NASAA Series 66 — All Questions

A registration statement became effective on March 1, 2026. On September 1, 2026, the issuer asks to withdraw it, although shares of the registered class are outstanding. What is the result?

• a.Withdrawal is permanently barred because securities of the class remain outstanding
• b.Withdrawal is barred until March 1, 2027, and after that it rests in the Administrator's discretion✓
• c.The withdrawal takes effect on the thirtieth day after filing, unless the Administrator objects
• d.The withdrawal is allowed because the issuer has stopped selling anywhere in the state

Section 305(i) provides that a registration statement may not be withdrawn for one year from its effective date if any securities of the same class are outstanding, and otherwise may be withdrawn only in the Administrator's discretion. Here the one-year bar runs to March 1, 2027. The thirty-day rule describes withdrawal of a broker-dealer, agent or adviser registration, not of a securities registration. Ceasing sales does not lift the bar, and the bar is not permanent; it ends after one year.Uniform Securities Act §305(i)

A registrant has sold all the shares it registered. On May 4 it sells 10,000 more shares of the same class at the same price and with the same underwriting discounts. On October 20 it files a post-effective amendment to increase the registered shares and pays the late fee and additional filing fee. What is the effect?

• a.The amendment relates back only if the price and discounts are raised to match the market
• b.The May 4 sales remain unregistered, because an amendment cannot cure sales already made
• c.The amendment relates back only if it is filed within thirty days of the date of that sale
• d.It relates back to May 4, as filing and fees fall within six months of that sale✓

Section 305(k) allows an effective registration statement to be amended to increase the securities offered if the offering price and underwriters' discounts are unchanged. The amendment becomes effective when the Administrator so orders, and it relates back to the date of the sale of the additional securities if the amendment is filed and the late fee and additional filing fee are paid within six months of that sale. October 20 is within six months of May 4. A change in price or discounts would defeat the amendment, and no thirty-day limit applies.Uniform Securities Act §305(k)

A registration statement became effective on September 1. The Administrator already knew of a material omission in it on that date. On October 20 she institutes a stop order proceeding based on the omission. May she proceed?

• a.No, because every stop order proceeding must be started before the registration statement takes effect
• b.No, since a fact known at effectiveness must be acted on within 30 days, here by October 1✓
• c.Yes, because a stop order proceeding can be begun at any time while the registration is effective
• d.Yes, because she has one year from the effective date to act on an omission she already knew

The last paragraph of Section 306(a) bars the Administrator from instituting a stop order proceeding against an effective registration statement on the basis of a fact or transaction known to her when the statement became effective unless the proceeding is instituted within the next thirty days. Thirty days after September 1 is October 1, so October 20 is too late. The one-year limit is a different rule, found in the injunction ground. Stop order proceedings can be brought after effectiveness, within the limits stated, so they are not limited to the period before it.Uniform Securities Act §306(a)

A court enjoined an offering under another federal act on February 10, 2026. The offering's state registration statement is effective. On March 1, 2027, the Administrator wants to start a stop order proceeding relying only on that injunction. May she do so?

• a.Yes, because an injunction is a ground for a stop order and no time limit applies to when she must act on it
• b.No, because only an injunction entered under that state's own act can support a state stop order
• c.No, because a proceeding based on an injunction must start within one year of the order, by February 10, 2027✓
• d.Yes, because she has two full years from the order to start a proceeding that is based on an injunction

Section 306(a)(2)(C) allows a stop order where the registered security is the subject of an order or injunction under another federal or state act applicable to the offering, but the Administrator may not institute a proceeding against an effective registration statement on that ground more than one year from the date of the order or injunction. One year from February 10, 2026 expired on February 10, 2027, before March 1, 2027. The injunction is a valid ground within that year, so the third statement is wrong, and the period is one year, not two or unlimited.Uniform Securities Act §306(a)(2)(C)

The Administrator summarily suspends the effectiveness of a registration statement pending a final determination. The registrant's written request for a hearing is received on September 1. By what date must the matter be set down for hearing?

• a.October 1, thirty days after the request is received
• b.October 31, sixty days after the request is received
• c.September 1, on the very day the written request arrives
• d.September 16, fifteen days after the request is received✓

Under Section 306(b), the Administrator's summary order must tell the affected persons that within fifteen days after receipt of a written request the matter will be set down for hearing. Fifteen days after September 1 is September 16. The thirty-day and sixty-day periods are not the hearing period; sixty days is the time to petition for judicial review of a final order under Section 411. A same-day hearing is not required.Uniform Securities Act §306(b)

A national bank acts as depositary for a protective committee in the reorganization of a bankrupt manufacturer and issues certificates of deposit that represent the manufacturer's deposited bonds. Under Section 402(a)(3), are the certificates exempt securities?

• a.Yes, because a certificate of deposit issued by a federally chartered bank is always exempt
• b.No, because they are not an interest in or debt of the bank and it does not guarantee them✓
• c.Yes, because the bank is organized under federal law and issued them in a court proceeding
• d.No, because a bank's securities are exempt only when they are sold to institutional buyers alone

Section 402(a)(3) exempts a security issued by and representing an interest in or a debt of, or guaranteed by, the bank. Certificates issued by a bank acting only as depositary give holders no claim against the bank itself, so the exemption does not reach them, as the official comment explains. A federal charter alone is not enough, because the exemption looks at what the security represents. The exemption does not depend on the buyer being an institution, and the involvement of a court does not create an exemption.Uniform Securities Act §402(a)(3) and Official Comment

A privately owned electric utility has its rates and charges set by a state public utility commission. The utility sells first-mortgage bonds to the public. Under Section 402(a)(7), the bonds are:

• a.Exempt, because the issuer is regulated in respect of its rates and charges by a government authority✓
• b.Exempt only if the utility lists the bonds on a national securities exchange within one year
• c.Not exempt, because the exemption is limited to railroads and other common carriers that serve the public
• d.Exempt only if the utility is a registered holding company under the Public Utility Holding Company Act of 1935

Section 402(a)(7) exempts a security issued or guaranteed by a railroad, common carrier, public utility or holding company that is, among other alternatives, regulated in respect of its rates and charges by a governmental authority of the United States or a state. A state-regulated electric utility meets that alternative. Holding-company status is only one of several alternatives, the exemption is not limited to carriers, and no exchange listing is required.Uniform Securities Act §402(a)(7)

A local chamber of commerce, organized not for private profit, sells interest-bearing notes to its members to fund a new office. Under the Act, the notes are:

• a.Exempt from registration and from antifraud provisions, since the issuer is a nonprofit
• b.Not exempt, because the exemption is limited to religious, educational and charitable groups
• c.Exempt from registration, although the antifraud provisions still apply to their sale✓
• d.Exempt from registration only if a bank or an insurer guarantees payment of the notes

Section 402(a)(9) exempts securities issued by a person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic or reformatory purposes, or as a chamber of commerce or trade or professional association. The notes are therefore exempt from registration, but the Act's exemptions do not remove the antifraud provisions, so a seller who misleads members is still liable. No bank guarantee is required, and a chamber of commerce is named in the exemption, so the list is not limited to charities.Uniform Securities Act §402(a)(9), §402(d); §101

A corporation issues a promissory note that matures in 180 days, carries a rating in the highest category from a nationally recognized statistical rating organization, and is sold in $25,000 denominations. Is the note exempt under Section 402(a)(10)?

• a.No, because the denominations are below the required minimum of $50,000✓
• b.Yes, because every note rated in the top category is exempt, whatever its denomination
• c.No, because the exemption allows a maturity of no more than 90 days after issuance
• d.Yes, because the maturity is within nine months and the note has a top rating

Section 402(a)(10) exempts a note or similar instrument only if it evidences an obligation to pay cash within 9 months after issuance, is issued in denominations of at least $50,000, and is rated in one of the 3 highest rating categories. The 180-day maturity and top rating are satisfied, but $25,000 denominations are not. The maturity limit is nine months, not 90 days, and a high rating cannot replace the minimum denomination.Uniform Securities Act §402(a)(10)

A company adopts an employee stock purchase plan that will begin on July 1. Under Section 402(a)(11), by what date must the company notify the Administrator in writing for investment contracts issued under the plan to be exempt?

• a.July 1, the same day the plan begins operation
• b.June 1, thirty days before the start date✓
• c.July 31, thirty days after the plan has begun
• d.June 16, fifteen days before the plan starts

Section 402(a)(11) exempts an investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing or similar benefit plan if the Administrator is notified in writing thirty days before the inception of the plan. Thirty days before July 1 is June 1. A fifteen-day notice is too late, notice on the start date is too late, and notice after the plan begins comes after the required point.Uniform Securities Act §402(a)(11)

A city water authority issues revenue bonds that are payable solely from water fees, not from tax receipts. Under the Act, the bonds are:

• a.Exempt only if they are general obligation bonds backed by the city's taxing power
• b.Not exempt, because bonds that depend on one project's income are investment contracts
• c.Not exempt, because only bonds that a state or the federal government guarantees can qualify
• d.Exempt, because the exemption expressly names revenue obligations of subdivisions✓

Section 402(a)(1) exempts any security, expressly including a revenue obligation, issued or guaranteed by the United States, a state, a political subdivision of a state, or an agency or instrumentality of one of them. A water authority's revenue bonds fall within it, so the bonds do not need to be general obligations. A government guarantee is only one alternative, and payment from project revenue does not turn the bonds into an investment contract. The exemption is from registration, not from the antifraud provisions.Uniform Securities Act §402(a)(1)

A corporation's common stock is listed on the New York Stock Exchange. The corporation also issues warrants to buy that common stock, and the warrants are not themselves listed. Under Section 402(a)(8), the warrants are:

• a.Not exempt, because only the listed security itself, and not any related warrant, qualifies
• b.Not exempt, because a warrant must itself be listed on an exchange to be exempt
• c.Exempt only if the warrants are exercisable within ninety days of their issuance
• d.Exempt securities, because the exemption includes a warrant to purchase a listed security✓

Section 402(a)(8) exempts a security listed or approved for listing on the named exchanges, any other security of the same issuer of senior or substantially equal rank, any security called for by listed subscription rights or warrants, and any warrant or right to purchase or subscribe to any of those. The unlisted warrants to buy the listed common stock are therefore exempt. The ninety-day exercise limit belongs to a different exemption, for offers to existing holders.Uniform Securities Act §402(a)(8)

The Administrator revokes the Section 402(b)(9) exemption for a particular security by summary order dated March 1. A seller made sales of the security on February 15 and on March 10. On March 10 the seller did not know of the order and could not have learned of it with reasonable care. Which statement is correct?

• a.Only the February 15 sale is a violation, because an order applies to earlier sales as well
• b.Neither sale is a violation, since the order is not retroactive and the seller lacked knowledge✓
• c.Both sales are violations, because the order withdraws the exemption for the security as a whole
• d.Only the March 10 sale is a violation, because ignorance of an order is never a defense to it

Section 402(c) lets the Administrator deny or revoke certain exemptions by order, but no such order may operate retroactively, so the February 15 sale was exempt when made. A person is not considered to have violated the registration requirement by reason of a sale made after the order if the person sustains the burden of proving that he did not know, and in the exercise of reasonable care could not have known, of the order. The March 10 seller meets that test as stated. The order does not reach back, and the Act provides this lack-of-knowledge defense.Uniform Securities Act §402(c)

An issuer sells its unregistered stock to 4 persons in this state in March, 3 more in June and 2 more in September, all within one 12-month period. All buyers purchase for investment, no commission is paid, and none of them is a financial institution. A tenth buyer and an eleventh buyer, both individuals, approach the issuer in November of the same period. Under Section 402(b)(9), the sale to the eleventh buyer:

• a.Remains exempt, because the first nine buyers bought in three separate transactions during the year
• b.Falls outside the exemption, because it makes more than ten non-institutional buyers in twelve months✓
• c.Falls outside the exemption only if the eleventh buyer is not an accredited investor under Regulation D
• d.Remains exempt, because each buyer purchased for investment and no commission was paid on any of the sales

Section 402(b)(9) exempts offers or sales to not more than 10 persons, other than the financial and institutional buyers named in 402(b)(8), in this state during any period of 12 consecutive months, if the seller reasonably believes the buyers are purchasing for investment and no commission is paid for soliciting a buyer in this state. Here the count is 4 + 3 + 2 = 9, then a tenth buyer, then the eleventh, which exceeds ten. Splitting the sales into separate transactions does not reset the count, and the limit does not turn on accredited status.Uniform Securities Act §402(b)(9)

A broker-dealer's agent wants to rely on the manual exemption for a stock that has been outstanding for 90 days, whose issuer is actually engaged in business, and whose price is reasonably related to the market price. The manual contains a balance sheet audited 14 months ago and audited income statements for the last 2 fiscal years. The stock is not listed and the issuer has been in business for 2 years with $1 million of assets. Which statement is correct?

• a.It is available, because the audited balance sheet is less than 18 months old, as the Act requires
• b.It is unavailable, because the stock must have been outstanding for at least 180 days
• c.It is available, because the price is reasonably related to the current market price of the stock
• d.It is unavailable, because an unlisted issuer needs 3 years in business or $2 million of assets✓

Section 402(b)(2) requires, among other conditions, that the issuer's securities be outstanding at least 90 days, that a recognized manual or EDGAR filing contain a description of the business, its officers and directors, a balance sheet audited within the past 18 months and two years of audited income statements, and that the security be listed on a named exchange or Nasdaq unless the issuer has operated continuously for three years or has $2 million of assets. This issuer has the 90 days, a current audit and the income statements, but it is unlisted with only 2 years of operations and $1 million of assets. The 180-day period belongs to a different exemption, and a market-related price alone cannot meet the listing or asset condition.Uniform Securities Act §402(b)(2)

A customer telephones a registered broker-dealer and asks to buy 500 shares of an unregistered, non-exempt company that the firm has never recommended or mentioned to the customer. The broker-dealer fills the order as agent for the customer. Which statement is correct?

• a.It is exempt only if the firm first files a notice of the order with the Administrator
• b.It is exempt only if the customer qualifies as an institutional investor under the Act
• c.It is exempt as an unsolicited order, and a signed acknowledgment may be required✓
• d.It is a violation, since a registered firm may not act on an order for an unregistered security

Section 402(b)(3) exempts a non-issuer transaction effected by or through a registered broker-dealer under an unsolicited order or offer to buy, and the Administrator may by rule require that the customer acknowledge in writing, before execution, that the security is not registered. The customer need not be an institution, and the exemption does not require a prior notice filing. Execution is lawful because the order was unsolicited.Uniform Securities Act §402(b)(3)

Under the Uniform Securities Act of 1956, a corporation offers additional shares only to its existing shareholders. A commission is paid to a broker-dealer on the sales, and the corporation files a notice of the offering with the Administrator on Monday, July 1. The Administrator does not disallow the exemption. Counting only full business days, when may sales to existing holders first begin under Section 402(b)(11)?

• a.After the fifth full business day after the filing, if no order disallows it✓
• b.After the thirtieth day after the filing, if no order disallows the exemption
• c.After the second full business day, since existing holders have a shorter notice period
• d.Immediately on Monday, July 1, because only the filing of the notice is required

Under Section 402(b)(11) of the 1956 Act, an offer to existing security holders is exempt if either no commission is paid (other than a standby commission) or the issuer first files a notice and the Administrator does not disallow the exemption within the next five full business days. Because a commission is paid here, only the notice route is open, so sales may begin after the fifth full business day following the filing, not on the filing day. The period is five business days, not thirty calendar days or two business days.Uniform Securities Act (1956) Sec. 402(b)(11)

A promoter plans a corporation that has not yet been formed and obtains signed preorganization subscriptions for a total of 12 subscribers. No money has been paid by any subscriber, and no commission is paid for soliciting them. Is the preorganization certificate exemption in Section 402(b)(10) available?

• a.Yes, because the exemption applies to any number of subscribers before incorporation
• b.No, because every preorganization subscription must be registered by coordination
• c.No, because the exemption allows no more than 10 subscribers and this deal has 12✓
• d.Yes, because no consideration has been paid and no commission is paid

Section 402(b)(10) exempts a preorganization certificate or subscription for which no consideration has been paid or delivered, if the subscription is not to be accepted until 30 days or more after it is signed, there are no more than 10 subscribers, and no commission is paid. With 12 subscribers the numerical limit is exceeded, so the exemption fails even though no payment has been made. The number of subscribers is limited, and registration by coordination is not the only route for such subscriptions in general.Uniform Securities Act §402(b)(10)

A corporation has a bond that has been outstanding for 4 years. It defaulted on an interest payment in its second preceding fiscal year, and no other defaults occurred. An agent wants to use the senior-security exemption in Section 402(b)(2.1) for a non-issuer sale. Which statement is correct?

• a.The exemption is unavailable, because it covers only securities of investment-grade issuers
• b.It is unavailable, because a default occurred in the current or last three fiscal years✓
• c.The exemption is available, because the bond has been outstanding for more than 3 years
• d.The exemption is available, because only a default on principal, not interest, defeats it

Section 402(b)(2.1) exempts a non-issuer transaction in a security that is senior to a security of the same issuer that has been outstanding for at least three years, if no default in payment of principal, interest or dividends has occurred during the issuer's current fiscal year or its three preceding fiscal years. A default in the second preceding year is inside that look-back window, so the exemption is lost. The requirement covers interest as well as principal, and the statute does not use an investment-grade test.Uniform Securities Act §402(b)(2.1)

A company files a registration statement with the SEC and a registration statement by coordination with the state Administrator. Before either is effective, its underwriter distributes a preliminary prospectus to prospective investors in the state and gets indications of interest. No order or proceeding is pending against the company. Under Section 402(b)(12), the underwriter's activity is:

• a.A violation, because no offer may be made until the registration is effective
• b.Exempt as an offer, but no sale until the registration becomes effective✓
• c.Exempt as both an offer and a sale, because both filings are on record
• d.Exempt only if the underwriter first obtains a written order from the Administrator

Section 402(b)(12) exempts an offer, but not a sale, of a security for which a registration statement has been filed under both the federal Securities Act and the state Act, if no stop order or similar proceeding is pending. Preliminary offers and indications of interest are therefore allowed, while sales must wait for effectiveness. No separate Administrator order is required for the exemption.Uniform Securities Act §402(b)(12)

An investor who bought unregistered shares from a company sues to rescind, and the company defends by claiming that the sale was an isolated non-issuer transaction. At trial, who must prove that the exemption applies?

• a.The Administrator must prove that no exemption applies, as the enforcer of the Act
• b.The investor must prove that no exemption applies, as part of the claim
• c.The company claiming the exemption bears the burden of proving every element✓
• d.The burden is shared equally, since both parties have the relevant records

Section 402(d) places the burden of proving an exemption or an exception from a definition on the person claiming it. The company is therefore the party that must establish the facts supporting the claimed exemption. An issuer's own sales are also not the non-issuer transactions that Section 402(b)(1) describes, so the company would face a difficult proof. The Act does not shift the burden to the investor or divide it equally.Uniform Securities Act §402(b)(1), §402(d)

A married couple wants to invest in a Rule 506(b) offering as accredited investors under the net worth test. Their assets are a home worth $700,000 with a $400,000 mortgage (no new borrowing against the home in the past 60 days), brokerage accounts of $900,000 and retirement accounts of $300,000. They also owe $150,000 in other debts. What is their joint net worth for this purpose?

• a.$1,050,000, so they qualify✓
• b.$650,000, so they do not qualify
• c.$1,350,000, so they qualify
• d.$750,000, so they do not qualify

Under Rule 501(a)(5), the primary residence is not counted as an asset, and the mortgage on it is not counted as a liability up to the home's value (unless the debt grew in the 60 days before the sale for a reason other than buying the home). Assets other than the home are $900,000 + $300,000 = $1,200,000. The $400,000 mortgage is below the home's $700,000 value, so it is ignored. Subtracting the other $150,000 of debts gives $1,050,000, which is more than $1,000,000. Leaving the home out but still subtracting its mortgage gives $650,000, adding the home's $300,000 of equity gives $1,350,000, and leaving out the retirement accounts gives $750,000. Each of those applies the rule incorrectly.17 CFR 230.501(a)(5)

A married couple had combined income of $310,000 last year and $280,000 the year before, and they reasonably expect more than $300,000 this year. Neither spouse alone earned more than $200,000 in either year. Do they qualify as accredited investors under the income test of Rule 501(a)(6)?

• a.No, because spouses may combine their incomes only when they buy the securities jointly
• b.Yes, because a reasonable expectation of more than $300,000 this year meets the test by itself
• c.No, because joint income must exceed $300,000 in each of the two most recent years✓
• d.Yes, because last year's income and the expected current-year income each exceed $300,000

Rule 501(a)(6) requires individual income above $200,000, or joint income with a spouse or spousal equivalent above $300,000, in each of the two most recent years, plus a reasonable expectation of reaching the same level in the current year. The $280,000 of the earlier year is below $300,000, so the couple fails even though the other conditions are met. The expectation for the current year is an additional requirement, not a substitute for the two-year history. Nothing in the rule requires the securities to be bought jointly in order to combine spousal income.17 CFR 230.501(a)(6)

An issuer advertises a Rule 506(c) offering on its website. Each of its six purchasers, who invest $15,000 apiece, ticked a box on an online form stating 'I am an accredited investor.' The issuer reviewed nothing else. Can the issuer rely on Rule 506(c)?

• a.Yes, because the issuer may rely on each purchaser's own written statement of accredited status alone
• b.Yes, because verification is needed only when the offering exceeds $5 million in total proceeds
• c.No, because general solicitation is never allowed in any offering made under Rule 506 at all
• d.No, because the issuer must take reasonable steps to verify status, and a checked box is not enough✓

Rule 506(c) permits general solicitation, but every purchaser must be an accredited investor and the issuer must take reasonable steps to verify that status. The rule's examples include reviewing IRS income forms for the two most recent years, reviewing recent asset and liability documents when net worth is used, or obtaining a written confirmation from a registered broker-dealer, registered adviser, attorney or CPA made within the prior three months. A box ticked by the investor is a bare self-statement. General solicitation is allowed under Rule 506(c), and the rule has no dollar threshold for verification.17 CFR 230.506(c)(2)(ii)

In a Rule 506(b) offering, an issuer sells to 40 accredited investors, to 28 unrelated non-accredited individuals, to one more non-accredited individual and her spouse (who shares her primary residence and also buys), and to an LLC formed solely to buy the securities and owned by 6 non-accredited individuals. How many purchasers count toward the 35-purchaser limit?

• a.36, because the spouse sharing her residence is counted as a second purchaser
• b.35, with the spouse excluded and the LLC's six owners each counted✓
• c.30, because the LLC is counted once as a single purchaser entity
• d.76, because accredited investors are counted along with everyone else

Under Rule 501(e), accredited investors are not counted, and a spouse who shares the purchaser's primary residence is excluded, so the individual and her spouse count as one. An entity organized for the specific purpose of acquiring the securities that is not itself accredited is looked through, so each of its 6 owners counts. The total is 28 + 1 + 6 = 35, and Rule 506(b)(2)(i) allows no more than 35. Counting the spouse separately gives 36, counting the LLC once gives 30, and counting everyone gives 76; none of those follows the counting rule.17 CFR 230.501(e) and 230.506(b)(2)(i)

Seven years ago a shareholder who holds 25% of an issuer's voting equity was convicted of a felony in connection with the sale of a security. The shareholder will have no role in the issuer's planned Rule 506(b) offering. Is the exemption available?

• a.Yes, because only persons who actually take part in the offering can disqualify it under the rule
• b.Yes, because only a conviction of the issuer itself can disqualify the offering
• c.Yes, because the look-back period for a conviction is only five years, not ten
• d.No, because a 20% owner is covered and the conviction is within the ten-year look-back✓

Rule 506(d) disqualifies an offering if a covered person had a disqualifying event. Covered persons include any beneficial owner of 20% or more of the issuer's voting equity, whether or not that owner takes part in the offering. For a conviction of a felony or misdemeanor tied to securities dealings, the look-back is ten years, and the shorter five-year period applies only to the issuer, its predecessors and its affiliated issuers. A conviction seven years ago is therefore inside the period.17 CFR 230.506(d)(1)(i)

An issuer makes the first sale in its Rule 506(b) offering on Friday, November 15, 2024. By what date must it file its Form D notice with the SEC?

• a.Monday, December 2, 2024, because the fifteenth day is a Saturday and the deadline rolls forward✓
• b.Monday, December 16, 2024, because the notice is due 30 days after the first sale date
• c.Friday, November 29, 2024, because a weekend deadline moves back to the prior business day
• d.Saturday, November 30, 2024, because the 15 calendar days include weekends and holidays

Rule 503(a)(1) requires Form D no later than 15 calendar days after the first sale, and when the end of that period falls on a Saturday, Sunday or holiday the due date is the first business day that follows. Fifteen days after November 15 is Saturday, November 30, so the due date moves forward to Monday, December 2. A deadline never moves back to an earlier day, the period is 15 days rather than 30, and a weekend date is not itself the due date.17 CFR 230.503(a)(1)

An issuer that is not an Exchange Act reporting company sold $4.2 million of securities under Rule 504 during the 12 months before its current offering began, and it has sold $1.1 million so far in the current Rule 504 offering. What is the most it can still sell in the current offering?

• a.$8.9 million
• b.$5.8 million
• c.$4.7 million✓
• d.$10 million

Rule 504 caps the aggregate offering price at $10 million, less the securities sold within the 12 months before the start of and during the offering under Rule 504. Here: $10.0 million - $4.2 million - $1.1 million = $4.7 million. Subtracting only the prior sales gives $5.8 million, subtracting only the current sales gives $8.9 million, and treating the cap as renewing for each offering gives $10 million.17 CFR 230.504(b)(2)

A non-accredited individual with annual income of $90,000 and net worth, excluding her home, of $240,000 wants to buy securities in a Regulation A Tier 2 offering that is not listed on an exchange. What is the most she may invest in the offering?

• a.$33,000, because the limit is 10% of income and net worth combined
• b.No dollar limit applies, because the offering is a Tier 2 offering
• c.$24,000, because 10% of her net worth is the greater figure✓
• d.$9,000, because the limit is 10% of her annual income

In a Tier 2 offering of securities that are not exchange-listed, a purchaser who is not an accredited investor may not pay more than 10% of the greater of annual income or net worth, with net worth determined as in Rule 501 (excluding the primary residence). The greater figure is $240,000, so the limit is $24,000. Using 10% of income gives $9,000, using 10% of the two figures added together gives $33,000, and the limit does apply because the securities are unlisted and she is not accredited.17 CFR 230.251(d)(2)(i)(C)

An issuer that is not an Exchange Act reporting company sells securities under Rule 506(b) to 12 accredited investors and to 3 non-accredited investors who are financially sophisticated. Which statement about required disclosure is correct?

• a.It must give the Rule 502(b) information to every purchaser in the offering, whether or not accredited
• b.It owes no information to any purchaser, because an exempt offering is outside the registration process
• c.It must give the information to a non-accredited purchaser only if that purchaser asks for it in writing
• d.It must give non-accredited purchasers the Rule 502(b) information before sale, but not the accredited investors✓

Rule 502(b)(1) requires an issuer that sells under Rule 506(b) to any non-accredited purchaser to furnish the specified information to that purchaser a reasonable time before the sale, and the issuer is not required to furnish it to accredited investors. The issuer must also let each purchaser ask questions. An exemption from registration is not an exemption from antifraud liability, so material statements to accredited investors must still be accurate. The duty to give the information does not depend on a written request.17 CFR 230.502(b)(1)

An issuer files a registration statement on June 1. On June 10 it files, on its own initiative and without any SEC order or consent, a pre-effective amendment. Assuming the SEC takes no action to accelerate or delay, when does the registration statement become effective under Section 8(a)?

• a.June 30, the twentieth day after the amendment was filed✓
• b.June 21, the twentieth day after the original filing date
• c.Only when the SEC declares it effective, with no automatic date
• d.July 10, the thirtieth day after the amendment was filed

Section 8(a) makes a registration statement effective on the twentieth day after it is filed, or on any earlier date the SEC sets. If an amendment is filed before the effective date, the registration statement is deemed filed when the amendment was filed, unless the amendment was filed with the SEC's consent or under its order. This amendment had no consent or order, so the clock restarts on June 10 and the twentieth day is June 30. The original June 21 date no longer applies, the period is twenty days rather than thirty, and the Act does supply an automatic date.Securities Act of 1933 §8(a)

Two weeks before it files any registration statement, a company's CEO tells a business magazine that the firm plans an IPO of 5 million shares at about $18 a share and invites readers to ask their brokers about it. No shares are sold. Under Section 5 of the Securities Act, this conduct is:

• a.A violation, because an offer was made before any filing✓
• b.Permitted, because no sale took place before the filing
• c.Permitted, if the company files its registration within 30 days
• d.Permitted, because a magazine interview is not a prospectus

Section 5(c) makes it unlawful to offer a security through a prospectus or otherwise unless a registration statement has been filed, so the pre-filing period allows no offers. Publicizing the size, price and an invitation to buy is an offer even though nothing is sold, which is the conduct often called gun-jumping. The absence of a sale matters under Section 5(a), not Section 5(c), a prospectus includes any communication that offers the security, and filing within 30 days does not cure an earlier offer.Securities Act of 1933 §5(c)

Eight days after an issuer filed its registration statement, which is not yet effective, a selling-group firm sends a customer the preliminary prospectus and notes the customer's non-binding indication of interest. The firm asks for nothing further. Under Section 5, the firm's conduct is:

• a.Permitted, because offers may be made in the waiting period, but no sale may be completed until effectiveness✓
• b.Permitted, and the firm may also confirm the customer's order immediately because the filing is now on the public record
• c.A violation, because any contact with a customer is barred until the registration becomes effective
• d.A violation, because only the issuer, and not a selling-group firm, may deliver a preliminary prospectus

Once the registration statement is filed, Section 5(c) no longer bars offers, so a firm may deliver a preliminary prospectus and record a non-binding indication of interest. Section 5(a) still bars a sale until the statement is effective, so an order may not be confirmed or accepted as binding. Participating dealers may deliver the preliminary prospectus, and contact with customers is not prohibited in the waiting period.Securities Act of 1933 §5(a) and §5(c)

After a registration statement has been filed, an underwriter wants to publish a short announcement of the offering under Rule 134. Which item may the announcement include?

• a.A comparison of the issuer's growth rate with its main competitors' rates
• b.The names of the underwriters and the expected offering schedule✓
• c.A statement that the securities are a sound and conservative investment
• d.A projection of the issuer's earnings for the next two full fiscal years

Rule 134(a) lists the limited facts a communication may contain, including the issuer's name and business, the title and amount of the securities, the price or its range, the names of underwriters, and the anticipated offering schedule. A communication limited to those items is not treated as a prospectus. Earnings projections, a characterization of the investment and growth comparisons are promotional or forward-looking statements, and are not among the permitted items.17 CFR 230.134(a)

Investors who bought in a registered IPO later learn that the registration statement contained a material misstatement. They sue the issuer, the directors and the lead underwriter under Section 11. Which statement is correct?

• a.Only the issuer may avoid liability, because it alone prepared the registration statement text
• b.All three defendants may avoid liability by proving that each made a reasonable investigation
• c.The directors and underwriter may prove a reasonable investigation, but the issuer cannot✓
• d.None of the defendants is liable unless the investors prove that the misstatement was intentional

Section 11(b)(3) gives directors, underwriters and other named persons a due diligence defense if, after reasonable investigation, they had reasonable ground to believe and did believe the statements were true. The defense is available to every person other than the issuer, whose liability for a material misstatement is effectively absolute. Section 11 does not require intent from any defendant, and the issuer is the party that has the least protection, not the most.Securities Act of 1933 §11(a) and §11(b)(3)

An investor bought shares on April 10, 2025 in an offering that violated Section 5 and first learned of the violation in January 2026. By what date must the investor bring a Section 12(a)(1) action, assuming the shares were first offered to the public in March 2025?

• a.April 10, 2028, three years after the sale was made
• b.January 2027, one year after the investor discovered it
• c.April 10, 2027, two years after the sale was made
• d.April 10, 2026, one year after the violation occurred✓

Section 13 requires an action under Section 12(a)(1) to be brought within one year after the violation, with no allowance for later discovery, and in no event more than three years after the security was bona fide offered to the public. The violation here was the April 10, 2025 sale, so the deadline is April 10, 2026. The discovery-based one-year period applies to Section 11 and Section 12(a)(2) actions, and the three-year limit is only an outer limit.Securities Act of 1933 §12(a)(1) and §13

A purchaser in a public offering sues the seller under Section 12(a)(2), claiming that an oral statement made by the seller during the sale was materially misleading. The purchaser does not try to prove that the seller intended to deceive. What must the seller show to escape liability?

• a.That the SEC has brought no enforcement action against the seller yet
• b.That the purchaser cannot prove that the seller intended to deceive anyone
• c.That it did not know, and could not with care have known, of the untruth✓
• d.That the securities were also registered with the state securities administrator

Section 12(a)(2) makes a seller liable for a material misstatement or omission in a prospectus or oral communication unless the seller sustains the burden of proving that it did not know, and in the exercise of reasonable care could not have known, of it. The purchaser need not prove intent. The seller's defense does not depend on SEC action, and state registration does not affect liability under the federal statute.Securities Act of 1933 §12(a)(2)

An affiliate of a reporting company plans to sell 3,000 shares at $22 a share in one month and has made no other sales in the past three months. Must a Form 144 notice be filed under Rule 144(h)?

• a.No, because stock of a listed company needs no notice from an affiliate
• b.Yes, because the $66,000 sale price exceeds $50,000 in three months✓
• c.Yes, but only if the shares are not traded on a national exchange
• d.No, because the 3,000 shares sold are below the 5,000-share threshold

Rule 144(h) requires a Form 144 notice if the amount sold in any three-month period exceeds 5,000 shares or has an aggregate sale price above $50,000. The two tests are alternatives: 3,000 shares x $22 = $66,000, which exceeds $50,000, so the notice is required even though the share count is below 5,000. Listing on an exchange does not remove the requirement.17 CFR 230.144(h)

Under Rule 144A, which of the following is a qualified institutional buyer?

• a.A registered dealer that owns and invests $12 million of securities of unaffiliated issuers✓
• b.An insurance company that owns and invests $60 million of securities of unaffiliated issuers
• c.A bank that owns and invests $150 million of securities but has an audited net worth of $10 million
• d.An individual investor who owns and invests $50 million of securities on a discretionary basis

Rule 144A sets a $100 million securities threshold for most institutions, including insurance companies, and a lower $10 million threshold for registered dealers acting for their own account. A bank or savings institution must also have an audited net worth of at least $25 million. The dealer with $12 million exceeds its $10 million threshold. The insurance company falls short of $100 million, the bank's net worth is below $25 million, and a natural person is not on the list of qualified institutional buyers however large the portfolio.17 CFR 230.144A(a)(1)

A company incorporated in Delaware directs and controls its operations from Ohio. It offers shares under Rule 147A only to Ohio residents and advertises the offering on a public website. About 85% of its assets are located in Ohio, though only 70% of its revenues come from there. Is it eligible for Rule 147A?

• a.No, because the issuer must meet the 80% test for both its revenues and its assets in Ohio
• b.No, because Rule 147A prohibits general solicitation over a public website or social media
• c.No, because the issuer must be incorporated in the state where it sells its shares
• d.Yes, because it is resident in Ohio and satisfying any one of the four in-state tests is enough✓

Under Rule 147A(c), an issuer is resident in the state of its principal place of business, where its officers primarily direct and control its activities, and it need not be incorporated there. It must also be doing business in the state, which it shows by meeting at least one of four tests: 80% of revenues, 80% of assets, 80% of net proceeds used there, or a majority of employees based there. The 85% asset test is met. Rule 147A allows general solicitation, provided sales are made only to residents of the state.17 CFR 230.147A(c)

An investor has annual income of $90,000 and net worth, excluding her home, of $300,000. Under Regulation Crowdfunding, what is the most she may invest in all Regulation CF offerings during a 12-month period?

• a.$15,000, being 5% of her net worth✓
• b.$2,500, being the flat minimum amount
• c.$4,500, being 5% of her income
• d.$30,000, being 10% of her net worth

Because her annual income is below $124,000, the lower investor limit applies: the greater of $2,500 or 5% of the greater of annual income or net worth. The greater figure is her $300,000 net worth, and 5% of it is $15,000, which is more than $2,500. The 10% limit of $30,000 applies only when both income and net worth are at least $124,000, 5% of income would be $4,500, and $2,500 is only the floor.Securities Act of 1933 §4(a)(6) (Regulation Crowdfunding)

A newsletter publisher is paid $5,000 by an issuer to feature its stock, and praises the stock to subscribers without mentioning the payment. The newsletter does not offer the stock for sale. Which statement is correct?

• a.The publisher violates Section 17(b), because it failed to disclose the payment and its amount✓
• b.The publisher is not subject to the Act, because the newsletter does not offer the stock for sale
• c.The publisher complies with the Act by disclosing that it was paid, without stating the amount
• d.The publisher complies with the Act if the opinions it expresses are honestly held

Section 17(b) makes it unlawful to publish or circulate a communication that describes a security, even though it does not purport to offer it, for consideration received from an issuer, underwriter or dealer without fully disclosing the receipt of the consideration and its amount. The requirement applies to non-offers. Honest opinion does not excuse the omission, and disclosing the existence of a payment without its amount is incomplete.Securities Act of 1933 §17(b)

An investor who has been buying a company's registered common stock completes a purchase on Tuesday that brings the holding to 5.4% of the class. By when must the investor file a Schedule 13D?

• a.Within five business days after the acquisition✓
• b.Within 45 days after the end of the calendar year
• c.Before making any further purchase of the class
• d.Within ten calendar days after the acquisition

Section 13(d) and Rule 13d-1(a) require a person who becomes the beneficial owner of more than 5% of a registered voting equity class to file a Schedule 13D within five business days after the acquisition. The earlier ten-calendar-day period was shortened by amendment. A year-end deadline belongs to a different, passive-investor filing and does not apply to a Schedule 13D, and there is no rule that simply bars further buying until a filing is made.Securities Exchange Act of 1934 §13(d); 17 CFR 240.13d-1(a)

The chief financial officer of a registered company buys shares of her employer on Tuesday, March 4, 2025. By what date must she file a Form 4 reporting the purchase?

• a.Friday, April 18, 2025, forty-five days after the purchase
• b.Thursday, March 6, 2025, two business days after the purchase✓
• c.Friday, March 7, 2025, three business days after it
• d.Friday, March 14, 2025, ten days after the purchase

An officer, director or more-than-10% owner must report a change in beneficial ownership on Form 4 before the end of the second business day after the transaction. Counting from Tuesday, March 4, the second business day is Thursday, March 6. Ten days was the Form 3 deadline for filing an initial statement of ownership, not the Form 4 deadline. The third business day would be one day too late, and a 45-day period applies to a different annual report.Securities Exchange Act of 1934 §16(a); 17 CFR 240.16a-3

A shareholder who owned no shares of a registered company buys 12% of its common stock in one purchase at $20 a share. Two months later he sells all of the shares at $27. Is the issuer entitled to recover the $7 per share profit under Section 16(b)?

• a.No, because the purchase that made him a 10% owner cannot be matched against a sale✓
• b.Yes, because the sale followed the purchase within the six-month period
• c.Yes, but only if he used material nonpublic information when buying the shares
• d.No, because Section 16(b) applies only to officers and directors of issuers

Section 16(b) says it does not cover a transaction in which the beneficial owner was not a 10% holder both at the time of the purchase and at the time of the sale. The purchase that first carries a person over 10% is therefore not matchable, even if he sells within six months. Liability under Section 16(b) is automatic and does not depend on inside information. The section covers 10% owners as well as officers and directors, so that is not the reason he escapes.Securities Exchange Act of 1934 §16(b)

A company with a December 31 fiscal year-end has $14 million in total assets. Its common stock is held of record by 1,400 persons, 520 of whom are not accredited investors. It has never registered the class. Under Section 12(g), what must it do?

• a.Nothing, because it has fewer than 2,000 holders of record, the usual threshold
• b.Nothing, because Section 12(g) counts only holders who are also accredited investors
• c.Register the class within 120 days after fiscal year-end, since 520 holders are non-accredited✓
• d.Register the class within 30 days, because its assets exceed the $10 million line

Section 12(g) requires registration of a class of equity security by an issuer with more than $10 million in assets that is held of record by 2,000 persons, or by 500 persons who are not accredited investors. This issuer meets the asset test and has 520 non-accredited holders, which exceeds 500, so it must register within 120 days after its fiscal year-end, by April 30. The 2,000 figure is the alternative test, so falling below it does not help. The period is 120 days rather than 30, and it is the non-accredited holders that count toward the 500 test.Securities Exchange Act of 1934 §12(g)(1)

A bidder begins a cash tender offer for a company's registered stock. On the fifteenth business day it raises the offered price. What must the bidder do to comply with Rule 14e-1?

• a.Keep the offer open for at least twenty business days after the increase
• b.Close the offer on the twentieth business day as originally planned
• c.Keep the offer open for at least ten business days after the increase✓
• d.Keep the offer open for at least five business days after the increase

Rule 14e-1(a) requires a tender offer to stay open at least twenty business days. Under Rule 14e-1(b), an increase or decrease in the consideration, or in the percentage of securities sought, requires the offer to stay open at least ten business days from the date of the change. After a price increase on day fifteen, the offer must run until at least day twenty-five. Closing on day twenty would leave only five business days after the change, and a full twenty-business-day restart is not required.17 CFR 240.14e-1(a)-(b)

An investor sues a seller under Rule 10b-5 over a misstatement of revenue in a private offering. The facts show only that the seller was careless in checking the figures. What is the likely result?

• a.The claim succeeds, because a careless misstatement of a material fact violates Rule 10b-5
• b.The claim succeeds, because the seller bears the burden of proving it acted without fault
• c.The claim fails, because Rule 10b-5 applies only to securities that are registered with the SEC
• d.The claim fails, because a private 10b-5 action requires proof of scienter and negligence is not enough✓

Rule 10b-5 prohibits fraud in connection with the purchase or sale of any security, whether registered or exempt, and a private plaintiff must prove scienter, meaning intent to deceive or severe recklessness. Ordinary negligence does not meet that standard. The burden of proof rests on the plaintiff, unlike Section 12(a)(2) under the 1933 Act where the seller carries a reasonable-care burden. Rule 10b-5 reaches unregistered and exempt offerings, so being private does not defeat the claim.17 CFR 240.10b-5; Securities Exchange Act of 1934 §10(b)

A corporate insider tells a friend about an unannounced merger in return for a gift. The friend, who knows that the insider is breaching a duty by telling him, buys the stock before the announcement and profits. How is the friend treated under the antifraud rules?

• a.He is not liable, because he never dealt directly with the company's shareholders
• b.He is liable only if he also paid the insider for the information in cash or stock
• c.He is not liable, because only insiders owe a duty to the company's shareholders
• d.He is liable as a tippee, because the insider breached a duty for a personal benefit and he knew it✓

A tippee who trades on material nonpublic information is liable under Rule 10b-5 when the tipper breached a fiduciary duty by disclosing it for a personal benefit and the tippee knew, or should have known, of the breach. A gift to a friend can be that benefit. The friend need not owe a duty of his own, since his liability is derivative of the insider's breach. Trading on an open market without dealing with shareholders is the usual way insider trading occurs, and the benefit need not be cash.Securities Exchange Act of 1934 §10(b); Dirks v. SEC

A trust holds a fixed portfolio of municipal bonds, has no board of directors and no investment adviser, and issues redeemable units that represent undivided interests in the portfolio. It ends when the bonds mature. Under the Investment Company Act of 1940, it is classified as a:

• a.A face-amount certificate company
• b.A unit investment trust (UIT)✓
• c.An open-end management company
• d.A closed-end management company

Section 4 divides investment companies into three classes. A unit investment trust is organized under a trust indenture, has no board and no investment adviser, and issues redeemable units of undivided interest in a fixed portfolio. A face-amount certificate company issues certificates that promise a fixed sum at a set date. Both management company types have a board and an adviser who actively manages the portfolio, so this trust is neither a closed-end nor an open-end fund.Investment Company Act of 1940 §4