R5 Securities Regulation

Question 1

What is the function of the Securities Act of 1933?

Answer 1

It assures the presence of information necessary for investors to make informed decisions.

Question 2

Which securities are exempt from registration under the 1933 act?

Answer 2

Charitable contributions
Bonds issued by municipalities for governmental purposes
Savings and Loans Associations

Question 3

Rule 504 of Regulation D?

Answer 3

generally, no advertising allowed. 15 day notice required to SEC. Re-offers to public prohibited. $1million dollar limit. No limit on either accredited or unaccredited buyers.

Question 4

Rule 505 of Regulation D?

Answer 4

No general advertising. 15 day notice required to SEC. Re-offers to public prohibited. $5million limitation. Limited to 35 unaccredited buyers.

Question 5

Rule 506 of Regulation D?

Answer 5

No general advertising allowed. 15 day notice required to SEC. Re-offers to public are prohibited. No dollar limitation. Can be sold to any number of accredited investors and no more than 35 unaccredited buyers, who MUST BE SOPHISTICATED.

Question 6

What is needed to prove in a section 11 case of the Securities Act of 1933?

How about Section 10b-5?

Answer 6

1. acquired the stock.
2. suffered a loss
3. material misstatement or material omission of fact.
   Note: NO scienter nor reliance needed)

Must also include scienter and reliance. Gross negligence is NOT enough)

Question 7

When are companies required to register under the Securities Act of 1934?

Answer 7

Registration is required if…

1. Shares are sold on a national exchange
2. the company has 1. at least 2,000 shareholders OR at least 500 unaccredited shareholders AND more than $10 million in assets.

Question 8

Companies required to file under the Security Act of 1934 are required to file form 10-k. Explain…

Answer 8

annually within 60 days. must contain material facts that may alter the effect of the financial statements

Question 9

Companies required to file under the Security Act of 1934 are required to file form 10-Q

Answer 9

Quarterly report filed within 40 days. must contain reviews of interim financial information

Question 10

Companies required to file under the Security Act of 1934 are required to file form 8-K

Answer 10

within 4 days after a major change

Question 11

Companies required to file under the Security Act of 1934 are required to file…

Answer 11

5% TIP
5% ownership
Tender Offers
Insiders (10%)
Proxy Soliciations

Question 12

A registration statement in divided into two parts. These two parts are…

Answer 12

1. Prospectus

2. Any other information about the security being issued.

Question 13

Regulation A…?

Answer 13

Small company may use unaudited F/S. Issuer files an offering statement instead of a prospectus, which consists of a notification and an offering circular (equivalent to prospectus). Sales may not exceed $5 million in a 12 month period.

Question 14

Under section 18 of the 1934 Act…

Answer 14

A person can be held liable for intentionally making false or misleading statements in a registration statement or any report required under the 1934 Act.

Question 15

Which of the following circumstances is a defense to an accountant’s liability under Section 11 of the Securities Act of 1933 for misstatements and omissions of material facts contained in a registration statement?

Answer 15

Due diligence

Question 16

Under Section 12 of the Securities Exchange Act of 1934, in addition to companies whose securities are traded on a national exchange, what class of companies is subject to the SEC’s continuous disclosure system?

Answer 16

Companies with assets in excess of $10 million and 500 or more shareholders.

Question 17

According to the Securities Act of 1933, which of the following statements is correct regarding an issuer of securities?
…If an issuer sells a security and fails to meet certain disclosure requirements

Answer 17

the purchaser may sell it back to the issuer and recover the price paid.

Question 18

What is an accountant’s best defense to section 11 (IPO) suit?

Answer 18

Due Diligence.