents of the state. (true or false)

Answer 22

true

Rule 147 requires that all offerees and buyers be residents of state.

Rule 147 does not have a dollar cap on the offer nor does it have a limit on the number of purchasers.

Question 23

Under the Securities Act of 1933, an exemption exists for securities exchanged by the issuer exclusively with its existing shareholders so long as no commission is paid and both sets of securities are issued by the same person. (true or false)

Answer 23

true