In 2005, Bettina opened Bettina Brownies in a shopping mall. The brownies were a hit and soon Bettina was operating shops in several malls in Illinois. By 2012 she had expanded operations to Indiana and she decided that it was time to finance expansion through the equity markets. With an investment banker, she prepared for the initial offering of Bettina Brownies. She sold 50,000 shares of stock

Question

at $10 a share. Expansion continued. Keebler determined that Bettina was a well-run company with an attractive financial position. It began secret negotiations with Bettina to buy her interest in the business. News of the negotiations leaked. Mr. Little, CEO of Keebler, denied that they were pursuing a deal with Bettina. A month later Bettina sold her share of the business to Keebler. Shortly before Bettina sold her interest to Keebler, Joe Kelso, a carpet cleaner was working at Bettina office when he overheard discussion of the sale to Keebler. Joe bought a large number of shares in Bettina. After the Keebler sale was completed, Joe sold his stock for a substantial profit. Rob DuMase, Bettina's investment banker, told her it costs a lot to comply with the federal securities laws. Rob suggested Bettina might avoid these requirements by calling the shares in her company something other than a "stock," for example "brownie squares," since they are not mentioned in the securities law. If Bettina took Rob's advice, what would the consequences be?
a. under the Supreme Court decision in Howey Bettina would be exempt from securities laws b. under the Howey test, Bettina would be exempt from the federal securities laws
c. under the Howey decision, Bettina would be subject to the federal securities laws
d. Bettina would be exempt from the federal securities laws if she could used a term for her security that was not listed in Section 2(1) of the 1933 Securities Act
e. Bettina would be exempt from the federal securities laws because Congress specified what a security is, and anything not called a stock may not be considered a security for purposes of the federal laws

Answer 1

c