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Exam 19: Investor Protection and Corporate Governance

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Question 21

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) A) and C)
F) None of the above

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Question 22

Multiple Choice

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Jazz Inc.makes and markets music.The company wants to make an initial public offering of securities via the Internet.Most likely,this offering

A) can avoid high costs and complicated procedures.
B) is an attempt to deceive and manipulate investors.
C) is a way for investors to fairly break the rules.
D) will result in higher expenses and extended oversight.

E) None of the above
F) All of the above

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Question 23

Multiple Choice

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

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

Reno,an engineer for Shale Corporation,learns that the firm will increase the dividend it pays to shareholders.Reno buys 10,000 shares of company stock.When the dividend is announced to the public and the price of the stock increases,he sells the shares for a profit.He would not be liable for insider trading if the information about the dividend was

Equity Corporation,and its officers,directors,employees,and shareholders,buy and sell securities.Section 10(b) of the Securities Exchange Act of 1934 applies to the trading of securities

The definition of security in the Securities Act of 1933 includes interests that involve the right to buy a security on a national security exchange.

Federal securities laws take priority over state securities laws.

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

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 Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment.

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

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.

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

Under the Sarbanes-Oxley Act of 2002,chief financial officers must certify the accuracy of information in corporate financial statements.

While the Securities and Exchange Commission reviews a registration statement for completeness,most issuers can distribute a free-writing prospectus.

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

Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply.

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.

State securities laws apply mainly to intrastate transactions.