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

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Question 21

True/False

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While the Securities and Exchange Commission reviews a registration statement for completeness, most issuers can distribute a free-writing prospectus.​

A) True
B) False

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Question 22

Multiple Choice

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Karin, an officer for LNG Corporation, buys 10,000 shares of its stock. One week later, LNG announces that it will merge with a competitor, Mining & Piping Company, and the price of LNG stock increases. One month later, Karin sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Karin would not be liable if, after buying the stock, she had waited​

A) ​less than fourteen days to sell it.
B) ​more than six months to sell it.
C) ​ninety days to sell it.
D) ​two months to sell it.

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

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Question 23

Multiple Choice

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To raise $120 million to expand operations, Primo Content 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​

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

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

Global Trade Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that Global Trade must​

Beachware, Inc., wants to issue stock of $4 million in a single offering. The corporation must provide disclosure documents that generally are the same as those used in registered offerings to​

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.​

Anyone who wrongfully obtains inside information and trades on it for his or her personal gain can be liable under SEC Rule 10b-5.​

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

Guitar Factory 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​

Trend Clothing Corporation is a public company whose securities are traded among investors. Under the Securities Act of 1933, a security is​

Most securities cannot be resold without registration.​

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?​

HVAC Heating & Air Conditioning, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that HVAC's financial results are accurate and timely, the firm's senior officers must set up and maintain​

The Securities Exchange Act of 1934 provides for continuous periodic disclosures by certain publicly held companies.​

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, Geoff is most likely​

Misrepresenting or omitting facts from a registration statement or prospectus is known as puffery and does not violate the Securities Act of 1933.​

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

Under the Sarbanes-Oxley Act of 2002, chief financial officers must certify the accuracy of information in corporate financial statements.​