116 MODULE 22 FEDERAL SECURITIES ACTS AND ANTITRUST LAW

MULTIPLE·CHOICE ANSWERS

l. d - - 11. b - - 2l. c - - 3l. a - - 4l. c - -

2. d - - 12. d - - 22. b - - 32. c - - 42. b - -
3. d - - 13. a - - 23. a - - 33. b - - 43. c - -
4. b - - 14. c - - 24. b - - 34. a - - 44. b - -
5. a - - 15. c - - 25. b - - 35. c - -
6. a - - 16. d - - 26. d - - 36. b - -
7. d - - 17. d - - 27. c - - 37. a - -
s. d - - 18. a - - 28. b - - 38. a - -
9. b - - 19. c - - 29. c - - 39. a - - 1st: _/44= - %
10. d - - 20. b - - 30. b - - 40. c - - 2nd: _/44= - %

MULTIPLE-CHOICE ANSWER EXPLANATIONS

A. Securities Act of 1933
1. (d) A preliminary prospectus is usually called a
"red-herring" prospectus. The preliminary prospectus indi-
cates that a registration statement has been filed but has not
become effective.
7.
2. (d) Securities include debentures, stocks, bonds,
, tion or not, they are still subject to the antifraud provisions
some notes, and investment contracts. The main idea is that
of the Securities Act of 1933.
the investor intends to make a profit on the investment
through the efforts of others. A certificate of deposit is a
type of commercial paper, not a security.
3. (d) A tombstone advertisement is allowed to inform
potential investors that a prospectus for the given company
is available. It is not an offer to sell or the solicitation of an
offer to buy the securities. Answer (a) is incorrect because
the tombstone ad informs potential purchasers of the pro-
spectus and cannot be used as a substitute for the prospectus.
Answer (b) is incorrect because it informs of the availability
of the prospectus and cannot be construed as an offer to sell
securities. Answer (c) is incorrect because the tombstone ad
notifies potential purchasers of the prospectus. It does not
notify that the securities have been withdrawn from the mar-
ket.
4. (b) The registration of securities under the Securities
Act of 1933 has as its purpose to provide potential investors
with full and fair disclosure of all material information re-
lating to the issuance of securities, including such informa- '
tion as the principal purposes for which the offering's
proceeds will be used. Answer (a) is incorrect because
information on the stockholders of the offefing corporation
is not required to be reported. Answer (c) is incorrect
because the SEC does not guarantee the accuracy of the
registration statements. Answer (d) is incorrect because
although the SEC does seek to compel full and fair
disclosure, it does not evaluate the securities on merit or
value, or give any assurances against loss.
5. (a) If no exemption is applicable under the Securi-
ties Act of 1933, public offerings must be registered with the
SEC accompanied by a prospectus. Answer (b) is incorrect
because the SEC does not pass on nor rate the securities.
Answer (c) is incorrect because the prospectus is given to
prospective purchasers of the securities. Answer (d) is in-
correct because the SEC does not pass on the merits or accu-
racy of the prospectus.
6. (a) Notes are exempt securities under the Securities
, Act of 1933 if they have a maturity of nine months or.less
and if they are also used for commercial purposes rather
than investments. The actual dollar amounts in the question
are not a factor. The notes described in IT are not exempt for
two reasons; they have a maturity of two years and are used
for investment purposes. The notes inIII are not exempt
because the maturity is two years even though they are for
commercial- purposes.
(d) Whether the securities are exempt from registra-
8. (d) The definition of a security is very broad under
the Securities Act of 1933. The basic idea is that the inves-
tor intends to make a profit through the efforts of others
rather than through hislher own efforts. Notes, bond certifi-
cates of interest, and debentures are all considered securi-
ties.
9. (b) If an issuer of securities wants to make an offer-
ing by using shelf registration, the actual issuance takes
place over potentially a long period of time. Therefore, s/he
must keep the original registration statement updated. There
is no requirement that the offeror must be a first-time issuer
of securities.
10. (d) Under the 1933 Act, certain securities are ex-
empt. Although insurance and annuity contracts are exempt,
securities issued by the insurance companies are not. An-
swer (a) is incorrect because securities of nonprofit organi-
zations are exempt. Answer (b) is incorrect because
securities issued by or guaranteed by domestic government
organizations are exempt. Answer (c) is incorrect because
securities issued by savings and loan associations are ex-
empt.
11. (b) Securities exchanged for other securities by the
issuer exclusively with its existing shareholders are exempt
from registration under the 1933 Act as long as no commis-
sion is paid and both sets of securities are issued by the same
issuer. Answer (a) is incorrect because nonvoting common
stock is not exempted under the Act. The amount of the par
value is irrelevant. Answer (c) is incorrect because although'
the securities of governments are themselves exempt, the
limited partnership interests are not. Answer (d) is incorrect
because no such exemption is allowed.
12. (d) Even though the issuer may comply with the
Federal Securities Act of 1933, it must also comply with any
applicable state "blue-sky" laws that regulate the securities
at the state level. Answer (a) is incorrect because it is
unlawful for the company to offer or sell the securities prior
to the effective registration date. Answer (b) is incorrect
because registration becomes effective on the twentieth day
after filing unless the SEC issues a stop order. Answer (c) is