Question 1

Household Products Corporation wants to make an offering of securities to the public. The offering is not exempt from registration under the Securities Act of 1933. Before the firm sells its securities, it must provide investors with

Accepted Answer

A) a forward-looking financial forecast. 
B) an investment contract. 
C) a prospectus. 
D) a statement that the securities for sale are worth the price.

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

Forward-looking forecasts that turn out to be wrong can be protected against liability for securities fraud if they include "meaningful cautionary statements."

Accepted Answer

A) True 
 B)False

Question 6

Home Stuff Corporation is poised to issue securities that, under the Securities Act of 1933, are exempt. This means that the securities can be sold

Accepted Answer

A) only after being registered. 
B) on the basis of nonpublic information. 
C) within any six-month period by certain insiders. 
D) without being registered.

Question 7

State securities laws apply mainly to intrastate transactions.

Accepted Answer

A) True 
 B)False

Question 8

Chris, a coder for Drones Inc., learns of undisclosed company plans to market a new, smart drone. Chris buys 10,000 shares of the firm's stock. If Chris is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of the stock was

Accepted Answer

A) a forward-looking forecast. 
B) not material. 
C) not yet public. 
D) not yet true.

Question 9

An insider must 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 10

The Securities Exchange Act of 1934 provides for continuous periodic disclosures by certain publicly held companies.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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

Accepted Answer

A) True 
 B)False

Question 13

To avoid a conviction in a criminal prosecution under the securities laws, there must be at least a reasonable doubt that the defendant knew he or she was acting wrongfully.

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

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 16

A well-known seasoned investor has less flexibility in filing registration statements and using free-writing prospectuses than other issuers.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Ross, a sales executive with Steel Mill Inc., learns of undisclosed company plans to produce a new type of steel. Ross tells Tim, who tells Uri, who buys 100 shares of Steel Mill stock. Uri knows that Tim got the information from Ross. When the firm publicly announces its new product, Uri sells the stock for a profit. Under the Securities Exchange Act of 1934, Uri is most likely

Accepted Answer

A) liable for insider trading. 
B) not liable because Uri is only a tippee, not a tipper. 
C) not liable because Uri is too far removed from the initial disclosure. 
D) not liable because Uri traded on the basis of a material fact.

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

Exam 39: Investor Protection Insider Trading and Corporate Governance

Household Products Corporation wants to make an offering of securities to the public. The offering is not exempt from registration under the Securities Act of 1933. Before the firm sells its securities, it must provide investors with

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

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

Forward-looking forecasts that turn out to be wrong can be protected against liability for securities fraud if they include "meaningful cautionary statements."

Home Stuff Corporation is poised to issue securities that, under the Securities Act of 1933, are exempt. This means that the securities can be sold

State securities laws apply mainly to intrastate transactions.

Chris, a coder for Drones Inc., learns of undisclosed company plans to market a new, smart drone. Chris buys 10,000 shares of the firm's stock. If Chris is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of the stock was

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

The Securities Exchange Act of 1934 provides for continuous periodic disclosures by certain publicly held companies.

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

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

To avoid a conviction in a criminal prosecution under the securities laws, there must be at least a reasonable doubt that the defendant knew he or she was acting wrongfully.

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

A well-known seasoned investor has less flexibility in filing registration statements and using free-writing prospectuses than other issuers.

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

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

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