Question 1

Assuming requirements are satisfied,which of the following,if any,may allow Bernice to avoid registration with the SEC if she proceeds with her plan to offer securities only to friends without advertisement?

Accepted Answer

Under certain circumstances, issuers who make private offerings of securities are exempt from the registration process. These issuers, however, cannot advertise their private offerings to the general public.

Question 2

In which of the following prohibited practices,if any,was Linda engaged by purchasing the shares after she found out about the merger?

Accepted Answer

When a company employee or executive uses material inside information to make a profit, she or he is engaging in insider trading.

Question 3

Which of the following is a term,if any,that would describe Scott as an investor?

Accepted Answer

The SEC definition of an accredited investor includes any natural person who has a net worth of at least $1 million.

Question 4

Which of the following is the term for the document referenced by Robbie involving information provided to the SEC involving a description of the securities,an explanation of how proceeds will be used,information regarding the management of the company and other matters?

Accepted Answer

The registration statement generally contains (1) a description of the securities offered for sale, (2) an explanation of how proceeds from the sale of the securities will be used, (3) a description of the registrant's business and properties, (4) information about the management of the company, (5) a description of any pending lawsuits in which the registrant is involved, and (6) financial statements certified by an independent public accountant.

Question 5

Which of the following would describe Frank in providing information about the asset sale to George?

Accepted Answer

The tipper/tippee theory holds that any individual who acquires material insider information as a result of an insider's breach of duty has engaged in insider trading. A tippee who passes along a tip also becomes a tipper.

Question 6

Which of the following is true regarding Bruno's sale of securities before the effective date of registration?

Accepted Answer

If a defendant sold securities before the effective date of registration, he will almost certainly be liable because the 1933 act provides no defenses for this violation.

Question 7

Which of the following is true regarding Bruno's plan to rely on the due diligence defense?

Accepted Answer

Any defendant except the issuer can assert the due diligence defense.

Question 8

Which of the following would describe Frank in receiving the information from Linda and acting upon it?

Accepted Answer

The individual who has received a "tip" from an insider, is called a tippee.

Question 9

Which of the following is a reason Congress passed the Private Securities Litigation Reform Act of 1995?

Accepted Answer

Among other things, the Private Securities Litigation Reform Act (PSLRA) of 1995 provides a "safe harbor" from liability for publicly held issuers who make financial forecasts as long as the forecasts are "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."

Question 10

Which of the following did Congress pass in an effort to prevent exploitation of small investors?

Accepted Answer

To prevent exploitation of small investors, Congress passed the Investment Company Act of 1940.

Question 11

Which of the following,if any,may be defenses for Bruno?

Accepted Answer

A company charged with the first or second violation may claim that the omitted or false statement was immaterial to the sale of the security. Similarly, if the issuer can prove that the plaintiff was aware of the omission or false statement when he bought the security, the defendant can avoid liability. If a defendant sold securities before the effective date of registration, he will almost certainly be liable because the 1933 act provides no defenses for this violation.

Question 12

Which of the following would describe Linda in providing information about the asset sale to Frank?

Accepted Answer

The insider who gives the inside "tip" is called the tipper.

Question 13

Which of the following refer to state securities laws?

Accepted Answer

Not only must issuers obey federal securities regulations, but they are also subject to state securities laws, often referred to as blue-sky laws.

Question 14

Which of the following is not an example of material information under Section 10(b)and Rule 10(b)-5?

Accepted Answer

Examples of material information include the following:
1. A change in the status of litigation against the company.
2. A change in dividends.
3. A contract for the sale of corporate assets or for the purchase of assets.4. A new product, process, or discovery.5. A significant change in the financial status of the company.

Question 15

Which of the following is the term for the document referenced by Robbie to be provided to the SEC that will be used as an advertising tool to potential investors who can rely on it to decide whether they should buy securities?

Accepted Answer

The prospectus is an advertising tool that issuers distribute to potential investors who rely on the prospectus to help decide whether they should buy the securities.

Question 16

Which of the following prohibits fraud associated with the purchase or sale of all securities?

Accepted Answer

One of the most important sections of the 1934 act is Section 10(b), which prohibits the use of manipulative and deceptive devices to bypass SEC rules. Within this section, Subsection 5 prohibits fraud associated with the purchase or sale of all securities.

Question 17

Is Rick correct in that the SEC would have no authority to send Bruno to jail?

Accepted Answer

Criminal penalties include a fine up to $10,000, imprisonment for up to five years, or both.

Question 18

Which of the following references a profit made by a statutory insider from the purchase and sale of their own company stock within a six-month period?

Accepted Answer

Short-swing profits are profits made from the sale of company stock within any six-month period by a statutory insider, to the company.

Question 19

Which of the following is true regarding who may be considered an insider under the Securities Exchange Act of 1934?

Accepted Answer

Section 10(b) and Rule 10b-5 define insiders as corporate officers, directors, employees, lawyers, consultants, accountants, majority shareholders, or any other individuals who receive private information regarding the trading of securities.

Question 20

Which of the following limits shareholders' ability to bring class action suits against nationally traded companies?

Accepted Answer

The Securities Litigation Uniform Standards Act of 1998 strictly limits shareholders' ability to bring class action suits against nationally traded corporations.

Quiz 41: Corporations: Securities and Investor Protection