Business Law Exam 3 Study Guide

What is the best defense when a company is accused of violating the SEC?

- The statement or omission is not material - The plaintiff knew about the misrepresentation at the time the stock was purchased

How many days does a credit card company have to give it's customer before changing its terms?

45

In its ads, Crunchy Inc. makes various claims about its snack products. Crunchy's advertising claims would most likely be deemed deceptive if the claims a. mislead a reasonable consumer. b. contain vague generalities. c. consist of what is known as puffery. d. include obvious exaggerations.

A

Pro Motor Company makes cars. Federal law requires Pro to attach a label that includes the Environmental Protection Agency's fuel economy estimate for a vehicle to a. every new car. b. no car—compliance with the law is voluntary. c. select old and new cars. d. whichever vehicles the car maker chooses

A

What is an Estray Statute?

A Statute defining finders rights in property when the true owners are unknown

College Bound, Inc., markets test and study prep materials and courses. College Bound wants to make an initial public offering of securities. The firm believes that it qualifies for an exemption under Regulation A from the full registration requirement of the Securities Act of 1933. Refer to Fact Pattern 42-1. College Bound decides to sell its new securities via the Internet. Assuming College Bound did qualify under Regulation A, its offering via the internet a. will avoid the payment of commissions to brokers or underwriters. b. is an investment scam. c. is a Ponzi scheme. d. constitutes insider trading.

A.) will avoid the payment of commissions to brokers or underwriters

The Ultramares Rule

Accountants should be liable only to those with whom they are in privity or "near privity" of contract.

Hearth & Home Furniture store advertises bedroom suites at a "Special Low Price of $599." When Ilene tries to buy one of the suites, Jill, the salesperson, tells her that they are all sold and no more are obtainable. Jill adds that Hearth & Home has other bedroom suites available for as low as $2,599. If done systematically, this is a. a cease-and-desist order. b. bait-and-switch advertising. c. counteradvertising. d. puffery.

B

Orbital Flights, Inc., is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 16(b) of the act covers a. the declaration of dividends by Orbital's board of directors. b. the later re-registration of Orbital's securities. c. the short-swing activities of Orbital's insiders. d. the solicitation of proxies from Orbital's shareholders.

C

Refer to Fact Pattern 42-1. If College Bound is exempt from the federal registration requirement, the firm is a. automatically exempt from any state registration requirement. b.not subject to any state securities laws. c.not necessarily exempt under a state registration requirement. d.automatically subject to all state registration requirements.

C

Shoes & Sox Corporation is a public company whose shares are traded in the public securities markets and does not qualify for an exemption from registration requirements. 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

C

What is required under Sarbanes-Oxley to ensure that financial results are accurate and timely?

Certification and Monitoring Requirements as well as Internal Controls

Bea borrows funds from Credit Union to repair her home and to buy a car. She buys a laptop from Discount Store in a transaction financed by the seller. If these parties are subject to the Truth-in-Lending Act, Regulation Z applies to a. the car loan only. b. the home repair loan only. c. the retail installment sale only. d. the car loan, the home repair loan, and the retail installment sale.

D

Urban Loan Company extends credit to consumers. Urban is subject to the Equal Credit Opportunity Act, which prohibits credit discrimination based on a. credibility. b. financial awareness. c. occupation. d. gender

D

When is an environmental impact statement required?

Every major federal actions that affects the quality of the environment

What constitutes violation of the Fair Debt Collection Practices Act?

Harassing Debtor, Contacting a third party not related to debtor, Contacting debtor at Place of Employment, Contacting Debtor after they refuse to pay

What is the FTC's first step when they receive a complaint?

Investigate

What is required for an accountant to be liable for fraud?

Misstatement of Fact and somebody relied on that misstatement of fact to their detriment

Does a lease agreement create a partnership in a business?

No

In a limited liability partnership, is a partner liable for the other partners negligence?

No

What is an example of a violation under the Clean Water Act?

Oil and Pollution Dumping, Dredging wetlands with no permit

What is the goal of 10(b) and 10(b-5) in insider trading?

Prevent the purchase or sale of securities on information not available to the public.

What does section 10(b) of the SEC apply to in relation to the purchase or sale of a security?

Prohibits fraud in connection with any security

A cruise ship owned by Bayshore Cruises Inc. discharges some of the oil contained in its hold into Chesapeake Bay and onto the shore. Under the Oil Pollution Act, this is most likely a. a violation. b. not a violation because this type of discharge is not pollution. c. not a violation because a cruise ship is not a stationary source. d. not a violation because a ship's hold is not a point source.

a

Harry makes a living by commercial fishing in a river allegedly polluted by Industrial Paint Company. To bring a suit against Industrial Paint on the ground of private nuisance, Harry must allege that he suffers from a. a distinct harm separate from that affecting the general public. b. a lesser harm than an injunction would impose on the company. c. the company's failure to use reasonable care to avert herm to Harry. d. the same harm as that affecting the general public.

a

Regulations governing air pollution cover mobile and stationary sources. Those who may be subject to penalties for violations of the Clean Air Act include a. corporate officers who knowingly violate the act. b. persons who provide information about violators but otherwise fail to act. c. private citizens who fail to sue violators. d. none of the choices.

a

Smelting, Inc., operates a plant—a "major source"—that emits hazardous air pollutants for which the Environmental Protection Agency has set maximum levels of emission. The plant does not use equipment to reduce its emissions. Under the Clean Air Act, this is most likely a. a violation. b. not a violation because a "major source" is exempt. c. not a violation because the plant does not use any equipment. d. not a violation because the plant is not a mobile source.

a

Constructive Fraud

accountant acts with "reckless disregard" for consequence of his actions

Restatement Rule

an accountant is liable to those in contract as well as foreseeale users (those guided by the information)

Ski Resorts, Inc., wants to add a new run to its facility in a national park on federal land. For this action, an environmental impact statement is a. prohibited. b. required. c. unnecessary. d. voluntary

b

When is an employee liable for insider trading?

when there is a breach of duty not to disclose the information