Question 1

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 Exchange Act of 1934, it will be because the information 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 2

To raise capital to form Plasticity Corporation with Quinn, Rona sells bonds and stock in other companies, and plans to register an initial public offering 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, regardless of whether they are registered under the Securities Act of 1933 or not.

Question 3

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 Exchange Act of 1934, Geoff is most likely

Accepted Answer

Geoff is most likely liable for insider trading because he obtained material nonpublic information from Dhani and used it to make a profit. The fact that he did not work for Eureka or prevent others from profiting does not change his liability under the Securities Exchange Act of 1934.

Question 4

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 liable if he had waited to buy Tech stock until

Accepted Answer

According to SEC Rule 10b-5, insider trading is prohibited and it is illegal for anyone to trade based on non-public information. If Sid had waited to buy Tech stock until after the public release of the game, the information would have already been made available to the public, and he would not have been trading on non-public information. Therefore, he would not be liable for insider trading.

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 Exchange 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

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 million 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 of more than $10 million and more than five hundred shareholders. Fresh Seasonal Fruit Company has assets less than $10 million and fewer than fifty shareholders, so it does not fall under the jurisdiction of this act. However, Gourmand Pastries, Inc. has assets of more than $50 million and more than five hundred shareholders, and therefore is subject to the Securities Exchange Act of 1934.

Question 7

Players Video Game Centers, Inc., wants to issue stock of $1 million in a single offering.Players must provide all investors with material information about itself, its business, and its securities if

Accepted Answer

The answer of Players Video Game Centers, Inc., wants to...

Question 8

GR8 Stuf Company files a registration statement with the SEC before making an offering to the general public.The registration contains false, immaterial statements of which the investors are unaware.GR8 Stuf is charged with violating the Securities Act of 1933.GR8 Stuf's best defense is

Accepted Answer

The best defense for GR8 Stuf would be that the untrue statements were not material. Under the Securities Act of 1933, a statement is material if it could affect an investor's decision to buy or sell securities. If the untrue statements were not material and the investors were not aware of the misrepresentations, GR8 Stuf may have a defense against the violation of the Securities Act of 1933.

Question 9

To raise $12 million to expand operations, Star Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors.Star plans to notify the SEC of sales.Under the Securities Act of 1933, this issue may qualify as an "exempt" transaction

Accepted Answer

Under the Securities Act of 1933, certain exemptions from registration are available if certain conditions are met. This includes providing all investors with certain material information. While the offering does include a mix of accredited and unaccredited investors, it may still qualify for an exempt transaction if the necessary disclosures are made to all investors.

Question 10

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

Exemption from the federal registration requirement does not necessarily mean exemption from state securities laws and registration requirements. Each state has its own set of rules and regulations regarding securities registration and exemptions, so Fresh would need to determine whether it qualifies for an exemption in each state where it intends to offer or sell its securities.

Question 11

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

Accepted Answer

A free-writing prospectus is a type of prospectus that is not filed as part of a registration statement with the SEC, but is instead distributed by the issuer or an underwriter to potential investors. The free-writing prospectus provides important information about the securities being offered, and can be obtained by interested investors either from the issuer or an underwriter, or on the SEC's website.

Question 12

Kitsch Niche Corporation is a noninvestment company that wants to issue $3 million of stock in a twelve-month period.Kitsch Niche, with less than $20 million in annual sales, qualifies as a small business issuer.Before Kitsch Niche sells the stock, it must provide investors with

Accepted Answer

As a small business issuer, Kitsch Niche Corporation must provide investors with an offering circular before selling the stock. The offering circular contains important information about the company and the offering, including financial statements, risks, and how the proceeds will be used. A notice of the issue may be required by some states, but it is not sufficient on its own to meet the disclosure requirements for selling stock as a small business issuer. A red herring prospectus is a preliminary prospectus that is typically used in connection with a registered public offering of securities, which does not apply to Kitsch Niche's noninvestment company status. A tombstone ad is a type of advertisement announcing the completion of a securities offering, which is not relevant for Kitsch Niche's need to provide offering disclosures before the sale of stock.

Question 13

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, which is a legal document that provides information about the securities being offered, the company issuing the securities, and other relevant information that potential investors should know before making an investment decision. Providing a forward-looking financial forecast or samples of its products is not required by law and an investment contract is not a document that companies provide to investors.

Question 14

Lexy, a salesperson for My-T-Fine Corporation, learns that My-T-Fine will increase the dividend it pays to shareholders.Lexy buys 10,000 shares of My-T-Fine stock.When the price increases, Lexy sells the shares for a profit.Lexy would not be liable for insider trading if the information about the dividend was

Accepted Answer

If the information about the dividend was public before Lexy bought the stock, then it would not be considered insider information. Therefore, Lexy would not be liable for insider trading.

Question 15

Flo-Thru 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 are those that are exempt from registration under the Securities Act of 1933. This means that the securities can be sold without being registered, making option D the correct answer. Options A, B, and C are all illegal practices that are not permitted under securities laws.

Question 16

Global Investments Corporation buys and sells securities.Section 10(b)of the Securities Exchange Act of 1934 applies to

Accepted Answer

Section 10(b) of the Securities Exchange Act of 1934 applies to the purchase or sale of any security, not just specific types of securities or transactions.

Question 17

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 requires company insiders to disgorge any profits realized from the purchase and sale of company stock within a six-month period. In this case, Sid is a director of Tech and purchased and sold Tech stock within a six-month period, resulting in a profit of $100,000. Therefore, Tech may recapture all of Sid's profits under Section 16(b).

Question 18

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 would enable Fresh to avoid paying commissions to brokers or underwriters, which can reduce the cost of the offering. It is not a scam, a Ponzi scheme, or insider trading without any further evidence of those illegal activities being present.

Question 19

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

Accepted Answer

The registration statement is required to have a description of the securities being offered for sale, including their terms and risks associated with them. This helps investors make informed investment decisions about the securities being offered.

Question 20

Nouveau Riche Corporation's officers, directors, and shareholders buy and sell securities.SEC Rule 10b-5 applies to

Accepted Answer

SEC Rule 10b-5 applies to the purchase or sale of any security, regardless of whether it involves officers, directors, shareholders, or a financial corporation. It prohibits fraudulent and deceptive practices in the securities industry.

Quiz 25: Investor Protection, Insider Trading, Corp Gov

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

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 million and more than five hundred shareholders.The Securities Exchange Act of 1934 applies to

Players Video Game Centers, Inc., wants to issue stock of $1 million in a single offering.Players must provide all investors with material information about itself, its business, and its securities if

GR8 Stuf Company files a registration statement with the SEC before making an offering to the general public.The registration contains false, immaterial statements of which the investors are unaware.GR8 Stuf is charged with violating the Securities Act of 1933.GR8 Stuf's best defense is

To raise $12 million to expand operations, Star Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors.Star plans to notify the SEC of sales.Under the Securities Act of 1933, this issue may qualify as an "exempt" transaction

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

Kitsch Niche Corporation is a noninvestment company that wants to issue $3 million of stock in a twelve-month period.Kitsch Niche, with less than $20 million in annual sales, qualifies as a small business issuer.Before Kitsch Niche sells the stock, it must provide investors with

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

Flo-Thru Corporation is poised to issue securities that, under the Securities Act of 1933, are "exempt." This means that the securities can be sold

Global Investments Corporation buys and sells securities.Section 10(b) of the Securities Exchange Act of 1934 applies to

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

Nouveau Riche Corporation's officers, directors, and shareholders buy and sell securities.SEC Rule 10b-5 applies to