Question 1

Which of the following is true regarding Isaiah's plan to rely on the due diligence defense?

Accepted Answer

A)Any defendant except the issuer can assert the due diligence defense.
B)Any defendant except the issuer can assert the due diligence defense.
C)Any defendant except the issuer can assert the due diligence defense.
D)Any defendant except the issuer can assert the due diligence defense.
E)Any defendant except the issuer can assert the due diligence defense.

Question 2

Fraud associated with the purchase or sale of all securities is prohibited by which of the following?

Accepted Answer

A)One of the most important sections of the 1934 act is Section 10b),which
prohibits the use of manipulative and deceptive devices to bypass SEC rules.Within this section,Subsection 5 prohibits fraud associated with the purchase or sale of all securities.
B)One of the most important sections of the 1934 act is Section 10b),which prohibits the use of manipulative and deceptive devices to bypass SEC rules.Within this section,Subsection 5 prohibits fraud associated with the purchase or sale of all securities.

Question 3

Which of the following is not considered an accredited investor?

Accepted Answer

A)The SEC defines an accredited investor as:
1.Any natural person who has a net worth of at least $1 million.
2.Any natural person whose annual income has been at least $200,000 for the two previous years and expects to make at least $200,000 in the current year.
3.Any corporation or partnership with total assets in excess of $5 million.
4.Insiders of the issuers,such as executive officers or directors.
5.Registered investment companies,colleges and universities,banks,and insurance companies.
B)The SEC defines an accredited investor as:
1.Any natural person who has a net worth of at least $1 million.
2.Any natural person whose annual income has been at least $200,000 for the two previous years and expects to make at least $200,000 in the current year.
3.Any corporation or partnership with total assets in excess of $5 million.
4.Insiders of the issuers,such as executive officers or directors.
5.Registered investment companies,colleges and universities,banks,and insurance companies.
C)The SEC defines an accredited investor as:
1.Any natural person who has a net worth of at least $1 million.
2.Any natural person whose annual income has been at least $200,000 for the two previous years and expects to make at least $200,000 in the current year.
3.Any corporation or partnership with total assets in excess of $5 million.
4.Insiders of the issuers,such as executive officers or directors.
5.Registered investment companies,colleges and universities,banks,and insurance companies.
D)The SEC defines an accredited investor as:
1.Any natural person who has a net worth of at least $1 million.
2.Any natural person whose annual income has been at least $200,000 for the two previous years and expects to make at least $200,000 in the current year.
3.Any corporation or partnership with total assets in excess of $5 million.
4.Insiders of the issuers,such as executive officers or directors.
5.Registered investment companies,colleges and universities,banks,and insurance companies.
E)The SEC defines an accredited investor as:

Question 4

Which of the following is true regarding who may be considered an insider under the Securities Exchange Act of 1934?

Accepted Answer

A)Section 10b)and Rule 10b-5 define insiders as corporate officers,directors,
employees,lawyers,consultants,accountants,majority shareholders,or any other individuals who receive private information regarding the trading of securities.
B)Section 10b)and Rule 10b-5 define insiders as corporate officers,directors,employees,lawyers,consultants,accountants,majority shareholders,or any other individuals who receive private information regarding the trading of securities.
C)Section 10b)and Rule 10b-5 define insiders as corporate officers,directors,employees,lawyers,consultants,accountants,majority shareholders,or any other individuals who receive private information regarding the trading of securities.
D)Section 10b)and Rule 10b-5 define insiders as corporate officers,directors,employees,lawyers,consultants,accountants,majority shareholders,or any other individuals who receive private information regarding the trading of securities.
E)Section 10b)and Rule 10b-5 define insiders as corporate officers,directors,employees,lawyers,consultants,accountants,majority shareholders,or any other individuals who receive private information regarding the trading of securities.

Question 5

Which of the following is not an example of material information under Section 10b.and Rule 10b-5?

Accepted Answer

A)Examples of material information include the following:
1.A change in the status of litigation against the company.
2.A change in dividends.
3.A contract for the sale of corporate assets or for the purchase of assets.
4.A new product,process,or discovery.
5.A significant change in the financial status of the company.
B)Examples of material information include the following:
1.A change in the status of litigation against the company.
2.A change in dividends.
3.A contract for the sale of corporate assets or for the purchase of assets.
4.A new product,process,or discovery.
5.A significant change in the financial status of the company.
C)Examples of material information include the following:
1.A change in the status of litigation against the company.
2.A change in dividends.
3.A contract for the sale of corporate assets or for the purchase of assets.
4.A new product,process,or discovery.
5.A significant change in the financial status of the company.
D)Examples of material information include the following:
1.A change in the status of litigation against the company.
2.A change in dividends.
3.A contract for the sale of corporate assets or for the purchase of assets.
4.A new product,process,or discovery.
5.A significant change in the financial status of the company.
E)Examples of material information include the following:

Question 6

Which of the following did Congress pass in an effort to prevent exploitation of small investors?

Accepted Answer

A)To prevent exploitation of small investors,Congress passed the Investment
Company Act of 1940.
B)To prevent exploitation of small investors,Congress passed the Investment Company Act of 1940.
C)To prevent exploitation of small investors,Congress passed the Investment Company Act of 1940.
D)To prevent exploitation of small investors,Congress passed the Investment Company Act of 1940.
E)To prevent exploitation of small investors,Congress passed the Investment Company Act of 1940.

Question 7

Which of the following is a reason Congress passed the Private Securities Litigation Reform Act of 1995?

Accepted Answer

A)Among other things,the Private Securities Litigation Reform Act PSLRA)of
1995 provides a "safe harbor" from liability for publicly held issuers who make financial forecasts as long as the forecasts are "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."
B)Among other things,the Private Securities Litigation Reform Act PSLRA)of 1995 provides a "safe harbor" from liability for publicly held issuers who make financial forecasts as long as the forecasts are "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."
C)Among other things,the Private Securities Litigation Reform Act PSLRA)of 1995 provides a "safe harbor" from liability for publicly held issuers who make financial forecasts as long as the forecasts are "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."
D)Among other things,the Private Securities Litigation Reform Act PSLRA)of 1995 provides a "safe harbor" from liability for publicly held issuers who make financial forecasts as long as the forecasts are "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."
E)Among other things,the Private Securities Litigation Reform Act PSLRA)of 1995 provides a "safe harbor" from liability for publicly held issuers who make financial forecasts as long as the forecasts are "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."

Question 8

State securities laws can also be referred to by which of the following terms?

Accepted Answer

A)Not only must issuers obey federal securities regulations,but they are also
subject to state securities laws,often referred to as blue-sky laws.
B)Not only must issuers obey federal securities regulations,but they are also subject to state securities laws,often referred to as blue-sky laws.
C)Not only must issuers obey federal securities regulations,but they are also subject to state securities laws,often referred to as blue-sky laws.
D)Not only must issuers obey federal securities regulations,but they are also subject to state securities laws,often referred to as blue-sky laws.
E)Not only must issuers obey federal securities regulations,but they are also subject to state securities laws,often referred to as blue-sky laws.

Question 9

Which of the following limits shareholders' ability to bring class action suits against nationally traded companies?

Accepted Answer

A)The Securities Litigation Uniform Standards Act of 1998 strictly limits
shareholders' ability to bring class action suits against nationally traded corporations.
B)The Securities Litigation Uniform Standards Act of 1998 strictly limits shareholders' ability to bring class action suits against nationally traded corporations.
C)The Securities Litigation Uniform Standards Act of 1998 strictly limits shareholders' ability to bring class action suits against nationally traded corporations.
D)The Securities Litigation Uniform Standards Act of 1998 strictly limits shareholders' ability to bring class action suits against nationally traded corporations.
E)The Securities Litigation Uniform Standards Act of 1998 strictly limits shareholders' ability to bring class action suits against nationally traded corporations.

Question 10

Which of the following is the term for the document referenced by Marc to be provided to the SEC that will be used as an advertising tool to potential investors who can rely on it to decide whether they should buy securities?

Accepted Answer

A)The prospectus is an advertising tool that issuers distribute to potential investors
who rely on the prospectus to help decide whether they should buy the securities.
B)The prospectus is an advertising tool that issuers distribute to potential investors who rely on the prospectus to help decide whether they should buy the securities.
C)The prospectus is an advertising tool that issuers distribute to potential investors who rely on the prospectus to help decide whether they should buy the securities.
D)The prospectus is an advertising tool that issuers distribute to potential investors who rely on the prospectus to help decide whether they should buy the securities.
E)The prospectus is an advertising tool that issuers distribute to potential investors who rely on the prospectus to help decide whether they should buy the securities.

Question 11

Which of the following prohibits the use of manipulative devices to bypass SEC rules under the 1934 act?

Accepted Answer

A)One of the most important sections of the 1934 act is Section 10b),which
prohibits the use of manipulative and deceptive devices to bypass SEC rules.
B)One of the most important sections of the 1934 act is Section 10b),which prohibits the use of manipulative and deceptive devices to bypass SEC rules.
C)One of the most important sections of the 1934 act is Section 10b),which prohibits the use of manipulative and deceptive devices to bypass SEC rules.
D)One of the most important sections of the 1934 act is Section 10b),which prohibits the use of manipulative and deceptive devices to bypass SEC rules.
E)One of the most important sections of the 1934 act is Section 10b),which prohibits the use of manipulative and deceptive devices to bypass SEC rules.

Question 12

Which of the following,if any,is a securities regulation term that would describe Annaliese as an investor?

Accepted Answer

A)The SEC definition of an accredited investor includes any natural person who has a net worth of at least $1 million.
B)The SEC definition of an accredited investor includes any natural person who has a net worth of at least $1 million.
C)The SEC definition of an accredited investor includes any natural person who has a net worth of at least $1 million.
D)The SEC definition of an accredited investor includes any natural person who has a net worth of at least $1 million.
E)The SEC definition of an accredited investor includes any natural person who has a net worth of at least $1 million.

Question 13

[In Trouble] Isaiah,an issuer of stock,may be in trouble.He sold stock in a new health club venture before the effective date of registration.He did so because he was in financial trouble due to other projects.Isaiah thought that the health club venture would be such a success that he would never get caught.Unfortunately,he was wrong.The health club venture has significant problems,and investors are looking for some way to hold Isaiah responsible.Another problem Isaiah has is that he inflated information regarding the prospects of the health club in the prospectus.Rafal,a new lawyer,told Isaiah that as far as he knew,Isaiah could be fined for violations under the Securities Act of 1933,but he could not be sent to prison.Isaiah told Rafal that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture.Isaiah says that he plans to rely on the due diligence defense.Isaiah also asks Rafal if he is aware of any other defenses.Isaiah says that once before he was held liable for a violation of the Securities Act of 1933,and he does not want to be in trouble again.
-Is Rafal correct in that the SEC would have no authority to send Isaiah to prison?

Accepted Answer

A)If the SEC recommends criminal action,the Department of Justice may bring criminal charges against violators.
Criminal penalties include a fine up to $10,000,imprisonment for up to five years,or both.
B)If the SEC recommends criminal action,the Department of Justice may bring criminal charges against violators.
Criminal penalties include a fine up to $10,000,imprisonment for up to five years,or both.
C)If the SEC recommends criminal action,the Department of Justice may bring criminal charges against violators.
Criminal penalties include a fine up to $10,000,imprisonment for up to five years,or both.
D)If the SEC recommends criminal action,the Department of Justice may bring criminal charges against violators.
Criminal penalties include a fine up to $10,000,imprisonment for up to five years,or both.
E)If the SEC recommends criminal action,the Department of Justice may bring criminal charges against violators.
Criminal penalties include a fine up to $10,000,imprisonment for up to five years,or both.

Question 14

Which is the correct term for a person who controls,is controlled by,or is in common control with the issuer?

Accepted Answer

A)An affiliate is a person who controls,is controlled by,or is in common control
with the issuer.
B)An affiliate is a person who controls,is controlled by,or is in common control with the issuer.
C)An affiliate is a person who controls,is controlled by,or is in common control with the issuer.
D)An affiliate is a person who controls,is controlled by,or is in common control with the issuer.
E)An affiliate is a person who controls,is controlled by,or is in common control with the issuer.

Question 15

[Coffee Shops] Marley wants to open a chain of coffee shops but needs some investors.Her friend Marc tells her that she should be sure that she satisfies the requirements of the SEC.Marc tells her that she has to provide information to the SEC involving a description of the securities,an explanation of how proceeds will be used,information regarding the management of the company and other matters.He tells her that she also has to provide a document to the SEC that will be provided as an advertising tool to potential investors who can rely on it to decide whether they should buy the securities.Marley says that she does not want to do that.She explains to Marc that insofar as the coffee shop venture is concerned,she does not want to advertise,and she only wants to offer securities to a limited number of wealthy friends.Particularly,she has her friend Annaliese in mind,who has a net worth of at least $3 million.
-Which of the following is the term for the document referenced by Marc which contains information provided to the SEC including a description of the securities,an explanation of how proceeds will be used,information regarding the management of the company and other matters?

Accepted Answer

A)The registration statement generally contains 1)a description of the securities offered for sale,2)an explanation of how proceeds from the sale of the securities will be used,3)a description of the registrant's business and properties,4)information about the management of the company,5)a description of any pending lawsuits in which the registrant is involved,and 6)financial statements certified by an independent public accountant.
B)The registration statement generally contains 1)a description of the securities offered for sale,2)an explanation of how proceeds from the sale of the securities will be used,3)a description of the registrant's business and properties,4)information about the management of the company,5)a description of any pending lawsuits in which the registrant is involved,and 6)financial statements certified by an independent public accountant.
C)The registration statement generally contains 1)a description of the securities offered for sale,2)an explanation of how proceeds from the sale of the securities will be used,3)a description of the registrant's business and properties,4)information about the management of the company,5)a description of any pending lawsuits in which the registrant is involved,and 6)financial statements certified by an independent public accountant.
D)The registration statement generally contains 1)a description of the securities offered for sale,2)an explanation of how proceeds from the sale of the securities will be used,3)a description of the registrant's business and properties,4)information about the management of the company,5)a description of any pending lawsuits in which the registrant is involved,and 6)financial statements certified by an independent public accountant.
E)The registration statement generally contains 1)a description of the securities offered for sale,2)an explanation of how proceeds from the sale of the securities will be used,3)a description of the registrant's business and properties,4)information about the management of the company,5)a description of any pending lawsuits in which the registrant is involved,and 6)financial statements certified by an independent public accountant.

Question 16

Which of the following is not a requirement for the application of the exemption involving intrastate issues?

Accepted Answer

A)Issuers of intrastate securities must do at least 80 percent of their business within
the state,receive at least 80 percent of their profits within the state,have at least 80 percent of their assets within the state,plan to use at least 80 percent of the profits within the state,and have their main offices in the state.
B)Issuers of intrastate securities must do at least 80 percent of their business within the state,receive at least 80 percent of their profits within the state,have at least 80 percent of their assets within the state,plan to use at least 80 percent of the profits within the state,and have their main offices in the state.
C)Issuers of intrastate securities must do at least 80 percent of their business within the state,receive at least 80 percent of their profits within the state,have at least 80 percent of their assets within the state,plan to use at least 80 percent of the profits within the state,and have their main offices in the state.
D)Issuers of intrastate securities must do at least 80 percent of their business within the state,receive at least 80 percent of their profits within the state,have at least 80 percent of their assets within the state,plan to use at least 80 percent of the profits within the state,and have their main offices in the state.
E)Issuers of intrastate securities must do at least 80 percent of their business within the state,receive at least 80 percent of their profits within the state,have at least 80 percent of their assets within the state,plan to use at least 80 percent of the profits within the state,and have their main offices in the state.

Question 17

Which of the following is true regarding the case opener,the case in which Martha Stewart was charged with insider trading after selling stock in a company based on information that her stockbroker gave her that the CEO of the company and his daughter had just sold all of their company stock?

Accepted Answer

A)Although the SEC sought to charge Martha Stewart with insider trading,a grand jury did not indict Stewart on that charge.Later,a jury convicted her of counts against her relating to her statements to SEC investigators in their investigation of her sale of ImClone stock,and she went to prison.
B)Although the SEC sought to charge Martha Stewart with insider trading,a grand jury did not indict Stewart on that charge.Later,a jury convicted her of counts against her relating to her statements to SEC investigators in their investigation of her sale of ImClone stock,and she went to prison.
C)Although the SEC sought to charge Martha Stewart with insider trading,a grand jury did not indict Stewart on that charge.Later,a jury convicted her of counts against her relating to her statements to SEC investigators in their investigation of her sale of ImClone stock,and she went to prison.
D)Although the SEC sought to charge Martha Stewart with insider trading,a grand jury did not indict Stewart on that charge.Later,a jury convicted her of counts against her relating to her statements to SEC investigators in their investigation of her sale of ImClone stock,and she went to prison.
E)Although the SEC sought to charge Martha Stewart with insider trading,a grand jury did not indict Stewart on that charge.Later,a jury convicted her of counts against her relating to her statements to SEC investigators in their investigation of her sale of ImClone stock,and she went to prison.

Question 18

Which of the following references profit made by a statutory insider from the purchase and sale of their own company stock within a six-month period?

Accepted Answer

A)Short-swing profits are profits made from the sale of company stock within any
six-month period by a statutory insider,to the company.
B)Short-swing profits are profits made from the sale of company stock within any six-month period by a statutory insider,to the company.
C)Short-swing profits are profits made from the sale of company stock within any six-month period by a statutory insider,to the company.
D)Short-swing profits are profits made from the sale of company stock within any six-month period by a statutory insider,to the company.
E)Short-swing profits are profits made from the sale of company stock within any six-month period by a statutory insider,to the company.

Question 19

Assuming requirements are satisfied,which of the following,if any,may allow Marley to avoid registration with the SEC if she proceeds with her plan to offer securities only to friends without advertisement?

Accepted Answer

A)Under certain circumstances,issuers who make private offerings of securities are
exempt from the registration process.These issuers,however,cannot advertise their private offerings to the general public.
B)Under certain circumstances,issuers who make private offerings of securities are exempt from the registration process.These issuers,however,cannot advertise their private offerings to the general public.
C)Under certain circumstances,issuers who make private offerings of securities are exempt from the registration process.These issuers,however,cannot advertise their private offerings to the general public.
D)Under certain circumstances,issuers who make private offerings of securities are exempt from the registration process.These issuers,however,cannot advertise their private offerings to the general public.
E)Under certain circumstances,issuers who make private offerings of securities are exempt from the registration process.These issuers,however,cannot advertise their private offerings to the general public.

Question 20

Which of the following is true regarding Isaiah's sale of securities before the effective date of registration?

Accepted Answer

A)If a defendant sold securities before the effective date of registration,he will
almost certainly be liable because the 1933 act provides no defenses for this violation.
B)If a defendant sold securities before the effective date of registration,he will almost certainly be liable because the 1933 act provides no defenses for this violation.
C)If a defendant sold securities before the effective date of registration,he will almost certainly be liable because the 1933 act provides no defenses for this violation.
D)If a defendant sold securities before the effective date of registration,he will almost certainly be liable because the 1933 act provides no defenses for this violation.
E)If a defendant sold securities before the effective date of registration,he will almost certainly be liable because the 1933 act provides no defenses for this violation.

Quiz 41: Corporations: Securities and Investor Protection