Question 1

Under the Securities Act of 1933,securities that have been issued under the "intrastate offering" exemption cannot be resold to a nonresident of the state for two years following the initial sale.

Accepted Answer

The answer of Under the Securities Act of 1933,securities that...

Question 2

A "tippee" is liable for acting on information that the tippee should have known was not public.

Accepted Answer

According to insider trading laws, a tippee is liable for trading on material non-public information that they knew or should have known was obtained illegally or in breach of a duty of confidentiality.

Question 3

Rule 10b-5,which prohibits securities fraud,applies only to the securities of companies listed on the major stock exchanges.

Accepted Answer

Rule 10b-5 applies to all securities, not just those of companies listed on major stock exchanges. It prohibits fraud in connection with the purchase or sale of any security, including stocks, bonds, and other financial instruments.

Question 4

Under the "private placement" exception to the registration of securities,the limitation on the number of investors applies to non-accredited,but not accredited,investors.

Accepted Answer

The limitation on the number of investors applies to non-accredited investors under the private placement exception. Accredited investors are not subject to these limitations.

Question 5

Courts have implied a private right of action for violation of Section 10(b)and Rule 10b-5.

Accepted Answer

Courts have consistently recognized a private right of action for violation of Section 10(b) and Rule 10b-5, which prohibits fraud and deceit in connection with the purchase or sale of securities. This allows individuals and entities to sue for damages or seek other legal remedies if they have been harmed by securities fraud.

Question 6

Insider trading occurs when a company employee or company advisor uses material,nonpublic information to make a profit by trading in the securities of the company.

Accepted Answer

Insider trading is illegal and involves the use of confidential information to gain an unfair advantage in securities trading. It is a violation of securities laws and regulations.

Question 7

State securities laws are usually applied when smaller companies are issuing securities within that state.

Accepted Answer

State securities laws, also known as blue sky laws, are usually applied to smaller companies issuing securities within the state. These laws vary from state to state and are designed to protect investors from fraud and ensure transparency in the sale of securities.

Question 8

"Rule 144" provides that securities sold pursuant to the "private placement" or "small offering" exemption must be held for six months from the date when the securities are last sold by the issuer.

Accepted Answer

Rule 144 pertains to the resale of restricted and control securities, not specifically to securities sold under private placement or small offering exemptions. It generally requires a holding period of six months for securities of reporting companies and one year for non-reporting companies.

Question 9

Even non-employees can violate insider trading rules.

Accepted Answer

Insider trading rules apply not only to employees, but also to anyone who possesses material nonpublic information and trades on it or shares it with others who trade on it. This can include family members, friends, business associates, and even strangers who receive the information in confidence.

Question 10

Rule 10b-5 is not restricted to purchases and sales of securities of reporting companies.

Accepted Answer

Rule 10b-5 applies to any securities transaction, regardless of whether the company is required to file reports with the SEC.

Question 11

An insider is liable for "short-swing" profits,even if he/she has not used inside information.

Accepted Answer

The concept of short-swing profits refers to profits made by a company insider (such as a director, officer, or significant shareholder) from buying and selling company securities within a six-month period. The Securities and Exchange Commission (SEC) imposes liability for these profits regardless of whether the insider used inside information to make the trades. This is because the SEC considers the ability to make short-swing profits to be a potential incentive for insiders to engage in unethical behavior or abuse their positions of trust. Therefore, any insider who engages in short-swing trades must disgorge any profits made during the six-month period to the company.

Question 12

Negligence that results in a material misstatement will subject a party to liability under Rule 10b-5 of the Securities Exchange Act of 1934.

Accepted Answer

Rule 10b-5 requires scienter, meaning intent to deceive, manipulate, or defraud, not mere negligence.

Question 13

Statutory insiders must file reports with the Securities and Exchange Commission disclosing their ownership and trading in the company's securities.

Accepted Answer

This is required by the Securities and Exchange Act of 1934.

Question 14

"Short-swing" profits pertain to trades involving equity securities occurring within one year of each other.

Accepted Answer

Short-swing profits refer to profits made from buying and selling the same company's equity securities within a six-month period, not one year.

Question 15

You cannot be considered an insider unless you own at least fifty-one percent of a company's outstanding securities.

Accepted Answer

Ownership of at least fifty-one percent of a company's outstanding securities does not necessarily make someone an insider. Insiders can include executives, directors, and other individuals who have access to important information about the company.

Question 16

Most states have enacted securities laws.

Accepted Answer

Most states have their own securities laws that regulate the sale and trade of securities within their jurisdiction. These laws are often referred to as "blue sky laws."

Question 17

Section 16(a)of the Securities Exchange Act of 1934 defines any person who is an executive officer,a director,or a 10-percent shareholder of an equity security of a reporting company as a "statutory insider" for Section 16 purposes.

Accepted Answer

Section 16(a) of the Securities Exchange Act of 1934 defines a "statutory insider" as an executive officer, director, or 10-percent shareholder of a reporting company.

Question 18

Companies are covered under the Securities Exchange Act of 1934 only if they are in the process of making new offerings of securities.

Accepted Answer

Companies are covered under the Securities Exchange Act of 1934 if they have securities registered with the Securities and Exchange Commission (SEC) and if their securities are listed on a national securities exchange, regardless of whether they are making new offerings of securities.

Question 19

Under the "small offering" exemption of the Securities Act of 1933,securities can be sold to an unlimited number of accredited and unaccredited investors.

Accepted Answer

The small offering exemption, also known as Regulation A, allows for the sale of securities to an unlimited number of accredited and unaccredited investors with certain limitations on the amount sold and required disclosures.

Question 20

A person who discloses material nonpublic information to another person is called a "tippee."

Accepted Answer

A person who discloses material nonpublic information to another person is called a tipper; the person who receives the information is called a tippee.

Quiz 32: Investor Protection,E-Securities Transactions,and Wall Street Reform