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 2018,requiring disclosure of compensation arrangements in relation to recommendations or views contained in research reports and the second phase,effective in 2020,prohibiting entirely the issuance of recommendations or views in relation to stock for which an initial public offering was made within the previous 12 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 2018,requiring disclosure of compensation arrangements in relation to recommendations or views contained in research reports and the second phase,effective in 2020,prohibiting entirely the issuance of recommendations or views in relation to stock for which an initial public offering was made within the previous 12 months. A

Question 2

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

Accepted Answer

A)  fraud 
B)  deceptive practices 
C)  short-swing profits 
D)  unorthodox transactions 
A)  fraud 
B)  deceptive practices 
C)  short-swing profits 
D)  unorthodox transactions C

Question 3

CASE 22.3 Halliburton Co.v.Erica P.John Fund,Inc.(2014)dealt with a question of whether the defendant could present direct evidence concerning price impact to defeat the Basic presumption of reliance at the class certification stage.

Accepted Answer

A) True 
 B)False  True

Question 4

The Sarbanes-Oxley Act of 2002 makes it a crime to knowingly defraud any person in connection with any security of an issuer that has a class of securities registered under section 12 of the 1934 Act.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  the purchase. 
B)  the sale. 
C)  both the purchase and the sale. 
D)  either the purchase or the sale. 
A)  the purchase. 
B)  the sale. 
C)  both the purchase and the sale. 
D)  either the purchase or the sale.

Question 6

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 7

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 8

In Morrison v.National Australia Bank Ltd.,the U.S Supreme Court held that Section 10(b)of the 1934 Act applies to any company that trades on the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true regarding Section 16(c)'s restriction on selling stock short?

Accepted Answer

A)  Section 16(c)prohibits officers,but not directors,from selling any of their company's equity securities short. 
B)  Section 16(c)prohibits directors,but not officers,from selling any of their company's equity securities short. 
C)  Section 16(c)prohibits officers or directors from selling any of their company's equity securities short. 
D)  Section 16(c)allows both officers and directors to sell their company's equity securities short as long as the equities are obtained and delivered within 20 days after the short sale. 
A)  Section 16(c)prohibits officers,but not directors,from selling any of their company's equity securities short. 
B)  Section 16(c)prohibits directors,but not officers,from selling any of their company's equity securities short. 
C)  Section 16(c)prohibits officers or directors from selling any of their company's equity securities short. 
D)  Section 16(c)allows both officers and directors to sell their company's equity securities short as long as the equities are obtained and delivered within 20 days after the short sale.

Question 10

Lawsuits under Section 10(b)must be brought within __________ of the date the plaintiff discovered or should have discovered the facts constituting the violation or within __________ of the date of the violation,whichever is earlier.

Accepted Answer

A)  two years; five years 
B)  six months; one year 
C)  two years; three years 
D)  one year; two years 
A)  two years; five years 
B)  six months; one year 
C)  two years; three years 
D)  one year; two years

Question 11

A person considered an insider of the company whose securities were traded is liable under Rule 10b-5 if the trade was made on the basis of material nonpublic information about the company.

Accepted Answer

A) True 
 B)False

Question 12

When a brokerage house knew or recklessly disregarded information that would indicate insider trading activities on the part of its employees:

Accepted Answer

A)  it may be fined. 
B)  it must fire the employees. 
C)  the SEC will recall its securities license. 
D)  it can be sued,unless the information resulted from communication via social media. 
A)  it may be fined. 
B)  it must fire the employees. 
C)  the SEC will recall its securities license. 
D)  it can be sued,unless the information resulted from communication via social media.

Question 13

In CASE 22.4 Salman v.United States (2016),the court addressed the issue of whether a tipper breached a fiduciary duty by giving a tip to a relative who received no pecuniary benefit when the relative tipped a third party.How did the court rule?

Accepted Answer

A)  Salman cannot be held liable as a tippee because the tipper did not personally receive money or property in exchange for the tips. 
B)  Fiduciary duty can only be breached when the tipper discloses the inside information for a personal benefit. 
C)  A tipper does not personally benefit unless the tipper's goal in disclosing inside information is to obtain money,property,or something of tangible value. 
D)  A gift of confidential information to anyone,not just a "trading relative or friend," is enough to prove securities fraud and upheld Salman's conviction for conspiracy and insider trading. 
A)  Salman cannot be held liable as a tippee because the tipper did not personally receive money or property in exchange for the tips. 
B)  Fiduciary duty can only be breached when the tipper discloses the inside information for a personal benefit. 
C)  A tipper does not personally benefit unless the tipper's goal in disclosing inside information is to obtain money,property,or something of tangible value. 
D)  A gift of confidential information to anyone,not just a "trading relative or friend," is enough to prove securities fraud and upheld Salman's conviction for conspiracy and insider trading.

Question 14

Under Rule 10b-5 a company may not have a "no comment" policy,and must act to dispel untrue rumors.

Accepted Answer

A) True 
 B)False

Question 15

In a suit for aiding and abetting as per section 20(e)of the 1934 Act,to hold a person liable as an aider and abettor,the government must show all of the following EXCEPT:

Accepted Answer

A)  the existence of a violation of section 10(b)or Rule 10b-5 by the primary party. 
B)  the defendant's knowledge of that primary violation of Rule 10b-5. 
C)  that the suit's plaintiff is a private individual. 
D)  "substantial assistance" of the violation by the defendant. 
A)  the existence of a violation of section 10(b)or Rule 10b-5 by the primary party. 
B)  the defendant's knowledge of that primary violation of Rule 10b-5. 
C)  that the suit's plaintiff is a private individual. 
D)  "substantial assistance" of the violation by the defendant.

Question 16

In Matrixx Initiatives v.Siracusano,the U.S.Supreme Court analyzed the question of whether an issuer must disclose known information about possible side effects of a drug that could affect the drug's stock price even though no proven statistical link exists between use of the drug and the adverse effect.The Court held:

Accepted Answer

A)  a fact finder could determine the company's statements to be material to a reasonable investor and therefore had a duty to update them as soon as they became unreliable. 
B)  a person who trades while in possession of inside information violates Rule 10b-5 only if he or she decided to trade based on that information. 
C)  a requirement of such a representation in the agreement did not exclude a finding of reasonable reliance on the misrepresentation. 
D)  a plaintiff must prove that the defendant acted with "deliberate recklessness" to satisfy the scienter requirement. 
A)  a fact finder could determine the company's statements to be material to a reasonable investor and therefore had a duty to update them as soon as they became unreliable. 
B)  a person who trades while in possession of inside information violates Rule 10b-5 only if he or she decided to trade based on that information. 
C)  a requirement of such a representation in the agreement did not exclude a finding of reasonable reliance on the misrepresentation. 
D)  a plaintiff must prove that the defendant acted with "deliberate recklessness" to satisfy the scienter requirement.

Question 17

Scienter requires more than mere negligence or lack of due care.

Accepted Answer

A) True 
 B)False

Question 18

A(n)__________ period is any period longer than three business days during which __________ of the participants in a retirement plan are prevented from trading.

Accepted Answer

A)  loss causation; 80% 
B)  scheme liability; 25% 
C)  blackout; 50% or more 
D)  stock parking; 80% 
A)  loss causation; 80% 
B)  scheme liability; 25% 
C)  blackout; 50% or more 
D)  stock parking; 80%

Question 19

Which of the following is NOT a part of the safe harbor provision for forward-looking statements under the 1934 Act?

Accepted Answer

A)  A statement containing a projection of revenues,income,or other financial items 
B)  A statement of the plans and objectives of management for future operations 
C)  A statement of future economic performance 
D)  A statement in a financial statement prepared in accordance with generally accepted accounting principles 
A)  A statement containing a projection of revenues,income,or other financial items 
B)  A statement of the plans and objectives of management for future operations 
C)  A statement of future economic performance 
D)  A statement in a financial statement prepared in accordance with generally accepted accounting principles

Question 20

Rule 10b-5 applies to registered but not to unregistered securities.

Accepted Answer

A) True 
 B)False

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)?

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

CASE 22.3 Halliburton Co.v.Erica P.John Fund,Inc.(2014)dealt with a question of whether the defendant could present direct evidence concerning price impact to defeat the Basic presumption of reliance at the class certification stage.

The Sarbanes-Oxley Act of 2002 makes it a crime to knowingly defraud any person in connection with any security of an issuer that has a class of securities registered under section 12 of the 1934 Act.

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

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)?

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

In Morrison v.National Australia Bank Ltd.,the U.S Supreme Court held that Section 10(b)of the 1934 Act applies to any company that trades on the New York Stock Exchange.

Which of the following is true regarding Section 16(c)'s restriction on selling stock short?

Lawsuits under Section 10(b)must be brought within __________ of the date the plaintiff discovered or should have discovered the facts constituting the violation or within __________ of the date of the violation,whichever is earlier.

A person considered an insider of the company whose securities were traded is liable under Rule 10b-5 if the trade was made on the basis of material nonpublic information about the company.

When a brokerage house knew or recklessly disregarded information that would indicate insider trading activities on the part of its employees:

In CASE 22.4 Salman v.United States (2016),the court addressed the issue of whether a tipper breached a fiduciary duty by giving a tip to a relative who received no pecuniary benefit when the relative tipped a third party.How did the court rule?

Under Rule 10b-5 a company may not have a "no comment" policy,and must act to dispel untrue rumors.

In a suit for aiding and abetting as per section 20(e)of the 1934 Act,to hold a person liable as an aider and abettor,the government must show all of the following EXCEPT:

Scienter requires more than mere negligence or lack of due care.

A(n)__________ period is any period longer than three business days during which __________ of the participants in a retirement plan are prevented from trading.

Which of the following is NOT a part of the safe harbor provision for forward-looking statements under the 1934 Act?

Rule 10b-5 applies to registered but not to unregistered securities.

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Lawsuits under Section 10(b)must be brought within of the date the plaintiff discovered or should have discovered the facts constituting the violation or within of the date of the violation,whichever is earlier.

A(n) period is any period longer than three business days during which of the participants in a retirement plan are prevented from trading.