Question 1

Under the securities law, liability for misstatements:

Accepted Answer

A)  can be imposed on securities offerors, but not corporate officials 
B)  can be imposed for overly optimistic statements made by executives that are not soundly grounded 
C)  would not be imposed for misstatements in press releases due to First Amendment protection of media 
D)  none of the other choices 
E)  all of the other choices 
A)  can be imposed on securities offerors, but not corporate officials 
B)  can be imposed for overly optimistic statements made by executives that are not soundly grounded 
C)  would not be imposed for misstatements in press releases due to First Amendment protection of media 
D)  none of the other choices 
E)  all of the other choices

Question 2

The CEO of Big Ships knows his company has won a $2 billion contract to build ships for the Navy. He is told by the Navy to keep this quiet until the official announcement. Knowing that Big Ships stock will rise when the announcement is made, he tells his children to buy as much Big Ships stock as they can right away. He does not buy any stock. The CEO may:

Accepted Answer

A)  not be sued for insider trading since he did not engage in trades; his relatives can be sued 
B)  not be sued for insider trading because he did not engage in trades; his relatives may not be sued because they have no relation to the company 
C)  not be sued for insider trading under the Supreme Court rule in the Dirks case 
D)  be sued for insider trading because he gave out inside information he had a fiduciary duty to keep secret 
E)  be sued only if his employment contract or contract with the Navy prohibits trading 
A)  not be sued for insider trading since he did not engage in trades; his relatives can be sued 
B)  not be sued for insider trading because he did not engage in trades; his relatives may not be sued because they have no relation to the company 
C)  not be sued for insider trading under the Supreme Court rule in the Dirks case 
D)  be sued for insider trading because he gave out inside information he had a fiduciary duty to keep secret 
E)  be sued only if his employment contract or contract with the Navy prohibits trading

Question 3

A printer worked on financial documents. He read the documents, engaged in insider trading based on what he read, and earned a profit. The Supreme Court found this action illegal.

Accepted Answer

A) True 
 B)False

Question 4

Accredited investors are those presumed sophisticated and wealthy enough to evaluate investment opportunities without the benefit of an SEC-approved prospectus.

Accepted Answer

A) True 
 B)False

Question 5

In arbitration cases against securities firms, the arbitrators may award damages for losses, but may not impose punitive damages.

Accepted Answer

A) True 
 B)False

Question 6

Someone who engages in insider trading:

Accepted Answer

A)  may be prosecuted by the SEC 
B)  may lose their U.S. citizenship 
C)  may be required to serve a certain number of community service hours 
D)  may be prosecuted by the governor of their state 
E)  none of the other choices are correct 
A)  may be prosecuted by the SEC 
B)  may lose their U.S. citizenship 
C)  may be required to serve a certain number of community service hours 
D)  may be prosecuted by the governor of their state 
E)  none of the other choices are correct

Question 7

Which of the following is not considered a security under the 1933 Securities Act:

Accepted Answer

A)  a treasury stock 
B)  a bond 
C)  an a collateral-trust certificate 
D)  a certificate of deposit for a security 
E)  all of the other choices are considered securities under the 1933 Act 
A)  a treasury stock 
B)  a bond 
C)  an a collateral-trust certificate 
D)  a certificate of deposit for a security 
E)  all of the other choices are considered securities under the 1933 Act

Question 8

"No-load" mutual funds:

Accepted Answer

A)  are sold directly to the public 
B)  are sold by mail or Internet 
C)  involve a sales commission 
D)  are sold directly to the public and involve a sales commission 
E)  are sold directly to the public by mail or by the Internet 
A)  are sold directly to the public 
B)  are sold by mail or Internet 
C)  involve a sales commission 
D)  are sold directly to the public and involve a sales commission 
E)  are sold directly to the public by mail or by the Internet

Question 9

ACAP and Gary Hume were fined and suspended by FINRA for allowing some con artists to keep accounts at their brokerage firm. They contended they should not be punished for actions of con artists. The appeals court held that:

Accepted Answer

A)  ​FINRA exceeded the level of punishment allowed under the statutory authority granted by Congress, so the punishment would not stand. 
B)  ​FINRA received SEC approval for the punishments, so they would stand. 
C)  ​FINRA received approval by an Administrative Law Judge of the SEC for the punishments, so they would stand. 
D)  ​FINRA failed to follow proper procedure to allow ACAP and Hume to potentially demonstrate innocence, so the punishment would not stand. 
E)  ​none of the other choices are correct. 
A)  ​FINRA exceeded the level of punishment allowed under the statutory authority granted by Congress, so the punishment would not stand. 
B)  ​FINRA received SEC approval for the punishments, so they would stand. 
C)  ​FINRA received approval by an Administrative Law Judge of the SEC for the punishments, so they would stand. 
D)  ​FINRA failed to follow proper procedure to allow ACAP and Hume to potentially demonstrate innocence, so the punishment would not stand. 
E)  ​none of the other choices are correct.

Question 10

Investment companies (that are in the business of investing or trading in securities) are:

Accepted Answer

A)  not subject to the Investment Company Act 
B)  not subject to the Investment Company Act if they are insurance companies 
C)  not subject to the Investment Company Act if they are only involved in internal investing, such as banks 
D)  not subject to the Investment Company Act if they are insurance companies or if they are only involved in internal investing, such as banks 
E)  all subject to the Investment Company Act 
A)  not subject to the Investment Company Act 
B)  not subject to the Investment Company Act if they are insurance companies 
C)  not subject to the Investment Company Act if they are only involved in internal investing, such as banks 
D)  not subject to the Investment Company Act if they are insurance companies or if they are only involved in internal investing, such as banks 
E)  all subject to the Investment Company Act

Question 11

In SEC v. Howey, the Supreme Court announced that securities covered by the federal securities laws are all listed in the Securities Act of 1933.

Accepted Answer

A) True 
 B)False

Question 12

If a person is convicted under the Insider Trading Sanctions Act he or she may face:

Accepted Answer

A)  treble damages payments 
B)  payments of the traders' illegal profits to those persons who suffered losses 
C)  criminal penalties 
D)  all of the other choices 
E)  none of the other choices; the Act provides injunctive relief only 
A)  treble damages payments 
B)  payments of the traders' illegal profits to those persons who suffered losses 
C)  criminal penalties 
D)  all of the other choices 
E)  none of the other choices; the Act provides injunctive relief only

Question 13

The Supreme Court's Howey test holds that a security is an investment of money in a common enterprise where others work to earn profits for investors.

Accepted Answer

A) True 
 B)False

Question 14

Securities that are on shelf registration:

Accepted Answer

A)  cannot be sold to the public 
B)  may be sold at any time over the next three years 
C)  must be sold within a year of registration 
D)  cannot be sold for more than $5 per share 
E)  none of the other choices are correct 
A)  cannot be sold to the public 
B)  may be sold at any time over the next three years 
C)  must be sold within a year of registration 
D)  cannot be sold for more than $5 per share 
E)  none of the other choices are correct

Question 15

A share of stock:

Accepted Answer

A)  may be redeemed by the owner for other company assets 
B)  must be guaranteed a minimum rate of return by the issuer 
C)  may be redeemed for purchase price 
D)  all of the other specific choices 
E)  none of the other choices 
A)  may be redeemed by the owner for other company assets 
B)  must be guaranteed a minimum rate of return by the issuer 
C)  may be redeemed for purchase price 
D)  all of the other specific choices 
E)  none of the other choices

Question 16

A securities dealer is a person engaged in the business of buying and selling securities for their own account.

Accepted Answer

A) True 
 B)False

Question 17

Securities that are exempt from SEC registration are also exempt from securities laws.

Accepted Answer

A) True 
 B)False

Question 18

The Securities Act of 1934 requires publicly held companies to file annual 10-Q financial reports.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a type of investment company as defined by the Investment Company Act:

Accepted Answer

A)  face-amount certificate company 
B)  unit investment trust 
C)  management company 
D)  all of the other specific choices are correct 
E)  none of the other specific choices are correct 
A)  face-amount certificate company 
B)  unit investment trust 
C)  management company 
D)  all of the other specific choices are correct 
E)  none of the other specific choices are correct

Question 20

A prospective issuer of securities must hire which of the following:

Accepted Answer

A)  a publicity agency 
B)  an advertising agency 
C)  an underwriter 
D)  all of the other specific choices must be hired 
E)  none of the other specific choices must be hired 
A)  a publicity agency 
B)  an advertising agency 
C)  an underwriter 
D)  all of the other specific choices must be hired 
E)  none of the other specific choices must be hired

Exam 18: Securities Regulation

Under the securities law, liability for misstatements:

A printer worked on financial documents. He read the documents, engaged in insider trading based on what he read, and earned a profit. The Supreme Court found this action illegal.

Accredited investors are those presumed sophisticated and wealthy enough to evaluate investment opportunities without the benefit of an SEC-approved prospectus.

In arbitration cases against securities firms, the arbitrators may award damages for losses, but may not impose punitive damages.

Someone who engages in insider trading:

Which of the following is not considered a security under the 1933 Securities Act:

"No-load" mutual funds:

ACAP and Gary Hume were fined and suspended by FINRA for allowing some con artists to keep accounts at their brokerage firm. They contended they should not be punished for actions of con artists. The appeals court held that:

Investment companies (that are in the business of investing or trading in securities) are:

In SEC v. Howey, the Supreme Court announced that securities covered by the federal securities laws are all listed in the Securities Act of 1933.

If a person is convicted under the Insider Trading Sanctions Act he or she may face:

The Supreme Court's Howey test holds that a security is an investment of money in a common enterprise where others work to earn profits for investors.

Securities that are on shelf registration:

A share of stock:

A securities dealer is a person engaged in the business of buying and selling securities for their own account.

Securities that are exempt from SEC registration are also exempt from securities laws.

The Securities Act of 1934 requires publicly held companies to file annual 10-Q financial reports.

Which of the following is a type of investment company as defined by the Investment Company Act:

A prospective issuer of securities must hire which of the following:

Todays Business Environment: Law and Ethics

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