Question 1

Cam, an accountant for Discount Inc., learns that the company's soon-to-be-announced quarterly sales figures exceed analysts' expectations. Cam tells Ed, who tells Frye, who buys 100 shares of the company's stock. Frye knows that Ed got the information from Cam. When Discount publicly announces the figures, Frye sells the stock for a profit. Under the Securities Exchange Act of 1934, Ed is most likely

Accepted Answer

A)  liable for insider trading. 
B)  not liable because Ed did not prevent others from profiting. 
C)  not liable because Ed did not misappropriate any information. 
D)  not liable because Ed does not work for Discount.

Question 2

The Securities Exchange Act of 1934 applies to all cases involving the trading of securities, except in private transactions.

Accepted Answer

A) True 
 B)False

Question 3

Pharma Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933

Accepted Answer

A)  imposes increased responsibility on corporate executives. 
B)  prevents insiders from trading among themselves. 
C)  requires disclosure. 
D)  creates a safe harbor for forward-looking statements.

Question 4

Under the Securities Act of 1933, securities include

Accepted Answer

A)  any instrument representing corporate ownership or debt. 
B)  a common enterprise reasonably expected to make a profit. 
C)  an investment in one's own personal entrepreneurial effort. 
D)  whatever a corporation represents to the public as profitable.

Question 5

Most private, midsize-business, noninvestment company offers of securities are exempt from the registration requirements.

Accepted Answer

A) True 
 B)False

Question 6

Fabrication Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Fabrication is required to

Accepted Answer

A)  contribute to the operations of national security exchanges. 
B)  disclose all essential information about the issuance of its securities. 
C)  engage in market surveillance to deter undesirable practices. 
D)  meet investors' reasonable expectations to make a profit.

Question 7

Market Data Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain

Accepted Answer

A)  a copy of prospectuses to be provided to investors. 
B)  a description of securities being offered for sale. 
C)  a record of pre-registration sales in securities. 
D)  a statement that securities being offered for sale are worth the price.

Question 8

Orbital Flights Inc. is required to register its securities under Section 12 of the Securities Exchange Act of 1934. This means that, with respect to Orbital, Section 16(b) of the act covers

Accepted Answer

A)  the declaration of dividends by Orbital's board of directors. 
B)  the later re-registration of Orbital's securities. 
C)  the short-swing activities of Orbital's insiders. 
D)  the solicitation of proxies from Orbital's shareholders.

Question 9

Under the Sarbanes-Oxley Act of 2002, all members of a publicly traded corporation's audit committee must be outside directors.

Accepted Answer

A) True 
 B)False

Question 10

Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm's debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to

Accepted Answer

A)  government prosecution and a private investor's suit. 
B)  negative publicity but no criminal prosecution or civil suit. 
C)  only government prosecution. 
D)  only a private investor's suit.

Question 11

To raise $120 million to expand operations, Primo Inc. makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. The firm plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an exempt transaction

Accepted Answer

A)  as is. 
B)  if all of the investors are also given material information about the firm. 
C)  if the offering is also made to the general public. 
D)  under no circumstances.

Question 12

Meat Packers Inc. offers its securities for sale only in a single state. The law in this state is like the law in most states. Thus, the company's offer is subject to the state's securities statutes, which are likely to include

Accepted Answer

A)  antifraud provisions. 
B)  registration provisions. 
C)  disclosure requirements. 
D)  all of the choices.

Question 13

Securities can be sold before the effective date of the registration statement without restrictions.

Accepted Answer

A) True 
 B)False

Question 14

Anyone who has access to or receives inside information of a nonpublic nature and trades on it for personal gain can be liable under SEC Rule 10b-5.

Accepted Answer

A) True 
 B)False

Question 15

The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether information omitted or misrepresented in connection with the purchase or sale of a security is material.

Accepted Answer

A) True 
 B)False

Question 16

An insider must actually use inside information in connection with the purchase and sale of securities to violate Section 16(b) of the Securities Exchange Act of 1934.

Accepted Answer

A) True 
 B)False

Question 17

Corporate Financial Inc., and its officers, directors, employees, and shareholders, buy and sell securities on behalf of themselves and their clients. SEC Rule 10b-5 applies to the purchase or sale of

Accepted Answer

A)  a security by the corporation only. 
B)  a security involving a corporate insider only. 
C)  a security involving short-swing profits only. 
D)  any security.

Question 18

Fleet Trucking Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is exempt. This enables Fleet to

Accepted Answer

A)  reduce the compliance costs by not requiring an auditor report. 
B)  buy and sell the securities without liability for recaptured profit. 
C)  make forward-looking financial forecasts without liability. 
D)  withhold inside information from accredited investors.

Question 19

To avoid sanctions under the Securities Exchange Act of 1934, whoever solicits a proxy must accurately disclose all facts pertinent to the matter on which shareholders are to vote.

Accepted Answer

A) True 
 B)False

Question 20

Issuers of securities offerings must comply with either federal or state securities laws, but not both.

Accepted Answer

A) True 
 B)False

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

The Securities Exchange Act of 1934 applies to all cases involving the trading of securities, except in private transactions.

Pharma Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933

Under the Securities Act of 1933, securities include

Most private, midsize-business, noninvestment company offers of securities are exempt from the registration requirements.

Fabrication Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Fabrication is required to

Market Data Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain

Orbital Flights Inc. is required to register its securities under Section 12 of the Securities Exchange Act of 1934. This means that, with respect to Orbital, Section 16(b) of the act covers

Under the Sarbanes-Oxley Act of 2002, all members of a publicly traded corporation's audit committee must be outside directors.

Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm's debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to

To raise $120 million to expand operations, Primo Inc. makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. The firm plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an exempt transaction

Meat Packers Inc. offers its securities for sale only in a single state. The law in this state is like the law in most states. Thus, the company's offer is subject to the state's securities statutes, which are likely to include

Securities can be sold before the effective date of the registration statement without restrictions.

Anyone who has access to or receives inside information of a nonpublic nature and trades on it for personal gain can be liable under SEC Rule 10b-5.

The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether information omitted or misrepresented in connection with the purchase or sale of a security is material.

An insider must actually use inside information in connection with the purchase and sale of securities to violate Section 16(b) of the Securities Exchange Act of 1934.

Corporate Financial Inc., and its officers, directors, employees, and shareholders, buy and sell securities on behalf of themselves and their clients. SEC Rule 10b-5 applies to the purchase or sale of

Fleet Trucking Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is exempt. This enables Fleet to

To avoid sanctions under the Securities Exchange Act of 1934, whoever solicits a proxy must accurately disclose all facts pertinent to the matter on which shareholders are to vote.

Issuers of securities offerings must comply with either federal or state securities laws, but not both.