Question 1

Fact Pattern 20-1 
Fresh Cream,Inc.,wants to make an initial public offering of securi-ties.Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933.
-Refer to Fact Pattern 20-1.If Fresh is exempt from the federal registration requirement,Fresh is

Accepted Answer

Even if Fresh is exempt from the federal registration requirement under Regulation A, it is not necessarily exempt from state registration requirements. Each state has its own securities laws and exemptions, and Fresh would need to analyze and comply with the requirements of each state in which it plans to offer or sell its securities.

Question 2

Sun & Ski Tours Corporation is poised to issue securities that,under the Securities Act of 1933,are "exempt." This means that the securities can be sold

Accepted Answer

"Exempt" securities means that they are not required to be registered with the Securities and Exchange Commission and can be sold without registration. Therefore, the correct answer is D.

Question 3

Luke,a salesperson for Mountaintop Coffee,Inc.,learns that Mountaintop will in-crease the dividend it pays to shareholders.Luke buys 10,000 shares of Mountaintop stock.When the dividend is announced to the public and the price of the stock increases,Luke sells his shares for a profit.Luke would not be liable for insider trading if the information about the dividend was​

Accepted Answer

Luke would not be liable for insider trading if the information about the dividend was available to the public before he bought the stock, as insider trading involves trading based on non-public, material information.

Question 4

Olive Grove Enterprises,Inc.,completes its registration process and issues a free-writing prospectus.This tells pro-spective investors

Accepted Answer

The free-writing prospectus informs potential investors that they can obtain a copy of the prospectus from the SEC's website, but it does not provide any guidance or direction on how to invest freely, write their own prospectus or buy Olive's securities.

Question 5

Fact Pattern 20-3
Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit.
-Refer to Fact Pattern 20-3.Under the Securities Ex-change Act of 1934,Fay is most likely​

Accepted Answer

Fay is most likely liable for insider trading as she received the confidential information from Dhani, who was an insider of the company. It doesn't matter whether she prevented others from profiting, solicited information from Dhani, or worked for Eureka or not. Fay still had access to material, non-public information and used it to make a profit, which violates insider trading rules under the Securities Exchange Act of 1934.

Question 6

Fact Pattern 20-3
Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit.
-Refer to Fact Pattern 20-3.If Dhani is liable under the Securities Ex-change Act of 1934,it will be because the infor-mation on which he based his purchase of Eureka stock was

Accepted Answer

Dhani is liable under the Securities Exchange Act of 1934 because the information he used to purchase Eureka stock was not yet made public, and therefore, the purchase was based on insider trading. The fact that the information was about a new product launch makes it material, which eliminates options A and B. The truthfulness of the information is not relevant in determining liability for insider trading.

Question 7

Fact Pattern 20-1 
Fresh Cream,Inc.,wants to make an initial public offering of securi-ties.Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933.
-Refer to Fact Pattern 20-1.Fresh decides to sell its new securities via the Internet.This offering

Accepted Answer

Selling securities via the Internet can potentially allow issuers to avoid the payment of commissions to brokers or underwriters, making it a cost-effective approach to raising capital. However, the other choices (B, C and D) do not apply to this fact pattern.

Question 8

Fact Pattern 20-3
Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit.
-Refer to Fact Pattern 20-3.Under the Securities Ex-change Act of 1934,Hu is most likely

Accepted Answer

Hu is most likely liable for insider trading as a tippee, as he received inside information from a tipper (Geoff) who received it from a tipper (Fay) who received it from an insider (Dhani). The Securities Exchange Act of 1934 prohibits trading on material non-public information obtained from an insider, regardless of how many levels of tipping occurred. Therefore, Hu would be considered a tippee who traded on the basis of insider information and could be found liable for insider trading.

Question 9

Global Resources Corporation,and its officers,directors,and share-holders,buy and sell securities.Section 10(b)of the Securities Ex-change Act of 1934 applies to the purchase or sale of a security​

Accepted Answer

Section 10(b) of the Securities Exchange Act of 1934 applies to the purchase or sale of a security in almost any circumstances, not limited to investment companies, short-swing profits, or insider trading involving a tipper and tippee. It prohibits fraud and makes it unlawful to use any manipulative or deceptive device or contrivance in connection with the purchase or sale of any security.

Question 10

Adrian,the chief executive officer of Beds n' Sofas,Inc.,inten-tionally understates the amount of Beds n' Sofas'sdebts in information provided to investors as part of an issue of Beds n' Sofasstock.Cassie buys the stock and suffers a loss. Adrian may be subject to

Accepted Answer

Adrian intentionally provided misleading information to investors, which is considered securities fraud. This is both a criminal offense, which could lead to government prosecution, and a civil offense that could lead to Cassie's lawsuit. Therefore, he may be subject to both government prosecution and Cassie's suit. Negative publicity may also result, but it is not the only consequence Adrian would face.

Question 11

Electric Cycles,Inc.,wants to issue stock of $10 million in a single offer-ing.Players must provide all investors with material in-forma-tion about itself,its business,and its securities if

Accepted Answer

The answer of Electric Cycles,Inc.,wants to issue stock of $10...

Question 12

Squeaky Clean 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 Squeaky sells its securities,it must provide investors with

Accepted Answer

Squeaky Clean Corporation must provide investors with a prospectus as per the Securities Act of 1933. A prospectus is a legal document that provides detailed information about the securities being offered, including the company's financial information, business operations, and risks associated with the investment. A forward-looking financial forecast or samples of its products are not required by law and an investment contract implies a private offering rather than a public offering.

Question 13

Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders.Gourmand Pastries,Inc.,has assets of more than $50 mil-lion and more than five hundred shareholders.The Securities Exchange Act of 1934 applies to

Accepted Answer

The Securities Exchange Act of 1934 applies to companies with assets exceeding $10 million and more than 500 shareholders. Therefore, only Gourmand Pastries meets these criteria and falls under the jurisdiction of the act. Fresh Seasonal Fruit does not meet the criteria and is exempt.

Question 14

Brianna,a salesperson for Cosmetics Corporation,learns that Cosmetics will in-crease the dividend it pays to shareholders.Brianna buys 10,000 shares of Cosmetics stock.When the price increases,Brianna sells the shares for a profit.If Brianna is liable for insider trading,it is because she​

Accepted Answer

Brianna is liable for insider trading because she traded on information that was not available to the public. As an employee of Cosmetics Corporation, she had access to inside information about the company's plans to increase its dividend, and she used that information to make a profit by buying and selling the company's stock. This is illegal because it gives her an unfair advantage over other investors who do not have access to the same information.

Question 15

Hawaiian Shirts,Inc.,wants to issue stock of $1 million in a single offer-ing.The corporation must provide disclosure documents that generally are the same as those used in registered offerings to

Accepted Answer

Hawaiian Shirts, Inc. must provide disclosure documents similar to those used in registered offerings to any unaccredited investors, as they are not considered sophisticated investors and require more information to make informed decisions.

Question 16

​Fact Pattern 20-2 
Sid,a director of Tech Software Company,learns that a Tech engineer has developed a new,exciting video game.Sid buys Tech stock and tells his friend Uri,who also buys Tech stock.When the new game is released three weeks later,Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 20-2.Under SEC Rule l0b-5,Sid would not be li-able if he had waited to buy Tech stock until​

Accepted Answer

SEC Rule 10b-5 prohibits insider trading, which occurs when someone who has access to non-public information about a company buys or sells stock based on that information. In this case, Sid had inside information about the new video game, and he purchased Tech stock before the public release of that information. This constitutes insider trading, and Sid would be liable for violating Rule 10b-5. However, if he had waited to buy the stock until after the public release of the game, he would not have had inside information, and therefore would not have violated the rule.

Question 17

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

Accepted Answer

The registration statement must contain a description of the securities being offered for sale in order to comply with SEC regulations. The other options listed are not required to be included in the statement.

Question 18

To raise capital to form Plasticity Corporation with Quinn,Rona sells bonds and stock in other companies,and plans to register an initial public of-fer-ing under the Securities Act of 1933.SEC Rule l0b-5 covers

Accepted Answer

SEC Rule 10b-5 covers most forms of securities, including bonds and stock, whether they are registered under the Securities Act of 1933 or not. Therefore, option A is the best choice.

Question 19

​Fact Pattern 20-2 
Sid,a director of Tech Software Company,learns that a Tech engineer has developed a new,exciting video game.Sid buys Tech stock and tells his friend Uri,who also buys Tech stock.When the new game is released three weeks later,Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 20-2.Regarding Sid's profits on the purchase and sale of Tech stock,under Section 16(b)of the Securities Exchange Act of 1934 Tech may recapture

Accepted Answer

Section 16(b) of the Securities Exchange Act of 1934 prohibits insiders, such as directors, from profiting from short-swing transactions (purchases and sales of stock within a six-month period). If an insider makes a profit from such a transaction, the company can recover the profits within two years. In this case, Sid purchased Tech stock and sold it for a profit three weeks later after learning of the exciting video game. Therefore, Tech can recapture all of Sid's profits under Section 16(b).

Question 20

To raise $20 million to expand operations,Premiere Movies Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated,but unaccredited investors.Premiere Movies plans to notify the SEC of sales.Under the Securities Act of 1933,this issue may qualify as an "exempt" transaction

Accepted Answer

The answer of To raise $20 million to expand operations,Premiere...

Quiz 20: Investor Protection and Corporate Governance

Sun & Ski Tours Corporation is poised to issue securities that,under the Securities Act of 1933,are "exempt." This means that the securities can be sold

Olive Grove Enterprises,Inc.,completes its registration process and issues a free-writing prospectus.This tells pro-spective investors

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

Adrian,the chief executive officer of Beds n' Sofas,Inc.,inten-tionally understates the amount of Beds n' Sofas'sdebts in information provided to investors as part of an issue of Beds n' Sofasstock.Cassie buys the stock and suffers a loss. Adrian may be subject to

Electric Cycles,Inc.,wants to issue stock of $10 million in a single offer-ing.Players must provide all investors with material in-forma-tion about itself,its business,and its securities if

Squeaky Clean 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 Squeaky sells its securities,it must provide investors with

Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders.Gourmand Pastries,Inc.,has assets of more than $50 mil-lion and more than five hundred shareholders.The Securities Exchange Act of 1934 applies to

Brianna,a salesperson for Cosmetics Corporation,learns that Cosmetics will in-crease the dividend it pays to shareholders.Brianna buys 10,000 shares of Cosmetics stock.When the price increases,Brianna sells the shares for a profit.If Brianna is liable for insider trading,it is because she

Hawaiian Shirts,Inc.,wants to issue stock of $1 million in a single offer-ing.The corporation must provide disclosure documents that generally are the same as those used in registered offerings to

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

To raise capital to form Plasticity Corporation with Quinn,Rona sells bonds and stock in other companies,and plans to register an initial public of-fer-ing under the Securities Act of 1933.SEC Rule l0b-5 covers

Quiz 20: Investor Protection and Corporate Governance

Sun & Ski Tours Corporation is poised to issue securities that,under the Securities Act of 1933,are "exempt." This means that the securities can be sold

Olive Grove Enterprises,Inc.,completes its registration process and issues a free-writing prospectus.This tells pro-spective investors

Global Resources Corporation,and its officers,directors,and share-holders,buy and sell securities.Section 10(b) of the Securities Ex-change Act of 1934 applies to the purchase or sale of a security​

Adrian,the chief executive officer of Beds n' Sofas,Inc.,inten-tionally understates the amount of Beds n' Sofas'sdebts in information provided to investors as part of an issue of Beds n' Sofasstock.Cassie buys the stock and suffers a loss. Adrian may be subject to

Electric Cycles,Inc.,wants to issue stock of $10 million in a single offer-ing.Players must provide all investors with material in-forma-tion about itself,its business,and its securities if

Squeaky Clean 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 Squeaky sells its securities,it must provide investors with

Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders.Gourmand Pastries,Inc.,has assets of more than $50 mil-lion and more than five hundred shareholders.The Securities Exchange Act of 1934 applies to

Brianna,a salesperson for Cosmetics Corporation,learns that Cosmetics will in-crease the dividend it pays to shareholders.Brianna buys 10,000 shares of Cosmetics stock.When the price increases,Brianna sells the shares for a profit.If Brianna is liable for insider trading,it is because she​

Hawaiian Shirts,Inc.,wants to issue stock of $1 million in a single offer-ing.The corporation must provide disclosure documents that generally are the same as those used in registered offerings to

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

To raise capital to form Plasticity Corporation with Quinn,Rona sells bonds and stock in other companies,and plans to register an initial public of-fer-ing under the Securities Act of 1933.SEC Rule l0b-5 covers

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

Brianna,a salesperson for Cosmetics Corporation,learns that Cosmetics will in-crease the dividend it pays to shareholders.Brianna buys 10,000 shares of Cosmetics stock.When the price increases,Brianna sells the shares for a profit.If Brianna is liable for insider trading,it is because she