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Exam 36: Investor Protection, insider Trading, and Corporate Governance

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Question 21

Multiple Choice

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Bonds & Stocks Corporation,and its officers,directors,and shareholders,buy and sell securities. SEC Rule 10b-5 applies to the purchase or sale of

A) a security by a financial corporation only.
B) a security involving a corporate insider only.
C) a security involving short-swing profits only.
D) any security.

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

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Question 22

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For criminal sanctions to be imposed under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5 scienter must exist.

A) True
B) False

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Question 23

Multiple Choice

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Household Products Corporation wants to make an offering of securities to the public. This offering is not exempt from registration under the Securities Act of 1933. Before Household Products sells its securities,it must provide investors with

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

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

The Securities Exchange Act of 1933 is a one-time disclosure law.

Adrian,the chief executive officer of Beds+Sofas,Inc.,intentionally understates the amount of Beds+Sofas' debts in information provided to investors as part of an issue of Beds+Sofas' stock. Cassie buys the stock and suffers a loss. Adrian may be subject to

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

Under the Sarbanes-Oxley Act of 2002,chief financial officers must certify the accuracy of information in corporate financial statements and reports that are filed with the Securities and Exchange Commission.

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?

Liability can be imposed on those who are negligent in not discovering fraud in connection with a registration statement or prospectus.

State securities laws apply mainly to interstate transactions.

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

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

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?

Global Resources Corporation,and its officers,directors,and shareholders,buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to the purchase or sale of a security

Boats and Yachts Corporation is a public company,which California regulates and in which Dorian invests. The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements 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.

As part of a stock offering for Designer Studio Corporation,the firm's accountant Evelyn intentionally misrepresents material facts in the prospectus. Flores buys the stock unaware of the misrepresentation and suffers a loss. Evelyn may be subject to

Private parties may sue violators of Section 10(b)and Rule 10b-5.