Final Exam LES 305 Securities UPDATED
ACTUAL Questions and CORRECT
Answers
The Securities Act of 1933 regulates - CORRECT ANSWER - sales of securities by
businesses to investors. [Note: See the third paragraph on page 278 that explains the reach of the
1933 Securities Act.]
The Howey test - CORRECT ANSWER - defines a security as a "contract, transaction, or
scheme whereby a person invests his money in a common enterprise and is led to expect profits
solely from the efforts of a promoter or third party," and was established by the United States
Supreme Court. [Note: See page 728.]
Securities include - CORRECT ANSWER - notes, stocks, bonds, every investment
contract that gives notice of an indebtedness or participation in a business for profit. [Note:
Regardless of what you call it, if something meets the Howey test, it is a security. See page 728.]
All sellers of securities must complete certain filing requirements before the securities may be
sold unless an exemption applies. - CORRECT ANSWER - True. See page 729.
An issuer of securities meets which of the following qualifications for the intrastate offering
exemption - CORRECT ANSWER - The investors must all be residents of the same state,
and the issuer has 80% of its assets in the state; 80% of operating income is from the state; and
80% of the proceeds of the sale are used on operations within the state. [Note: This is called the
"triple 80" test. See page 730.]
Accredited investors include - CORRECT ANSWER - A director, executive officer or
general partner of the issuer, a person who purchases at least $150,000 of the securities being
offered, natural persons with a net worth over $1 million, or a natural person with an individual
income over $200,000 within the last 2 years or $300,000 per couple. [Note: Other investors are
unaccredited and subject to limitations for certain types of registration exemptions. See page
731-732. Also note that the value of the investor's primary residence is not included in the net
worth calculation.]
, The SEC reviews filings and if the security is a good investment, it may be issued. - CORRECT
ANSWER - False. The SEC only looks at whether the proper information has been
disclosed, not whether the security will be a good investment. See page 733.
The SEC must take action within this time period or the registration will be deemed to be
accepted - CORRECT ANSWER - 20 days. [Note: See page 733.]
Issuers who do not submit a registration or who make a false statement on their registration
statements in violation of the 1933 Act are criminally and civilly liable. - CORRECT
ANSWER - True. See page 734.
Any person who signs a registration can be held personally liable for violations of the 1933 Act. -
CORRECT ANSWER - True. Directors and officers are joint and severally liable. See
page 736.
The Public Company Accounting Oversight Board was implemented by the Sarbanes-Oxley Act.
- CORRECT ANSWER - True. See page 741.
The 1934 Securities Exchange Act regulates the secondary trading of securities after the initial
sale by the business seeking funds. - CORRECT ANSWER - True. See page 744 in second
paragraph from the bottom of the page.
All securities traded on national exchanges are regulated under the Securities Act of 1933. -
CORRECT ANSWER - False - it is the 1934 Securities Exchange Act that regulates
securities on the secondary market. All securities traded on national stock exchanges must be
registered. See page 744.
Withholding material information is not a violation of 10(b) of the Securities Exchange Act of
1934. - CORRECT ANSWER - False. See pages 745-746 about the "fair disclosure rule."
ACTUAL Questions and CORRECT
Answers
The Securities Act of 1933 regulates - CORRECT ANSWER - sales of securities by
businesses to investors. [Note: See the third paragraph on page 278 that explains the reach of the
1933 Securities Act.]
The Howey test - CORRECT ANSWER - defines a security as a "contract, transaction, or
scheme whereby a person invests his money in a common enterprise and is led to expect profits
solely from the efforts of a promoter or third party," and was established by the United States
Supreme Court. [Note: See page 728.]
Securities include - CORRECT ANSWER - notes, stocks, bonds, every investment
contract that gives notice of an indebtedness or participation in a business for profit. [Note:
Regardless of what you call it, if something meets the Howey test, it is a security. See page 728.]
All sellers of securities must complete certain filing requirements before the securities may be
sold unless an exemption applies. - CORRECT ANSWER - True. See page 729.
An issuer of securities meets which of the following qualifications for the intrastate offering
exemption - CORRECT ANSWER - The investors must all be residents of the same state,
and the issuer has 80% of its assets in the state; 80% of operating income is from the state; and
80% of the proceeds of the sale are used on operations within the state. [Note: This is called the
"triple 80" test. See page 730.]
Accredited investors include - CORRECT ANSWER - A director, executive officer or
general partner of the issuer, a person who purchases at least $150,000 of the securities being
offered, natural persons with a net worth over $1 million, or a natural person with an individual
income over $200,000 within the last 2 years or $300,000 per couple. [Note: Other investors are
unaccredited and subject to limitations for certain types of registration exemptions. See page
731-732. Also note that the value of the investor's primary residence is not included in the net
worth calculation.]
, The SEC reviews filings and if the security is a good investment, it may be issued. - CORRECT
ANSWER - False. The SEC only looks at whether the proper information has been
disclosed, not whether the security will be a good investment. See page 733.
The SEC must take action within this time period or the registration will be deemed to be
accepted - CORRECT ANSWER - 20 days. [Note: See page 733.]
Issuers who do not submit a registration or who make a false statement on their registration
statements in violation of the 1933 Act are criminally and civilly liable. - CORRECT
ANSWER - True. See page 734.
Any person who signs a registration can be held personally liable for violations of the 1933 Act. -
CORRECT ANSWER - True. Directors and officers are joint and severally liable. See
page 736.
The Public Company Accounting Oversight Board was implemented by the Sarbanes-Oxley Act.
- CORRECT ANSWER - True. See page 741.
The 1934 Securities Exchange Act regulates the secondary trading of securities after the initial
sale by the business seeking funds. - CORRECT ANSWER - True. See page 744 in second
paragraph from the bottom of the page.
All securities traded on national exchanges are regulated under the Securities Act of 1933. -
CORRECT ANSWER - False - it is the 1934 Securities Exchange Act that regulates
securities on the secondary market. All securities traded on national stock exchanges must be
registered. See page 744.
Withholding material information is not a violation of 10(b) of the Securities Exchange Act of
1934. - CORRECT ANSWER - False. See pages 745-746 about the "fair disclosure rule."
