Exam 26: Investor Protection, insider Trading, and Corporate Governance

Players Video Game Centers,Inc.,wants to issue stock of $1 million in a single offer-ing.Players must provide all investors with material in-forma-tion about itself,its business,and its securities if

Few securities can be resold without registration.

A major problem facing the Securities and Exchange Commission is how to enforce the antifraud provisions of the securities laws in the online environment.

Willful violations of the Securities Act of 1933 may be subject to civil liability,but not criminal prosecution

Only outsiders who would ordinarily be deemed fiduciaries of the corporations in whose stock they trade can be liable for insider trading.

Sales of securities must occur within five days of registration.

Bild-It-Rite Corporation is a public company that is preparing to issue securities that do not qualify for an exemption from registration.This means that Bild-It-Rite must

Lexy,a salesperson for My-T-Fine Corporation,learns that My-T-Fine will in-crease the dividend it pays to shareholders.Lexy buys 10,000 shares of My-T-Fine stock.When the price increases,Lexy sells the shares for a profit.Lexy would not be liable for insider trading if the information about the dividend was

Buying or selling securities on the basis of nonpublic information is illegal only if the profit from the transaction is unreasonable.

Forward-looking" financial forecasts are prohibited under SEC Rule 10b-5.

Private offerings of securities in unlimited amounts can be exempt from the registration requirement of the Securities Act of 1933.

Catalina promises high returns to Darby and other investors,who then agree to trust their funds to Catalina.She uses these funds to pay previous investors.This is

Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit. -Refer to Fact Pattern 26-3.If Dhani is liable under the Securities Ex-change Act of 1934,it will be because the infor-mation on which he based his purchase of Eureka stock was

Securities of nonprofit,educational,and charitable organizations are not exempt from the registration requirement of the 1933 Securities Act.

SEC Rule 10b-5 applies to almost all cases involving the trading of securities

Securities that are exempt from the registration requirement can generally be sold and resold without being registered

Maple Products Corporation is a public company,which New Hampshire regulates and in which Orin invests.The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to

To raise $12 million to expand operations,Star Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated,but unaccredited investors.Star plans to notify the SEC of sales.Under the Securities Act of 1933,this issue may qualify as an "exempt" transaction

Olive Grove Enterprises,Inc.,completes its registration process and issues a free-writing prospectus.This tells pro-spective investors

Willful violations of the Sarbanes-Oxley Act of 2002 may be subject to harsh penalties.