Question 1

Wayne is the president and CEO of a corporation.He owns 25% or the company's total stock and has been selling large chunks of his holdings over the past three months.If the SEC investigates him for short-swing profits,they would do so under:

Accepted Answer

Section 16 of the '34 Act requires insiders, such as the president and CEO, to report their transactions and profits made from buying or selling their company's stock. It also imposes restrictions on their ability to make short-swing profits. Thus, the SEC would investigate Wayne for short-swing profits under Section 16 of the '34 Act. Regulation D of the '33 Act deals with exemptions from registration requirements for specific securities offerings. Rule 10(b) (5) of the '34 Act prohibits fraudulent activities in securities markets. The Private Securities Litigation Reform Act of 1995 deals with securities litigation and class action lawsuits. None of these regulations are relevant to Wayne's situation.

Question 2

The Financial Stability Oversight Board created by the Restoring American Financial Stability Act of 2010 has the power to:

Accepted Answer

The Financial Stability Oversight Board has the power to break up companies deemed to pose a threat to the nation's financial markets even if the company is not insolvent. This power is known as "resolution authority," and it was created to prevent future bailouts and systemic risks to the economy. The other options listed are not within the purview of the Financial Stability Oversight Board.

Question 3

Rule 16 of the '34 Act defines an insider as an officer,director or shareholder who owns ________ or more of the company's total stock.

Accepted Answer

Rule 16 of the Securities Exchange Act of 1934 defines an insider as an officer, director, or shareholder who owns 10% or more of the company's total stock.

Question 4

The most commonly used debt instrument is a:

Accepted Answer

The answer of The most commonly used debt instrument is...

Question 5

Micro bonds appeal to small business ventures who wish to take advantage of bond financing in the ________ range.

Accepted Answer

The answer of Micro bonds appeal to small business ventures...

Question 6

Sunshine Corporation has just filed bankruptcy.Among the investors,who will be paid first?

Accepted Answer

Bondholders have a higher priority when it comes to repayment in a bankruptcy as they are considered creditors who have lent money to the company. Common stockholders and preferred stockholders receive their payouts only after bondholders and other secured debts are paid off.

Question 7

Security transactions involving the original and reissuance of securities by a business to raise capital are called the:

Accepted Answer

The primary market involves the original issuance of securities by a business in order to raise capital. The secondary market involves the trading of already-issued securities between investors. The preferred and common markets are not terms commonly used in the context of securities transactions.

Question 8

Which of the following is not a required preregistration document?

Accepted Answer

The prospectus is one of the two parts of the registration statement.

Question 9

In SEC v.Switzer,et al.,Switzer overheard a conversation while in a public place and used information heard during the conversation to for a group to purchase stock in a corporation that subsequently showed a substantial profit.When the SEC brought charges of insider trading against Switzer the court said:

Accepted Answer

The court ruled that Switzer was not a tippee because he did not know that the information he overheard was material and non-public. Switzer did not have any personal relationship with the insider or receive the information directly from him, so he could not be prosecuted as a tippee. However, the court did not make any ruling on the guilt of the insider or breach of fiduciary duty.

Question 10

The SEC is comprised of ________ commissioners.

Accepted Answer

The U.S. Securities and Exchange Commission (SEC) is comprised of five commissioners.

Question 11

The Securities Act of 1934 focuses on the:

Accepted Answer

The Securities Act of 1934 primarily focuses on the regulation of the secondary market, which involves the buying and selling of securities on an exchange or other established market. The Act established the Securities and Exchange Commission (SEC) to oversee the market and ensure fair practices.

Question 12

The purchase and sale of issued securities between investors is called the:

Accepted Answer

The purchase and sale of issued securities between investors is called the secondary market. The primary market is where new securities are first issued and sold to the public, while the preferred and common markets do not exist in financial terminology.

Question 13

The corporate counsel's opinion verifying the business ventures adherence to corporate formalities and compliance and opinion of the corporation's accounting firm is contained in the:

Accepted Answer

Comfort letters are letters provided by accounting firms to verify the financial information presented in a prospectus or other offering documents. These letters may also include verification of the corporation's adherence to corporate formalities and compliance. Therefore, the corporate counsel's opinion and the opinion of the corporation's accounting firm would be contained in comfort letters.

Question 14

The Sarbanes -Oxley Act imposed stricter regulations on how corporations do business through regulations in each of the following areas except:

Accepted Answer

The Sarbanes-Oxley Act did not directly regulate tax compliance, focusing instead on financial reporting, corporate governance, and auditing.

Question 15

Kate is an underwriter who acted as a third party conducting a sale of securities between Fox Co.and an investor.Subsequent to the sale it is discovered that the disclosures made by Fox Co.were fraudulent.The investor has sued both Fox Co.and Kate.What is Kate's best defense to avoid liability?

Accepted Answer

Kate's best defense to avoid liability is to prove that she exercised due diligence in examining the preregistration and registration documentation, but did not discover the fraud. Underwriters have a duty to conduct a reasonable investigation and due diligence to ensure that the offering documents are accurate and complete. If Kate can show that she acted with due diligence and did not discover the fraud, she may be able to avoid liability. However, if she purposely ignored red flags or failed to conduct a thorough investigation, she may still be held liable.

Question 16

Penalties for violations of the '33 Act may include each of the following except:

Accepted Answer

The SEC does not have the right or power to revoke corporate charters.

Question 17

The SEC is an:

Accepted Answer

The SEC (Securities and Exchange Commission) is an independent agency that is not under the direct control of the president. It was created by Congress in 1934 to regulate and oversee the securities industry and protect investors. While the president appoints the commissioners of the SEC, they are subject to Senate confirmation and are independent in their decision-making. The SEC operates independently of any other government agency, including the Department of Justice and U.S. Treasury Department.

Question 18

Which of the following is an equity instrument?

Accepted Answer

Common stock is an equity instrument as it represents ownership in a company and entitles the shareholder to a proportionate amount of the company's assets and profits. Debentures, bonds, and promissory notes are all debt instruments, which represent loans to the company and do not involve ownership rights.

Question 19

In 2002,Martha Stewart,the media mogul and CEO of Martha Stewart Living was prosecuted for insider trading regarding her sale of ImClone stock.Her stock broker had informed her that Samuel Waksal,the CEO and chairman of ImClone,was selling substantial amounts of his stock in the company so she then sold her ImClone holdings.

Accepted Answer

Martha Stewart was not found guilty of insider trading but was convicted of obstructing justice, making false statements, and conspiracy in connection with the investigation into her sale of ImClone stock. She served a prison sentence for these charges.

Question 20

Whether a dividend is paid depends on:

Accepted Answer

Dividends are typically declared by the board of directors of a company. They may decide to pay dividends to shareholders if they believe it is in the best interest of the company and its shareholders. State law may also play a role in dividend payments, but the ultimate decision rests with the board of directors. Shareholders may receive dividends, but they do not have the authority to award themselves dividends.

Quiz 16: Regulation of Securities, corporate Governance, and Financial Markets