Question 1

An investment contract in a franchise does not qualify as a security.

Accepted Answer

A) True 
 B)False

Question 2

While the Securities and Exchange Commission reviews a registration statement for completeness, the securities can be offered for sale but not sold.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Space Flight Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. The firm is charged with violating the Securities Act of 1933. Its best defense is

Accepted Answer

A) the investors were not aware of the misrepresentations. 
B) the issuer reasonably believed the misstatements were true. 
C) the offering was made available to the general public. 
D) the untrue statements were not material.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 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

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

Debt Equity Inc., and its officers, directors, and employees, buy and sell securities based on financial research and analysis. Section 16(b)of the Securities Exchange Act of 1934 covers purchases and sales of securities involving

Accepted Answer

A) corporate insiders, such as officers, directors, and employees. 
B) misappropriation of material, nonpublic information. 
C) short-swing profits. 
D) tippers and tippees.

Question 12

The Securities and Exchange Commission is the main independent regulatory agency that interprets the federal securities laws.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Jazz Inc. makes and markets music. The company wants to make an initial public offering of securities via the Internet. Most likely, this offering

Accepted Answer

A) can avoid high costs and complicated procedures. 
B) is an attempt to deceive and manipulate investors. 
C) is a way for investors to fairly break the rules. 
D) will result in higher expenses and extended oversight.

Question 15

Luan, a programmer for Monetized Nation Inc., a business modeling service, learns of undisclosed company plans to distribute a new app. Luan reveals the company plans to a friend, Ono, who buys 5,000 shares of the firm's stock. Under the Securities Exchange Act of 1934, Ono is most likely

Accepted Answer

A) liable for insider trading. 
B) not liable because Ono did not prevent others from profiting. 
C) not liable because Ono did not solicit information from Luan. 
D) not liable because Ono does not work for the firm.

Question 16

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 17

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 18

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 19

Corporate "outsiders" may be held liable for insider trading under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

Accepted Answer

A) True 
 B)False

Question 20

Spectrum Paints Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, the firm is subject to the direct corporate governance requirements of

Accepted Answer

A) any other public company with which the firm exchanges shares. 
B) any state in which the firm does business. 
C) the federal government. 
D) the state in which the firm incorporated.

Exam 39: Investor Protection Insider Trading and Corporate Governance

An investment contract in a franchise does not qualify as a security.

While the Securities and Exchange Commission reviews a registration statement for completeness, the securities can be offered for sale but not sold.

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

Space Flight Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. The firm is charged with violating the Securities Act of 1933. Its best defense is

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

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.

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

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

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

Debt Equity Inc., and its officers, directors, and employees, buy and sell securities based on financial research and analysis. Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of securities involving

The Securities and Exchange Commission is the main independent regulatory agency that interprets the federal securities laws.

Jazz Inc. makes and markets music. The company wants to make an initial public offering of securities via the Internet. Most likely, this offering

Luan, a programmer for Monetized Nation Inc., a business modeling service, learns of undisclosed company plans to distribute a new app. Luan reveals the company plans to a friend, Ono, who buys 5,000 shares of the firm's stock. Under the Securities Exchange Act of 1934, Ono is most likely

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

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

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

Corporate "outsiders" may be held liable for insider trading under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

Spectrum Paints Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, the firm is subject to the direct corporate governance requirements of