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Exam 30: Investor Protection, Insider Trading, and Corporate Governance

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Question 41

Multiple Choice

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Shoes & Sox 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​

A) ​imposes increased responsibility on chief corporate executives.
B) ​prevents insiders from trading among themselves.
C) ​requires disclosure.
D) ​creates a "safe harbor" for companies to make forward-looking statements.

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

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Question 42

True/False

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For criminal sanctions to be imposed under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5scienter must exist.

A) True
B) False

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Question 43

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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?​

Anyone who wrongfully obtains inside information and trades on it for his or her personal gain can be liable under SEC Rule 10b-5.

The Sarbanes-Oxley Act of 2002 attempts to corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.

Guitar Factory Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by​

Under the Sarbanes-Oxley Act of 2002, chief executive officers no longer need to certify the accuracy of information in corporate financial statements.

Fact Pattern 30-3 Dhani, an accountant for Eureka! Inc. learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka! stock. He reveals the company plans to Fay, who tells Geoff. Both Fay and Geoff buy 100 shares. Geoff knows that Fay got her information from Dhani. When Eureka! publicly announces its new laptop, Dhani, Fay, and Geoff sell their stock for a profit. -Refer to Fact Pattern 30-3. Under the Securities Exchange Act of 1934, Fay is most likely

For a defendant to be convicted in a criminal prosecution under the securities laws, there can be no reasonable doubt that the defendant knew he or she was acting wrongfully.

Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to​

Karin, an officer for Liquified Natural Gas Corporation (LNG) , buys 10,000 shares of LNG stock. One week later, LNG announces that it will merge with a competitor, Mining & Piping Company, and the price of LNG stock increases. One month later, Karin sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Karin would not be liable if, after buying the stock, she had waited

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