Chapter 10 Practice Question Answers
1. Answer: C. The term “exempt offering,” as most commonly used, refers to exemption from the registration requirements of the Securities Act. Being exempt from filing a registration statement does not make the offering exempt from the anti-fraud provisions of the Securities Act, the Exchange Act, or any other anti-fraud laws. Moreover, even if an offering is exempt from federal registration, it must still comply with any state requirements that might apply. Finally, even when securities are exempt from the regular SEC registration process, that doesn’t mean there won’t be required SEC filings related to the offering. Many exemptions merely substitute less burdensome SEC filings, rather than completely freeing the securities from SEC oversight.
2. Answer: B. An intrastate exemption allows unregistered intrastate offerings of securities. The exemption requires a reasonable belief at the time of the sale that the purchaser is a resident of the state. If the investor moves out of the state in between the initial offer and the actual sale, the sale may not be made.
3. Answer: B. Crowdfunding offerings may raise up to $5 million over a twelve-month period. Crowdfunding securities usually cannot be sold within one year after purchase, unless the securities are transferred back to the issuer, to an accredited investor, or to a family member of the purchaser. There are some constraints on the amount that non-accredited investors can invest based on income and net worth. However, there is no limit on the number of investors.
4. Answer: A. Restricted securities, such as those purchased in a private placement, are unregistered and may only be resold if an exemption to the Securities Act permits it. One such exemption is SEC Rule 144A, which permits sales of restricted securities to qualified institutional buyers (QIBs, or QUIBs). The seller might or might not be another QIB who purchased the securities previously in anot