Exam 22: Securities Fraud and insider trading

The European Union Market Abuse Directive requires member states to enact national legislation punishing primary,but not secondary insiders.

Under the efficient market theory,in an open and developed securities market,the market price of a company's stock equals its true value.

A person may be liable under Section 16(b)of the 1934 Act if he or she was an officer or director at the time of

Which of the following is true regarding the regulation propounded by the SEC titled Regulation Analyst Certification,Regulation AC?

Under what circumstances will reliance be presumed for purposes of establishing liability under Rule 10b-5?

Research shows that because of the severe penalties involved,insider trading in China is very rare.

If a purchase or sale by an officer,director,or greater-than-10 percent shareholder that would otherwise result in recoverable short-swing profits was involuntary and did not involve the payment of cash and if there was no possibility of speculative abuse of inside information,than a court may hold that it was a(n)________ to which no liability will attach.

Which of the following is true regarding "holder" claims?

A securities fraud claim can be used as a predicate act in a civil case under the Racketeer Influenced and Corrupt Organizations Act regardless of whether the defendant has been criminally convicted in connection with the fraud.

Rule 10b-5 does not result in any private rights of action.

Sampson,an accountant and auditor with ABC Accounting,was auditing XYZ Company. Delilah,the president of XYZ Company,told Sampson that she really needed to keep her job and that if the true condition of the company were exposed,she would certainly be fired. She tells Sampson that she is sure she can turn things around if he will only look help her out in the audit report. Sampson,who was infatuated with Delilah,agreed to include inaccurate numbers in the company's audit report knowing that the opinion would be included in the company's annual report on Form10-K filed with the SEC. Unfortunately,Delilah was not able to turn the company's performance around,and it went into bankruptcy later that year. Sampson becomes aware that an investigation is being conducted. Which of the following is true regarding his potential liability?

The SEC itself has criminal enforcement power.

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. Is there a basis upon which to hold Frank liable for a securities violation based upon his receipt and use of the information?

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. Is there a basis upon which to hold Trudy liable for a securities violation for disclosing to Frank the information regarding the likely dismissal of the lawsuit?

In relation to forward-looking statements,under the bespeaks caution doctrine,a court may determine that the inclusion of sufficient ________ in a document renders immaterial any misrepresentation or omission contained therein.

There is no provision in the security laws for the payment of bounties to individuals whose tips result in insider trading prosecutions.

Section 16(b)of the 1934 Act governs ________ by officers,directors,and greater-than-10% shareholders of equity securities of a public company.

List the seven elements of a Rule 10b-5 cause of action.