Question 1

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 37-3.Under the Securities Exchange Act of 1934,Hu is most likely

Accepted Answer

Hu is liable for insider trading as a tippee because he received insider information from Geoff, who received it from Fay, who received it from Dhani. Even though he is further down the chain of disclosure, he still traded on the basis of material, non-public information.

Question 2

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, which are profits made on securities transactions within a six-month period. This rule applies to officers, directors, and 10% shareholders of a publicly traded company. The rule is designed to prevent insider trading and unfair advantage by those who have access to non-public information.

Question 3

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,learns that...

Question 4

In May 2009,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 2009,National Biotech Corporation generally advertises...

Question 5

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 SEC is using the misappropriation theory, which holds that an individual can be liable for insider trading if they wrongfully obtain information from a source to which they owe a duty of confidentiality (even if they are not an employee or agent of the company whose securities are being traded). Dee obtained inside information about Emergent that belonged to the company, and therefore she was under a duty of confidentiality not to use or disclose that information for personal gain. By trading on that information, she violated that duty and engaged in insider trading under the misappropriation theory.

Question 6

Flux Corporation is a public company whose shares are traded in the public securities markets.Under the Sarbanes-Oxley Act of 2002,Flux is subject to the direct corporate governance requirements of

Accepted Answer

The Sarbanes-Oxley Act of 2002 is a federal law which applies to all public companies trading in the securities markets, regardless of their state of incorporation or where they do business. Therefore, Flux Corporation is subject to the direct corporate governance requirements of the federal government.

Question 7

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

According to the Sarbanes-Oxley Act of 2002, public companies like Heavy Hauling must maintain internal controls and procedures to ensure accurate and timely financial reporting. These controls and procedures are commonly referred to as "disclosure controls and procedures" and are designed to prevent or detect errors or fraud in financial reporting. Therefore, choice A is the best answer. Choices B, C, and D do not accurately reflect the requirements of the Sarbanes-Oxley Act.

Question 8

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. Therefore, choice D is the correct answer. Options A, B, and C are not related to Section 14(a) and are not applicable in this scenario.

Question 9

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

Section 16(b) of the Securities Exchange Act of 1934 requires that any profits made by an insider (such as an officer of the corporation) on a purchase and sale of the corporation's stock within a period of less than six months must be returned to the corporation. Since Della bought and sold the stock within a month, she would be liable under Section 16(b) unless she had waited more than six months to sell it. Therefore, the best choice is B) more than six months to sell it.

Question 10

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 11

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 must certify that financial reports are complete and accurate. This certification serves to deter fraudulent financial reporting by holding CEOs accountable for the accuracy and completeness of financial disclosures.

Question 12

Kirk is the chief financial officer of Lemon Corporation,which is required to file certain financial statements with the Securities and Exchange Commission (SEC).Under the Sarbanes-Oxley Act of 2002,Kirk must personally

Accepted Answer

Under the Sarbanes-Oxley Act, the chief financial officer (CFO) is required to personally certify that the financial statements are accurate. This certification is known as the CEO/CFO certification and includes a statement that the financial statements fairly present, in all material respects, the financial condition, results of operations, and cash flows of the company.

Quiz 37: Investor Protection,insider Trading, Corp Gov

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

Flux Corporation is a public company whose shares are traded in the public securities markets.Under the Sarbanes-Oxley Act of 2002,Flux is subject to the direct corporate governance requirements of

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

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

Kirk is the chief financial officer of Lemon Corporation,which is required to file certain financial statements with the Securities and Exchange Commission (SEC) .Under the Sarbanes-Oxley Act of 2002,Kirk must personally