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Exam 28: Investor Protection and Corporate Governance

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Question 31

Multiple Choice

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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

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.

E) All of the above
F) C) and D)

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Question 32

Multiple Choice

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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

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.

E) B) and C)
F) A) and C)

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Question 33

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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.

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

Dez is the chief financial officer of Elements Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC) . Under the Sarbanes-Oxley Act of 2002, Dez must personally

Exemptions from federal securities laws are also exemptions from state securities laws.

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.

Under the Securities Act of 1933, securities include

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

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

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

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

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

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

Most securities cannot be resold without registration.

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

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

Crowdfunding can be exempt from the registration requirements of the Securities Act of 1933 if shares are offered directly to investors.

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