Deck 41: Corporationssecurities Law Corporate Governance

Question 1

Against a charge of a violation of the Securities Act of 1933, only an issuer of stock can assert the due diligence defense.

Answer 1

False

Question 2

Private parties cannot sue violators of the Securities Act of 1933.

Answer 2

False

Question 3

An offering of $4 million in securities by a non-invest?ment company can be exempt from some of the require?ments of the Securities Act of 1933.

Answer 3

True

Question 4

SEC Rule 10b-5 prohibits the commission of fraud in connection with the purchase or sale of any security

Question 5

Most securities can be resold without registration.

Question 6

Private offerings of securities in unlimited amounts can never be exempt from the registration requirement of the Securities Act of 1933.

Question 7

Generally, stock offerings that are made in a limited manner during any twelve-month period are ex?empt from securities registration requirements.

Question 8

Securities that are exempt from the registration requirement can generally be sold and resold without being registered.

Question 9

A registration statement must state how a corporation plans to use the proceeds from the sale of the securities.

Question 10

A free-writing prospectus may be used before the Securities and Exchange Commission completes its review of a related registration statement.

Question 11

Before filing a registration statement, an issuer must attempt to sell, or at least offer to sell, the securities.

Question 12

The Securities Exchange Act of 1934 provides for continuous, periodic disclosures by publicly held corporations.

Question 13

Generally, stock offerings that involve a small amount of money are not ex?empt from securities registration requirements.

Question 14

Any corporation with more than $10 million in assets must register with the Securi?ties and Exchange Commission.

Question 15

Sales of securities may not occur until twenty days after registration.

Question 16

The least common forms of securities are stocks and bonds issued by corporations.

Question 17

A corporation whose security does not qualify for an exemption can dispense with the requirement of a registration statement.

Question 18

A registration statement must include a financial statement certified by an independent public accounting firm.

Question 19

Securities of charitable organizations are exempt from the registration requirement of the 1933 Securities Act.

Question 20

Willful violations of the Securities Act of 1933 may be subject to criminal prosecution.

Question 21

State securities laws apply only to interstate transactions.

Question 22

Only outsiders who would ordinarily be deemed fiduciaries of the corporations in whose stock they trade can be liable for insider trading.

Question 23

A corporation can recapture any profits realized by an insider on any purchase or sale of the firm's stock within any twelve-month period.

Question 24

The key to liability under Section 10(b) of the Securities Act of 1933 and SEC Rule 10b-5 is whether undisclosed inside information is material.

Question 25

Section 10(b) of the Securities Exchange Act of 1934 covers only corpo?rate officers, di?rectors, and majority shareholders.

Question 26

Generally, states do not have antifraud pro?visions that cover securities.

Question 27

Willful violations of the Sarbanes-Oxley Act of 2002 may be subject to criminal prosecution.

Question 28

Section 10(b) of the Securities Exchange Act of 1934 covers only corporate officers, di?rectors, and majority shareholders.

Question 29

Chief corporate executives are personally responsible for the accuracy of financial statements filed with the Securities and Exchange Commission.

Question 30

Violations of the Securities Exchange Act of 1934 may be subject to criminal prosecution.

Question 31

Scienter is a requirement for liability under Section 16(b) of the Securities Ex?change Act of 1934.

Question 32

Scienter is a requirement for liability under Section 10(b) of the Securities Ex?change Act of 1934.

Question 33

SEC Rule 10b-5 can apply in virtually any case involving the trading of securities.

Question 34

Buying or selling securities on the basis of nonpublic information is illegal only if the profit from the transaction is unreasonable.

Question 35

"Forward-looking" financial forecasts are prohibited under SEC Rule 10b-5.

Question 36

Corporate governance is the relationship between a corporation and its shareholders.

Question 37

"Blue sky laws" are federal securities laws.

Question 38

"Pumping and dumping" occurs when a person buys shares, combines them with shares of the same stock that he or she already owns, and sells them all together.

Question 39

Anyone who receives inside information as a result of an insider's breach of his or her fiduciary duty can be liable under SEC Rule 10b-5.

Question 40

Private parties cannot sue violators of Section 10(b) and Rule 10b-5.

Question 41

Country Golf Club, Inc., wants to issue stock of $1 million in a single offer?ing. Country does not have to provide any investors with any material in?forma?tion about itself, its business, or its securities if

A) all investors are accredited.
B) all investors are unaccredited.
C) any investors are accredited.
D) any investors are unaccredited.

Question 42

Instant Retail Company has assets of less than $10 million and fewer than five hun?dred shareholders. Jiffy Outlets, Inc., has assets of more than $10 mil?lion and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to

A) Instant Retail and Jiffy Outlets.
B) Instant Retail only.
C) Jiffy Outlets only.
D) neither Instant Retail nor Jiffy Outlets.

Question 43

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

A) a copy of prospectuses to be provided to investors.
B) a description of securities being offered for sale.
C) a record of pre-registration sales in securities.
D) a sample of advertising to be used to attract investments in Celfone.

Question 44

Start-Up Enterprises, Inc., completes its registration process and be?gins ad?vertising the availability of its new issue of securi?ties. Start-Up places a tomb?stone ad in the financial papers. This ad tells pro?spective investors

A) about investing.
B) about the company.
C) where to buy the securities.
D) where to obtain a prospectus.

Question 45

Hobie, the chief executive officer of Ideal Gamers, Inc. (IGI), inten?tionally understates the amount of IGI's debts in information provided to investors as part of an issue of IGI stock. Jack buys the stock and suffers a loss. Hobie may be subject to

A) government prosecution and Jack's suit.
B) neither government prosecution nor Jack's suit.
C) only government prosecution.
D) only Jack's suit.

Question 46

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

A) as is.
B) if all of the investors are also given certain material information.
C) if the offering is also made available to the general public.
D) under no circumstances.

Question 47

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

A) an offering circular.
B) a notice of the issue.
C) a red herring prospectus.
D) a tombstone ad.

Question 48

Readmore Bookstore Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by

A) market professionals to explain to all investors.
B) government regulators to disclose to the general public.
C) sophisticated investors only.
D) unsophisticated investors.

Question 49

Bild-It-Rite Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that Bild-It-Rite must

A) file a registration statement with the SEC.
B) issue the securities through an online registration site.
C) refrain from issuing the securities to unregistered investors.
D) register the securities with a national stock exchange.

Question 50

RingTone Corporation is a public company whose securities are traded among investors. Under the Securities Act of 1933, a security is

A) almost any stake in the ownership or debt of a company.
B) an investment that is guaranteed to make a profit.
C) only such common forms of debt and equity as bonds and stocks.
D) whatever a company represents to the public as a security.

Question 51

Nouveau Riche Corporation, and its officers, directors, and sharehold?ers, buy and sell securities. SEC Rule 10b-5 applies to

A) only the purchase or sale of a security by a financial corporation.
B) only the purchase or sale of a security involving an officer or director.
C) only the purchase or sale of a security involving a shareholder.
D) the purchase or sale of any security.

Question 52

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

A) the investors were not aware of the misrepresentations.
B) the issuer reasonably believed the misstatements were true.
C) the offering was made available to the general public.
D) the untrue statements were not material.

Question 53

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

A) on the basis of a material omission or misrepresentation.
B) on the basis of nonpublic information.
C) within any six-month period by certain insiders.
D) without being registered.

Question 54

Flite Airline Corporation is poised to issue securities in a transaction that, under the Securities Act of 1933, is "exempt." This enables Flite to

A) avoid the costs and complications of registration.
B) buy and sell the securities without liability for "recaptures."
C) make forward-looking financial forecasts without liability.
D) withhold inside information from accredited investors.

Question 55

Frothy Beverage Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Frothy is required to

A) contribute to the operations of national stock exchanges.
B) disclose financial and other information about its securities.
C) engage in market surveillance to deter undesirable practices.
D) solicit proxies for voting.

Question 56

New Discoveries Corporation, and its officers, directors, and share?holders, buy and sell securities. Section 10(b) of the Securities Ex?change Act of 1934 applies to

A) only the purchase or sale of a security by an investment company.
B) only the purchase or sale of a security involving short-swing profits.
C) only the purchase or sale of a security involving a tipper and tippee.
D) the purchase or sale of any security.

Question 57

Mit-E Clean Corporation wants to make an offering of securities to the pub?lic. This offering is not exempt from registration under the Se?curities Act of 1933. Before the firm sells its securities, it must provide in?vestors with

A) a forward-looking financial forecast.
B) an investment contract.
C) a prospectus.
D) a road show.

Question 58

As part of a stock offering for Equine Corporation, Flem, Equine's accountant, intention?ally misrepresents material facts in the pro?spectus. Gigi buys the stock unaware of the misrepresentation and suf?fers a loss. Flem may be subject to

A) a fine and damages only.
B) a fine and imprisonment only.
C) a fine, imprisonment, and damages.
D) damages only.

Question 59

Cotton Products Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Cotton's disclosure of financial and other significant information concerning its securities is designed to

A) increase corporate accountability by imposing responsibility on chief corporate executives.
B) prevent insiders from trading among themselves.
C) protect investors.
D) provide a "safe harbor" for companies that make forward-looking statements.

Question 60

Lex, a salesperson for Macro Corporation, learns that Macro will in?crease the dividend it pays to shareholders. Lex buys 1,000 shares of Macro stock. When the price increases, Lex sells his shares for a profit. Lex would not be liable for insider trading if the information about the dividend was

A) material when he sold the stock.
B) public after he bought the stock.
C) public before he bought the stock.
D) too speculative when he bought the stock.

Question 61

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

A) internal "disclosure controls and procedures."
B) external "release and reveal timetables."
C) personal "peruse and review liability policies."
D) public "information and discussion forums."

Question 62

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

A) certify that the reports are complete and accurate.
B) designate a corporate official to assume liability for inaccuracies.
C) do nothing.
D) read the reports and be prepared to answer questions about them.

Question 63

Dave, an accountant, does not work for Emergent Company, but wrong?fully obtains inside information concerning Emergent. Based on the in?forma?tion, Dave buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prose?cutes Dave, arguing that he is liable because he stole in?formation right?fully belonging to another. This argument is

A) the blue-sky theory.
B) the misappropriation theory.
C) the red-herring theory.
D) the tipper/tippee theory.

Question 64

Fact Pattern 41-1A
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, each of whom buy 100 shares. They knows 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 41-1A. Under the Securities Ex?change Act of 1934, Geoff is most likely

A) liable for insider trading.
B) not liable because Geoff did not prevent others from profiting.
C) not liable because Geoff did not solicit information from Dhani.
D) not liable because Geoff does not work for Eureka.

Question 65

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

A) any other public company with which Flux exchanges shares.
B) any state in which Flux does business.
C) the federal government.
D) the state in which Flux incorporated.

Question 66

Riley, an engineer for Super Seed Corporation, learns that Super Seed has developed a corn hybrid to triple the output of any farm. Riley buys 10,000 shares of Super Seed stock. He tells Tess, who buys 5,000 shares. After the new hybrid is announced publicly, the price of Super Seed stock in?creases. Riley and Tess sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on

A) neither Riley nor Tess.
B) only Riley.
C) only Tess.
D) Riley and Tess.

Question 67

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

A) most forms of securities.
B) only bonds.
C) only securities registered under the Securities Act of 1933.
D) only stock.

Question 68

Fact Pattern 41-1A
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, each of whom buy 100 shares. They knows 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 41-1A. Under the Securities Ex?change Act of 1934, Hu is most likely

A) liable for insider trading.
B) not liable because Hu is only a tippee, not a tipper.
C) not liable because Hu is too far down the chain of disclosure.
D) not liable because Hu traded on the basis of a true fact.

Question 69

Mo, an officer with NuProduct Company, receives a bounty payment, which is a payment from

A) a government official to a recipient for an act beneficial to the state.
B) an investor to a company officer for material, inside information.
C) a private corporation to an employee for a business opportunity.
D) any tippee to any tipper for any tip.

Question 70

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

A) all purchases and sales of securities.
B) only purchases and sales of securities by investment companies.
C) only purchases and sales of securities involving short-swing profits.
D) only purchases and sales of securities involving tippers and tippees.

Question 71

Excel Aviation Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates

A) the declaration of dividends by Excel's board of directors.
B) the later re-registration of Excel's securities.
C) the short-swing activities of Excel's insiders.
D) the solicitation of proxies from Excel's shareholders.

Question 72

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

A) certify that the statements are accurate.
B) delegate the responsibility for preparing the statements.
C) deliver the statements to the appropriate SEC officer.
D) prepare the statements.

Question 73

Fact Pattern 41-1B
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 41-1B. 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

A) all of Sid's profits.
B) half of Sid's profits.
C) 10 percent of Sid's profits.
D) none of Sid's profits.

Question 74

Fact Pattern 41-1B
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 41-1B. Under SEC Rule l0b-5, Sid would not be li?able if he had waited to buy Tech stock until

A) after Sid told Uri of the new game.
B) after Uri bought Tech stock.
C) after the public release of the game.
D) just before the game was released.

Question 75

Thom, an accountant for Uno Company, learns that Viral, a Uno director, has violated insider-trading laws. Thom does not suffer a loss in trading with Viral, but reports her to the Securities and Exchange Commission. Thom may be entitled to

A) a bounty payment.
B) damages equal to the amount of Viral's profits.
C) damages equal to the amount of Uno's losses (if any).
D) triple Viral's profits.

Question 76

Fine Café Company offers its stock for sale only in a single state. The law in Fine's state is like the law in most states. Fine's offer is sub?ject to state securities statutes that include

A) antifraud and disclosure provisions.
B) antifraud provisions only.
C) disclosure provisions only.
D) neither antifraud nor disclosure provisions.

Question 77

Fact Pattern 41-1A
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, each of whom buy 100 shares. They knows 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 41-1A. If Dhani is liable under the Securities Ex?change Act of 1934, it will be because the infor?mation on which he based his purchase of Eureka stock was

A) a forward-looking forecast.
B) not material.
C) not yet public.
D) not yet true.

Question 78

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

A) less than fourteen days to sell it.
B) more than six months to sell it.
C) ninety days to sell it.
D) two months to sell it.

Question 79

Fact Pattern 41-1A
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, each of whom buy 100 shares. They knows 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 41-1A. Under the Securities Ex?change Act of 1934, Fay is most likely

A) liable for insider trading.
B) not liable because Fay did not prevent others from profiting.
C) not liable because Fay did not solicit information from Dhani.
D) not liable because Fay does not work for Eureka.

Question 80

Ernie contracts to buy securities from Freda. Later, believing that Freda committed fraud in the deal, Ernie files a suit against her. If Freda is found liable, Ernie may obtain

A) an apology only.
B) damages to the extent of Freda's illegal profits only.
C) damages to the extent of Freda's illegal profits or rescission of Ernie's contract to buy securities from Freda.
D) rescission of Ernie's contract to buy securities from Freda only.