Series 79 practice questionmediumDue Diligence Defense
Which of the following best demonstrates an underwriter’s reasonable investigation for due diligence purposes in a registered offering?
- ARelying solely on the issuer’s management representations
- BPerforming no independent research but reviewing the prospectus
- CReviewing internal controls, financial statements, and interviewing key officers✓ Correct answer
- DDistributing the red herring prospectus to institutional investors
Explanation
Why C — Reviewing internal controls, financial statements, and interviewing key officers
A reasonable investigation involves reviewing financials, internal controls, and interviewing management. Simply relying on management or distributing materials is insufficient, which could leave underwriters vulnerable to liability.
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