NASAA Series 63 — All Questions

A broker-dealer completed diligence on a company for its 2023 Regulation D offering. The company launches a second private offering in 2025, again sold only to wealthy accredited investors. What does the firm need to do before recommending it?

• a.Update only the parts of the PPM that changed, since issuer and management are unchanged
• b.Rely on the issuer's record of paying investors in 2023 as proof of reliability
• c.Rely on the 2023 file, because accredited investors can evaluate the risks themselves
• d.Conduct a reasonable investigation of the new offering, since the 2023 work does not carry over✓

Notice 10-22 states that a broker-dealer must conduct a reasonable investigation in connection with each offering, even when a later offering is by the same issuer, and that sophisticated customers do not remove the duty. A prior offering that met its obligations is no guarantee the next will, particularly where the issuer depends on raising new capital.FINRA Regulatory Notice 10-22

Under a firm commitment agreement, a managing underwriter buys 2,000,000 shares from an issuer for resale to the public at $15.00 with a spread of $0.90 per share. The underwriters place only 1,650,000 shares with investors. How much does the issuer receive?

• a.$30,000,000
• b.$24,750,000
• c.$23,265,000
• d.$28,200,000✓

In a firm commitment the underwriter purchases the whole issue and bears the risk of unsold shares, so the issuer receives 2,000,000 x ($15.00 - $0.90) = $28,200,000 regardless of the 350,000 shares left unsold. $30,000,000 ignores the spread, $24,750,000 is the public price on only the shares sold, and $23,265,000 is the net on shares sold, which is how a best efforts deal would work out.Securities Act of 1933 Section 2(a)(11)

Shareholders of a corporation vote, as its charter allows, to merge into another corporation and receive that corporation's stock for their shares. Under the Uniform Securities Act, what is the effect of the class vote on the question of a sale?

• a.The act is a sale only when the new stock is listed
• b.The act is a sale unless the Administrator has approved the merger in advance by a written order for the corporation in the transaction
• c.Each shareholder has made a sale of the old stock for value, and that sale must either be registered or qualify for an exemption
• d.Any act incident to the class vote is not a sale, so the shareholders are not treated as having bought the new stock✓

The Act's definition of sale excludes any act incident to a class vote by stockholders, under the certificate of incorporation or the corporation statute, on a merger, consolidation, reclassification of securities, or sale of corporate assets in consideration of the issuance of securities of another corporation. Because there is no sale, there is nothing to register or exempt.Uniform Securities Act (1956, as amended by NASAA) Sec. 401(k)(6)(C)

A corporation sells shares of its own treasury stock to investors in the state. Under the Act's definition of security, how is treasury stock treated?

• a.It is not a security, because the corporation already issued it once
• b.It is not a security, because it carries no voting rights while held by the corporation
• c.It is a security only if the corporation pays a commission on its sale
• d.It is a security, because the definition lists treasury stock✓

The definition of security specifically lists treasury stock along with stock, bonds, notes, debentures, investment contracts and the other named instruments. Prior issuance and whether a commission is paid do not take it out of the definition.Uniform Securities Act (1956, as amended by NASAA) Sec. 401(m)