Stock Lawyer Stock Market 5

Question 1

Which exemption under the Securities Act of 1933 allows issuers to sell securities to 'accredited investors' without SEC registration?

Accepted Answer

Regulation D, Rule 506

Answer

Regulation D, Rule 506(b) and 506(c), provides a safe harbor for private placements to accredited investors without requiring SEC registration.

Question 2

What is 'naked short selling' and why is it controversial?

Accepted Answer

Selling shares short without first borrowing or locating them, potentially creating phantom shares

Answer

Naked short selling involves selling securities short without borrowing them first, which can create artificial selling pressure and fail-to-deliver situations, raising market integrity concerns.

Question 3

Under the Dodd-Frank Act's whistleblower program, what percentage of sanctions can a qualifying SEC whistleblower receive?

Accepted Answer

10% to 30% of sanctions over $1 million collected

Answer

The SEC whistleblower program awards between 10% and 30% of monetary sanctions collected in cases where the sanction exceeds $1 million.

Question 4

What is a 'secondary offering' in U.S. securities markets?

Accepted Answer

A registered offering of shares after the initial public offering, either by the company or existing shareholders

Answer

A secondary offering is any registered public offering of shares after the IPO, which may be a new issuance by the company (dilutive) or a sale by existing shareholders (non-dilutive to the company).

Question 5

Which SEC rule sets forth the conditions under which a security may be resold by an affiliate of the issuer without registration?

Accepted Answer

Rule 144

Answer

SEC Rule 144 establishes the conditions—including holding periods, volume limitations, and current public information requirements—under which restricted and control securities may be publicly resold.

Stock Lawyer Practice Test

Stock Lawyer Practice Test

Stock Lawyer Stock Market 5