UNIT 01.02 004

Question 1

What is the maximum number of accredited investors allowed in a Regulation D private placement?

A) There is no limit
B) It depends on the type of private placement
C) Up to 35
D) None

Answer 1

There is no limit

There is no limit on the number of accredited investors allowed. It is non-accredited investors that are limited to 35.

Question 2

A registered representative may use a preliminary prospectus to

A) Demonstrate SEC approval of the issue
B) Accept orders from investors
C) Solicit orders from investors
D) Obtain indications of interest

Answer 2

Obtain indications of interest

A preliminary prospectus may be used to gather indication of interest. No orders may be taken and the SEC never approves an offer.

Question 3

All of the following actions take place as part of an initial public offering except

A) providing audited financial statements.
B) filing an S-1 registration statement.
C) publishing a research report prepared by an underwriter.
D) issuing a prospectus.

Answer 3

publishing a research report prepared by an underwriter.

Underwriters may not make predicative statements. Registering the security is required which includes a prospectus. Audited financial statements are required in the prospectus.

Question 4

Sales of Tier 2 securities under Regulation A require the distribution of

A) an offering circular.
B) an official statement.
C) a prospectus.
D) a Form S-1.

Answer 4

an offering circular.

Regulation A requires the use of an offering circular.

Question 5

Which of the following activities may take place during the cooling-off period?

A) Distribute the final prospectus
B) Collect pre payments
C) Distribute the red herring
D) Take deposits

Answer 5

Distribute the red herring

Distributing the preliminary prospectus is one of the allowed activities during the cooling-off period. No monies may be collected during the cooling-off period. The final prospectus is not available until the close of the cooling-off period.

Question 6

Which of the following federal acts governs the issue of new securities?

A) Securities Exchange Act of 1934
B) Uniform Securities Act
C) Investment Advisers Act of 1940
D) Securities Act of 1933

Answer 6

Securities Act of 1933

The Securities Act of 1933 is designed to prevent fraud and protect the public from misrepresentation in the sale of new issues of securities.

Question 7

The disclosure document used for the offering of a Section 529 college savings plan is called

A) an official statement.
B) an investment letter.
C) a security memo.
D) a prospectus.

Answer 7

an official statement.

Section 529 college savings plans are sold by official statement, a document similar to a prospectus used in the sale of municipal securities. Because Section 529 plans are state sponsored, they must be sold by official statement.

Question 8

The Securities Act of 1933 addresses

A) the regulation of exchanges and the OTC market.
B) Regulation T.
C) the establishment of FINRA.
D) full and fair disclosure.

Answer 8

full and fair disclosure.

The Securities Act of 1933 requires a prospectus and registration statement disclosing the relevant facts concerning a new issue to be filed with the SEC. The act further requires a prospectus to be distributed before or during a solicitation for sale so that a prospective purchaser will be fully informed and fairly treated.

Question 9

In order to advertise a private placement, an issuer must do which of the following?

A) The issuer may not solicit under any circumstances
B) Sell to not more than 25 accredited investors
C) Sell only to accredited investors
D) Sell to not more than 35 accredited investors

Answer 9

Sell only to accredited investors

Advertising (general solicitation) are allowed as long all investors are accredited investors.

Question 10

Which of the following activities may take place during the cooling-off period?

A) Gather indications of interest
B) Distribute the final prospectus
C) Collect pre payments
D) Take deposits

Answer 10

Gather indications of interest

Gathering indications of interest is one of the allowed activities during the cooling-off period. No monies may be collected during the cooling-off period. The final prospectus is not available until the close of the cooling-off period.

Question 11

Which of the following securities is not exempt from the registration provisions of the Securities Act of 1933?

A) A high-quality corporate debt security with a maturity of 180 days
B) An equity security issued in only one state solely to residents of that state
C) A new stock being offered in three states
D) A U.S. government bond

Answer 11

A new stock being offered in three states

Government securities, debt offerings with a maturity not exceeding 270 days, and intrastate offerings are exempt from the registration provisions of the 1933 Act. A stock being offered in three states would have to register with the SEC and with those states, unless qualifying for an exemption as a federal covered security.

Question 12

Which of the following would you provide a customer interested in a new municipal bond issue?

A) Offering circular
B) Final prospectus
C) Official statement
D) Preliminary prospectus

Answer 12

Official statement

The standard disclosure document in a municipal offering is called an official statement.

Question 13

Section 529 plans are considered municipal fund securities. They must therefore be sold by

A) investment letter.
B) prospectus.
C) official statements.
D) security memo.

Answer 13

official statements.

Municipal bonds are sold by official statements, a document similar to a prospectus used in the sale of municipal securities. Because Section 529 plans are state sponsored, they must be sold by official statements.

Question 14

Which of the following is not permitted during the cooling-off period?

A) Distributing preliminary prospectus
B) Performing due diligence
C) Solicit orders from investors
D) Obtain indications of interest

Answer 14

Solicit orders from investors

During the cooling-off period a preliminary prospectus may be used to gather indication of interest. Broker-dealers perform due diligence during the cooling-off period. No orders may be taken and the SEC never approves an offer.

Question 15

All of the following are permitted during the cooling-off period except

A) distributing sales literature.
B) taking indications of interest.
C) distributing a preliminary prospectus.
D) placing a tombstone advertisement.

Answer 15

distributing sales literature.

During the cooling-off period, underwriters may not distribute sales or advertising literature regarding the securities to be offered. However, they may distribute a preliminary prospectus intended to gather indications of interest and place tombstone ads.

Question 16

What is the maximum number of accredited investors that may participate in a Regulation D offering?

A) 35
B) No maximum
C) 15 to 25, dependent on the size of the offer
D) 25

Answer 16

No maximum

There is no limit to the number of accredited investors that may participate in a Regulation D offering. The maximum number of non-accredited investors is 35.

Question 17

After an issuer files an S-1 statement with the SEC, a cooling-off period begins that lasts for how many days minimum?

A) As long as FINRA desires
B) 30 days
C) 20 days
D) 10 days

Answer 17

20 days

The cooling-off period lasts for a minimum of 20 days. This process is directed by the SEC, not FINRA.

Question 18

Revenue bonds issued by the Piute Reservoir Recreation District would require the distribution of which of the following disclosure documents?

A) An MSRB prospectus
B) None, there is no required disclosure document for exempt securities
C) An official statement
D) An offering circular

Answer 18

An official statement

The disclosure document for a new municipal bond issue is the official statement (OS). It is the equivalent of a prospectus for a registered issue. A preliminary official statement (POS), equivalent to the red herring for a new stock issue, may have preceded the OS.

Question 19

A preliminary prospectus

A) may be used to gather indications of interest.
B) is useful for obtaining pre-effective date orders.
C) may be accompanied by sales literature.
D) is issued prior to the filing of the registration statement.

Answer 19

may be used to gather indications of interest.

A preliminary prospectus, or red herring, is prepared after the filing of a registration statement with the SEC. It is the only item allowed to be given to prospective investors while gathering indications of interest during the cooling-off period. Sales literature may accompany a final prospectus but may not accompany a red herring.

Question 20

Which of the following is not an exempt issuer?

A) First National Bank of Washington, Utah, issuing certificates of deposit
B) The U.S. Treasury issuing T-notes
C) ABC Corporation issuing 180-day commercial paper
D) The State of California issuing revenue bonds

Answer 20

ABC Corporation issuing 180-day commercial paper

A corporation is not an exempt issuer, even if it is issuing an exempt security (like commercial paper). The U.S. Treasury, a state, or a national bank are exempt issuers.