Deck 35: Regulation of Corporate Governance

Question 1

Of the high-profile corporate scandals that erupted at major public companies in 2000 and 2001, the one at Enron is perhaps the most notorious.

Answer 1

True

Question 2

The Securities Exchange Act of 1934 was a direct response to the Enron scandal.

Answer 2

False

Question 3

Congress replaced the accounting industry's self-regulation of auditing with a new federal agency called the Private Company Accounting Oversight Board.

Answer 3

False

Question 4

The Sarbanes-Oxley Act provided a sweeping and comprehensive amendment to the '33 and '34 Acts to address the corporate misdeeds that became public in 2000.

Question 5

The Sarbanes-Oxley Act specifically gives the SEC the authority to intervene in any extraordinary payments made by a company that may be the subject of an SEC investigation.

Question 6

The Dodd-Frank Wall Street Reform and Consumer Protection Act, also known simply as Dodd-Frank, Congress imposed tighter restrictions on public corporations, financial markets, and the extent to which firms engaged in risky investment transactions.

Question 7

The creation of a Financial Fraud Oversight Council as a new independent body with a board of regulators was intended to provide that stability after the financial crisis of 2008.

Question 8

In 2010, the SEC issued a rule required by the Dodd-Frank Act that requires a company to disclose (1) the median of the annual total compensation of all its employees except the CEO, (2) the annual total compensation of its CEO, and (3) the ratio of those two amounts.

Question 9

One significant legal controversy surrounding the whistleblower provision was created when the SEC defined a whistleblower as anyone who reported the illegal conduct to the SEC, to another federal agency, or to the company's internal management.

Question 10

The U.S. Supreme Court has ruled that the language of Dodd-Frank requires one to report unlawful conduct to the SEC in order to be protected under the whistleblower provisions.

Question 11

A public outcry and a growing lack of investor confidence in corporate financial disclosures caused Congress to overhaul the entire corporate governance regulatory structure by passing the:

A) the Securities Exchange Act of 2002
B) the Sarbanes-Oxley Act of 2002
C) the Financial Disclosure Act of 2004
D) the Dodd Act of 2005

Question 12

Of the high-profile corporate scandals that erupted at major public companies in 2000 and 2001, the one at ­­­__________ is perhaps the most notorious.

A) McDonald's
B) Enron
C) Harbor Freight
D) Hooter's

Question 13

After a meteoric rise to the top, Enron's shareholders lost about __________ billion over a two-year period. Employees, believing in Enron's vision and leadership, had filled their retirement portfolios with Enron stock, only to have their savings wiped out when the company sank into bankruptcy.

A) $62
B) $82
C) $85
D) $94

Question 14

The public outcry over the Enron scandal and waning public confidence in the oversight of financial frauds in the market led ­­­__________ to pass several laws to improve the quality of financial disclosure by public corporations.

A) the President
B) Congress
C) Department of Labor
D) All of the choices are correct.

Question 15

In June 2002, Arthur Andersen was convicted of the obstruction charges, sentenced to pay a __________ fine, and banned from performing audits for publicly traded companies.

A) $200,000
B) $350,000
C) $400,000
D) $500,000

Question 16

What caused a stunning reversal and ordered retrial by the U.S. Supreme Court in Arthur Andersen LLP v. United States, of Andersen's conviction in 2005?

A) improper jury instructions
B) conduct unbecoming of an attorney
C) lack of subject matter jurisdiction
D) All of the choices are correct.

Question 17

Under Sarbanes-Oxley, requiring the payback of corporate bonuses that were awarded and later found to be based on false disclosures is called a __________ provision.

A) clawback
B) backclaw
C) arrearage
D) lookback

Question 18

While substantial portions of the Sarbanes-Oxley Act are aimed at solving specific mechanism failures in auditing and other accounting procedures, the law also imposes higher levels of __________ responsibility for those involved in corporate governance.

A) proxy
B) administrative
C) fiduciary
D) None of the choices are correct.

Question 19

The Sarbanes-Oxley Act was intended to impose stricter regulation and controls on how corporations do business through regulation of:

A) auditing
B) financial reporting
C) internal corporate governance
D) All of the choices are correct.

Question 20

Congress replaced the __________ industry's self-regulation of auditing with a new federal agency called the Public Company Accounting Oversight Board.

A) trading
B) investing
C) accounting
D) None of the choices are correct.

Question 21

Accounting firms that audit public companies accessing __________ capital markets are required to register with the Public Company Accounting Oversight and are subject to its oversight and enforcement authority.

A) U.S.
B) European
C) Australian
D) World-wide

Question 22

The Sarbanes-Oxley Act seeks to increase __________ independence

A) trade
B) auditor
C) industry standard
D) None of the choices are correct.

Question 23

The Sarbanes-Oxley Act makes key __________ officers more accountable for financial reporting by requiring that chief executive officers and chief financial officers personally certify the accuracy of all required SEC filings.

A) preemptory
B) local
C) corporate
D) registered

Question 24

The Sarbanes-Oxley Act specifically gives the SEC the authority to intervene in any __________ payments made by a company that may be the subject of an SEC investigation.

A) offered
B) obligatory
C) nominal
D) extraordinary

Question 25

Upon approval by a __________ court, the Sarbanes-Oxley Act allows the SEC to force any extraordinary corporate payouts into a government-controlled emergency escrow fund that is held pending further investigation by authorities.

A) local
B) state
C) federal
D) All of the choices are correct.

Question 26

The Sarbanes-Oxley Act specifically directs the __________ to amend sentencing guidelines to provide for harsher penalties for those convicted of securities fraud statutes.

A) Privately-Funded Sentencing Commission
B) U.S. Sentencing Commission
C) Publicly-Held Sentencing Commission
D) All of the choices are correct.

Question 27

Through the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known simply as Dodd-Frank, Congress imposed tighter restrictions on:

A) public corporations
B) financial markets
C) conduct of firms engaging in risky investment transactions
D) All of the choices are correct.

Question 28

The American Recovery and Reinvestment Act of 2009 was created in order to:

A) authorize direct government loans to corporations
B) extend companies funds for any purpose they desired
C) discharge debts in bankruptcy
D) None of the choices are correct.

Question 29

The loan program created by the American Recovery and Reinvestment Act of 2009, established the __________ to administer the loans.

A) Tiered Assets Relief Program
B) Troubled Assets Relief Program
C) Troubled Americans Relief Program
D) Tiered Assistance Relief Program

Question 30

The Troubled Assets Relief Program (TARP) provisions empowered the Department of the __________ to recover any bonuses paid that were inconsistent with the law's requirements.

A) Labor
B) Treasury
C) Justice
D) None of the choices are correct.

Question 31

The restrictions imposed on recipients of Troubled Assets Relief Program (TARP) funds have several recipients to repay the funds:

A) within 3 months
B) as soon as possible
C) no longer than a year
D) whenever possible

Question 32

Within five months of the Troubled Assets Relief Program law executive compensation mandates, approximately __________ banks were approved to pay back the TARP funds.

A) 2
B) 13
C) 30
D) 34

Question 33

According to the U.S. Treasury Department, the government __________ from the TARP loans.

A) gave away money
B) lost money
C) profited
D) None of the choices are correct.

Question 34

What Act no longer applies to the SEC in an investigation under the Dodd-Frank Act?

A) Informational Misappropriation Act
B) Misappropriated Information Act
C) Misuse of Information Act
D) Freedom of Information Act

Question 35

Dodd-Frank requires companies to adopt a __________ policy through a nonbinding resolution in their proxy statements asking shareholders whether they approve the compensation or any severance agreement provision (i.e., golden parachute) for their executive management.

A) "pay-on-say"
B) "trade-on-pay"
C) "pay-on-trade"
D) "say-on-pay"

Question 36

In __________, the SEC issued a rule required by the Dodd-Frank Act that requires a company to disclose (1) the median of the annual total compensation of all its employees except the CEO, (2) the annual total compensation of its CEO, and (3) the ratio of those two amounts.

A) 2012
B) 2015
C) 2016
D) 2017

Question 37

Rules mandated by Dodd-Frank require companies to disclose their __________ structure in their SEC filings.

A) corporate payout
B) board leadership
C) past wrongdoing
D) All of the choices are correct.

Question 38

An important part of the new SEC regulatory scheme is the protection of __________ who report illegal conduct committed by employees, directors, and executives of the company.

A) ethical hackers
B) whistleblowers
C) manipulators
D) None of the choices are correct.

Question 39

The Dodd-Frank whistleblower provisions are based on a __________ plan.

A) clawback
B) lookback
C) bounty
D) contemplation

Question 40

Under the Dodd-Frank Act, the whistleblower rewards range from __________ percent of the recovery.

A) 5 to 15
B) 10 to 30
C) 10 to 33
D) 15 to 50

Question 41

In the event an employee is terminated for whistleblowing, the Dodd-Frank anti-retaliation provision allows the whistleblower to sue for up to __________.

A) $500,000
B) treble damages
C) nominal damages
D) double back pay

Question 42

The U.S. Supreme Court __________ the lower court's decision and ruled in favor of Digital Realty. (Digital Realty Trust Inc v. Somers, 138 S. Ct. 767 (2018).

A) itemized
B) affirmed
C) investigated
D) reversed

Question 43

Congress overhauled the entire corporate governance regulatory structure. Most notably due to the Enron Scandal. List the public and regulatory responses to the Enron Scandal. Explain the law surrounding this response and the impact it had on businesses.

Question 44

What did the SEC require, by the Dodd-Frank Act, of a company to disclose to be compliant with the 2015 regulations? Please name the requirement and explain in detail.

Question 45

Describe the significant legal controversy surrounding the statutory (Dodd-Frank Act's) definition of a whistleblower versus the SEC's interpretation of Dodd-Frank's whistleblower provision. How did the U.S. Supreme Court resolve the issue to date?