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Flashcards in REG 5 Deck (20):

Data, Inc., intends to make a $375,000 common-stock offering under Rule 504 of Regulation D of the Securities Act of 1933. Data

Rule 504 of Regulation D applies to small issues. If a company will issue $1mn or less in a one-year period, it qualifies for this exemption.
So long as Data is not an investment company, there are no further restrictions on offerings this small, except that they cannot be offered through general advertising, unless certain requirements are met. Data may make the offering to any number of any kind of investors.


Imperial Corp. is offering $450,000 of its securities under Rule 504 of Regulation D of the Securities Act of 1933.
Under Rule 504, Imperial is required to

Rule 504 is a very broad exemption.
There is no limit placed on the total number of any class of investors, and there is no requirement that anyone receive financial information.
The restrictions are that the offering cannot be made through general advertising and must not put the issuer over $1mn in offerings in the past year. Also, the SEC must be notified within 15 days of the first sale to qualify for this exemption.


The JOBS Act allows general solicitation in a Reg D Rule 506 offering if the issuer takes "reasonable steps" to insure what?

General solicitation will be allowed under Rule 506 (and 505) Reg D offerings only if the issuer takes reasonable steps to insure that it sells only to accredited investors. If it does not engage in general solicitation, the issuer can sell to up to 35 unaccredited investors under Reg. D.


Sam is a multimillionaire. He invested $100,000 in Company A's crowdfunded venture. Later that year, he wanted to invest in Company B's crowdfunded venture. What is the largest amount Sam can invest in B's offering?

$100,000 is the most someone can invest in crowdfunded ventures during the course of a single year.


The maximum amount that a firm can raise through crowdfunding in a single year is:

$1 million is the ceiling for the crowdfunding exemption.


Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement.
Under Section 11, which of the following must be proven by a purchaser of the security?

Under Section 11 of the 1933 Act, a plaintiff need not show either reliance or fraud (or even negligence) by the defendants. However, defendants can win the day if they can disprove reliance. And the defendants other than the issuer can win if they can establish that they acted with due diligence. The primary things that plaintiffs must show to win their Section 11 claim are that there was a material misstatement in the registration statement on the effective date; that they can trace their shares to that registration statement; and that they suffered damages.


For a CPA to be liable for damages under the anti-fraud provisions of Section 10(b) and rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove all of the following, except that

Section 10(b) and Rule 10b-5 govern material misstatements and omissions that are related to the sale of any security. To win a case against a CPA based on one of these theories, the plaintiff must show that (s)he relied on the misstatements; that the misstatements were material; and that the CPA knew of the misstatements (acted with scienter). If GAAS has been followed, this probably indicates that a CPA will not be liable, but a CPA may lose a case like this even if GAAS has been followed, so long as all three elements can be shown.


Under the liability provisions of Section 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?

Intentionally preparing and filing with the SEC a reporting corporation's incorrect quarterly report.


An accountant will be liable for damages under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 only if the plaintiff proves that

A plaintiff must generally show several things to win a Section 10(b) case. A CPA must have (1) intentionally or recklessly (2) made a misstatement of material fact or omitted a material fact (3) that was relied upon by the defendant.


If Larson succeeds in the Section 10(b) and Rule 10b-5 suit, Larson would be entitled to

Victims of fraudulent misstatements are entitled to rescind the transaction OR recover their losses caused by their reliance on the false statements.


Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acts

This provision requires an untrue statement and an intent to defraud. Defenses include lack of knowledge that the statement was false and acting in good faith.


Ted buys Synchotic Corporation shares based on Synchotic's announcement of record earnings. But just a few days later, on July 1, 2010, Synchotic admits that its earnings had been artificially inflated via fraudulent earnings management. Its stock price drops dramatically that day, and Ted makes a significant loss. Ted wishes to bring a 1934 Act securities-fraud lawsuit against Synchotic. In terms of the statute of limitations, when must Ted bring his lawsuit?

Within two years of when he should have discovered the fraud and within five years of the fraud.


Which of the following does the Dodd-Frank Act attempt to do?

Because Dodd-Frank attempts to do all four of these things - limit risk; limit proprietary trading; increase transparency in the OTC market; and increase disclosure by hedge funds - this is the best answer.


Social security benefits may include all of the following, except

The Social Security Act of 1935 created an insurance program that covers a variety of items, including disability, retirement, payments to divorced spouses, and Medicare payments. Medicaid payments are provided out of a separate fund.


Tally is not a "fully insured" worker under the Social Security rules, but she is a "currently insured" worker. To which benefits is she entitled?

Disability and Lump-Sum Death benefits.


While on vacation, Massey is severely injured in a motorcycle accident. Which of the following is true?

In order to be eligible for benefits, Massey must be prevented from working for a year or more.


For the entire year of 2005, Ral Supermarket, Inc. conducts its business operations without any permanent or full-time employees.
Ral employs temporary and part-time workers during each of the 52 weeks in the year.
Under the provisions of the Federal Unemployment Tax Act (FUTA), which of the following statements is correct regarding Ral's obligation to file a federal unemployment tax return for 2005?

A return must be filed under FUTA if there are ANY employees during a substantial portion of the year.
If a full OR part-time employee is around for over 20 weeks in a given year, a return must be filed.


When do employee contribution to retirement plans vest?



Dan is naturally concerned, as an ex-employee of Goggle, how long his insurance will last, given that he is having a difficult time finding a new job in a down economy. This is particularly important, because Dan's wife Sarah was disabled in a car accident just a month before Dan was laid off. Which of the following is true, assuming Dan pays the premiums?

This answer is also correct, but incomplete. When a candidate is disabled at the time of the qualifying event or within 60 days of continuation coverage, the 18 month period is extended to 29 months, as it would be here for Sarah.


What is the length of copywrite protection?

This is 95 years from the date of publication, which is shorter than 120 years from the date of creation