Reference - in Trouble

question 9

Multiple Choice

Reference - In Trouble. Bruno, an issuer of stock, may be in trouble. He sold stock in a new health club venture before the effective date of registration. He did so because was in financial trouble involving other ventures of his and needed additional funds. Bruno thought that the health club venture would be such a success that he would never get caught in regard to the stock sale. Unfortunately, he was wrong. The health club venture was going very poorly and investors were looking for some way to hold Bruno responsible. Another problem Bruno has is that he inflated information regarding the prospects of the health club in the prospectus. Investors bitterly complained. Rick, a new lawyer, told Bruno that as far as he knew, the SEC could fine Bruno under the Securities Act of 1933 but could not send him to jail. Bruno told Rick that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture. Bruno says that he plans to rely on the due diligence defense. Bruno also asks Rick if he is aware of any other defenses. Bruno says that he has never previously been in trouble with the SEC. Which of the following is true regarding Bruno's sale of securities before the effective date of registration?

• A) He will be able to avoid liability if he can establish the due diligence defense.
• B) He will be able to avoid liability if he can establish that the investors who purchased stock early were aware that the securities were sold before the effective date of registration.
• C) He will be able to avoid liability if he can establish that the sales before the effective date did not directly result in any losses to investors.
• D) That is not a violation of the securities laws, so there is no question about liability.
• E) He will almost certainly be liable because the 1933 act provides no defenses for that violation.

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Definitions:

Home Equity Loan

A type of loan where borrowers use the equity of their home as collateral, typically used for major expenses such as home repairs, medical bills, or college education.

Truth-In-Lending Act

A U.S. federal law designed to protect consumers in their dealings with lenders and creditors by requiring clear disclosure of loan terms and costs.

Adjustable Rate Mortgages

A type of mortgage loan where the interest rate can change over time based on market conditions.

Truth-In-Lending Act

A federal law designed to promote informed use of consumer credit by requiring disclosures about its terms and cost.