Federal Securities Regulations

Question 1

What is the exemption to the general rule that “ALL SECURITIES OFFERED TO THE PUBLIC MUST BE REGISTERED WITH THE SEC”?

Answer 1

Casual (or private) sale or offer to sell securities made by a person not connected to the issuer (e.g., issuer, underwriter, dealer, etc.)

Question 2

Which SEC Regulation D Rule provides for registration exemption for any types of securities no more than $5M with offerings within a 12-month period?

Answer 2

Rule 504, aka “seed capital” exemption.

Question 3

What are the offerings limitation for the SEC Regulations?

Answer 3

1. Rule 506 Reg D - unlimited amount and length of time
2. Regulation A - limited to up to $50M
3. Rule 504 Reg D - limited to $5M
4. Regulation Crowdfunidng - limited to $1M

Question 4

What are the two parts of a registration statement which must be filed to the SEC before making an offer to sell securities?

Answer 4

1. Prospectus

2. Supplemental information

Question 5

3 Characteristics of a security (IPU)

Answer 5

IPU

1. Investment in an enterprise
2. Profit motive
3. Uses managerial effort of others

Question 6

What are the requirements for the two types of registration exemption under Rule 506?

Answer 6

First (safe harbor)

1. No general solicitation or advertising
2. Unlimited numbers of accredited investors
3. Maximum of 35 non-accredited investors

Second

1. General solicitation/advertising allowed
2. All investors are accredited

Question 7

How many tiers are there in Regulation A offerings and are the offerings required to have audited FS?

Answer 7

2 Tiers

Tier 1: Up to $22M offering (unaudited or audited BS and IS; accredited or nonaccredited investors)
Tier 2: $22M to $50M offering (audited BS and IS; accredited or nonaccredited investors with limits on nonaccredited))

Question 8

What is the number-of-day notification requirements for sale of securities under Rules 504 and 506 of Regulation D?

Answer 8

Within 15 days after the first sale of the offering, issuer must notify the SEC by filing Form D.

Question 9

Under Regulation D, under what Rule are financial disclosures required in the event of a sale of offering?

Answer 9

Rule 506, sale to unaccredited investors (audited FS required).

Question 10

What is the asset-minimum and shareholders-minimum limit for the registration of a corporation under the SEA 1934 even if not listed in a national stock exchange?

Answer 10

Corporations with at least $10M asset and 500 nonaccredited shareholders (or 2,000 shareholders in total) MUST still register with the SEC under SEA 1934.

Question 11

Regulation A covers exempt TRANSACTIONS or exempt SECURITIES?

Answer 11

EXEMPT SECURITIES

Question 12

Regulation D covers exempt TRANSACTIONS or exempt SECURITIES?

Answer 12

EXEMPT TRANSACTIONS

Question 13

Securities must be registered with the SEC if they are to be sold in a public offering. What are the two types of exceptions?

Answer 13

1. Exempt Securities (Regulation A)

2. Exempt Transactions (Regulation D)

Question 14

Do the antifraud provisions of SEA 1934 apply to corporations exempt or non-exempt from registration?

Answer 14

Applies to both corporations exempt or non-exempt from registration.

Question 15

Intrastate offerings are exempted from SEC registration if issuer derives how many % within the state and offers exclusively or not outside the state?

Answer 15

80% and exclusively

Question 16

Directors, officers, and owners of how many % of stock are required to report to the SEC every purchase and sale of the stocks?

Answer 16

10% or more of an issuer’s stocks

Question 17

This is a preliminary prospectus that can be issued during the 20-day registration waiting period

Answer 17

Red herring prospectus

Question 18

This kind of registration occurs when a publicly traded company registers a new issuance of shares with the SEC but postpones the sale of those securities.

Answer 18

Shelf registration

Question 19

Shelf-registration is available to first-time issuers (i.e., IPO): True or False

Answer 19

False

Question 20

Shelf registration has a maximum number of years of?

Answer 20

2 years

Question 21

Securities issued under Rule 506 are restricted securities and the issuer must use reasonable care to make certain that buyers are acquiring the securities for investment purposes and are not underwriters. TRUE or FALSE?

Answer 21

TRUE

Question 22

General solicitations are prohibited under: Reg D, Rule 504 OR Reg D, Rule 506

Answer 22

Reg D, Rule 504

Question 23

Under the SEA of 1933, which is least likely to be considered a security:
A. Stock options
B. General partnership interests
C. Limited partnership interests

Answer 23

B. General partnership interests