Question 1

Space Flight Inc. 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. The firm is charged with violating the Securities Act of 1933. Its best defense is

Accepted Answer

The best defense for Space Flight Inc. would be that the untrue statements were not material, meaning they would not have affected the investment decision of a reasonable investor. The Securities Act of 1933 requires that all material facts are accurately disclosed; immaterial inaccuracies would not constitute a violation.

Question 2

Pharma Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933

Accepted Answer

The Securities Act of 1933 requires companies that offer securities to the public to provide full and fair disclosure of relevant information to investors, which helps them make informed decisions.

Question 3

To raise $120 million to expand operations, Primo Inc. makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. The firm plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an exempt transaction

Accepted Answer

Under Regulation D of the Securities Act of 1933, an offering can be exempt if it is made to accredited investors and up to 35 sophisticated but unaccredited investors, provided they receive material information about the firm.

Question 4

Orbital Flights Inc. is required to register its securities under Section 12 of the Securities Exchange Act of 1934. This means that, with respect to Orbital, Section 16(b)of the act covers

Accepted Answer

Section 16(b) of the Securities Exchange Act of 1934 addresses the profits from short-swing trading by insiders of a company, such as directors, officers, and large shareholders, within a six-month period. It does not concern the declaration of dividends, re-registration of securities, or the solicitation of proxies.

Question 5

Dairy Stores Inc. owns and operates convenience stores. The firm wants to make an initial public offering of securities. If Dairy qualifies for an exemption from the federal registration requirement, the firm is

Accepted Answer

Qualifying for an exemption from federal registration requirements does not automatically exempt a firm from state registration requirements. States have their own securities laws, known as "blue sky laws," which may require registration or compliance even if a federal exemption applies.

Question 6

Mars Mission Inc. is a regulated publicly held corporation. Under the Securities Act of 1934, Mars is required to

Accepted Answer

Under the Securities Act of 1934, publicly held corporations like Mars Mission Inc. are required to disclose information about their organization and financial situation to the public. This ensures transparency and protects investors by providing them with the necessary information to make informed decisions.

Question 7

Home Stuff 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

Securities that are exempt under the Securities Act of 1933 can be sold without the need for registration with the Securities and Exchange Commission (SEC). This exemption allows for a more streamlined process for issuing securities under certain conditions.

Question 8

Chris, a coder for Drones Inc., learns of undisclosed company plans to market a new, smart drone. Chris buys 10,000 shares of the firm's stock. If Chris is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of the stock was

Accepted Answer

Chris would be liable because the information he used to buy the stock was not yet public, which is considered insider trading under the Securities Exchange Act of 1934.

Question 9

Equity Corporation, and its officers, directors, employees, and shareholders, buy and sell securities. Section 10(b)of the Securities Exchange Act of 1934 applies to the trading of securities

Accepted Answer

Section 10(b) of the Securities Exchange Act of 1934 is a broad anti-fraud provision that applies to the trading of securities in almost any circumstances, not limited to specific types of companies, markets, or transactions.

Question 10

Household Products Corporation wants to make an offering of securities to the public. The offering is not exempt from registration under the Securities Act of 1933. Before the firm sells its securities, it must provide investors with

Accepted Answer

A prospectus is required by the Securities Act of 1933 for public offerings of securities that are not exempt from registration. The prospectus provides detailed information about the company's business, the securities being offered, and the risks involved, allowing investors to make informed decisions.

Question 11

As part of a stock offering for Design Media Corporation, the firm's accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to

Accepted Answer

Eve's intentional misrepresentation of material facts in the prospectus constitutes securities fraud, which can lead to severe penalties including fines, imprisonment, and the requirement to pay damages to those harmed by the fraudulent actions, such as Fred.

Question 12

Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm's debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to

Accepted Answer

Ewan's intentional understatement of the firm's debts to investors constitutes securities fraud, which can lead to both government prosecution (for violating securities laws) and a private investor's suit (for the losses suffered due to the fraudulent information provided).

Question 13

Jazz Inc. makes and markets music. The company wants to make an initial public offering of securities via the Internet. Most likely, this offering

Accepted Answer

Offering securities via the Internet can help a company like Jazz Inc. reduce the costs and complexity typically associated with traditional methods of going public, such as underwriter fees and extensive paperwork.

Question 14

Reno, an engineer for Shale Corporation, learns that the firm will increase the dividend it pays to shareholders. Reno buys 10,000 shares of company stock. When the dividend is announced to the public and the price of the stock increases, he sells the shares for a profit. He would not be liable for insider trading if the information about the dividend was

Accepted Answer

Reno would not be liable for insider trading if the information about the dividend was available to the public before he bought the stock, as this means he acted on public information rather than exploiting non-public, material information.

Question 15

Fleet Trucking Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is exempt. This enables Fleet to

Accepted Answer

Fleet Trucking Corporation can reduce compliance costs by not requiring an auditor report because the transaction is exempt under the Securities Act of 1933, which often allows smaller companies to bypass certain regulatory requirements.

Question 16

Fresh 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 primarily applies to companies that have assets exceeding $10 million and more than 500 shareholders, which describes Gourmand Pastries Inc. but not Fresh Fruit Company.

Question 17

Movie Time 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

Accepted Answer

The answer of Movie Time Corporation files a registration statement...

Question 18

Eli, an officer for Food Stores Inc., buys 10,000 shares of its stock. One week later, the company announces that it will merge with a competitor, Grocery Mart Corporation, and the price of Food Stores' stock increases. One month later, Eli sells his shares for a profit. Under Section 16(b)of the Securities Exchange Act of 1934, Eli would not be liable if, after buying the stock, he had waited

Accepted Answer

Under Section 16(b) of the Securities Exchange Act of 1934, insiders (like officers of the company) are required to return any profits made from buying and selling the company's stock within a six-month period. Therefore, Eli would not be liable if he had waited more than six months to sell the stock.

Question 19

Luan, a programmer for Monetized Nation Inc., a business modeling service, learns of undisclosed company plans to distribute a new app. Luan reveals the company plans to a friend, Ono, who buys 5,000 shares of the firm's stock. Under the Securities Exchange Act of 1934, Ono is most likely

Accepted Answer

Ono is liable for insider trading because he traded based on material, non-public information received from Luan, who breached a duty of trust by disclosing the information.

Question 20

Components Assembly Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that the company must

Accepted Answer

When a public company issues securities that do not qualify for an exemption from registration, it must file a registration statement with the SEC (Securities and Exchange Commission). This process is a requirement under U.S. securities laws to provide potential investors with the necessary information to make informed investment decisions.

Quiz 39: Investor Protection Insider Trading and Corporate Governance