Question 1

The Insider Trading and Securities Fraud Enforcement Act of 1988 provides that suits alleging illegal use of nonpublic information may be filed up to a maximum period of ______ years after the wrongful transaction.

Accepted Answer

The Insider Trading and Securities Fraud Enforcement Act of 1988 provides that suits alleging the illegal use of nonpublic information may be filed within a five-year period after the wrongful transaction.

Question 2

Section 10(b)and Rule 10b-5 are usually referred to as the ______ provisions of the 1934 Act.

Accepted Answer

Section 10(b) and Rule 10b-5 are usually referred to as the antifraud provisions of the 1934 Act. A plaintiff seeking damages under the provisions must establish the existence of a material misrepresentation or omission made in connection with the purchase or sale of a security and the culpable state of mind of the defendant.

Question 3

The civil penalty provided by the Insider Trading and Securities Fraud Enforcement Act of 1988 for profits gained with nonpublic information is

Accepted Answer

The enforcement efforts of the Securities Exchange and Commission (SEC) on the misuse of nonpublic information at all levels of transactions are aided by the fact that the civil penalty for gaining illegal profits with nonpublic information is three times the profits gained. The penalties were increased to their current levels by the Insider Trading and Securities Fraud Enforcement Act of 1988.

Question 4

Prohibitions against insiders from engaging in short-swing profits are enforced by the

Accepted Answer

While the Securities and Exchange Commission (SEC) enforces the requirements of Section 16 that insiders file certain documents, the SEC does not enforce the provision that prohibits insiders from engaging in short-swing profits. This provision of Section 16 is enforced by civil actions filed by the issuer of the security or by a person who owns a security of the issuer.

Question 5

Which of the following statements is true of the Private Securities Litigation Reform Act (PSLRA)?

Accepted Answer

The Private Securities Litigation Reform Act (PSLRA) made it clear that only the Securities and Exchange Commission (SEC) can pursue claims against third parties not directly responsible for the securities law violation. Congress, through the PSLRA, limits the amount of damages private plaintiffs can recover and restricts attorney fees. This law also provides requirements for the appointment of lead plaintiffs in securities class-action cases.

Question 6

An insider is any person who owns more than ______ percent of any security.

Accepted Answer

An insider is any person who owns more than 10 percent of any security and is a director or an officer of the issuer of the security.

Question 7

Which of the following statements is true of creating liabilities under Section 18?

Accepted Answer

The requirement that an intent to deceive be proven under Section 18 means that the defendant's good faith is a defense. Good faith exists when a person acts without knowledge that the statement is false and misleading. In other words, freedom from fraud is a defense under an action based on Section 18. There is no liability under this section for simple negligence.

Question 8

Under the 1934 Act,an individual found guilty of filing false or misleading documents with the Securities and Exchange Commission (SEC)may be imprisoned up to

Accepted Answer

An individual found guilty of filing false or misleading documents with the Securities and Exchange Commission (SEC) may be fined up to $5,000,000 and imprisoned for up to 20 years. This increased sanction emphasizes the seriousness with which all businesspeople must treat compliance with securities regulations.

Question 9

Benefit of the bargain refers to the measure of damages awarded to the buyer which is

Accepted Answer

Courts in a few cases have used the benefit of the bargain measure of damages and awarded the buyer the difference between what he or she paid and what the security was represented to be worth. A buyer's damages are measured at the time of purchase.

Question 10

Under the 1934 Act,a business organization found guilty of filing false or misleading documents with the Securities and Exchange Commission (SEC)may be fined up to

Accepted Answer

A business organization found guilty of filing false or misleading documents with the Securities and Exchange Commission (SEC) may be subject to a fine up to $25,000,000. This increased sanction emphasizes the seriousness with which all businesspeople must treat compliance with securities regulations.

Question 11

The Sarbanes-Oxley Act requires that information pertaining to an insider's transaction be filed

Accepted Answer

The Sarbanes-Oxley Act shortens the time period for filing information about insider transactions. These filings with the Securities and Exchange Commission must be made electronically within two business days of the insider's transaction.

Question 12

Which of the following statements is true of short-swing profits?

Accepted Answer

The reason for prohibiting insiders from trading for profit is to prevent the use of information that is available to an insider but not to the general public. Because the Securities and Exchange Commission cannot determine for certain when nonpublic information is improperly used, Section 16 creates a presumption that any profit made within a six-month time period is illegal. These profits are referred to as short-swing profits.

Question 13

According to the Securities and Exchange Commission (SEC),a person should be considered to be a temporary insider if that person conveys nonpublic information that was to have been kept confidential.This philosophy has become known as the

Accepted Answer

The Securities and Exchange Commission (SEC) has successfully argued that a person should be considered to be a temporary insider if that person conveys nonpublic information that was to have been kept confidential. This philosophy has become known as the misappropriation theory of insider trading.

Question 14

Which of the following statements is true of the criminal liability imposed as per the Securities Act of 1934?

Accepted Answer

The 1934 Act provides for criminal sanctions for willful violations of its provisions or the rules adopted under it. An individual guilty of securities fraud may face a prison sentence of up to 25 years. This increased sanction emphasizes the seriousness with which all businesspeople must treat compliance with securities regulations.

Question 15

The process of registration created by the Uniform Securities Act is known as

Accepted Answer

In addition to adopting the registration by notification and registration by qualification, the Uniform Securities Act created a third procedure-registration by coordination. For those issuers of securities who must register with the Securities and Exchange Commission (SEC), duplicate documents are filed with the state's administrative agency.

Question 16

Under Rule 10b-5,plaintiffs are entitled to

Accepted Answer

Plaintiffs under Rule 10b-5 are entitled to consequential damages. These include lost dividends, brokerage fees, and taxes. In addition, courts may order payment of interest on the funds.

Question 17

Which of the following statements is true of blue sky laws?

Accepted Answer

The blue sky laws can apply to securities subject to federal laws as well as to those securities exempt from the federal statutes. It is clearly established that the federal laws do not preempt the existence of state blue sky laws.

Question 18

Which of the following statements is true of the Securities Enforcement Remedies Act?

Accepted Answer

The Securities Enforcement Remedies Act provides that civil fines of up to $500,000 per organization and $100,000 per individual may be imposed and collected by the courts. An individual found to have violated the securities laws may be prohibited by the court from serving as an officer or director of a business organization.

Question 19

Registration by notification

Accepted Answer

Registration by notification allows issuers to offer securities for sale automatically after a stated time period expires unless the administrative agency takes action to prevent the offering.

Question 20

A(n)______ is a person who learns of nonpublic information from an insider,and is generally viewed as a temporary insider.

Accepted Answer

A tippee is a person who learns of nonpublic information from an insider. In essence, a tippee is viewed as a temporary insider. A tippee is liable for the use of nonpublic information because an insider should not be allowed to do indirectly what he or she cannot do directly.

Quiz 17: Financial and Securities Regulations