Question 1

The ______ is a disclosure law which makes it illegal to use mails or any other means of interstate communication or transportation to sell securities without disclosing certain financial information to potential investors.

Accepted Answer

The Securities Act of 1933 is a disclosure law with respect to the initial sale of securities to the public. This law makes it illegal to use mails or any other means of interstate communication or transportation to sell securities without disclosing certain financial information to potential investors.

Question 2

The Securities and Exchange Commission (SEC)applies the misappropriation theory of insider trading to force executives who file or certify incorrect financial statements to return bonuses and additional compensation received.

Accepted Answer

The Securities and Exchange Commission (SEC) has successfully argued that a person should be considered to be a temporary insider if that person conveys nonpublic information that was to have been kept confidential. This philosophy is known as the misappropriation theory of insider trading.

Question 3

Under the Sarbanes-Oxley Act,whistleblowers that suffer retaliation are able to recover civil damages and can be reinstated if terminated improperly.

Accepted Answer

The Sarbanes-Oxley Act provides protections for whistleblowers so that individuals are more willing to report the corruption that can lead to major scandals. Audit committees are required to adopt procedures ensuring that whistleblowers' reports are taken seriously. Whistleblowers that suffer retaliation are able to recover civil damages and can be reinstated if terminated improperly.

Question 4

The Securities and Exchange Commission's (SEC's)adoption of rules and regulations relating to financial and other information furnished to the Commission comes under its ______ power.

Accepted Answer

The Securities and Exchange Commission (SEC) has both quasi-legislative and quasi-judicial powers. Under its quasi-legislative power, it has adopted rules and regulations relating to financial and other information that must be furnished to the Commission.

Question 5

Restatements of financial reports have risen in number as a result of the Sarbanes-Oxley Act because companies have made efforts to maintain appropriate compliance with the law.

Accepted Answer

Evidence that the Sarbanes-Oxley Act is having a positive impact is found in the number of restatements of financial reports. During 2007, there were fewer restatements than in 2006. This was the first year to show a decline since Sarbanes-Oxley was enacted.

Question 6

A tippee is liable for trading or passing on information that is public.

Accepted Answer

A tippee is liable for trading or passing on information that is nonpublic. A tippee is a person who learns of nonpublic information from an insider. A tippee is liable for the use of nonpublic information because an insider should not be allowed to do indirectly what he or she cannot do directly.

Question 7

The Sarbanes-Oxley Act provides protections for whistleblowers so that individuals are more willing to report the corruption that can lead to major scandals.

Accepted Answer

The Sarbanes-Oxley Act provides protections for whistleblowers so that individuals are more willing to report the corruption that can lead to major scandals. Audit committees are required to adopt procedures ensuring that whistle-blowers' reports are taken seriously.

Question 8

Which of the following Acts created the Securities and Exchange Commission?

Accepted Answer

The Securities Exchange Act of 1934 created the Securities and Exchange Commission. The Securities Exchange Act of 1934 regulates transfers of securities after the initial sale. It also deals with regulation of securities exchanges, brokers, and dealers in securities.

Question 9

Title II of the Jumpstart Our Business Startups (JOBS)Act of 2012 prohibits companies to advertise or share publicly that they are seeking investments.

Accepted Answer

Title II of the Jumpstart Our Business Startups (JOBS) Act of 2012 allows companies to advertise or share publicly that they are seeking investments.

Question 10

Which of the following is a major provision of the State blue sky laws?

Accepted Answer

The State blue sky laws impose another level of securities regulations beyond federal laws. They also govern intrastate securities transactions not regulated by federal laws.

Question 11

Congress,through the Public Company Accounting Oversight Board (PCAOB),limits the amount of damages private plaintiffs can recover and restricts attorney fees.

Accepted Answer

Congress, through the Private Securities Litigation Reform Act (PSLRA), limits the amount of damages private plaintiffs can recover and restricts attorney fees. This law also provides requirements for the appointment of lead plaintiffs in securities class-action cases.

Question 12

The Securities and Exchange Commission's (SEC)right to conduct investigations is based on its

Accepted Answer

The Securities and Exchange Commission (SEC) has both quasi-legislative and quasi-judicial powers. Under its quasi-judicial power, the SEC is involved in a variety of investigations.

Question 13

The Uniform Securities Act has been the model for blue sky laws since 1956.

Accepted Answer

To bring some similarity to the various blue sky laws, the Uniform Securities Act was proposed for adoption by all states beginning in 1956. Since that time, the Uniform Securities Act has been the model for blue sky laws.

Question 14

The Consumer Financial Protection Board was established under the Dodd-Frank Act.

Accepted Answer

The Dodd-Frank Act addresses many issues of reform. To accomplish its broad goals, Congress authorizes the creation of many new administrative organizations. Many of these new entities are housed within existing organizations. One of the new agencies is the Consumer Financial Protection Board (independent within Federal Reserve).

Question 15

The registration statement to be filed with the Securities and Exchange Commission (SEC)includes

Accepted Answer

The Securities Act of 1933 contains detailed provisions relating to the registration of securities. These provisions require that a registration statement be filed with the Securities and Exchange Commission. The statement includes a detailed disclosure of financial information about the issuer and the controlling individuals involved in the offering of securities for sale to the public.

Question 16

The Public Company Accounting Oversight Board (PCAOB)permits auditing firms to conduct a variety of nonauditing services.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) requires that auditing firms refrain from conducting a variety of nonauditing services. These services include bookkeeping, system designs and implementation, appraisals and valuations, actuarial services, human resources functions, and investment banking.

Question 17

The Sarbanes-Oxley Act focuses on decreasing the independence of the auditors.

Accepted Answer

Sarbanes-Oxley Act focuses on increasing the independence of the auditors. Congress seeks to ensure that auditors maintain the trust of the public and the corporate shareholders and not the loyalty of the corporate officers and directors.

Question 18

Under the Sarbanes-Oxley Act of 2002,whistleblowers exclude contractors.

Accepted Answer

Under the Sarbanes-Oxley Act of 2002, whistleblowers include contractors as well as employees. Sarbanes-Oxley provides protections for whistleblowers so that individuals are more willing to report the corruption that can lead to major scandals.
Multiple Choice Questions

Question 19

The blue sky laws can apply to securities subject to federal laws as well as to those securities exempt from the federal statutes.

Accepted Answer

The blue sky laws can apply to securities subject to federal laws as well as to those securities exempt from the federal statutes. It is clearly established that the federal laws do not preempt the existence of state blue sky laws.

Question 20

The Sarbanes-Oxley Act limits personal loans from a company to its executives to one loan of no more than $10,000,amortized over five years,at a time.

Accepted Answer

The Sarbanes-Oxley Act prohibits personal loans from the company to its executives.

Quiz 17: Financial and Securities Regulations