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Exam 21: Investor Protection, Insider Trading, and Corporate Governance

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Question 1

True/False

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For a defendant to be convicted in a criminal prosecution under the securities laws, there can be no reasonable doubt that the defendant knew he or she was acting wrongfully.

A) True
B) False

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Question 2

True/False

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If a security does not qualify for an exemption, an issuer cannot offer it to the public under any circumstances.

A) True
B) False

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Question 3

Multiple Choice

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Nick, a salesperson for Olive Grove Corporation, learns that Olive Grove will in-crease the dividend it pays to shareholders. Nick buys 10,000 shares of Olive Grove stock. When the dividend is announced to the public and the price of the stock increases, Nick sells his shares for a profit. Nick would not be liable for insider trading if the information about the dividend was

A Regulation A exemption is only available to an issuer that has issued less than $5 million in securities during any twelve-month period.

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

In the context of

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?

Grain Mills Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates

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

Private parties may sue violators of

For criminal sanctions to be imposed under

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

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 will most likely qualify as an 'exempt' transaction

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

Accredited investors include banks, but not investment companies.

Refer to Fact Pattern 21-3. Under the Securities Exchange Act of 1934, Fay is most likely

Liability can be imposed on those who are negligent with respect to the preparation of a registration statement or prospectus.

Medico Corporation is a public company whose shares are traded in public securities markets. Medico's officers want to set up and maintain a system of "good corporate governance." What is "corporate governance"? What is its practical significance? What, at a minimum, should a "good" system of corporate governance include?​

The sale and transfer of securities are heavily regulated by federal and state statutes and by government agencies.

Refer to Fact Pattern 21-3. Under the Securities Exchange Act of 1934, Geoff is most likely