Session 1

Question 1

Securities Act of 1933

Answer 1

regulates the issuing of corporate securities sold to the public

Question 2

The Howey Case defined an investment contract as a security if it meets these 4 conditions:

Answer 2

1. the investment of money
2. in a common enterprises
3. with an expectation of profits
4. that results solely from the efforts of others

Question 3

a Security is any of the following:

Answer 3

stock
bond
debenture
right or warrant
note
put, call, option
limited partnership
certificate of interest in a profit-sharing arrangement

Question 4

Issuer, as defined in the Securities Act of 1933

Answer 4

Any person who issues or proposes to issue any security

Question 5

Underwriter, as defined in the Securities Act of 1933

Answer 5

Any person who has purchased from an issuer with a view to selling (does not include a brokerage firm earning a commission on a retail sale to the public)

Question 6

Person, as defined in the Securities Act of 1933

Answer 6

an individual, corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, or a governmental or political subdivision thereof (counties, cities, towns, villages, etc.)

Question 7

Prospectus, as defined in the Securities Act of 1933

Answer 7

any notice, circular, letter, or communication, written or broadcast by radio or television, that offers any security for sale or confirms the sale of a security

Question 8

Tombstone Advertisement, as defined in the Securities Act of 1933

Answer 8

is not considered a prospectus nor an offering of the subject security. It simply identifies the security, the price, and the underwriters.

Question 9

Sale/Sell, as defined in the Securities Act of 1933

Answer 9

includes a contract for sale or the disposition of a security for value.

Question 10

Offer to Sell, as defined in the Securities Act of 1933

Answer 10

refers to any attempt or offer to dispose of a security or an interest in a security for value or a solicitation of an offer to buy a security for value.

Question 11

The sale of a security does not include:

Answer 11

1. preliminary negotiations or agreements between the issuer and underwriter
2. a gift of securities

Question 12

What securities are exempted under the Securities Act of 1933?

Answer 12

1. Any security issued or guaranteed by the U.S., or any political subdivision of a state.
2. Any commercial paper that has a maturity at the time of issuance of no more than nine months (270 days), with the stipulation that the proceeds are to be used by the issuer to increase working capital and not for the purchase of fixed assets.
3. Any security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, or charitable purposes and not for pecuniary profit.
4. Any interest in a railroad equipment trust.
5. Any security issued by a federal or state bank, savings and loan association, building and loan association, or similar institution.

Question 13

Rule 147

Answer 13

allows issuers to raise money on a local basis, provided the business was operating primarily within that state

Question 14

80-80-80 Rule

Answer 14

within Rule 147:

1. at least 80% of the issuer’s gross revenue must be derived from operations within the state
2. at least 80% of the proceeds of the offering must be used for business purposes within the state.
3. at least 80% of the issuer’s assets must be located within the state

Question 15

What transactions are exempted under the Securities Act of 1933?

Answer 15

1. transactions by any person other than an issuer, underwriter, or dealer.
2. transactions by an issuer that do not involve a public offering

Question 16

The Securities Act of 1933 protects investors who buy new issues by:

Answer 16

1. requiring registration of new issues that are to be distributed interstate
2. requiring an issuer to provide full and fair disclosure about itself and the offering
3. requiring an issuer to make available all material information necessary for an investor to judge the issue’s merit
4. regulating the underwriting and distribution of primary and secondary issues
5. providing criminal penalties for fraud in the issuance of new securities

Question 17

Registration Statement

Answer 17

an issuer must file a registration statement with the SEC disclosing material information about the issue. Must be signed by principal executive officer, principal financial officer, and a majority of the board of directors

Question 18

Cooling-Off Period

Answer 18

After issuer files a registration with SEC, 20-day cooling-off period begins. Usually takes longer for SEC to approve registration statements.

Question 19

Preliminary Prospecturs (Red Herring)

Answer 19

must be made available to any prospective purchaser who expresses interest in the security from the time the issue is filed with the SEC until it becomes publicly available for sale– the effective date.

Question 20

What are two items missing from the preliminary (red herring) prospectus?

Answer 20

1. public offering price

2. effective date

Question 21

During the cooling-off period, underwriters may not:

Answer 21

1. take orders

2. distribute sales literature or advertising material

Question 22

During the cooling-off period, underwriters may:

Answer 22

1. take indications of interest
2. distribute preliminary prospectuses
3. publish tombstone advertisements

Question 23

Final (Effective) Prospectus

Answer 23

summary of the registration statement