Exam 41: Investor Protection and Online Securities Transactions

Robert is the vice president of a medium-size corporation that operates retail sporting goods stores in seven states.Robert has considerable stock that he purchased and received over the years while working there.Robert has purchased no stock for the last 3 years because all his excess funds have gone toward college expenses for his oldest son.Robert's daughter will begin college in the fall,and Robert needs to sell some stock.Robert knows that one of the retail locations where the corporation owns the real estate was once used as a toxic dump.The corporation is legally obligated to clean up this site,and the costs will have a material effect on the corporation's net income for several years.This information is not yet public.Robert can:

The Insider Trading Sanctions Act passed in 1984 allows the SEC to impose a fine of up to three times the amount of illegal profits gained from insider trading.

A corporate employee is deemed to be an insider,and buys shares of company stock on May 1,2008.He leaves his employment on June 1,2008.When can he sell his stock without violating SEC Section 16?

Companies that are covered under the Securities Exchange Act of 1934 are subject to ongoing filing requirements even if they are not making new offerings of securities.

Investors who purchase unregistered securities have no recourse against the sellers.

Misrepresentations about an offer or sale are considered to be a violation of the Securities Act of 1933.

Are the rules on short-swing profits under Section 16(b)of the Securities Exchange Act of 1934 too restrictive or not restrictive enough? Merely because one is a statutory insider,is it proper to limit his or her ability to make a profit on the company's stock? Alternatively,should the 6-month period be longer? What is the theory behind making the profits belong to the corporation?

Bluegrass Inc.is incorporated and does all of its business in the state of Kentucky.Bluegrass has planned to issue $5,000,000 in new stock.Bluegrass has 10 potential investors,nine of whom live in Kentucky,and one who lives in Ohio.Only one of these potential investors is accredited.Can Bluegrass qualify for any of the registration exemptions under the Securities Act of 1933?

The Insider Trading Sanctions Act provides for probation for illegal benefits received from insider trading.

The Securities and Exchange Commission was created as part of the Securities Exchange Act of 1934.

Employees may not violate insider-trading rules.

John operates a sailboat charter service in the U.S.Virgin Islands.He currently has a fleet of 10 boats and would like to have a larger fleet,but would have to obtain additional investors,which he does not want to do.He is considering having investors buy sailboats,which he would maintain and operate as part of his charter fleet.He would enter into a contract that would sell the boat to the investor and provide for the investor to pay John a monthly fee for the maintenance of the boat,and would provide for the sharing of profits between John and the investor.Discuss whether this investment is a security under the 1933 and 1934 Securities Acts.

The general purpose of the Securities Act of 1933 is:

Under the Securities Act of 1933,which of the following is true about activities of the issuer during the waiting period?

Under Rule 10b-5,which is true about insiders?

Under the due diligence defense to a Section 11 action under the Securities Act of 1933,which of the following is true?

Rule 10b-5,which prohibits securities fraud,applies only to the securities of companies listed on the major stock exchanges.

Harmon,Inc.is a manufacturer of auto parts and wishes to issue new stock to raise capital.Harmon is incorporated and does all of its business in Indiana.Harmon would like to offer its stock regionally,but is flexible depending on the circumstances.There are also several wealthy,sophisticated individuals who would like to purchase Harmon stock.Discuss the methods available to issue Harmon stock exempt from SEC registration.

Under the 1933 Securities Act,a person responsible may be held liable for:

Caroline is riding the elevator when she overhears two men talking about a proposed merger.It seems that Strawberry Corporation is going to acquire all the stock of Maple Co.Caroline asks the two men what they are talking about,and they say that when this news becomes public,Maple Co.'s stock will increase dramatically in price.They tell Caroline that this is private information and that she is not to tell anyone.Caroline buys some Maple Co.stock.Several months later,after the merger is announced,Caroline sells her stock for a large profit.Assuming all the information Caroline had was material,nonpublic information,which of the following best describes Caroline's situation?