What's tested on the Series 65 Equity Public Offerings section?

B is correct. An IPO is a primary market transaction. The company is selling newly issued shares for the first time, so the proceeds flow to the issuing company itself (net of the underwriting spread).

A is incorrect because that describes a secondary offering, where existing shareholders sell their already-issued shares and receive the cash. C is incorrect: while the underwriter buys the shares from the issuer in a firm commitment (acting as principal), the economic proceeds still belong to the issuer. The underwriter earns the spread, not the offering proceeds. D is incorrect because the SEC plays a regulatory role only; it never receives offering proceeds.

C is correct. "Effective" means the registration statement satisfies the disclosure requirements of the Securities Act of 1933. The SEC reviews for completeness of disclosure only. Once effective, the securities can be sold to the public.

A is incorrect and is the classic Series 65 trap: the SEC never approves an offering or passes judgment on investment merit. D is also incorrect for the same reason: the SEC never guarantees performance. B is incorrect because the SEC does not verify or audit the underlying financials; the issuer and its auditors are responsible for accuracy, and the SEC can pursue enforcement after the fact if misstatements are found.

B is correct. During the minimum 20-day cooling-off period, underwriters may distribute the preliminary prospectus (red herring) and publish tombstone ads to gauge investor interest. Indications of interest may be collected, but no sales may be made.

A is incorrect because no money may be accepted and no shares may be sold until the registration statement is effective. D is incorrect for the same reason: orders cannot be binding during the cooling-off period; they are only indications of interest. C is incorrect because participating underwriters are subject to quiet-period restrictions that prohibit publishing research recommendations on the offering.

B is correct. A firm commitment underwriting means the underwriter buys the entire issue from the issuer and is on the hook to resell it. The underwriter is acting as principal (dealer) because it actually takes ownership of the shares. If the offering fails, the underwriter is stuck with the shares.

A is incorrect because in a best efforts arrangement, the underwriter never buys the shares; it markets them as an agent (broker) on behalf of the issuer, returning any unsold shares. C is incorrect because all-or-none is a type of best efforts where the entire issue must sell or the deal is cancelled, and the underwriter still acts as agent. D is incorrect because mini-max is also a best-efforts variant (with a minimum sales threshold), and "broker" specifically means acting as agent, not principal.

C is correct. A tombstone advertisement is a brief, factual public announcement of an offering. It may contain only basic identifying information: the issuer's name, the type of security being offered, the offering price (when set), and the names of the underwriters. It is NOT a prospectus and NOT an offer to sell.

A is incorrect because tombstone ads may not contain recommendations or promotional language. B is incorrect because forward-looking projections are prohibited; only factual present information may appear. D is incorrect for the obvious reason that the SEC does not approve offerings, so no advertisement may claim otherwise.

C is correct. The greenshoe (overallotment) option allows the underwriter to sell up to 15% more shares than originally planned if demand is strong. 15% of 10 million shares is 1.5 million additional shares, so the maximum greenshoe allotment is 1,500,000 shares.

A (5%) and B (10%) are incorrect because they undercount the standard 15% greenshoe limit. D (20%) overstates it; while issuers may negotiate smaller greenshoes, the upper cap tested on the exam is 15%.

B is correct. Lock-up agreements are contractual arrangements between insiders (and other pre-IPO shareholders) and the underwriter. They typically last 90 to 180 days after the IPO and prevent insiders from flooding the market with shares immediately after going public. Six months still falls within a typical 180-day lock-up.

A is incorrect: Rule 144 governs restricted-securities resales but does not impose a blanket two-year IPO insider ban. C is incorrect because the SEC declares registration statements effective, not individual shareholders' resales. D is incorrect because the cooling-off period applies before, not after, an offering, and it lasts a minimum of 20 days (not one year).

B is correct. When an already-public company issues new shares to raise capital, that is a follow-on offering (also called an additional primary offering or seasoned equity offering). New shares are created, so the total share count increases, diluting existing shareholders. The company itself receives the proceeds.

A and C are incorrect because "secondary offering" specifically means existing shareholders are selling their already-issued shares; no new shares are created and the company gets nothing. The exam intentionally exploits the confusion between "secondary" (meaning shareholders cashing out) and "second time" (meaning the company offers stock again). D is incorrect: companies can return to public markets many times via follow-on offerings.

C is correct. A defining feature of modern SPAC structure is that shareholders have redemption rights independent of their vote. Investors can redeem their shares for a pro rata share of the trust account (typically around $10 per share plus interest), regardless of whether they vote for, against, or abstain on the proposed merger.

A is incorrect because the redemption window opens around the merger vote, not 90 days after closing. B is incorrect because shareholders are never forced to participate; they always have the redemption right. D is the classic Series 65 SPAC trap: redemption is decoupled from voting. An investor can vote yes on the merger and still redeem their shares for cash.

B is correct. SPAC sponsors typically receive 20% of post-IPO shares at little or no cost, known as the "promote." This is the single largest source of dilution to public investors, since 1/5th of the post-IPO equity goes to a small group of sponsors who paid almost nothing for it. The promote is a major reason SPAC academic studies show poor returns for IPO-stage investors versus sponsors.

A is incorrect because the greenshoe is a tool used in many IPOs, not unique to SPACs, and it expands the share count proportionally rather than at no-cost. C is incorrect because trust-account fees are typically small relative to the promote. D is incorrect because the SEC does not receive securities as part of any registration.