Question 1

Heavy Hauling, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that Heavy Hauling's financial results are accurate and timely, the firm's senior officers must set up and maintain

Accepted Answer

Under the Sarbanes-Oxley Act of 2002, the firm's senior officers must set up and maintain internal "disclosure controls and procedures" to ensure that Heavy Hauling's financial results are accurate and timely. These controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the company in its reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to appropriate personnel, including the firm's principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

Question 2

Lara is the chief executive officer of Micro, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Lara must

Accepted Answer

Under the Sarbanes-Oxley Act of 2002, CEOs are required to certify that the financial reports filed with the SEC are complete and accurate. Therefore, Lara must choose option A to comply with the law.

Question 3

Dave, an accountant, does not work for Emergent Company, but wrong?fully obtains inside information concerning Emergent. Based on the in?forma?tion, Dave buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prose?cutes Dave, arguing that he is liable because he stole in?formation right?fully belonging to another. This argument is

Accepted Answer

The argument made by the SEC is based on the misappropriation theory, which holds that an individual who wrongfully obtains insider information and uses it for personal gain is in violation of securities laws. This theory is different from the traditional view that insider trading involves only those who owe a fiduciary duty to the company whose stock is traded.

Question 4

Fact Pattern 41-1A 
Dhani, an accountant for Eureka, Inc., learns of undisclosed com?pany plan?s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re?veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her informa?tion from Dhani. When Eureka publicly an?nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.
-Refer to Fact Pattern 41-1A. Under the Securities Ex?change Act of 1934, Geoff is most likely

Accepted Answer

Geoff is most likely liable for insider trading because he traded on material nonpublic information that he knew was obtained from an insider (Dhani). He does not need to have prevented others from profiting, solicited information from Dhani, or work for Eureka to be held liable for insider trading under the Securities Exchange Act of 1934.

Question 5

Flux Corporation is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, Flux is subject to the direct corporate governance requirements of

Accepted Answer

The Sarbanes-Oxley Act of 2002 is a federal law that sets specific requirements for public companies in the United States. As Flux is a public company, it is subject to the direct corporate governance requirements of the federal government under this law. The other choices are not applicable as they do not have regulatory authority over Flux's corporate governance.

Question 6

Riley, an engineer for Super Seed Corporation, learns that Super Seed has developed a corn hybrid to triple the output of any farm. Riley buys 10,000 shares of Super Seed stock. He tells Tess, who buys 5,000 shares. After the new hybrid is announced publicly, the price of Super Seed stock in?creases. Riley and Tess sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on

Accepted Answer

Both Riley and Tess may be liable under the Securities Exchange Act of 1934 for insider trading. They purchased shares based on non-public information about the new hybrid, and then sold for a profit after the information was made public. This is considered insider trading and is illegal.

Question 7

To raise capital to form Plasticity Corporation with Quinn, Rona sells bonds and stock in other companies, and plans to register an initial public of?fer?ing under the Securities Act of 1933. SEC Rule l0b-5 covers

Accepted Answer

SEC Rule 10b-5 covers most forms of securities and prohibits fraud, misrepresentation, and other deceptive practices in the purchase or sale of securities. It applies to both bonds and stock, as well as other types of securities such as options and investment contracts. It also covers both registered and unregistered securities, meaning it applies even if the securities were not sold through a formal offering under the Securities Act of 1933.

Question 8

Fact Pattern 41-1A 
Dhani, an accountant for Eureka, Inc., learns of undisclosed com?pany plan?s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re?veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her informa?tion from Dhani. When Eureka publicly an?nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.
-Refer to Fact Pattern 41-1A. Under the Securities Ex?change Act of 1934, Hu is most likely

Accepted Answer

Hu is most likely liable for insider trading because he received inside information from a tippee (Geoff) who received it from another tippee (Fay) who received it from a tipper (Dhani). The chain of disclosure does not matter under the Securities Exchange Act of 1934, and trading on the basis of inside information is illegal regardless of whether the information is true or false.

Question 9

Mo, an officer with NuProduct Company, receives a bounty payment, which is a payment from

Accepted Answer

The answer of Mo, an officer with NuProduct Company, receives...

Question 10

North American Properties, Inc., and its officers, directors, and share?holders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers

Accepted Answer

Section 16(b) of the Securities Exchange Act of 1934 covers only purchases and sales of securities involving short-swing profits, which are profits made in any security that is bought and sold or sold and bought within a six-month period by officers, directors, and significant shareholders of a company. It does not cover all purchases and sales of securities or purchases and sales by investment companies, tippers, and tippees.

Question 11

Excel Aviation Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates

Accepted Answer

Section 14(a) of the Securities Exchange Act of 1934 regulates the solicitation of proxies from a company's shareholders, including the information that must be provided to shareholders and the filing requirements for proxy materials with the Securities and Exchange Commission (SEC). As Excel Aviation Corporation is required to register its securities, it is likely that it has publicly traded shares and therefore would be subject to these regulations.

Question 12

Kirk is the chief financial officer of Lemon Corporation, which is re?quired to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Kirk must personally

Accepted Answer

Under the Sarbanes-Oxley Act of 2002, CFOs are required to personally certify the accuracy of the financial statements filed with the SEC.

Question 13

Fact Pattern 41-1B 
Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 41-1B. Regarding Sid's profits on the purchase and sale of Tech stock, under Section 16(b) of the Securities Exchange Act of 1934 Tech may recapture

Accepted Answer

Under Section 16(b) of the Securities Exchange Act of 1934, any profit made by an insider (such as a director) on the purchase and sale of company stock within a six-month period is considered "short-swing profit" and can be recaptured by the company. In this case, Sid purchased and sold Tech stock within a three-week period, making a profit on insider knowledge of the new video game. Therefore, Tech may recapture all of Sid's profits.

Question 14

Fact Pattern 41-1B 
Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 41-1B. Under SEC Rule l0b-5, Sid would not be li?able if he had waited to buy Tech stock until

Accepted Answer

SEC Rule 10b-5 prohibits insider trading, which occurs when someone trades on material nonpublic information. In this case, Sid learned of the new video game before it was released, which qualifies as material nonpublic information. However, if Sid had waited to buy Tech stock until after the public release of the game, he would not have been trading on material nonpublic information and would not have violated SEC Rule 10b-5. Choices A, B, and D do not address the timing of the public release of the game and are therefore incorrect.

Question 15

Thom, an accountant for Uno Company, learns that Viral, a Uno director, has violated insider-trading laws. Thom does not suffer a loss in trading with Viral, but reports her to the Securities and Exchange Commission. Thom may be entitled to

Accepted Answer

Thom may be entitled to a bounty payment as a whistleblower for reporting Viral's violation of insider-trading laws. This payment is meant to incentivize individuals to report wrongdoing and protect the integrity of financial markets. Damages equal to the amount of Viral's profits or Uno's losses would not apply in this situation as Thom did not suffer any losses. Triple Viral's profits is not a valid option under insider trading laws.

Question 16

Fine Café Company offers its stock for sale only in a single state. The law in Fine's state is like the law in most states. Fine's offer is sub?ject to state securities statutes that include

Accepted Answer

Most state securities statutes include both antifraud and disclosure provisions to protect investors from fraudulent securities sales and ensure that they have access to all material information about the investment. Therefore, it is likely that Fine Café Company's offer is subject to both types of provisions.

Question 17

Fact Pattern 41-1A 
Dhani, an accountant for Eureka, Inc., learns of undisclosed com?pany plan?s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re?veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her informa?tion from Dhani. When Eureka publicly an?nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.
-Refer to Fact Pattern 41-1A. If Dhani is liable under the Securities Ex?change Act of 1934, it will be because the infor?mation on which he based his purchase of Eureka stock was

Accepted Answer

Dhani is liable under the Securities Exchange Act of 1934 because he made his purchase based on non-public, material information about Eureka's plans for a new laptop. The fact that the information was not yet public makes it insider information and purchasing stock based on insider information is illegal. Therefore, option C is correct.

Question 18

Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares of EPC stock. One week later, EPC announces that it will merge with a competitor, Fuel Oil Company, and the price of EPC stock increases. One month later, Della sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Della would not be liable if, after buying the stock, she had waited

Accepted Answer

Section 16(b) of the Securities Exchange Act of 1934 requires that any profit made by an insider, including officers like Della, on a purchase and sale of company stock within a period of less than six months must be disgorged (returned to the company). Therefore, Della would not be liable if she waited more than six months to sell her shares.

Question 19

Fact Pattern 41-1A 
Dhani, an accountant for Eureka, Inc., learns of undisclosed com?pany plan?s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re?veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her informa?tion from Dhani. When Eureka publicly an?nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.
-Refer to Fact Pattern 41-1A. Under the Securities Ex?change Act of 1934, Fay is most likely

Accepted Answer

Fay is most likely liable for insider trading because she bought Eureka stock based on non-public information obtained from Dhani, who was an insider at the company. The fact that she shared the information with others does not excuse her from liability. Also, solicitation is not relevant in determining liability for insider trading under the Securities Exchange Act of 1934, and Fay's employment status is also not relevant.

Question 20

Ernie contracts to buy securities from Freda. Later, believing that Freda committed fraud in the deal, Ernie files a suit against her. If Freda is found liable, Ernie may obtain

Accepted Answer

If Freda is found liable for fraud, Ernie can choose to either rescind or keep the contract and sue for damages to the extent of Freda's illegal profits. Rescission would involve returning the securities in exchange for a refund of the purchase price, while damages would compensate Ernie for any losses suffered as a result of the fraud. So, option C is the best choice.

Quiz 41: Corporationssecurities Law Corporate Governance