Question 1

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.

Accepted Answer

The answer of According to the Supreme Court, notes that...

Question 2

What is a blue sky law?

Accepted Answer

A blue sky law is a state law that regulates the offering and sale of securities to protect the public from fraud. These laws require securities issuers to register with state regulators and provide information to potential investors about the risks and benefits of the investment. The term "blue sky" comes from the idea that a legitimate investment opportunity is like a clear blue sky - there are no clouds or shadows obscuring the truth about the investment.

Question 3

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

Accepted Answer

The Dodd-Frank Wall Street Reform and Consumer Protection Act is the largest amendment to financial regulation in the United States since the Great Depression, passed by Congress in 2010. It aims to increase transparency and accountability in the financial sector and to protect consumers from abusive financial practices.

Question 4

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

Accepted Answer

Scienter is a legal term used to indicate the knowledge or intent of wrongdoing. It is commonly associated with the concept of fraud, where the party committing the act has a conscious awareness that their actions are illegal or improper. The other choices, quasi, novation, escrow, and escheat do not relate to intent or knowledge of wrongdoing.

Question 5

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

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) is the body created by the Sarbanes-Oxley Act that oversees and regulates accounting firms in their capacity as auditors of public companies. Choices A, C, D, and E are not correct as they refer to different regulatory bodies involved in accounting and finance.

Question 6

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.

Accepted Answer

The resale of shares by Ron through the broker to John represents a secondary market transaction. In the secondary market, existing securities are bought and sold among investors, whereas in the primary market, newly issued securities are sold to the public. Reverse takeover, initial public offering, and stock market launch are not relevant in this scenario.

Question 7

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) _____.

Accepted Answer

Gloria would be considered a tippee, as she received inside information from a director of the company, which could be considered insider trading if it was not publicly available information.

Question 8

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.

Accepted Answer

The scenario described reflects the short-swing profit rule under Section 16(b) of the Securities Exchange Act of 1934. This rule requires corporate insiders, such as directors, to disgorge any profits made from buying and selling their company's stock within a period of less than six months. This is to prevent insider trading and unfair use of privileged information. Therefore, Dino would have to return the $1,000 profit to the company under this rule.

Question 9

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.

Accepted Answer

The misappropriation theory is the legal principle that prohibits the trading of securities based on stolen or misappropriated nonpublic information. This means that any person who steals information from an employee and uses it to trade securities will be held liable for insider trading. The other options listed are not relevant to insider trading liability.

Question 10

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 _____.

Accepted Answer

Hannah indulged in insider trading by using non-public information to make a profit. As a board member with significant influence, she had access to important sensitive information that was not available to the general public, and she used this information to sell her shares before the public was aware of the decreasing share prices.

Question 11

_____ 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…"

Accepted Answer

Section 10(b) of the Securities Exchange Act of 1934 is commonly known as the anti-fraud provision, which prohibits any person from using manipulative or deceptive devices in connection with the purchase or sale of any security. It is a broad and flexible provision that serves as the basis for many anti-fraud actions by the Securities and Exchange Commission (SEC) and private litigants.

Question 12

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

Accepted Answer

The answer of What are the three options that the...

Quiz 46: Securities Regulation