Video-Courses
EARN COLLEGE CREDIT!

Foundations of Law

Search Our Research Index

A Project of National Paralegal College

Video-Courses
EARN COLLEGE CREDIT!

Foundations of Law

Search Our Research Index

TAKE COLLEGE-LEVEL COURSES WITH
LAWSHELF FOR ONLY $20 A CREDIT!

LawShelf courses have been evaluated and recommended for college credit by the National College Credit Recommendation Service (NCCRS), and may be eligible to transfer to over 1,300 colleges and universities.

We also have established a growing list of partner colleges that guarantee LawShelf credit transfers, including Excelsior University, Thomas Edison State University, University of Maryland Global Campus, Purdue University Global, and Southern New Hampshire University.

GET STARTED TODAY!

Purchase a course multi-pack for yourself or a friend and save up to 50%!

5-COURSE
MULTI-PACK
$180

10-COURSE
MULTI-PACK
$300

Accelerated
1-year bachelor's
program

Foundations of Law
Business Law & Bankruptcy
Securities Laws
The Offering Process

Question 1

NewCo has decided to put together a public offering. It has begun organizing its books and has hired an investment banker in order to get the process underway. The next step that it should take is:

to look for buyers for its security.

Correct

Incorrect!

to draft and submit a prospectus to the SEC.

Correct Perhaps the single most important part of a securities offering from a legal standpoint is the preparation and submission of a prospectus. The reason why the company should begin producing the prospectus early on is because it can take a great deal of time for the SEC to evaluate and comment on the prospectus prior to its final approval.

Incorrect! Perhaps the single most important part of a securities offering from a legal standpoint is the preparation and submission of a prospectus. The reason why the company should begin producing the prospectus early on is because it can take a great deal of time for the SEC to evaluate and comment on the prospectus prior to its final approval.

to begin pricing the securities to determine if there is a market.

Correct

Incorrect!

to hire a group of securities lawyers to ensure that sale proceeds quickly.

Correct

Incorrect!

Question 2

RH&Co. has prepared and submitted a prospectus to the SEC. The SEC responded to the prospectus by suggesting that the company had been a bit bold about its predictions for the company's future. Thus, they have suggested that the company ought to reform its prospectus such that it does not have the effect of:

being overly optimistic.

Correct

Incorrect!

conditioning the market.

Correct This question is of critical importance in understanding what exactly it is that a prospectus is designed to do. Ultimately, it is the role of the prospectus to help investors who read it understand the nature of the company, its operations, and its current finances. What a prospectus is specifically not allowed to do is suggest what the company is going to do in the future. While limited predictions are allowed, they are only allowed in a very specific form and only in very specific parts of the prospectus.

Incorrect! This question is of critical importance in understanding what exactly it is that a prospectus is designed to do. Ultimately, it is the role of the prospectus to help investors who read it understand the nature of the company, its operations, and its current finances. What a prospectus is specifically not allowed to do is suggest what the company is going to do in the future. While limited predictions are allowed, they are only allowed in a very specific form and only in very specific parts of the prospectus.

committing fraud.

Correct

Incorrect!

violating the securities laws.

Correct

Incorrect!

Question 3

Company R has just completed its financial filings in preparation for finalizing its prospectus. The preparation of the documents was completed in compliance with:

The CPA principles.

Correct

Incorrect!

GAAP.

Correct GAAP is the acronym used as shorthand for the Generally Accepted Accounting Principles. GAAP specifies an entire set of rules and requirements that companies must observe if they report their financial information to a public audience. The rules according to GAAP provide a standardized mechanism for reporting that allows companies to prepare and compare their financial information in a way that would not be possible without such a standardized system of accounting.

Incorrect! GAAP is the acronym used as shorthand for the Generally Accepted Accounting Principles. GAAP specifies an entire set of rules and requirements that companies must observe if they report their financial information to a public audience. The rules according to GAAP provide a standardized mechanism for reporting that allows companies to prepare and compare their financial information in a way that would not be possible without such a standardized system of accounting.

GARP.

Correct

Incorrect!

the Financial Accounting Standards Principles.

Correct

Incorrect!

Question 4

JoeCo has prepared and distributed a prospectus to potential investors. However, the SEC has refused to grant the prospectus final approval. What is one of the most likely reasons why the firm would be denied final approval?

Not all potential investors in the company have been identified.

Correct

Incorrect!

The prospectus fails to state a final price for the security.

Correct

Incorrect!

The prospectus was not provided to all individuals who received an earlier copy.

Correct As one of the primary goals of a prospectus is full and fair disclosure, the SEC mandates that every individual who has received a previous draft of the prospectus must receive the final draft. In the event that an investor does not receive a subsequent draft of the prospectus, it is likely that the SEC will postpone the transaction until all investors have received the most current draft of the prospectus.

Incorrect! As one of the primary goals of a prospectus is full and fair disclosure, the SEC mandates that every individual who has received a previous draft of the prospectus must receive the final draft. In the event that an investor does not receive a subsequent draft of the prospectus, it is likely that the SEC will postpone the transaction until all investors have received the most current draft of the prospectus.

The company's attorneys and CEO failed to sign the prospectus.

Correct

Incorrect!

Question 5

In its prospectus, management made several forward-looking statements. Those statements were most likely made in:

the MD&A.

Correct The MD&A's management's discussion and analysis - of a company's financial reports is the one area of the prospectus (or any subsequent financial statement) where the firm is allowed to report its beliefs about the company's future. In the MD&A, management is allowed to make limited predictions about the firm's future and where it might be headed over the coming months and years.

Incorrect! The MD&A's management's discussion and analysis - of a company's financial reports is the one area of the prospectus (or any subsequent financial statement) where the firm is allowed to report its beliefs about the company's future. In the MD&A, management is allowed to make limited predictions about the firm's future and where it might be headed over the coming months and years.

the company's financial statements.

Correct

Incorrect!

the company's statements about its operations.

Correct

Incorrect!

the FASB.

Correct

Incorrect!

Question 6

A new exchange, sponsored by a group of individuals who want to form an exchange for the town of Missoula, Montana, have registered with the SEC to create their exchange. Under which of the following laws would the firm be registering?

The Exchange Traders Act of 1928.

Correct

Incorrect!

The Securities Act of 1933.

Correct

Incorrect!

The Securities Exchange Act of 1934.

Correct Perhaps the two single most important acts with regards to sale and exchange of securities were the Securities Act of 1933 and the Securities Exchange Act of 1934 (the other 'acts' above are fictional). The 1933 Act defined the process of publicly issuing securities through the IPO process. The 1934 Act created a system of registration, creation, and oversight for the various securities exchanges.

Incorrect! Perhaps the two single most important acts with regards to sale and exchange of securities were the Securities Act of 1933 and the Securities Exchange Act of 1934 (the other 'acts' above are fictional). The 1933 Act defined the process of publicly issuing securities through the IPO process. The 1934 Act created a system of registration, creation, and oversight for the various securities exchanges.

The Market Reformation Act of 1972.

Correct

Incorrect!

Question 7

GoingStrong, Inc. has decided to engage in a share offering. In order to comply with the various securities laws for the offering, it will have to consult with the securities issuance laws for:

the Federal Government.

Correct Securities issuance laws are within the sole jurisdiction of the federal government. Only the U.S. Congress and the SEC have the right to promulgate laws regarding the issuance of securities. States are, under certain circumstances, still allowed to operate their own state-based system of securities trading regulations, but many of these rules are also being preempted by the federal system.

Incorrect! Securities issuance laws are within the sole jurisdiction of the federal government. Only the U.S. Congress and the SEC have the right to promulgate laws regarding the issuance of securities. States are, under certain circumstances, still allowed to operate their own state-based system of securities trading regulations, but many of these rules are also being preempted by the federal system.

the state government where it is incorporated.

Correct

Incorrect!

the state government where it does the bulk of its business or is headquartered.

Correct

Incorrect!

all of the above.

Correct

Incorrect!

Question 8

Lev is a broker-dealer of several securities. In order to act as a broker-dealer for these companies, he must:

register with the companies whose shares he is trading.

Correct

Incorrect!

inform his clients that he is only registered to deal in certain securities.

Correct

Incorrect!

register with the SEC and pass qualifying exams to become a broker-dealer.

Correct The registration of broker-dealers is accomplished in the 1934 Act along with the creation and regulation of securities markets in general. In the case here, the broker-dealer would be required to register with the SEC and pass a series of exams administered by that agency before he could begin dealing with clients.

Incorrect! The registration of broker-dealers is accomplished in the 1934 Act along with the creation and regulation of securities markets in general. In the case here, the broker-dealer would be required to register with the SEC and pass a series of exams administered by that agency before he could begin dealing with clients.

register with the state government where he works that he is a broker-dealer.

Correct

Incorrect!

Question 9

Ultimate liability for the material in a prospectus rests with:

the company's attorneys.

Correct

Incorrect!

the company's board.

Correct It is the board of a company that, with the assistance of its bankers and attorneys, drafts the prospectus. It is also the company's board that ultimately puts its stamp of approval on the final prospectus. As such, it is ultimately the responsibility of the company's board to ensure that the contents of the prospectus present a full and fair analysis of the company's operations and financial condition. In the modern markets, it would not be unheard of for a company's board to be held liable ' civilly or criminally - for any misstatement or omission in a prospectus.

Incorrect! It is the board of a company that, with the assistance of its bankers and attorneys, drafts the prospectus. It is also the company's board that ultimately puts its stamp of approval on the final prospectus. As such, it is ultimately the responsibility of the company's board to ensure that the contents of the prospectus present a full and fair analysis of the company's operations and financial condition. In the modern markets, it would not be unheard of for a company's board to be held liable ' civilly or criminally - for any misstatement or omission in a prospectus.

the company's bankers.

Correct

Incorrect!

all of the above.

Correct

Incorrect!

Question 10

You are currently working as an attorney for the SEC in the prospectus review area. Which of the following looks most like "conditioning the market" to you?

The company has had sound revenue growth over the last six quarters.

Correct

Incorrect!

We expect costs in our shoe division to rise 10% in the next year.

Correct

Incorrect!

Profits are expected to triple as buyers recognize the true potential of our product.

Correct When an SEC review suggests that a company's prospectus is 'conditioning the market,' what the agency is saying is that the language of the prospectus is making predictions, rather than stating facts. Thus, language that suggests profits are going to head in one direction or that buyers will suddenly catch on is simply unfounded prediction. As such, the SEC staff will likely recommend that language of this sort be moderated or eliminated.

Incorrect! When an SEC review suggests that a company's prospectus is 'conditioning the market,' what the agency is saying is that the language of the prospectus is making predictions, rather than stating facts. Thus, language that suggests profits are going to head in one direction or that buyers will suddenly catch on is simply unfounded prediction. As such, the SEC staff will likely recommend that language of this sort be moderated or eliminated.

This security is being offered with the primary goal of raising funds for an acquisition we anticipate closing in the third quarter of the following year.

Correct

Incorrect!

Follow Us

Become a LawShelf affiliate
and earn commissions!

Terms of Service

©2023 National Paralegal College