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Series 79 practice questioneasyDue Diligence Defense

In the context of due diligence, what is a '10b-5 letter'?

  1. AA letter from the SEC approving the registration statement
  2. BA letter from the underwriter to the issuer guaranteeing the offering will succeed
  3. CA letter certifying that all 10-K filings are current
  4. DA negative assurance letter from counsel stating that nothing came to their attention that causes them to believe the registration statement contains material misstatements or omissions✓ Correct answer
Explanation

Why D — A negative assurance letter from counsel stating that nothing came to their attention that causes them to believe the registration statement contains material misstatements or omissions

A 10b-5 letter (also called a negative assurance letter or 10b-5 disclosure letter) is provided by the issuer's counsel and/or the underwriters' counsel. It states that, based on their participation in the preparation of the registration statement and specified due diligence procedures, nothing has come to their attention that causes them to believe the registration statement contains an untrue statement of material fact or omits a material fact. This letter is a key component of the due diligence package and supports the underwriter's due diligence defense.

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