Final Exam LES 305 Securities
questions with correct solutions
The Securities Act of 1933 regulates - correct answer ✔✔sales of securities by businesses to investors.
[Note: See the third paragraph on page 278 that explains the reach of the 1933 Securities Act.]
The Howey test - correct answer ✔✔defines a security as a "contract, transaction, or scheme whereby a
person invests his money in a common enterprise and is led to expect profits solely from the efforts of a
promoter or third party," and was established by the United States Supreme Court. [Note: See page 728.]
Securities include - correct answer ✔✔notes, stocks, bonds, every investment contract that gives notice
of an indebtedness or participation in a business for profit. [Note: Regardless of what you call it, if
something meets the Howey test, it is a security. See page 728.]
All sellers of securities must complete certain filing requirements before the securities may be sold
unless an exemption applies. - correct answer ✔✔True. See page 729.
An issuer of securities meets which of the following qualifications for the intrastate offering exemption -
correct answer ✔✔The investors must all be residents of the same state, and the issuer has 80% of its
assets in the state; 80% of operating income is from the state; and 80% of the proceeds of the sale are
used on operations within the state. [Note: This is called the "triple 80" test. See page 730.]
Accredited investors include - correct answer ✔✔A director, executive officer or general partner of the
issuer, a person who purchases at least $150,000 of the securities being offered, natural persons with a
net worth over $1 million, or a natural person with an individual income over $200,000 within the last 2
years or $300,000 per couple. [Note: Other investors are unaccredited and subject to limitations for
certain types of registration exemptions. See page 731-732. Also note that the value of the investor's
primary residence is not included in the net worth calculation.]
The SEC reviews filings and if the security is a good investment, it may be issued. - correct answer
✔✔False. The SEC only looks at whether the proper information has been disclosed, not whether the
security will be a good investment. See page 733.
questions with correct solutions
The Securities Act of 1933 regulates - correct answer ✔✔sales of securities by businesses to investors.
[Note: See the third paragraph on page 278 that explains the reach of the 1933 Securities Act.]
The Howey test - correct answer ✔✔defines a security as a "contract, transaction, or scheme whereby a
person invests his money in a common enterprise and is led to expect profits solely from the efforts of a
promoter or third party," and was established by the United States Supreme Court. [Note: See page 728.]
Securities include - correct answer ✔✔notes, stocks, bonds, every investment contract that gives notice
of an indebtedness or participation in a business for profit. [Note: Regardless of what you call it, if
something meets the Howey test, it is a security. See page 728.]
All sellers of securities must complete certain filing requirements before the securities may be sold
unless an exemption applies. - correct answer ✔✔True. See page 729.
An issuer of securities meets which of the following qualifications for the intrastate offering exemption -
correct answer ✔✔The investors must all be residents of the same state, and the issuer has 80% of its
assets in the state; 80% of operating income is from the state; and 80% of the proceeds of the sale are
used on operations within the state. [Note: This is called the "triple 80" test. See page 730.]
Accredited investors include - correct answer ✔✔A director, executive officer or general partner of the
issuer, a person who purchases at least $150,000 of the securities being offered, natural persons with a
net worth over $1 million, or a natural person with an individual income over $200,000 within the last 2
years or $300,000 per couple. [Note: Other investors are unaccredited and subject to limitations for
certain types of registration exemptions. See page 731-732. Also note that the value of the investor's
primary residence is not included in the net worth calculation.]
The SEC reviews filings and if the security is a good investment, it may be issued. - correct answer
✔✔False. The SEC only looks at whether the proper information has been disclosed, not whether the
security will be a good investment. See page 733.
