Question 1

Providing investors with more information helps them make buying and selling decisions about securities.

Accepted Answer

A) True 
 B)False

Question 2

Equity Corporation, and its officers, directors, employees, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to the trading of securities

Accepted Answer

A)  only by investment companies on organized exchanges. 
B)  only involving short-swing profits obtained in over-the-counter markets. 
C)  only involving tippers and tippees in private transactions. 
D)  in almost any circumstances.

Question 3

Ridley is an officer of Sun Watts, Inc. Ridley knows that a Sun Watts engineer recently developed a new, inexpensive method for collecting, storing, and converting solar power into fuel. Ridley takes advantage of this information to buy Sun Watts stock from Taylor and, after the discovery is announced, to sell the stock to Ulrich at a profit. Taylor claims that this is a violation of federal law. Is Taylor correct? If so, what federal law has Ridley violated, and what are its possible penalties?

Accepted Answer

The answer of Ridley is an officer of Sun Watts,...

Question 4

Movie Time Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by

Accepted Answer

A)  market professionals to explain to all investors. 
B)  government regulators to disclose to the general public. 
C)  sophisticated investors only. 
D)  unsophisticated investors.

Question 5

To avoid sanctions under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, scienter must exist.

Accepted Answer

A) True 
 B)False

Question 6

Reno, an engineer for Shale Corporation, learns that the firm will increase the dividend it pays to shareholders. Reno buys 10,000 shares of company stock. When the dividend is announced to the public and the price of the stock increases, he sells the shares for a profit. He would not be liable for insider trading if the information about the dividend was

Accepted Answer

A)  material when he sold the stock. 
B)  available to the public after he bought the stock. 
C)  available to the public before he bought the stock. 
D)  forward-looking when he bought the stock.

Question 7

The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.

Accepted Answer

A) True 
 B)False

Question 8

A Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment.

Accepted Answer

A) True 
 B)False

Question 9

As part of a stock offering for Design Media Corporation, the firm's accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to

Accepted Answer

A)  none of the choices. 
B)  job termination but no other sanctions, penalties, or liability. 
C)  a fine, imprisonment, and damages. 
D)  professional censure but no criminal sanctions or civil liability.

Question 10

The purpose of the Securities Act of 1933 is to regulate a security's investment price.

Accepted Answer

A) True 
 B)False

Question 11

Stocks represent corporate debt.

Accepted Answer

A) True 
 B)False

Question 12

Small-business issues can use a registration and reporting system that requires simpler forms than the full registration system.

Accepted Answer

A) True 
 B)False

Question 13

Insider trading is prohibited because trading on the basis of inside information can give the trader an unfair advantage over the investing public.

Accepted Answer

A) True 
 B)False

Question 14

Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply.

Accepted Answer

A) True 
 B)False

Question 15

Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries Inc. has assets of more than $50 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to

Accepted Answer

A)  Fresh Fruit and Gourmand Pastries. 
B)  Fresh Fruit only. 
C)  Gourmand Pastries only. 
D)  neither Fresh Fruit nor Gourmand Pastries.

Question 16

Eli, an officer for Food Stores Inc., buys 10,000 shares of its stock. One week later, the company announces that it will merge with a competitor, Grocery Mart Corporation, and the price of Food Stores' stock increases. One month later, Eli sells his shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Eli would not be liable if, after buying the stock, he had waited

Accepted Answer

A)  less than fourteen days to sell it. 
B)  more than six months to sell it. 
C)  ninety days to sell it. 
D)  two months to sell it.

Question 17

State securities laws apply mainly to intrastate transactions.

Accepted Answer

A) True 
 B)False

Question 18

Medico Corporation is a public company whose shares are traded in public securities markets. Medico's officers want to set up and maintain a system of "good corporate governance." What is "corporate governance"? What is its practical significance? What, at a minimum, should a "good" system of corporate governance include?

Accepted Answer

The answer of Medico Corporation is a public company whose...

Question 19

Federal securities laws take priority over state securities laws.

Accepted Answer

A) True 
 B)False

Question 20

While the Securities and Exchange Commission reviews a registration statement for completeness, most issuers can distribute a free-writing prospectus.

Accepted Answer

A) True 
 B)False

Exam 36: Investor Protection, Insider Trading, and Corporate Governance

Providing investors with more information helps them make buying and selling decisions about securities.

Equity Corporation, and its officers, directors, employees, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to the trading of securities

Movie Time Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by

To avoid sanctions under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, scienter must exist.

The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.

A Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment.

As part of a stock offering for Design Media Corporation, the firm's accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to

The purpose of the Securities Act of 1933 is to regulate a security's investment price.

Stocks represent corporate debt.

Small-business issues can use a registration and reporting system that requires simpler forms than the full registration system.

Insider trading is prohibited because trading on the basis of inside information can give the trader an unfair advantage over the investing public.

Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply.

Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries Inc. has assets of more than $50 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to

State securities laws apply mainly to intrastate transactions.

Federal securities laws take priority over state securities laws.

While the Securities and Exchange Commission reviews a registration statement for completeness, most issuers can distribute a free-writing prospectus.