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Exam 19: Investor Protection and Corporate Governance

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Question 1

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Dairy Stores Inc.owns and operates convenience stores.The firm wants to make an initial public offering of securities.If Dairy qualifies for an exemption from the federal registration requirement,the firm is

A) exempt from any state registration requirement.
B) not subject to any state securities laws.
C) not necessarily exempt from a state registration requirement.
D) subject to all state registration requirements.

E) C) and D)
F) None of the above

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Question 2

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Most securities cannot be resold without registration.

A) True
B) False

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Question 3

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Small-business issues can use a registration and reporting system that requires simpler forms than the full registration system.

Medico Corporation is a public company whose shares are traded in public securities markets.Medico's officers want to set up and maintain a system of "good corporate governance." What is "corporate governance"? What is its practical significance? What,at a minimum,should a "good" system of corporate governance include?

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

Misrepresenting facts in a registration statement or prospectus is known as puffery and does not violate the Securities Act of 1933.

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

Space Flight Inc.files a registration statement with the SEC before making an offering to the general public.The registration contains false,immaterial statements of which the investors are unaware.The firm is charged with violating the Securities Act of 1933.Its best defense is

Insider trading is prohibited because trading on the basis of inside information can give the trader an unfair advantage over the investing public.

Ridley is an officer of Sun Watts,Inc.Ridley knows that a Sun Watts engineer recently developed a new,inexpensive method for collecting,storing,and converting solar power into fuel.Ridley takes advantage of this information to buy Sun Watts stock from Taylor and,after the discovery is announced,to sell the stock to Ulrich at a profit.Taylor claims that this is a violation of federal law.Is Taylor correct? If so,what federal law has Ridley violated,and what are its possible penalties?

Household Products Corporation wants to make an offering of securities to the public.The offering is not exempt from registration under the Securities Act of 1933.Before the firm sells its securities,it must provide investors with

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

Chris,a coder for Drones Inc. ,learns of undisclosed company plans to market a new,smart drone.Chris buys 10,000 shares of the firm's stock.If Chris is liable under the Securities Exchange Act of 1934,it will be because the information on which he based his purchase of the stock was

Eli,an officer for Food Stores Inc. ,buys 10,000 shares of its stock.One week later,the company announces that it will merge with a competitor,Grocery Mart Corporation,and the price of Food Stores' stock increases.One month later,Eli sells his shares for a profit.Under Section 16(b) of the Securities Exchange Act of 1934,Eli would not be liable if,after buying the stock,he had waited

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.

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

A well-known seasoned investor has less flexibility in filing registration statements and using free-writing prospectuses than other issuers.

The Securities Exchange Act of 1934 provides for continuous periodic disclosures by certain publicly held companies.

To avoid sanctions under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5,scienter must exist.

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