Question 1

A(n)_______ period is any period longer than three business days during which _______ of the participants in a retirement plan are prevented from trading.

Accepted Answer

A)  loss causation, 80% 
B)  scheme liability, 25% 
C)  blackout, 50% or more 
D)  stock parking, 80% 
A)  loss causation, 80% 
B)  scheme liability, 25% 
C)  blackout, 50% or more 
D)  stock parking, 80%

Question 2

Lawsuits under Section 10(b)must be brought within ________ of the date the plaintiff discovered or should have discovered the facts constituting the violation or within ________ of the date of the violation,whichever is earlier.

Accepted Answer

A)  two years, five years 
B)  six months, one year 
C)  two years, three years 
D)  one year, two years 
A)  two years, five years 
B)  six months, one year 
C)  two years, three years 
D)  one year, two years

Question 3

What is the duty of an independent public accountant if,in the course of an audit,the accountant detects information indicating that an illegal act has or may have occurred?

Accepted Answer

The accountant must (1)determine whether

Question 4

Which of the following is not a requirement for a Rule 10b-5 violation?

Accepted Answer

A)  The defendant either used the mails, an instrumentality of interstate commerce, or a facility of a national securities exchange. 
B)  The defendant made a statement that either misrepresented or omitted a fact of material importance. 
C)  The misrepresentation or omission was made with scienter. 
D)  The statement was made in connection with a public offering. 
A)  The defendant either used the mails, an instrumentality of interstate commerce, or a facility of a national securities exchange. 
B)  The defendant made a statement that either misrepresented or omitted a fact of material importance. 
C)  The misrepresentation or omission was made with scienter. 
D)  The statement was made in connection with a public offering.

Question 5

A right of action under section 10(b)may expire before a plaintiff discovers he has been wronged or even before damages have been suffered at all.

Accepted Answer

A) True 
 B)False

Question 6

The safe harbor provision applies to forward-looking statements in connection with an initial public offering.

Accepted Answer

A) True 
 B)False

Question 7

Fact Pattern 22-1
Trudy was hired by Food Corporation to handle a products liability lawsuit brought against it alleging that it distributed dangerous dog biscuits. Trudy's investigation brought to light facts establishing that the biscuits were not defective and that the problem actually involved improper retention policies on the part of retailers. Trudy is aware that this information will result in the stock of Food Corporation increasing dramatically. Trudy immediately buys shares of Food Corporation and tells her fiancé, Frank, about the expected increase as well. Trudy tells Frank because she wants to borrow money from him for the trade and also because she believes that his investment will enable them to take a nicer honeymoon. Frank initially resists because of his training in business law and his concern that trading on the information would violate federal law, but he ends up going along with Trudy because he too wants a nice honeymoon. Trudy's suspicions come true. The lawsuit is dismissed, the stock increases dramatically, and she and Frank go on a great honeymoon. The day after they return, an investigator from U.S. Attorney's Office interviews her regarding her trades and those of Frank.
-Refer to fact pattern 22-1. Can Trudy be considered an insider of Food Corporation?

Accepted Answer

A)  No 
B)  Yes, as a derivative insider. 
C)  Yes, as a temporary insider. 
D)  It depends on whether she was paid as an employee or independent contractor because she may be considered an insider only if she was paid as an employee. 
A)  No 
B)  Yes, as a derivative insider. 
C)  Yes, as a temporary insider. 
D)  It depends on whether she was paid as an employee or independent contractor because she may be considered an insider only if she was paid as an employee.

Question 8

Which of the following represents the general rule under rule 10b-5 in regard to the duty of a company to reveal corporate developments?

Accepted Answer

A)  A company has no general duty under Rule 10b-5 to reveal corporate developments unless the company or its insiders (1) trade in securities or (2) recommend trading to someone else. 
B)  A company has no general duty under Rule 10b-5 to reveal corporate developments unless the company or its insiders (1) trade in securities, (2) recommend trading to someone else, or (3) disclose the information as a tip while withholding it from the general public. 
C)  A company has a general duty under Rule 10b-5 to reveal corporate developments that are material. 
D)  A company had a general duty under Rule 10b-5 to reveal corporate developments if it appears (1) that developments are material and (2) that the material developments will have a negative effect on the company's financial reports. 
A)  A company has no general duty under Rule 10b-5 to reveal corporate developments unless the company or its insiders (1) trade in securities or (2) recommend trading to someone else. 
B)  A company has no general duty under Rule 10b-5 to reveal corporate developments unless the company or its insiders (1) trade in securities, (2) recommend trading to someone else, or (3) disclose the information as a tip while withholding it from the general public. 
C)  A company has a general duty under Rule 10b-5 to reveal corporate developments that are material. 
D)  A company had a general duty under Rule 10b-5 to reveal corporate developments if it appears (1) that developments are material and (2) that the material developments will have a negative effect on the company's financial reports.

Question 9

When can a securities fraud claim be used as a predicate act in a civil case under the Racketeer Influenced and Corrupt Organizations Act (RICO)?

Accepted Answer

A)  When the defendant has been arrested in connection with the fraud. 
B)  When a conspiracy can be proven. 
C)  When the defendant has been criminally convicted in connection with the fraud. 
D)  When the defendant has been held liable for other civil damages in connection with the fraud. 
A)  When the defendant has been arrested in connection with the fraud. 
B)  When a conspiracy can be proven. 
C)  When the defendant has been criminally convicted in connection with the fraud. 
D)  When the defendant has been held liable for other civil damages in connection with the fraud.

Question 10

Which of the following was the result on appeal before the U.S.Supreme Court in Matrixx Initiatives v.Siracusano,the securities case in the text involving the issue of whether an issuer must disclose known information about possible side effects of a drug that could affect the drug's stock price even though no proven statistical link exists between use of the drug and the adverse effect?

Accepted Answer

A)  That a bright-line test would be applied requiring at least one civil judgment in favor of a plaintiff before a defendant would be required to disclose allegations of a link between a drug and an adverse effect and that the defendants were entitled to dismissal of the case because no showing of a civil judgment had been introduced. 
B)  That no statistical link between the use of the drug and adverse effects was required but that the defendants were entitled to dismissal of the case because the plaintiffs did not personally suffer adverse health effects from the drug. 
C)  That the defendants were entitled to dismissal of the case because the plaintiffs could not prove a statistical link between use of the drug and adverse effects. 
D)  That the "total mix of information" test applied in regard to the issue of materiality, that statistical proof was unnecessary, and that sufficient evidence existed for the plaintiffs to proceed to trial. 
A)  That a bright-line test would be applied requiring at least one civil judgment in favor of a plaintiff before a defendant would be required to disclose allegations of a link between a drug and an adverse effect and that the defendants were entitled to dismissal of the case because no showing of a civil judgment had been introduced. 
B)  That no statistical link between the use of the drug and adverse effects was required but that the defendants were entitled to dismissal of the case because the plaintiffs did not personally suffer adverse health effects from the drug. 
C)  That the defendants were entitled to dismissal of the case because the plaintiffs could not prove a statistical link between use of the drug and adverse effects. 
D)  That the "total mix of information" test applied in regard to the issue of materiality, that statistical proof was unnecessary, and that sufficient evidence existed for the plaintiffs to proceed to trial.

Question 11

If an insider resigns before trading,he or she cannot be held liable for improper insider trading.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following was the result before the U.S.Supreme Court in Stoneridge Investment Partners,LLC v.Scientific-Atlanta,Inc.,the case in the text involving the issue of whether customer / supplier companies that agreed to arrangements allowing an issuer to mislead its auditor are liable in a private action under section 10(b)of the 1934 Act?

Accepted Answer

A)  That based on "scheme liability," the customer / supplier companies could be held liable although no public statement was made. 
B)  That based on "transaction causation" the plaintiffs could establish reliance and that the plaintiffs were, therefore, entitled to proceed. 
C)  That plaintiff investors had no private right of action because they did not rely upon the statements or representations at issue. 
D)  That the plaintiff investors had no private right of action because the defendants were not aiders and abettors and, instead, acted primarily on their own behalf outside the realm of securities regulation. 
A)  That based on "scheme liability," the customer / supplier companies could be held liable although no public statement was made. 
B)  That based on "transaction causation" the plaintiffs could establish reliance and that the plaintiffs were, therefore, entitled to proceed. 
C)  That plaintiff investors had no private right of action because they did not rely upon the statements or representations at issue. 
D)  That the plaintiff investors had no private right of action because the defendants were not aiders and abettors and, instead, acted primarily on their own behalf outside the realm of securities regulation.

Question 13

Section 16(a)of the 1934 Act requires that officers,directors,and greater-than-10 percent shareholders of companies that have registered any class of equity securities under the 1934 Act file ________ reports with the SEC and with an national securities exchange on which their company's equity securities are listed.

Accepted Answer

A)  actual ownership 
B)  beneficial ownership 
C)  insider ownership 
D)  listed stock 
A)  actual ownership 
B)  beneficial ownership 
C)  insider ownership 
D)  listed stock

Question 14

Which of the following is true regarding who can sue under Rule 10b-5?

Accepted Answer

A)  Only those who purchased the securities at issue may sue. 
B)  Only those who sold the securities at issue may sue. 
C)  Only those who have actually purchased or sold the securities at issue may sue. 
D)  Anyone who either actually purchased or sold the securities at issue, and also anyone who can prove that he or she would have purchased or sold the securities at issue had they known the true facts may sue. 
A)  Only those who purchased the securities at issue may sue. 
B)  Only those who sold the securities at issue may sue. 
C)  Only those who have actually purchased or sold the securities at issue may sue. 
D)  Anyone who either actually purchased or sold the securities at issue, and also anyone who can prove that he or she would have purchased or sold the securities at issue had they known the true facts may sue.

Question 15

Section 20(a)imposes ________ liability on every person who,directly or indirectly,controls any person liable under the 1934 Act,unless the controlling person acted in good faith and did not directly or indirectly induce the acts constituting the violation.

Accepted Answer

A)  strict 
B)  individual 
C)  joint and several 
D)  criminal 
A)  strict 
B)  individual 
C)  joint and several 
D)  criminal

Question 16

Temporary insiders are persons not directly employed by the corporation,but who acquire confidential information through the performance of professional services.

Accepted Answer

A) True 
 B)False

Question 17

May private plaintiffs,the SEC,or both bring aider and abettor actions under Rule 10(b)? What must be proven? What type of relief may be sought?

Accepted Answer

The SEC,but not private plaintiffs,may b

Question 18

Drug Company X reports the introduction of a new pill that is guaranteed to cause weight loss with no side effects. The information was advertised in connection with a public offering of stock of the company's stock. Later,it becomes apparent through additional testing that unfortunately the new pill also results in premature hair loss,a material issue. Monika is the president of Company X and is very pleased with sales of the drug. She recognizes that she can no longer advertise the drug as having no side effects,but she does not believe she has made any misrepresentations because she was not aware of the hair loss side effect when previous statements were made. She decides to do nothing. Has she made the correct decision as far as Rule 10b-5 is concerned?

Accepted Answer

A)  Yes, because she has no duty to disclose later test results. 
B)  Yes, because she has no duty to disclose later test results that involve only cosmetic issues. 
C)  Yes, because she has no duty to disclose later test results that involve issues that are not life threatening. 
D)  No, she made the wrong decision because she has an obligation to disclose the results. 
A)  Yes, because she has no duty to disclose later test results. 
B)  Yes, because she has no duty to disclose later test results that involve only cosmetic issues. 
C)  Yes, because she has no duty to disclose later test results that involve issues that are not life threatening. 
D)  No, she made the wrong decision because she has an obligation to disclose the results.

Question 19

The requirement that the defendant in a 10b-5 action have used interstate commerce,the mails,or a national securities exchange gives Congress the power to regulate the defendant's conduct under ________.

Accepted Answer

A)  the due process clause of the U.S. Constitution 
B)  the Commerce Clause of the U.S. Constitution 
C)  the fifth amendment to the U.S. Constitution 
D)  executive order 90210 
A)  the due process clause of the U.S. Constitution 
B)  the Commerce Clause of the U.S. Constitution 
C)  the fifth amendment to the U.S. Constitution 
D)  executive order 90210

Question 20

Under Rule 10b-5 a company may not have a "no comment" policy,and must act to dispel untrue rumors.

Accepted Answer

A) True 
 B)False

A(n)_ period is any period longer than three business days during which _ of the participants in a retirement plan are prevented from trading.

Lawsuits under Section 10(b)must be brought within of the date the plaintiff discovered or should have discovered the facts constituting the violation or within of the date of the violation,whichever is earlier.

What is the duty of an independent public accountant if,in the course of an audit,the accountant detects information indicating that an illegal act has or may have occurred?

Which of the following is not a requirement for a Rule 10b-5 violation?

A right of action under section 10(b)may expire before a plaintiff discovers he has been wronged or even before damages have been suffered at all.

The safe harbor provision applies to forward-looking statements in connection with an initial public offering.

Which of the following represents the general rule under rule 10b-5 in regard to the duty of a company to reveal corporate developments?

When can a securities fraud claim be used as a predicate act in a civil case under the Racketeer Influenced and Corrupt Organizations Act (RICO)?

If an insider resigns before trading,he or she cannot be held liable for improper insider trading.

Which of the following is true regarding who can sue under Rule 10b-5?

Section 20(a)imposes ________ liability on every person who,directly or indirectly,controls any person liable under the 1934 Act,unless the controlling person acted in good faith and did not directly or indirectly induce the acts constituting the violation.

Temporary insiders are persons not directly employed by the corporation,but who acquire confidential information through the performance of professional services.

May private plaintiffs,the SEC,or both bring aider and abettor actions under Rule 10(b)? What must be proven? What type of relief may be sought?

The requirement that the defendant in a 10b-5 action have used interstate commerce,the mails,or a national securities exchange gives Congress the power to regulate the defendant's conduct under ________.

Under Rule 10b-5 a company may not have a "no comment" policy,and must act to dispel untrue rumors.

law, value creation, and risk management

Ethics ant the law

Courts, sources of law, and dispute resolution

Constitutional bases for business regulation

Agency

Administrative Law

Contracts

sales,licensing,and e-commerce

Torts and Privacy protection

product liability

Intellectual property

The employment agreement

civil rights and employment discrimination

Criminal law

Environmental law

Antitrust

Consumer Protection

real property and land use

Forms of business organizations

Directors, Officers, and Controlling Shareholders

Public and Private Offerings of Securities

Debtor-Creditor Relations and Bankruptcy

International Business

Filters

Exam 22: Securities Fraud and insider trading

A(n)_______ period is any period longer than three business days during which _______ of the participants in a retirement plan are prevented from trading.

Lawsuits under Section 10(b)must be brought within ________ of the date the plaintiff discovered or should have discovered the facts constituting the violation or within ________ of the date of the violation,whichever is earlier.

What is the duty of an independent public accountant if,in the course of an audit,the accountant detects information indicating that an illegal act has or may have occurred?

Which of the following is not a requirement for a Rule 10b-5 violation?

A right of action under section 10(b)may expire before a plaintiff discovers he has been wronged or even before damages have been suffered at all.

The safe harbor provision applies to forward-looking statements in connection with an initial public offering.

Which of the following represents the general rule under rule 10b-5 in regard to the duty of a company to reveal corporate developments?

When can a securities fraud claim be used as a predicate act in a civil case under the Racketeer Influenced and Corrupt Organizations Act (RICO)?

If an insider resigns before trading,he or she cannot be held liable for improper insider trading.

Which of the following is true regarding who can sue under Rule 10b-5?

Section 20(a)imposes ________ liability on every person who,directly or indirectly,controls any person liable under the 1934 Act,unless the controlling person acted in good faith and did not directly or indirectly induce the acts constituting the violation.

Temporary insiders are persons not directly employed by the corporation,but who acquire confidential information through the performance of professional services.

May private plaintiffs,the SEC,or both bring aider and abettor actions under Rule 10(b)? What must be proven? What type of relief may be sought?

The requirement that the defendant in a 10b-5 action have used interstate commerce,the mails,or a national securities exchange gives Congress the power to regulate the defendant's conduct under ________.

Under Rule 10b-5 a company may not have a "no comment" policy,and must act to dispel untrue rumors.

law, value creation, and risk management

Ethics ant the law

Courts, sources of law, and dispute resolution

Constitutional bases for business regulation

Agency

Administrative Law

Contracts

sales,licensing,and e-commerce

Torts and Privacy protection

product liability

Intellectual property

The employment agreement

civil rights and employment discrimination

Criminal law

Environmental law

Antitrust

Consumer Protection

real property and land use

Forms of business organizations

Directors, Officers, and Controlling Shareholders

Public and Private Offerings of Securities

Debtor-Creditor Relations and Bankruptcy

International Business

Filters

A(n)_ period is any period longer than three business days during which _ of the participants in a retirement plan are prevented from trading.

Lawsuits under Section 10(b)must be brought within of the date the plaintiff discovered or should have discovered the facts constituting the violation or within of the date of the violation,whichever is earlier.