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Exam 42: Investor Protection, Insider Trading, and Corporate Governance

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Question 1

True/False

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Every state has its own corporate securities laws that regulate the offer and sale of securities within tis borders.​

A) True
B) False

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True

Question 2

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When a security is exempt from the registration requirements, its offering is also exempt from the provisions of the Securities Act of 1933.​

A) True
B) False

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Question 3

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

Fact Pattern 42-1 ​ College Bound, Inc., markets test and study prep materials and courses. College Bound wants to make an initial public offering of securities. The firm believes that it qualifies for an exemption under Regulation A from the full registration requirement of the Securities Act of 1933. -Refer to Fact Pattern 42-1. If College Bound is exempt from the federal registration requirement, the firm is​

Fact Pattern 42-2​ Ben, an accountant for AirLift, Inc., a ride service, learns of undisclosed company plans to distribute a new app. Ben buys 10,000 shares of AirLift stock. He reveals the company plans to Carly, who buys 5,000 shares. Carly tells Don, who tells Erwin, and each buys 1,000 shares. They know that Carly got her information from Ben. When AirLift publicly announces its new app, Ben, Carly, Don, and Erwin sell their stock for a profit. -Refer to Fact Pattern 42-2. Under the Securities Exchange Act of 1934, Carly is most likely​

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​

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

Issuers of securities offerings must comply with either federal or state securities laws, but not both.​

Online crowdfunding can be exempt from the registration requirements.​

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​

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

Fact Pattern 42-3​ Dan, an accountant for Eureka! Inc. learns of undisclosed company plans to market a new laptop. Dan buys 1,000 shares of the firm's stock. He reveals the company plans to Fay, who tells Greg. Both Fay and Greg buy 100 shares. Greg knows that Fay got her information from Dan. When Eureka! publicly announces its new laptop, Dan, Fay, and Greg sell their stock for a profit. -Refer to Fact Pattern 42-3. Under the Securities Exchange Act of 1934, Fay is most likely​

The Securities and Exchange Commission does not regulate the content of proxy statements.​

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

The definition of security in the Securities Act of 1933 includes interests that involve the right to buy a security on a national security exchange.​

OnSpec, Inc., and its officers, directors, and shareholders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of securities involving​

State securities laws apply mainly to intrastate transactions.​

Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply.​

Scienter is not required to impose criminal sanctions under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.​

The Securities Exchange Act of 1934 applies to all cases involving the trading of securities, except in private transactions.​