Chapter 6 Practice Question Answers
1. Answer: D. Under Section 11 of the Securities Act, the issuer cannot be exempt from liability in the case of any untrue statement or omission in the registration statement. However, any other person who undertakes a reasonable investigation and as of the effective date has reasonable grounds to believe that the statements in the registration were true and that there were no material omissions can avoid liability under Section 11 rules.
2. Answer: B. Each of the SEC’s different forms for submitting registration statements is structured so that Part I of the form essentially is the preliminary prospectus (and, after prices have been added, the final prospectus).
3. Answer: C. A firm’s research and investment banking departments must be separated both physically and in terms of how their information is stored electronically. Under no circumstances may someone from the investment banking department review and approve/block a research report, or influence the compensation evaluations of a research analyst.
4. Answer: C. If the SEC does find issues with the prospectus, it will return a deficiency letter, and the issuer will have to file an amendment to the registration statement. If the amendment does not satisfy the SEC’s concerns, the SEC will send another deficiency letter and the issuer will need to file another amendment.
5. Answer: A. Piggyback registration rights are often granted when a private company sells unregistered shares (using one of several exemptions described in Chapter 10) with a promise that those shares will be registered by the company if and when it conducts an IPO. This can be an important provision for these early investors, because registering securities typically enhances their liquidity. These investors might even sell their shares as part of the IPO, thus making the IPO a split offering.
6. Answer: D. A registration statement must include audited copies of two years of balanc