Question 1

SEC Rule 10b-5 applies to almost all cases involving the trading of securities.

Accepted Answer

SEC Rule 10b-5 is a broad anti-fraud provision that applies to most securities transactions. It prohibits the use of any deceptive or manipulative practices in connection with the purchase or sale of securities, including making untrue statements or omissions of material facts, insider trading, and other fraudulent activities.

Question 2

Foamy Soap Corporation is a public company whose shares are traded in the public securities markets.The Securities Act of 1933 provides that, unless exempt, all of Foamy's securities transactions must be

Accepted Answer

The Securities Act of 1933 requires that all securities transactions must be registered with the Securities and Exchange Commission, unless exempt. This ensures that investors receive adequate and accurate information regarding the company and its securities, in order to make informed investment decisions.

Question 3

State securities laws apply mainly to intrastate transactions.

Accepted Answer

State securities laws, also known as "blue sky laws," are regulations that govern the sale of securities within a particular state. These laws apply to both intrastate and interstate transactions, but their main focus is on intrastate sales.

Question 4

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

Accepted Answer

Private parties can sue violators of Section 10(b) and Rule 10b-5 under certain circumstances, such as when they have suffered financial losses as a result of the violation. However, they must meet certain legal requirements and show that the violation directly caused their losses.

Question 5

The key to liability under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether undisclosed inside information is material.

Accepted Answer

This is because Section 10(b) and Rule 10b-5 prohibit fraud or deception in connection with the purchase or sale of securities, and the materiality of inside information is a crucial element in determining whether such fraud or deception occurred. Material information is information that a reasonable investor would consider important in making an investment decision, and failure to disclose such information may be considered fraudulent or deceptive.

Question 6

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

Accepted Answer

This statement is incorrect. Both outsiders and insiders can be liable for insider trading if they possess material nonpublic information and trade on it. The term "outsiders" in this statement is also misleading, as anyone who trades in the stock market is technically an outsider to the underlying corporations.

Question 7

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

Accepted Answer

The answer of "Forward-looking" financial forecasts are prohibited under SEC...

Question 8

RingTone 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… or investment contract." This definition is intentionally broad and includes nearly any type of investment in a company, whether it be ownership or debt related.

Question 9

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

Accepted Answer

This is known as the "short-swing profit rule" under Section 16(b) of the Securities Exchange Act of 1934. It applies to any officer, director, or owner of more than 10% of the company's stock. If they buy and sell the company's stock within a six-month period and make a profit, the company can require them to pay back the profits.

Question 10

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

Accepted Answer

Buying or selling securities on the basis of nonpublic information is illegal, regardless of the profit gained from the transaction. This is known as insider trading and is prohibited in order to maintain fairness and prevent fraud in financial markets.

Question 11

A major problem facing the Securities and Exchange Commission is how to enforce the antifraud provisions of the securities laws in the online environment.

Accepted Answer

With the increasing use of technology and internet for securities trading, it has become challenging for the Securities and Exchange Commission to detect and prevent fraudulent activities in the online environment. Therefore, enforcing antifraud provisions of the securities laws have become a major concern for SEC.

Question 12

Generally, federal securities laws are patterned after states' antifraud laws.

Accepted Answer

Federal securities laws were primarily established to regulate the securities industry at a national level, while state antifraud laws, often referred to as "blue sky laws," were developed independently to protect investors within individual states.

Question 13

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

Accepted Answer

Since the securities do not qualify for an exemption from registration, Bild-It-Rite Corporation must file a registration statement with the SEC in order to legally issue the securities.

Question 14

Readmore Bookstore Corporation files a registration statement with the Securities and Exchange Commission and provides a prospectus describing the securities to investors.These items are intended to provide sufficient information so that the financial risks involved can be evaluated by

Accepted Answer

The answer of Readmore Bookstore Corporation files a registration statement...

Question 15

Auto Parts & Products Corporation is a public company whose shares are traded in the public securities markets.The purpose of the Securities Act of 1933 is to

Accepted Answer

The purpose of the Securities Act of 1933 is to require disclosure of all essential information concerning the issuance of securities. This act aims to ensure that investors receive reliable information about securities being offered for public sale and prevent fraud in the sale of securities.

Question 16

Corporations' chief executive officers are directly accountable for the accuracy of financial statements filed with the Securities and Exchange Commission.

Accepted Answer

This statement is true according to the Sarbanes-Oxley Act of 2002, which holds CEOs and CFOs personally responsible for the accuracy of financial statements filed with the SEC.

Question 17

Corporate governance can be defined as the relationship between a corporation and its directors.

Accepted Answer

The answer of Corporate governance can be defined as the...

Question 18

Willful violations of the Sarbanes-Oxley Act of 2002 may be subject to harsh penalties.

Accepted Answer

The penalties for willful violations of the Sarbanes-Oxley Act of 2002 can include fines, imprisonment, and prohibition from serving as an officer or director of a public company.

Question 19

"Blue sky laws" regulate securities data stored in cloud computing servers.

Accepted Answer

The answer of "Blue sky laws" regulate securities data stored...

Question 20

Violations of the Securities Exchange Act of 1934 may be subject to criminal prosecution, but not civil liability.

Accepted Answer

Violations of the Securities Exchange Act of 1934 may be subject to both criminal prosecution and civil liability.

Quiz 25: Investor Protection, Insider Trading, Corp Gov