Question 1

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

Accepted Answer

A) contribute to the operations of national stock exchanges. 
B) disclose financial and other information about its securities. 
C) engage in market surveillance to deter undesirable practices. 
D) all of the choices.

Question 2

To raise $120 million to expand operations,Premiere Movies Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated,but unaccredited investors. Premiere Movies 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,including its most recent financial statements. 
C) if the offering is also made available to the general public. 
D) under no circumstances.

Question 3

Insider trading occurs when persons buy or sell securities on the basis of information that is not available to the pubic.

Accepted Answer

A) True 
 B)False

Question 4

The Securities Exchange Act of 1934 applies to companies that have assets in excess of $5 million and five hundred or more employees.

Accepted Answer

A) True 
 B)False

Question 5

Drilling Tools,Inc.,wants to make an initial public offering of securities. Drilling Tools believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933.
-Drilling Tools decides to sell its new securities via the Internet. This offering

Accepted Answer

A) will avoid the payment of commissions to brokers or underwriters. 
B) is an investment scam. 
C) is a Ponzi scheme. 
D) constitutes insider trading.

Question 6

State corporation statues set up the legal framework for corporate governance.

Accepted Answer

A) True 
 B)False

Question 7

Fleet Delivery 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 "recaptures." 
C) make forward-looking financial forecasts without liability. 
D) withhold inside information from accredited investors.

Question 8

For civil sanctions to be imposed under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,scienter must not exist.

Accepted Answer

A) True 
 B)False

Question 9

Exemptions from federal securities law are not exemptions from state laws.

Accepted Answer

A) True 
 B)False

Question 10

Corporate "outsiders" may not 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 11

Rico does not work for Street Bikes Company,but wrongfully obtains inside information concerning the firm. Based on the information,Rico buys and sells Street Bikes stock for personal gain. The Securities and Exchange Commission prosecutes Rico,arguing that he is liable because he stole information rightfully belonging to another. This argument is

Accepted Answer

A) the blue-sky theory. 
B) the misappropriation theory. 
C) the free-writing prospectus theory. 
D) the tipper/tippee theory.

Question 12

Rollo is the chief executive officer of Specialty Magazines,Inc.,which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002,Rollo must

Accepted Answer

A) certify that the reports are complete and accurate. 
B) designate a corporate official to assume liability for inaccuracies. 
C) do nothing. 
D) read the reports and be prepared to answer questions about them.

Question 13

Hawaiian Shirts,Inc.,wants to issue stock of $4 million in a single offering. The corporation must provide disclosure documents that generally are the same as those used in registered offerings to

Accepted Answer

A) all investors and the Securities and Exchange Commission. 
B) the Securities and Exchange Commission. 
C) any accredited investors. 
D) any unaccredited investors.

Question 14

Karin,an officer for Liquified Natural Gas Corporation (LNG),buys 10,000 shares of LNG stock. One week later,LNG announces that it will merge with a competitor,Mining & Piping Company,and the price of LNG stock increases. One month later,Karin sells her shares for a profit. Under Section 16(b)of the Securities Exchange Act of 1934,Karin would not be liable if,after buying the stock,she 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 15

Dhani,an accountant for Eureka! Inc. learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka! stock. He reveals the company plans to Fay,who tells Geoff. Both Fay and Geoff buy 100 shares. Geoff knows that Fay got her information from Dhani. When Eureka! publicly announces its new laptop,Dhani,Fay,and Geoff sell their stock for a profit.
-Under the Securities Exchange Act of 1934,Fay is most likely

Accepted Answer

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

Question 16

Shoes & Sox 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 chief corporate executives. 
B) prevents insiders from trading among themselves. 
C) requires disclosure. 
D) creates a "safe harbor" for companies to make forward-looking statements.

Question 17

Drilling Tools,Inc.,wants to make an initial public offering of securities. Drilling Tools believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933.
-If Drilling Tools is exempt from the federal registration requirement,Drilling Tools is

Accepted Answer

A) automatically exempt from any state registration requirement. 
B) not subject to any state securities laws. 
C) not necessarily exempt under a state registration requirement. 
D) automatically subject to all state registration requirements.

Question 18

Cattle Ranch Company offers its stock for sale only in a single state. The law in Cattle Ranch's state is like the law in most states. Cattle Ranch's offer is subject to state securities statutes that include

Accepted Answer

A) anti fraud and disclosure provisions. 
B) anti fraud provisions only. 
C) disclosure provisions only. 
D) neither antifraud nor disclosure provisions.

Question 19

Under the Sarbanes-Oxley Act of 2002,chief executive officers no longer need to certify the accuracy of information in corporate financial statements.

Accepted Answer

A) True 
 B)False

Question 20

"Forward-looking" financial forecasts that turn out to be wrong are not protected against liability for securities fraud.

Accepted Answer

A) True 
 B)False

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

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

Insider trading occurs when persons buy or sell securities on the basis of information that is not available to the pubic.

The Securities Exchange Act of 1934 applies to companies that have assets in excess of $5 million and five hundred or more employees.

State corporation statues set up the legal framework for corporate governance.

Fleet Delivery 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

For civil sanctions to be imposed under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,scienter must not exist.

Exemptions from federal securities law are not exemptions from state laws.

Corporate "outsiders" may not be held liable for insider trading under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

Rollo is the chief executive officer of Specialty Magazines,Inc.,which is required to file certain financial reports with the Securities and Exchange Commission (SEC) . Under the Sarbanes-Oxley Act of 2002,Rollo must

Hawaiian Shirts,Inc.,wants to issue stock of $4 million in a single offering. The corporation must provide disclosure documents that generally are the same as those used in registered offerings to

Shoes & Sox 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

Cattle Ranch Company offers its stock for sale only in a single state. The law in Cattle Ranch's state is like the law in most states. Cattle Ranch's offer is subject to state securities statutes that include

Under the Sarbanes-Oxley Act of 2002,chief executive officers no longer need to certify the accuracy of information in corporate financial statements.

"Forward-looking" financial forecasts that turn out to be wrong are not protected against liability for securities fraud.