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Exam 28: Investor Protection and Corporate Governance

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Question 41

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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?

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Yes, assuming that Taylor did not know a...

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Question 42

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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

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.

E) C) and D)
F) B) and D)

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Question 43

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

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

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

State securities laws apply mainly to intrastate transactions.

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

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

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

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

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

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