Question 1

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

Accepted Answer

A)  It prohibits analysts from issuing reports that they do not personally believe to be true, and it also requires the disclosure of any analyst compensation arrangements related to specific recommendations or views contained in research reports. 
B)  It prohibits analysts from issuing reports that they do not personally believe to be true, but it does not require disclosure of any compensation reports. 
C)  It requires that analysts report compensation arrangements in relation to recommendations or views contained in research reports but, because of problems involving proof, it does not specifically prohibit analysts from issuing reports that they do not personally believe to be true. 
D)  The regulation will be put into action in phases with the first phase, effective in 2012, requiring disclosure of compensation arrangements in relation to recommendations or views contained in research reports and the second phase, effective in 2014, prohibiting entirely the issuance of recommendations or views in relation to stock for which an initial public offering was made within the previous twelve months. 
A)  It prohibits analysts from issuing reports that they do not personally believe to be true, and it also requires the disclosure of any analyst compensation arrangements related to specific recommendations or views contained in research reports. 
B)  It prohibits analysts from issuing reports that they do not personally believe to be true, but it does not require disclosure of any compensation reports. 
C)  It requires that analysts report compensation arrangements in relation to recommendations or views contained in research reports but, because of problems involving proof, it does not specifically prohibit analysts from issuing reports that they do not personally believe to be true. 
D)  The regulation will be put into action in phases with the first phase, effective in 2012, requiring disclosure of compensation arrangements in relation to recommendations or views contained in research reports and the second phase, effective in 2014, prohibiting entirely the issuance of recommendations or views in relation to stock for which an initial public offering was made within the previous twelve months.

Question 2

In CASE 22.1SEC v.Texas Gulf Sulphur Co.(1971)the question was whether a press release giving a misleading impression about the results of a drilling operation violated Rule 10b-5.How did the court rule?

Accepted Answer

A)  That the company acted only in response to rumors and had no obligation to set forth additional facts regarding the drilling operation, thereby negating any basis for Rule 10b-5 liability. 
B)  That the company violated Rule 10b-5 by issuing the misleading press release. 
C)  That a press release standing alone may not violate Rule 10b-5 and that the company could not be held liable because it made no actionable statements outside the press release. 
D)  That the company could be held liable under Rule 10b-5 but only because it issued other statements in addition to the press release. 
A)  That the company acted only in response to rumors and had no obligation to set forth additional facts regarding the drilling operation, thereby negating any basis for Rule 10b-5 liability. 
B)  That the company violated Rule 10b-5 by issuing the misleading press release. 
C)  That a press release standing alone may not violate Rule 10b-5 and that the company could not be held liable because it made no actionable statements outside the press release. 
D)  That the company could be held liable under Rule 10b-5 but only because it issued other statements in addition to the press release.

Question 3

In Morrison v.National Australia Bank Ltd.referenced in the text,the U.S Supreme Court held that Section 10(b)of the 1934 Act and SEC Rule 10b-5 apply to any company that trades on the NY Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  They are disallowed by federal statute. 
B)  State law is preempted, and they are allowed under federal law only if the plaintiff purchased securities issued under fraudulent pretenses. 
C)  They may be allowed under blue sky laws as either individual or class actions. 
D)  They may be allowed under blue sky laws, but not as class actions. 
A)  They are disallowed by federal statute. 
B)  State law is preempted, and they are allowed under federal law only if the plaintiff purchased securities issued under fraudulent pretenses. 
C)  They may be allowed under blue sky laws as either individual or class actions. 
D)  They may be allowed under blue sky laws, but not as class actions.

Question 5

In CASE 22.2 Halliburton Co.v.Erica P.John Fund,Inc.(2014),the U.S.Supreme Court considered the __________ theory,as well as the question a defendant in a securities fraud trial should be allowed to present evidence to challenge the __________ presumption of __________.

Accepted Answer

A)  Truth-on-the-Market, Levinson,reliance. 
B)  Efficient Capital Market,Basic,reliance. 
C)  Fraud-on-the-Market, Basic, reliance. 
D)  Bespeaks Docrine,Basic, scienter. 
A)  Truth-on-the-Market, Levinson,reliance. 
B)  Efficient Capital Market,Basic,reliance. 
C)  Fraud-on-the-Market, Basic, reliance. 
D)  Bespeaks Docrine,Basic, scienter.

Question 6

The materiality of a misstatement or omission under Rule 10b-5 is judged at the time:

Accepted Answer

A)  the statement is made. 
B)  of the stock purchase. 
C)  of the injury. 
D)  of the lawsuit. 
A)  the statement is made. 
B)  of the stock purchase. 
C)  of the injury. 
D)  of the lawsuit.

Question 7

In order to be actionable under Rule 10b-5,misstatements or omissions must be made with:

Accepted Answer

A)  negligence. 
B)  lack of due care. 
C)  scienter. 
D)  recklessness. 
A)  negligence. 
B)  lack of due care. 
C)  scienter. 
D)  recklessness.

Question 8

The Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act)provides that "political intelligence" firms,but not Congressional staff,can be liable for trading based on material nonpublic information derived from the officials' positions.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A)  facts 
B)  cautionary statements 
C)  expert opinions 
D)  information 
A)  facts 
B)  cautionary statements 
C)  expert opinions 
D)  information

Question 11

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 12

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 13

In United States v.McGraw-Hill Companies,Inc.referenced in the text,the U.S.Supreme Court addressed the question of whether the statements and ratings of companies made by Standard and Poor's,a unit of McGraw-Hill,were:

Accepted Answer

A)  puffery. 
B)  forward-looking statements. 
C)  material. 
D)  bespeaks caution statements. 
A)  puffery. 
B)  forward-looking statements. 
C)  material. 
D)  bespeaks caution statements.

Question 14

To prevail on a securities fraud claim,a plaintiff must prove "loss causation",that the defendant's misstatement caused her to suffer economic loss.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is true regarding remedies available under Rule 10b-5?

Accepted Answer

A)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; and the court may award prejudgment interest; but punitive damages are unavailable. 
B)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, and the court may award prejudgment interest; but punitive damages are unavailable. 
C)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; the court may award prejudgment interest; and punitive damages are available in appropriate cases. 
D)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, the court may award prejudgment interest, and punitive damages are available in appropriate cases. 
A)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; and the court may award prejudgment interest; but punitive damages are unavailable. 
B)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, and the court may award prejudgment interest; but punitive damages are unavailable. 
C)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; the court may award prejudgment interest; and punitive damages are available in appropriate cases. 
D)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, the court may award prejudgment interest, and punitive damages are available in appropriate cases.

Question 18

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?

Accepted Answer

A)  Not unless she had signed a confidentiality agreement with Food Corporation. 
B)  Yes, she could be held liable as a tipper. 
C)  Yes, she could be held liable as a tippee. 
D)  Yes, she could be held liable as a remote tippee. 
A)  Not unless she had signed a confidentiality agreement with Food Corporation. 
B)  Yes, she could be held liable as a tipper. 
C)  Yes, she could be held liable as a tippee. 
D)  Yes, she could be held liable as a remote tippee.

Question 19

A prediction about the future can be a misstatement under Rule 10b-5,but only if the person making the prediction does not believe it at the time.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 22: Securities Fraud and Insider Trading.

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

In CASE 22.1SEC v.Texas Gulf Sulphur Co.(1971)the question was whether a press release giving a misleading impression about the results of a drilling operation violated Rule 10b-5.How did the court rule?

In Morrison v.National Australia Bank Ltd.referenced in the text,the U.S Supreme Court held that Section 10(b)of the 1934 Act and SEC Rule 10b-5 apply to any company that trades on the NY Stock Exchange.

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

In CASE 22.2 Halliburton Co.v.Erica P.John Fund,Inc.(2014),the U.S.Supreme Court considered the __________ theory,as well as the question a defendant in a securities fraud trial should be allowed to present evidence to challenge the __________ presumption of __________.

The materiality of a misstatement or omission under Rule 10b-5 is judged at the time:

In order to be actionable under Rule 10b-5,misstatements or omissions must be made with:

The Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act)provides that "political intelligence" firms,but not Congressional staff,can be liable for trading based on material nonpublic information derived from the officials' positions.

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

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.

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)?

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

In United States v.McGraw-Hill Companies,Inc.referenced in the text,the U.S.Supreme Court addressed the question of whether the statements and ratings of companies made by Standard and Poor's,a unit of McGraw-Hill,were:

To prevail on a securities fraud claim,a plaintiff must prove "loss causation",that the defendant's misstatement caused her to suffer economic loss.

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

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

Which of the following is true regarding remedies available under Rule 10b-5?

A prediction about the future can be a misstatement under Rule 10b-5,but only if the person making the prediction does not believe it at the time.

Law, Value Creation, and Risk Management.

Ethics and the Law.

Sources of Law, Courts, 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 and Sustainability.

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 Law and Transactions.

Filters

In CASE 22.2 Halliburton Co.v.Erica P.John Fund,Inc.(2014),the U.S.Supreme Court considered the theory,as well as the question a defendant in a securities fraud trial should be allowed to present evidence to challenge the presumption of __.