LENB 3135 Chapter 19 Study Questions

The Securities Exchange Act applies to companies that have assets in excess of and [$1 million, $5 million, $10 million, $20 million] five hundred or more shareholders.

$10 million

The Rule 504 exemption is used by most small businesses and provides that noninvestment offerings up to [$500,000, $750,000, $2,000,000, $5,000,000] in any twelve-month period are exempt.

$5,000,000

The [Flexibility, Compensation, Historical, Beneficial] Committee of the board of directors assesses performance and designs a system that better aligns the officers' interests with that of the shareholders.

Compensation

True/False: A security that qualifies for an exemption must be registered before it is offered to the public

False

True/False: Generally, stock offerings that are made in a limited manner during any twelve-month period are not exempt from the registration requirement

False

True/False: No securities are exempt from the registration requirements of the Securities Act of 1933

False

True/False: SEC Rule 10b-5 applies only to cases that involve the trading of securities on organized exchanges, such as the New York Stock Exchange

False

True/False: State securities laws apply only to interstate transactions

False

True/False: State securities laws generally do not provide for the registration of securities offered or issued because that is governed by federal law

False

True/False: The U.S. Internal Revenue Service prosecutes criminal violations of federal securities law

False

[State, federal, Administrative, Judicial] law corporation statutes set up the legal framework for corporate governance.

State

True/False: Most securities can be resold without registration

True

True/False: Public companies with a market capitalization of less than $75 million are exempt from some reporting requirements under the Sarbanes-Oxley Act

True

True/False: State and federal governments regulate securities concurrently and federal securities law does not take priority over state securities law

True

True/False: The 1934 Securities Exchange Act provides for the regulation and registration of securities exchanges, brokers, dealers, and national securities associations, such as the National Association of Securities Dealers (NASD)

True

True/False: Those who buy securities and suffer harm as a result of false statements may bring a suit in a federal court to recover their losses

True

True/False: When a violation of Section 16(b) occurs, a corporation can bring an action to recover the short-swing profits

True

Under which sections and rules can private parties sue violators? Choose two: a. Section 10(b) b. Rule 10b-5 c. Section 21(f) d. Section 16(b) e. Rule 10d-6

a. Section 10(b) b. Rule 10b-5

A typical registration statement filed with the SEC includes: (select all that apply) a. The corporation's properties and businesses b. How the corporation intends to use the proceeds of the sale c. Any pending lawsuits or special risk factors d. The securities offered for sale e. Any past settlement offers f. The management of the corporation, including managerial compensation and benefits g. The past financial records of the corporation

a. The corporation's properties and businesses b. How the corporation intends to use the proceeds of the sale c. Any pending lawsuits or special risk factors d. The securities offered for sale f. The management of the corporation,

Global Investment Corporation, and its officers, directors, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 covers: a. all purchases and sales of securities. b. only purchases and sales of securities by investment companies. c. only purchases and sales of securities involving short-swing profits. d. only purchases and sales of securities involving tippers and tippees.

a. all purchases and sales of securities.

Examples of exempt securities under the Securities Act of 1933 are a. bonds issued by the American Red Cross b. shares of Apple c. bonds issued by Google d. investment contracts in condominiums

a. bonds issued by the American Red Cross

Marianne makes a false statement about the future earnings potential of her company, DexaCom Co. Shareholders sue Marianne for securities fraud. These shareholders can file their lawsuit pursuant to: a. federal and state securities laws b. federal laws only, as states generally do not have securities antifraud provisions c. state laws only, as federal law generally does not have securities antifraud provisions d. neither federal nor state securities laws, but rather through administrative agency proceedings

a. federal and state securities laws

MegaGlobal is a company that wants to issue publicly traded securities. In the past three years, it has issued over $2 billion in securities, and $1 billion of those securities are in the hands of the public. This very large enterprise: a. is considered a "well-known seasoned issuer" and is subject to a less restrictive registration process than other firms b. must undergo more stringent registration requirements due to its large size c. is considered an "influential issuer of securities" and must register as such with the SEC d. cannot issue additional securities until those that are now publicly traded return to private ownership

a. is considered a "well-known seasoned issuer" and is subject to a less restrictive registration process than other firms

Irene is a representative of Baroque Minerals, Inc., a publicly traded mining company. Irene states publicly that Baroque has discovered a significant deposit of a rare mineral in China, which promises to substantially increase the long-term revenue of the company. Unbeknownst to Irene, an unexpected earthquake that same day destroys the mine in China and blocks access to the rare mineral for years to come. The company's stock drops as a result. Baroque Minerals will likely be: a. not liable under SEC Rule 10b-5, because Irene did not have a wrongful state of mind b. liable under SEC Rule 10b-5 c. not liable under SEC Rule 10b-5, because of the natural exigency defense to such claims d. not liable under SEC Rule 10b-5, because Irene did not make a material misrepresentation

a. not liable under SEC Rule 10b-5, because Irene did not have a wrongful state of mind

Section 16(b) of the Securities Exchange Act of 1934 provides for the: a. recapture by a corporation of short-swing profits resulting from insider trading b. exemption of certain small companies from registration requirements c. exemption of credited investors from registration requirements

a. recapture by a corporation of short-swing profits resulting from insider trading

The Securities Act of 1933 was designed to: a. require disclosure of all relevant information concerning the issuance of securities to the public b. regulate the operations of national stock exchanges c. oversee and regulate national security contracts d. promote the use of proxies by shareholders

a. require disclosure of all relevant information concerning the issuance of securities to the public

In the regulation of securities, it is true that: a. securities must be registered with the state as well as with federal authorities. b. exemptions from federal law are also exemptions from state law. c. federal laws take priority over state laws. d. all of these choices.

a. securities must be registered with the state as well as with federal authorities

Blue sky laws are state laws regulating: a. the offer and sale of securities within the state. b. the offer and sale of securities across state lines. c. disclosure statements from businesses incorporated outside the state but operating within it. d. disclosure statements from businesses incorporated in the state.

a. the offer and sale of securities within the state.

Under which theories may outsiders be held liable for insider trading? Choose two: a. Negligence theory b. Misappropriation theory c. Managerial theory d. Tipper/tippee theory e. Constant information theory

b. Misappropriation theory d. Tipper/tippee theory

The Howey test is a test: a. invented by Martha Howey b. involving the definitions of an investment contract c. outlining exemptions from securities laws d. that is no longer used today

b. involving the definitions of an investment contract

Liability under Section 16(b) is strict liability, which means that: a. scienter is not required b. neither scienter nor negligence is required c. negligence is not required

b. neither scienter nor negligence is required

Blue sky laws are: a. federal laws regulating mutual funds. b. state laws regulating intrastate sales of securities. c. interstate laws governing bond sales. d. federal laws regulating the sale of securities in companies that have a record of flaunting environmental regulations.

b. state laws regulating intrastate sales of securities.

The Howey test is used to determine: a. what constitutes fraud in securities exchange. b. what types of investment contracts can be considered securities. c. securities that qualify for exemption from registration requirements. d. compliance with securities regulations.

b. what types of investment contracts can be considered securities.

c. The 1933 act is a one-time disclosure law, whereas the 1934 act provides for continuous periodic disclosures by publicly held corporations

c. The 1933 act is a one-time disclosure law, whereas the 1934 act provides for continuous periodic disclosures by publicly held corporations

Insider trading involves individuals who are: a. inside prison at the time the allegedly illegal trade occurred b. inside the SEC and have employment in a position of trust and confidence c. insiders within publicly traded companies, including officers, directors, and majority shareholders

c. insiders within publicly traded companies, including officers, directors, and majority shareholders

Bonner Industries, Ltd., a private company, is considering an initial public offering. If the company goes public, it will be regulated by the: a. DOJ b. FCC c. FTC d. SEC

d. SEC

The Securities Exchange Act of 1934 requires: a. the Securities and Exchange Commission to monitor securities markets for undesirable practices. b. publicly held corporations to provide continuous periodic disclosures. c. securities dealers and exchanges to register. d. all of these choices.

d. all of these choices.

The term securities generally refers to: a. stocks. b. bonds. c. warrants. d. all of these choices.

d. all of these choices.

Section 16(b) of the 1934 Securities Exchange Act provides for the: a. exemption of accredited investors from registration requirements. b. exemption of certain small companies from registration requirements. c. solicitation of proxies from shareholders of Section 12 companies. d. recapture by a corporation of short-swing profits resulting from insider trading.

d. recapture by a corporation of short-swing profits resulting from insider trading.