Question 1

When Looking Glass Corporation wishes to issue certain securities, it must provide sufficient information for Alice, and other unsophisticated investors, to evaluate the financial risk involved.Specifically, the law imposes liability for making a false statement or omission that is "material." What sort of information would Alice consider material?

Accepted Answer

The answer of When Looking Glass Corporation wishes to issue...

Question 2

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

Accepted Answer

Under the Sarbanes-Oxley Act of 2002, CEOs are required to certify that the financial reports filed with the SEC are complete and accurate. This certification is a significant responsibility and requires CEOs to personally vouch for the accuracy of the company's financial statements. Therefore, Madison must certify that the reports are complete and accurate.

Question 3

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

Accepted Answer

The Sarbanes-Oxley Act requires companies to establish and maintain internal controls and procedures for financial reporting to ensure that their financial statements are accurate and timely. Therefore, it is essential for Heavy Hauling's senior officers to set up and maintain internal "disclosure controls and procedures." External "release and reveal timetables," personal "peruse and review liability policies," and public "information and discussion forums" are not required under the Sarbanes-Oxley Act.

Question 4

Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares of EPC stock.One week later, EPC announces that it will merge with a competitor, Fuel Oil Company, and the price of EPC stock increases.One month later, Della sells her shares for a profit.Under Section 16(b) of the Securities Exchange Act of 1934, Della would not be liable if, after buying the stock, she had waited

Accepted Answer

According to Section 16(b) of the Securities Exchange Act of 1934, if an officer buys and sells shares of their own company's stock within a six-month period, any profit made from the sale is considered "short-swing" trading and must be returned to the company. Therefore, Della would not be liable if she had waited more than six months to sell her shares after buying them.

Question 5

In May 2013, National Biotech Corporation generally advertises that it will make a $4 million offering of stock in June.National makes the offering as advertised and, ten days after the first sale, notifies the Securities and Exchange Commission (SEC).All buyers of the stock are given material information about the company, its business, and the stock.Before the end of the year, the offering is completely sold out.The buyers include forty unaccredited investors and fifty accredited investors.National does not register the offering.The SEC files a suit against National, seeking civil sanctions on the ground that this offering was not exempt from registration.National argues that the applicable exemption is Rule 505 of Regulation D of the Securities Act of 1933 and that because of this exemption, any resale of the stock is also exempt.Who is correct?

Accepted Answer

The answer of In May 2013, National Biotech Corporation generally...

Question 6

Hi-Five Aero Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934.Section 14(a) of the act regulates

Accepted Answer

Section 14(a) of the Securities Exchange Act of 1934 regulates the solicitation of proxies from a company's shareholders. As Hi-Five Aero Corporation is required to register its securities under Section 12 of the act, it is subject to the proxy solicitation rules under Section 14(a). Therefore, the best choice is D.

Question 7

Catalina promises high returns to Darby and other investors, who then agree to trust their funds to Catalina.She uses these funds to pay previous investors.This is

Accepted Answer

This scenario describes a Ponzi scheme, in which returns are paid to early investors using funds from later investors, creating the illusion of legitimate investment activity. It is unsustainable and ultimately collapses when new investors can no longer be recruited to pay earlier investors.

Question 8

North American Properties, Inc., and its officers, directors, and shareholders, buy and sell securities.Section 16(b) of the Securities Exchange Act of 1934 covers

Accepted Answer

Section 16(b) of the Securities Exchange Act of 1934 covers only purchases and sales of securities involving short-swing profits. This refers to transactions made by officers, directors, and certain shareholders of a publicly traded company within a six-month period where any profit is illegal and considered to belong to the company.

Question 9

Maple Products Corporation is a public company, which New Hampshire regulates and in which Orin invests.The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to

Accepted Answer

The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to public companies. It is not applicable to private investors or state regulators.

Question 10

Riley, an engineer for Shur-2-Gro Seed Corporation, learns that Shur-2-Gro has developed a corn hybrid to triple the output of any farm.Riley buys 20,000 shares of Shur-2-Gro stock.He tells Tess, who buys 15,000 shares.After the new hybrid is announced publicly, the price of Shur-2-Gro stock increases.Riley and Tess sell their shares for a profit.Under the Securities Exchange Act of 1934, liability may be imposed on

Accepted Answer

The answer of Riley, an engineer for Shur-2-Gro Seed Corporation,...

Question 11

Fact Pattern 37-3?Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He reveals 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 information from Dhani.When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.
-Refer to Fact Pattern 37-3.Under the Securities Exchange Act of 1934, Hu is most likely

Accepted Answer

The answer of Fact Pattern 37-3?Dhani, an accountant for Eureka,...

Question 12

Dee, an accountant, does not work for Emergent Company, but wrongfully obtains inside information concerning Emergent.Based on the information, Dee buys and sells Emergent stock for personal gain.The Securities and Exchange Commission prosecutes Dee, arguing that she is liable because she stole information rightfully belonging to another.This argument is

Accepted Answer

The argument presented by the Securities and Exchange Commission is based on the misappropriation theory of insider trading. This theory holds that a person who wrongfully obtains inside information and uses it for personal gain is liable for insider trading. The theory focuses on the breach of a fiduciary duty or a duty of trust and confidence owed to the source of the information, rather than the relationship between the parties involved in the trading.

Quiz 24: Investor Protection and Corporate Governance

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

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

Hi-Five Aero Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934.Section 14(a) of the act regulates

Catalina promises high returns to Darby and other investors, who then agree to trust their funds to Catalina.She uses these funds to pay previous investors.This is

North American Properties, Inc., and its officers, directors, and shareholders, buy and sell securities.Section 16(b) of the Securities Exchange Act of 1934 covers

Maple Products Corporation is a public company, which New Hampshire regulates and in which Orin invests.The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to