Deck 46: Securities Regulation

Question 1

A ruling by the Supreme Court states that "aiders and abettors" of fraud cannot be held secondarily liable under Rule 10(b) for a private cause of action.

Answer 1

True

Question 2

Daniel, one of the most influential members of the board of Fun Sports Inc., holds 15 percent of the registered security of the company. It can be said that Daniel is a corporate insider.

Answer 2

True

Question 3

Members of the Securities and Exchange Commission have staggered _____ terms.

A) five-year
B) seven-year
C) two-year
D) three-year
E) ten-year

Answer 3

A

Question 4

The Securities and Exchange Commission is bipartisan: not more than three commissioners may be from the same political party.

Question 5

A civil injunction is a judicial process or order requiring a person or entity to do a particular act or to refrain from doing a particular act.

Question 6

The proof of "scienter" is required in private damage actions under Rule 10b-5.

Question 7

Members of the general pulic may be at a significant disadvantage when dealing with professionals in the area of securities.

Question 8

The dissenting Justices in Dirks believ______________?

A) Dirks was the tipper, not the tippee.
B) Dirks should have made the information he received public, rather than advising his clients of the potential fraud going on at Equity Funding.
C) Dirks was neither the tippee nor the tipper, but a "misappropriator."
D) Dirks should have no liability under the federal securities laws.
E) a and b

Question 9

The SEC has jurisdiction over cases where the Foreign Corrupt Practices Act might be violated.

Question 10

The Securities and Exchange Commission may now enjoin people and firms from violating the federal securities laws, and may impose civil fines as well.

Question 11

The _____ is the fundamental "truth in securities" law.

A) Securities and Exchange Commission
B) Securities Act of 1933
C) Securities Act of 1934
D) registration statement
E) blue sky law

Question 12

The SEC can file criminal charges against those who violate provisions of the 1933 Securities Act and the 1934 Securities Exchange Act.

Question 13

In Reves v. Ernst and Young, the accounting firm had allegedly inflated the assets of a bankrupt cooperative that plaintiffs had invested in. The Court said that

A) Ernst & Young should be exonerated because the "shares" were not securities
B) Ernst and Young had no secondary liability for aiding and abetting
C) The plaintiffs' shares could be deemed "securities" within the meaning of the federal securities acts.
D) a and b
E) b and c

Question 14

A fractional undivided interest in oil, gas, or other mineral rights may be considered a "security" under federal law.

Question 15

Rule 10b-5 of the Securities Exchange Act is limited to the securities registered under the 1934 Securities Exchange Act.

Question 16

In the Securities and Exchange Commission, the president of the United States can remove and replace commissioners during their terms of office.

Question 17

The law that relates to the recapture of short-swing profits -- Section 16(b) of the Securities Exchange Act ??--applies to any company with more than $10 million in assets and at least five hundred or more shareholders of any class of stock.

Question 18

The Foreign Corrupt Practices Act was part of the Securities Exchange Act of 1934 when it was passed into law during the Depression.

Question 19

The Foreign Corrupt Practices Act permits payments made to expedite routine governmental actions, such as obtaining a visa.

Question 20

A transferable share of stock is known as a(n) _____.

A) statute
B) legislation
C) article of incorporation
D) writ
E) security

Question 21

According to the Supreme Court, notes that are not "investment contracts" can still be considered as securities if certain factors are present. State those factors.

Question 22

What is a blue sky law?

A) It is one of the laws used by the Supreme Court to ratify the formation of the Federal Trade Commission Act.
B) It is a state law that regulates discriminatory practices against people who want to buy Blue Chip stocks.
C) It is a state law that regulates the formation of agency shop agreements.
D) It is a state law that regulates the formation of closed shop agreements.
E) It is a state law that regulates the offering and sale of securities to protect the public from fraud.

Question 23

In 2010, Congress passed the _____, which is the largest amendment to financial regulation in the United States since the Great Depression.

A) Depository Institutions Deregulation and Monetary Control Act
B) Gramm-Leach-Bliley Act
C) Riegle-Neal Interstate Banking and Branching Efficiency Act
D) Garn-St. Germain Depository Institutions Act
E) Dodd-Frank Wall Street Reform and Consumer Protection Act

Question 24

_____ is a legal term that refers to having intent or knowledge of wrongdoing.

A) Quasi
B) Novation
C) Scienter
D) Escrow
E) Escheat

Question 25

The _____ is a body created by the Sarbanes-Oxley that oversees, inspects, and regulates accounting firms in their capacity as auditors of public companies.

A) Securities and Exchange Commission
B) Public Company Accounting Oversight Board
C) Foreign Corrupt Practices Commission
D) International Accounting Standards Board
E) Financial Accounting Standards Board

Question 26

Consolidated Cocoa Inc., a large chocolate manufacturing company, sells its shares directly to the public at $50 per share. Ron purchases 100 shares of the company. When the price of the shares goes up to $60, Ron decides to sell 50 shares. He approaches a broker who sells these shares to John at $60. This resale of the shares by the broker represents a sale in the _____ market.

A) primary
B) secondary
C) reverse takeover
D) initial public offering
E) stock market launch

Question 27

Gloria purchased 200 shares of New You Inc., a cosmetic company, after Dora-a director of New You Inc.-informed her about the company's new undertaking that might boost the share value in the market. Here, Gloria would be considered as a(n) _____.

A) promisee
B) promisor
C) assignor
D) tippee
E) franchisor

Question 28

Dino, a director of LetsGo Inc., purchases 100 shares of the company at $100 per share on 5th January 2011 and sells them on 15th February at $110 per share. Because the shares were bought and sold within a six-month period, Dino will have to return the $1,000 profit to the company under the _____ rule.

A) res judicata profit
B) preemptive profit
C) short-swing profit
D) proxy solicitation profit
E) ultra vires profit

Question 29

According to the _____, any person stealing information from an employee and then trading securities based on that information will have to face insider trading liability.

A) broken windows theory
B) misappropriation theory
C) broken window fallacy
D) Stigmergy theory
E) conduit theory

Question 30

Hannah owned 12 percent of the shares of Floating Walls Inc., a furniture manufacturing company, and had significant influence on the members of the board. She was informed about all the important decisions of the company and was also called for various board meetings. On obtaining information-from one of the senior board members-about the fall in the prices of the company's share, Hannah immediately sold 5 percent of her shares in the market. It can be said that Hannah indulged in _____.

A) insider trading
B) proxy solicitation
C) a primary market transaction
D) a capital market transaction
E) a false-swing

Question 31

_____ of the Securities Exchange Act of 1934 prohibits any person from using mails or facilities of interstate commerce "to use or employ, in connection with the purchase or sale of any security… any manipulative or deceptive device…"

A) Section 16(b)
B) Section 10(b)
C) Section 11(a)
D) Section 13(d)
E) Section 15(d)

Question 32

What are the three options that the Securities and Exchange Commission (SEC) has when it believes that a violation has occurred?