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Exam 39: Investor Protection Insider Trading and Corporate Governance

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Question 21

Multiple Choice

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Space Flight Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. The firm is charged with violating the Securities Act of 1933. Its best defense is

A) the investors were not aware of the misrepresentations.
B) the issuer reasonably believed the misstatements were true.
C) the offering was made available to the general public.
D) the untrue statements were not material.

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

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Question 22

True/False

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The purpose of the Securities Act of 1933 is to regulate a security's investment price.

A) True
B) False

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Question 23

Multiple Choice

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Equity Corporation, and its officers, directors, employees, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to the trading of securities

The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.

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

Pharma 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

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

Meat Packers Inc. offers its securities for sale only in a single state. The law in this state is like the law in most states. Thus, the company's offer is subject to the state's securities statutes, which are likely to include

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

Jazz Inc. makes and markets music. The company wants to make an initial public offering of securities via the Internet. Most likely, this offering

Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm's debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to

Spectrum Paints Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, the firm is subject to the direct corporate governance requirements of

Corporate "outsiders" may be held liable for insider trading under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

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

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

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

To avoid sanctions under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5, scienter must exist.

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

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

While the Securities and Exchange Commission reviews a registration statement for completeness, the securities can be offered for sale but not sold.