Question 1

State corporation statues set up the legal framework for corporate governance.

Accepted Answer

State corporation statutes define the rules and regulations for the creation, operation, management, and dissolution of corporations within the state's jurisdiction. They establish the legal framework for corporate governance, including the duties of directors and officers, shareholder rights and responsibilities, and procedures for mergers and acquisitions.

Question 2

Corporate "outsiders" may be held liable for insider trading under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

Accepted Answer

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 make it illegal for both corporate insiders and outsiders to engage in insider trading.

Question 3

Only the Securities and Exchange Commission can sue violators of Section 10(b) and Rule 10b-5.

Accepted Answer

While the SEC is the primary enforcement agency for Section 10(b) and Rule 10b-5, private individuals and other government agencies can also bring lawsuits against violators.

Question 4

Every state has its own corporate securities laws that regulate the offer and sale of securities within tis borders.

Accepted Answer

Each state has its own set of securities laws, also known as blue sky laws, that regulate the offer and sale of securities within its borders. These laws supplement federal securities laws such as the Securities Act of 1933 and the Securities Exchange Act of 1934.

Question 5

The Securities Exchange Act of 1934 applies to all cases involving the trading of securities, except in private transactions.

Accepted Answer

The Securities Exchange Act of 1934 primarily governs the trading of securities in secondary markets, but it does not apply to all cases, such as certain private transactions which are exempt from its provisions.

Question 6

A Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment.

Accepted Answer

This is the definition of a Ponzi scheme. It is a well-known type of financial fraud.

Question 7

An insider must actually use inside information in connection with the purchase and sale of securities to violate Section 16(b) of the Securities Exchange Act of 1934.

Accepted Answer

The answer of An insider must actually use inside information...

Question 8

For a defendant to be convicted in a criminal prosecution under the securities laws, there can be no reasonable doubt that the defendant knew he or she was acting wrongfully.

Accepted Answer

The answer of For a defendant to be convicted in...

Question 9

Under the Sarbanes-Oxley Act of 2002, all members of a publicly traded corporation's audit committee must be outside directors.

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires that all members of a publicly traded corporation's audit committee must be outside directors, meaning they are not employees or officers of the company. This is to ensure independence and objectivity in the oversight of the company's financial reporting and auditing processes.

Question 10

Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply.

Accepted Answer

The Securities Exchange Act of 1934 primarily governs the trading, buying, and selling of securities already issued and does not require that securities be registered under the Securities Act of 1933 for its provisions to apply. The 1933 Act is mainly concerned with the initial registration and offering of securities.

Question 11

Fact Pattern 7-1
College Bound, Inc., markets test and study prep materials and courses. College Bound wants to make an initial public offering of securities. The firm believes that it qualifies for an exemption under Regulation A from the full registration requirement of the Securities Act of 1933.
-Refer to Fact Pattern 7-1. College Bound decides to sell its new securities via the Internet. Most likely, this offering​

Accepted Answer

Selling securities via the internet can be cost-effective and efficient, helping to reduce offering-related expenses for College Bound. The other options do not apply to the fact pattern.

Question 12

State securities laws apply mainly to intrastate transactions.

Accepted Answer

State securities laws, also known as Blue Sky laws, primarily regulate the sale of securities within a single state. These laws require that companies seeking to issue securities within a state must comply with state-level registration and disclosure requirements.

Question 13

The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.

Accepted Answer

The statement is correct. The Sarbanes-Oxley Act of 2002 was implemented to increase corporate accountability and protect investors by imposing strict disclosure requirements and harsh penalties for securities laws.

Question 14

The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether information omitted or misrepresented in connection with the purchase or sale of a security is material.

Accepted Answer

The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is indeed whether information omitted or misrepresented in connection with the purchase or sale of a security is material. Material information is information that would reasonably affect an investor's decision to buy, sell or hold a security. If such information is omitted or misrepresented, it can be considered securities fraud, leading to potential civil or criminal liability.

Question 15

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

Accepted Answer

The Securities Act of 1933 defines a security as "any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase any of the foregoing." Therefore, a security can be almost any type of ownership or debt interest in a company.

Question 16

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

Accepted Answer

Under the Securities Act of 1933, Trail Bike Corporation is required to disclose financial and other information about its securities. This is because Trail Bike is a public company whose shares are traded in the public securities markets.

Question 17

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

Accepted Answer

A registration statement filed with the SEC must include a description of the securities being offered for sale. While a prospectus may be included in the registration statement, it is not required at the time of filing. Similarly, a record of pre-registration sales is not required to be included in the registration statement. Therefore, the best answer is B - a description of securities being offered for sale.

Question 18

Paddle & Portage Tours 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

The term "exempt securities" means that the securities are not required to be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. This allows the securities to be sold without having to comply with the registration requirements of the Act. Therefore, choice D is the correct answer. Choices A and B describe illegal activities that violate securities laws, while choice C is unrelated to the concept of exempt securities.

Question 19

Under the Sarbanes-Oxley Act of 2002, chief financial officers must certify the accuracy of information in corporate financial statements.

Accepted Answer

This is correct. Under Section 302 of the Sarbanes-Oxley Act, CEOs and CFOs are required to certify the accuracy of financial statements and disclosures. Failure to do so can result in civil or criminal penalties.

Question 20

Issuers of securities offerings must comply with either federal or state securities laws, but not both.

Accepted Answer

Issuers of securities offerings must comply with both federal and state securities laws, depending on the nature of the offering and the type of securities being offered.

Quiz 7: Securities Law and Corporate Governance