BLW 411 Ch 16 Final Exam

12.) Gerald was the national sales manager of the Intergalactic Space Corporation (ISC), a publicly traded company. ISC was involved in financial report fraud, but Gerald was not involved in it and had no knowledge of it. Under Sarbanes Oxley (SOX), Gerald was forced to forfeit several years of executive bonuses that were tied to the financial reports that he had received from ISC. Under SOX, this is known as a/an A.) clawback provision B.) fraud penalty clause C.) executive forfeiture D.) troubled assets relief provision

A.) clawback provision

17.) Adrienne, Rocky, Paulie and several other investors have a common expectation of profit in Mickey, Incorporated. Assuming all other requirements to classify this as a security are in evidence, the commonality of this transaction would be described as a A.) horizontal commonality. B.) parallel commonality. C.) vertical commonality. D.) common commonality.

A.) horizontal commonality.

15.) The bespeaks caution doctrine focuses on the duty that a/an A.) issuer of stock has to include disclosures in the stock prospectus about cautions that an investor should take; it provides a defense to the issuer if the disclosures are specific and narrowly tailored. B.) issuer of stock has to include disclosures in the stock prospectus about cautions that an investor should take; it provides a defense to the issuer if the disclosures are broad and general. C.) broker of stock has to inform clients about all possible dangers with investing in the markets and to provide limited assurance that the investment will be profitable. D.) broker of stock has to inform clients about all possible dangers with investing in the markets and to provide absolute assurance that the investment will be profitable.

A.) issuer of stock has to include disclosures in the stock prospectus about cautions that an investor should take; it provides a defense to the issuer if the disclosures are specific and narrowly tailored.

2.) Renate purchased common stock in XYZ Corporation, this gives her the right to A.) payments in dividends based on the current profitability of the company. B.) payments in dividends regardless of the current profitability of the company. C.) a position on XYZ's board of directors. D.) a position in XYZ's management.

A.) payments in dividends based on the current profitability of the company.

14.) With regard to the sale of securities, the Securities Litigation Uniform Standards Act of 1998 is intended to A.) prevent private parties from instituting lawsuits against corporations in federal or state court based on state laws that punish misrepresentations or omissions of material facts. B.) compel the SEC to assume an oversight position over institutions that pose a global risk to financial markets. C.) approve or disapprove executive compensation packages, including bonuses, regarding companies deemed too big to fail. D.) criminally prosecute officers and board members of companies that are found to have committed fraud and that have harmed the public or the national economy.

A.) prevent private parties from instituting lawsuits against corporations in federal or state court based on state laws that punish misrepresentations or omissions of material facts.

7.) The management of Secure Securities, Incorporated decided to go public and issued stock on the New York Stock Exchange. This is known as the A.) primary market. B.) secondary market. C.) preferred market. D.) common market.

A.) primary market.

22.) LaTavian was a midlevel manager for Superco. He saw financial irregularities within Superco and reported them to the federal authorities. The SEC followed up on LaTavian's tip and discovered fraud at Superco which led to an SEC enforcement action and recovery from Superco. Under the Dodd-Frank law, what percentage of the recovery is LaTavian entitled to as a reward for being a whistle-blower? A.) 5 to 10 percent B.) 10 to 30 percent C.) 50 percent D.) LaTavian is entitled to no reward, as Dodd-Frank makes no provision for whistle-blowers.

B.) 10 to 30 percent

5.) Failsafe Securities Incorporated has filed bankruptcy. Among the investors in Failsafe, who will be paid first? A.) All investors, regardless of the type of securities they hold, are equal in priority and will be paid their fair share simultaneously. B.) Bondholders C.) Common stockholders D.) Preferred stockholders

B.) Bondholders

4.) The Securities Act of 1934 would focus on A.) John, a purchaser of common stock from DEF Corporation, the issuer, in an initial public offering. B.) Luke, a purchaser of common stock on a public exchange from another investor. C.) Mark, a purchaser of preferred stock from GHI Corporation, the issuer, in an initial public offering. D.) Matthew, a purchaser of bonds on a public exchange from Laura, another investor.

B.) Luke, a purchaser of common stock on a public exchange from another investor.

13.) Ignatio ordered his stockbroker to purchase 1,000 shares of National Motors stock on the New York Stock Exchange. The broker purchased the shares from a large institutional investor. This is a purchase on the __________ market. A.) primary B.) secondary C.) tertiary D.) common

B.) secondary

10.) Isadora was the chief financial officer of Big Band Incorporated (BBI), a publicly traded corporation. She knew that BBI was about to announce record earnings for the year, a fact not yet made public, so she purchased 1,000 shares of BBI stock before the earnings were made public. One week later when the earnings were made public, BBI stock increased in value $10 per share and Isadora immediately sold her newly purchased shares and made $10,000. Isadora has committed A.) misappropriation. B.) traditional insider trading. C.) wrongful disclosure. D.) no crime, as corporate insiders are encouraged to buy and sell their own stock for profit.

B.) traditional insider trading.

9.) Teddy holds a bond issued by XYZ Corporation that has matured. What has happened to his bond? A.) It has expired and he may no longer collect interest payments on it. B.) It has reached a face value that is equivalent to the price of the company's stock. C.) The face value of the bond is due to be paid to him. D.) The face value of the bond no longer is owing to him, he may only collect interest on it.

C.) The face value of the bond is due to be paid to him.

23.) Secure Financial Advisors (SFA) was a firm that bought and sold securities on behalf of their clients. SFA is known as a/an A.) issuer. B.) adviser. C.) intermediary. D.) investor.

C.) intermediary.

19.) Philene was an investor in Safe Harbor Corporation (SHC) through an initial public offering. She believed she has been defrauded by false statements made by SHC's executives about the company's financial health and wants to file a lawsuit against SHC because she lost money by investing in them based on their alleged misrepresentations. Her attorney told her that to win her case, she needed to prove that the executives knew they were lying. This element is known as A.) negligence. B.) a personal guarantee. C.) scienter. D.) due diligence.

C.) scienter.

11.) Each of the following is a part of the Howey test for determining whether something is defined as a security except A.) the investment must be a cash or noncash instrument for which the investing party receives only speculative promises of a return. B.) there must be either horizontal or vertical commonality in the expectation of profit in the investment. C.) the expectation of a return must not be the primary reason for the investment. D.) the efforts of the promoters or their agents must be the primary sources of profits.

C.) the expectation of a return must not be the primary reason for the investment.

20.) Kamalla is the CFO of Fraudco. Her boss, Driscoll, recently told her to shred all evidence of the financial statement fraud that Fraudco has been engaged in to hide the evidence from the SEC. The SEC had been conducting an investigation of Fraudco but had released no findings yet. A.) Since Sarbanes-Oxley does not have a whistle-blower provision, Kamalla has no recourse if she wants to keep her job. B.) Since Kamalla didn't actually participate in the fraud and since she is only following orders, she will have no liability. C.) Since the investigation is ongoing and no charges have been brought, shredding the documents is not a punishable offense yet. D.) Kamalla could be imprisoned for up to 20 years if she shreds the documents.

D.) Kamalla could be imprisoned for up to 20 years if she shreds the documents.

16.) Which of the following is an application of the emergency escrow provisions created by the Sarbanes-Oxley Act? A.) The SEC required that the $100,000 paid by an investor to a broker to purchase stock in a corporation be held in escrow pending an investigation into the corporation. B.) The State Department required that all assets held by a major corporation be held in escrow until investigators could determine if they were illegal bribes. C.) The PCAOB required that corporate payouts be placed into a government-controlled emergency escrow fund after the PCAOB investigation has uncovered wrongdoing by the corporation. D.) The SEC required that a multi-million dollar payout to a fired corporate executive be held in escrow prior to formal allegations of wrongdoing.

D.) The SEC required that a multi-million dollar payout to a fired corporate executive be held in escrow prior to formal allegations of wrongdoing.

3.) The SEC's powers include all of the following except the power to A.) investigate potential violations of securities laws. B.) issue a cease and desist order. C.) initiate criminal charges against a company that has violated securities laws. D.) establish new federal agencies for the prosecution of securities law violations.

D.) establish new federal agencies for the prosecution of securities law violations.

6.) Juan is a corporate director for Thorough Manufacturing, Incorporated (TMI) and owns 12 percent of the stock of TMI. Juan is classified by federal law as a/an A.) influencer. B.) enhancer. C.) majority owner. D.) insider.

D.) insider.

21.) Securities that are exempt from full registration requirements include all of the following except A.) securities of charitable organizations. B.) government-issued securities like municipal bonds. C.) annuities of insurance companies. D.) large public offerings to unsophisticated investors.

D.) large public offerings to unsophisticated investors.

1.) Landers purchased stock in Monster Truck Corporation. His stock had quasi-debt features and gave him preference rights for receiving dividends from Monster. Landers likely has __________ stock. A.) common B.) undiluted C.) debenture D.) preferred

D.) preferred

18.) Brittney is the CFO of Wealthy Manufacturing, Incorporated (WMI). She made $100,000 by buying 20,000 shares of WMI's stock at $30 a share in November of 2020 and selling them for $35 a share in February of 2021. These profits would be called A.) short-term profits. B.) short-range profits. C.) short-spell profits. D.) short-swing profits.

D.) short-swing profits.

8.) Garth is best friends with Wayne, the CEO of Great Pharma, Incorporated (GPI), a publicly traded corporation. GPI had just made an important discovery: the cure for cancer. The information has been kept secret by GPI. Before the news was made public in a press conference, Wayne told Garth about it on May 1 and that day Garth bought 10,000 shares of GPI stock. The press conference was on May 2 and after the announcement, GPI stock went up $50 a share. Garth immediately sold his stock and made $500,000. Garth is known in the law of insider trading as a/an A.) secondary insider. B.) outside trader. C.) instigator. D.) tippee.

D.) tippee.