Chapter 42

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

Gourmand Pastries only.

As part of a stock offering for Design Media Corporation, the firm's accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to

a fine, imprisonment, and damages.

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

a prospectus.

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

all of the choices.

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

any security.

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

certify that the reports are complete and accurate.

Dez is the chief financial officer of Elements Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Dez must personally

certify that the statements are accurate.

Mars Mission Inc. is a regulated publicly held corporation. Under the Securities Act of 1934, Mars is required to

disclose information about its organization and financial situation.

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

government prosecution and a private investor's suit.

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

internal "disclosure controls and procedures."

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

more than six months to sell it.

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

not yet public.

The goal of securities regulation is to

prohibit deceptive and manipulative practices in the securities markets.

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

register its securities transactions unless they qualify for an exemption.

Debt Equity Inc., and its officers, directors, and employees, buy and sell securities based on financial research and analysis. Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of securities involving

short-swing profits.

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

the federal government.

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

the short-swing activities of Orbital's insiders.

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

the solicitation of proxies from the firm's shareholders.

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

available to the public before he bought the stock.

Components Assembly Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that the company must

file a registration statement with the SEC.

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

liable for insider trading.

Luan, a programmer for Monetized Nation Inc., a business modeling service, learns of undisclosed company plans to distribute a new app. Luan reveals the company plans to a friend, Ono, who buys 5,000 shares of the firm's stock. Under the Securities Exchange Act of 1934, Ono is most likely

liable for insider trading.

Ross, a sales executive with Steel Mill Inc., learns of undisclosed company plans to produce a new type of steel. Ross tells Tim, who tells Uri, who buys 100 shares of Steel Mill stock. Uri knows that Tim got the information from Ross. When the firm publicly announces its new product, Uri sells the stock for a profit. Under the Securities Exchange Act of 1934, Uri is most likely

liable for insider trading.

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

the untrue statements were not material.

Home Stuff Corporation is poised to issue securities that, under the Securities Act of 1933, are exempt. This means that the securities can be sold

without being registered.