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Exam 23: Securities Regulation

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Question 21

True/False

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Under the Securities Exchange Act of 1934,corporate officers are not considered insiders.

A) True
B) False

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Question 22

Multiple Choice

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In Trouble.Bruno,an issuer of stock,may be in trouble.He sold stock in a new health club venture before the effective date of registration.He did so because he was in financial trouble involving other ventures of his and needed additional funds.Bruno thought that the health club venture would be such a success that he would never get caught in regard to the stock sale.Unfortunately,he was wrong.The health club venture was going very poorly and investors were looking for some way to hold Bruno responsible.Another problem Bruno has is that he inflated information regarding the prospects of the health club in the prospectus.Investors bitterly complained.Rick,a new lawyer,told Bruno that as far as he knew,the Securities and Exchange Commission (SEC) could fine Bruno under the Securities Act of 1933 but could not send him to jail.Bruno told Rick that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture.Bruno says that he plans to rely on the due diligence defense.Bruno also asks Rick if he is aware of any other defenses.Bruno says that he has never previously been in trouble with the SEC.Which of the following is true regarding Bruno's sale of securities before the effective date of registration?

A) He will be able to avoid liability if he can establish the due diligence defense.
B) He will be able to avoid liability if he can establish that the investors who purchased stock early were aware that the securities were sold before the effective date of registration.
C) He will be able to avoid liability if he can establish that the sales before the effective date did not directly result in any losses to investors.
D) That is not a violation of the securities laws,so there is no question about liability.
E) He will almost certainly be liable because the Securities Act of 1933 provides no defenses for that violation.

F) A) and B)
G) A) and E)

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Question 23

Multiple Choice

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________ profits are made from the sale of company stock within any six-month period by a statutory insider.

The purpose of securities regulation in China is similar to that of the Securities and Exchange Commission in the United States.

Although issuers of securities are required to file a registration statement with the Securities and Exchange Commission,they are not required to file a prospectus because the prospectus is merely an advertising tool that issuers distribute to potential investors.

In order to protect investors,the Securities and Exchange Commission periodically issues opinions regarding the worth of certain securities.

Which of the following organizations are excluded from the Investment Company Act's definition of an investment company?

Which of the following legislation limits shareholders' ability to bring class action suits against nationally traded companies?

Which of the following legislation regulates how companies issue corporate securities?

Insider trading occurs if a company employee or executive uses material inside information to make a profit.

Rebecca,a secretary at ABC Software Company,a publicly traded company,enjoyed snooping through the desk of her boss,Emma.One day while snooping,Rebecca came across information indicating that ABC Software was in the process of launching a new type of software that it believed would be very profitable.Rebecca immediately purchased a large amount of stock in ABC Company and sold it for a nice profit after the product was made public.Her conscience was bothering her a bit,so she confessed her snooping to a friend,Jason.Jason told Rebecca not to worry because she could have no liability.Is Jason correct,and if not,what theory of liability could be applied against Rebecca? In your answer,include the definition of insider according to Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934.

Which of the following are main functions/purposes of the Sarbanes-Oxley Act of 2002?

Coffee shops.Bernice wants to open a chain of coffee shops and begins by asking her friends in various states around the country to invest through the purchase of securities in the coffee shops.Her friend Robbie says that he would like to invest but that she should be sure that she satisfies requirements of the Securities and Exchange Commission (SEC) .He tells her that she has to provide information to the SEC involving a description of the securities,an explanation of how proceeds will be used,information regarding the management of the company,and other matters.He tells her that she also has to provide a document to the SEC that will be provided as an advertising tool to potential investors who can rely on it to decide whether they should buy securities.Bernice says that she does not want to do that.She explains to Robbie that insofar as the coffee shop venture is concerned,she does not want to advertise,and she wants to offer securities only to a limited number of wealthy friends.Particularly,she has in mind Scott who has a net worth of at least $3 million and Mary,a psychiatrist.Mary recently filed bankruptcy because of some bad decisions involving an elaborate decoration of her office.Although her income for the past couple of years has been in the range of $80,000,business is improving based on her recent involvement with a number of patients suffering anxiety based upon a fear of alien invasion.Considering only the information available,which of the following is a term that would describe Mary as an investor?

A ________ prospectus has a warning written in red print at the top of the page warning investors that the registration has been filed with the Securities and Exchange Commission but has not yet been approved.

Presidential Profits.Linda was president of a publicly traded tractor company,Tough Tractors.Linda became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors.The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made.Before the news was made public,Linda immediately purchased a significant number of shares in Tough Tractors.Linda also told her friend Frank about the contract to purchase assets.Frank,who knew that the information was not public,told his brother,George.Frank and George purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale.After the public announcement was made and the purchase of assets went through,Linda,George and Frank,all sold their shares in Tough Tractors and made a significant profit.In which of the following prohibited practices was Linda engaged by purchasing the shares after she found out about the merger?

________ are financial instruments such as stocks or bonds which are issued by corporations to raise capital for corporate expansion.

The United States Congress passed the ________ in reaction to the mistrust of securities transactions before the Great Depression.

Blue-sky laws regulate the offering and sale of intrastate securities.

Which of the following laws permit(s) the Securities and Exchange Commission to seek punishment of violators of foreign securities laws?

Which of the following legislation oversees the purchase and sale of securities?