Chapter 1 Practice Question Answers
1. Answer: A. In a primary offering, the issuing corporation receives the proceeds from the sale of new issue.
2. Answer: A. Under Rule 147 the corporate issuer must have its principal place of doing business in the same state wherein the stock is issued. Additionally, 80% of revenues must come from within the state, 80% of assets must come from within the state, 80% of proceeds must be used in-state, or the majority of people employed by the issuer must live in the state. Finally, 100% of purchasers must reside in the same state.
3. Answer: C. In a best-efforts offering, the escrow agent must promptly deposit the funds into an escrow account. The escrow agent is only allowed to invest these funds into certain specified investments under SEC Rule 15c2-4. According to SEC interpretation, the escrow agent may only invest in (1) bank accounts, (2) money market bank accounts, (3) short time certificates of deposit issued by a bank, or (4) short-term securities issued or guaranteed by the U.S. government.
Certain investments are specifically not permissible within the meaning of Rule 15c2-4: money-market funds, corporate equity or debt securities, repurchase agreements, banker acceptances, commercial paper, and municipal securities.
4. Answer: A. Yes, all the information contained in the ad would be considered generic under Rule 135A. Ace Broker-Dealer’s advertisement is considered generic advertising because it does not specifically refer by name to the securities of Strong Investment Company or to the investment company itself, and because the information it does contain qualifies as generic communication. Generic advertisements must contain the name and address of the registered broker-dealer that is responsible for the communication. It is allowable to invite readers to inquire about additional information in a generic advertisement. Generic communication, as defined by SEC Rule 135A, is limited