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Exam 36: Investor Protection, Insider Trading, and Corporate Governance

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Question 31

Multiple Choice

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Cam, an accountant for Discount Inc., learns that the company's soon-to-be-announced quarterly sales figures exceed analysts' expectations. Cam tells Ed, who tells Frye, who buys 100 shares of the company's stock. Frye knows that Ed got the information from Cam. When Discount publicly announces the figures, Frye sells the stock for a profit. Under the Securities Exchange Act of 1934, Ed is most likely

A) liable for insider trading.
B) not liable because Ed did not prevent others from profiting.
C) not liable because Ed did not misappropriate any information.
D) not liable because Ed does not work for Discount.

E) B) and C)
F) A) and B)

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Question 32

Multiple Choice

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Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm's debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to

A) government prosecution and a private investor's suit.
B) negative publicity but no criminal prosecution or civil suit.
C) only government prosecution.
D) only a private investor's suit.

E) A) and B)
F) C) and D)

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Question 33

Multiple Choice

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Pharma Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933

Securities can be sold before the effective date of the registration statement without restrictions.

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

Meat Packers Inc. offers its securities for sale only in a single state. The law in this state is like the law in most states. Thus, the company's offer is subject to the state's securities statutes, which are likely to include

Market Data Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain

To raise $120 million to expand operations, Primo Inc. makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. The firm plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an exempt transaction

Corporate Financial Inc., and its officers, directors, employees, and shareholders, buy and sell securities on behalf of themselves and their clients. SEC Rule 10b-5 applies to the purchase or sale of

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

Orbital Flights Inc. is required to register its securities under Section 12 of the Securities Exchange Act of 1934. This means that, with respect to Orbital, Section 16(b) of the act covers

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

To avoid sanctions under the Securities Exchange Act of 1934, whoever solicits a proxy must accurately disclose all facts pertinent to the matter on which shareholders are to vote.

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.

Anyone who has access to or receives inside information of a nonpublic nature and trades on it for personal gain can be liable under SEC Rule 10b-5.

Under the Securities Act of 1933, securities include

Fleet Trucking Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is exempt. This enables Fleet to

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.

Most private, midsize-business, noninvestment company offers of securities are exempt from the registration requirements.

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