LGS Chapter 17

State "________-________" laws are state laws that regulate the issuance and trading of securities.

"Blue Sky"

Under SCOR, a small, domestic company may sell up to $________ in securities to the public by using Form U-7.

1,000,000

Section ________ of the Securities Exchange Act of 1934 is a provision of the Securities Exchange Act of 1934 that prohibits the use of manipulative and deceptive devices in the purchase or sale of securities in contravention of the rules and regulations prescribed by the SEC

10(b)

The misappropriation theory is a rule that imposes liability under Section ________ and Rule ________ on an outsider who misappropriates information about a company, in violation of his or her fiduciary duty, and then trades in the securities of that company

10(b); 10b-5

Under section ________, the defendant made a misrepresentation or traded on inside (or perhaps misappropriated) information, while section ________ states that short-swing profits recoverable whether or not they are attributable to misappropriation or inside information.

10(b); 16(b)

Under Section ________ of the Securities Exchange Act of 1934, insiders are (1) officers, directors, and ________ at ________ ________ of a company, (2) lawyers, accountants, consultants, and agents and representatives who are ________ ________ the company on a temporary and nonemployee basis to provide services or work to the company, and (3) others who owe a ________ duty to the company

10(b); Employees; All levels; Hired by; Fiduciary

SEC Rule 10b-5 clarifies rule ________ against ________ and ________ activities in the purchase and sale of securities and it requires ________ for there to be a violation of these laws.

10(b); Fraud; Deception; Scienter

Whistleblowers are allowed to recover ________-________% of monetary sanctions over $________ ________ recovered by the SEC for providing information that leads to a successful SEC action to recover as a reward.

10-30%; 1 million

Under Regulation A of the 1933 act, issuers with offerings exceeding $________ must file an offering statement with the SEC.

100,000

SEC Rule ________ was adopted by the SEC to clarify the reach of Section 10(b) against deceptive and fraudulent activities in the purchase and sale of securities.

10b-5

Rule ________ is an SEC rule that prohibits the trading in the security of any issuer on the basis of material nonpublic information obtained in a breach of duty of trust or confidence owed to the person who is the source of the information.

10b-5-1

Section ________ is a provision of the Securities Act of 1933 that imposes civil liability on persons who either (1) intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement or (2) are negligent for not discovering the fraud.

11

Under Section ________ of the Securities Act of 1933, civil liability may be imposed on anyone who fails to register securities pursuant to Section 5 of the act, unless one of the exceptions applies.

12

Section ________ is a provision of the Securities Act of 1933 that imposes civil liability on any person who violates the provisions of Section ________ of the act.

12; 5

SEC Rule ________ states that securities issued pursuant to the private placement exemption or the small offering exemption cannot be resold for (1) ________ ________ if the issuer is an SEC reporting company or (2) ________ ________ if the issuer is not an SEC reporting company

144; Six months; One year

Section ________ of the Securities Exchange Act of 1934 requires that any profits made by a statutory insider on transactions involving short-swing profits belong to the corporation.

16(b)

With regards to covered securities, section ________ securities are required to be registered with the SEC under the 1934 act in order to be covered, while section ________ covers all securities.

16(b); 10(b)

According to Section ________, any person who is (1) an executive officer, (2) a director, or (3) 10% shareholder of an equity security of a reporting company is a ________.

16; Statutory insider

Proponents of the Dodd-Frank Act believe the act prevents the United States economy from experiencing a crisis like that of ________ and protects ________ from many of the abuses that contributed to that crisis.

2008; Consumers

Section ________ is a provision of the Securities Act of 1933 that imposes criminal liability on any person who wilfully violates the 1933 act or the rules or regulations adopted thereunder.

24

Section ________ is a provision of the Securities Exchange Act of 1934 that imposes criminal liability on any person who wilfully violates the 1934 act or the rules or regulations adopted thereunder.

32

Section ________ of the ________-________ Act of 2002 is a section of a federal statute that eliminates conflicts of interest by establishing rules for the separation of the investment banking and securities advice functions of securities firms.

501; Sarbanes-Oxley

The small offering exemption is also known as SEC Rule ________.

504

The private placement exemption is also known as SEC Rule ________.

506

Section ________ of the Securities Act of 1933 requires an issuer to ________ its securities with the SEC prior to selling them to the public.

5; Register

An________ ________ ________ is a person, a corporation, a company, an institution, or an organization that meets the net worth, income, asset, position, and other requirements established by the SEC to qualify as an accredited investor.

Accredited investor

________ and ________ are parties who knowingly assist principal actors in the commission of securities fraud.

Aiders; Abettors

Under the Securities Act of 1933, the SEC may request the court to grant ________ ________, such as disgorgement of profits by the defendant.

Ancillary relief

Aiders and abettors are persons who knowingly provide ________ to successfully complete ________ ________.

Assistance; Securities fraud

One of the main goals of the Dodd-Frank Act was to subject ________ to more stringent regulation. By keeping this system under a closer watch, the act seeks to eliminate the need for future ________-funded ________.

Banks; Taxpayer; Bailouts

Under the Securities Exchange Act of 1934, persons injured by fraud or deceptive activities may bring a ________ action to seek ________ of ________ and ________ ________.

Civil; Rescission; Contract; Recover Damages

The U.S. Supreme Court has held that aiders and abettors are not ________ liable under Section ________ and Rule ________, but they can be held ________ liable.

Civilly; 10(b); 10b-5; Criminally

________ ________ are interests or instruments that are commonly known as securities, such as common stock, preferred stock, debentures, and warrants.

Common securities

Detractors of the Dodd-Frank Act claim that ________ with the act burdens the financial markets and the legislation that the act creates makes it difficult for US companies to compete with ________ counterparts.

Compliance; Foreign

Under the Securities Act of 1933, the SEC may issue a ________ ________ whereby a defendant agrees not to ________ securities laws in the future but does not ________ to having violated securities laws in the past.

Consent decree; Violate; Admit

Under Section 24 of the Securities Act of 1933, ________ liability may be imposed on anyone who ________ ________ the act or any of its rules.

Criminal; Willfully violates

Under Section 32 of the Securities Exchange Act of 1934, ________ liability may be imposed on anyone who ________ ________ the act of its rules and regulations.

Criminal; Willfully violates

The registration statement contains information that the SEC requires, such as a ________ of the securities being offered for sale, the registrant's ________, the ________ of the registrant, including compensation, stock options and benefits, and material transactions with the registrant. Pending litigation, how the proceeds of the ________ will be used, and government regulation. The degree of ________ in the industry is important, and any other special ________ ________ that the SEC should know about.

Description; Business; Management; Offering; Competition; Risk factors

Under the Securities Act of 1933, the SEC may bring an action in U.S. ________ Court to obtain an injunction to stop ________ ________.

District; Challenged Conduct

The ________-________ Act is a United States federal law that places regulation of the financial industry in the hands of the government.

Dodd-Frank

The ________-________ ________ ________ ________ and ________ ________ ________ is a 2010 federal statute that regulates hedge funds and derivatives and provides protection to consumers regarding financial products and services. This statute created financial regulatory processes to limit risk by enforcing ________ and ________.

Dodd-Frank Wall Street Reform and Consumer Protection Act; Transparency; Accountability

EDGAR allows for ________ ________, or making electronic initial public offerings (e-IPOs) by selling stock to the public for the first time

E-Public offerings

________ is the name of the electronic data and record system of the Securities and Exchange Commission (SEC).

EDGAR

NASDAQ is an ________ stock market that has the ________ trading volume of any securities exchange in the world.

Electronic; Largest

Section 16 defines a statutory insider as any person who is (1) an ________ ________, (2) a ________, or (3) ________% ________ of an equity security of a reporting company.

Executive officer; director; 10% shareholder

________ ________ are securities that are exempt from registration with the SEC.

Exempt securities

________ ________ are transactions in which securities are sold that are exempt from registration with the SEC if certain requirements are met

Exempt transactions

Violations include of Section 12 of the Securities Act of 1933 include (1) selling securities pursuant to an unwarranted ________ and (2) making ________ concerning the offer or sale of securities

Exemption; Misrepresentations

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was congress's response to the ________ crisis in ________________.

Financial; 2008

Once a security is exempt, it is exempt ________.

Forever

SCOR is a method for small companies to sell up to $1 million of securities to the public (1) by using a question-and-answer disclosure form called ________ ________-________ and (2) the SCOR form is available only to ________ businesses.

Form U-7; Domestic

The primary purpose of securities law is (1) to promote ________ ________ to investors and (2) to prevent ________ in the issuance and trading of securities. This in turn instills ________ in investors.

Full disclosure; Fraud; Confidence

Courts apply the​ _____ test to determine whether an arrangement is an investment contract and therefore a security.

Howey

The ________ ________ is a test which states "an arrangement is an investment contract if there is an investment of money by an investor in a common enterprise and the investor expects to make profits based on the sole or substantial efforts of the promoter or others"

Howey Test

Under section 10(b), recovery belongs to the ________ ________ or ________. Under section 16 (b), recovery belongs to the ________.

Injured purchaser; Seller; Corporation

________ ________ is a situation in which an insider makes a profit: (1) by personally purchasing shares of the corporation prior to public release of favorable information or (2) by selling shares of the corporation prior to the public disclosure of unfavorable information

Insider Trading

The ________ ________ ________ ________ is a federal statute that permits the SEC to obtain a civil penalty of up to three times the illegal benefits received from insider trading.

Insider Trading Sanctions Act

Section 10(b) has to do with ________ trading, while section 16(b) has to do with ________ trading.

Insider; Short-swing

Under Section 11 of the Securities Act of 1933, civil liability may be imposed on any person (1) who engages in ________ by making misrepresentations of material fact or omissions of material fact in the registration statement or (2) who are negligent in ________ in the statement.

Intentional fraud; Discovering Fraud

The ________ ________ ________ permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC.

Intrastate offering exemption

Section 501 of the SOX Act of 2002 establishes a wall between ________ ________ and ________ ________ that eliminates any potential conflicts of interest.

Investment banks; Securities analysts

Under the Howey Test, the court has found that there is an ________ ________ if (1) there is an investment of ________, (2) in a common ________ with the expectation of a ________, and (3) based on the sole or substantial efforts of the ________ or others.

Investment contract; Money; Enterprise; Profit; Promotors

________ ________ are a flexible standard for defining a security. Under the Howey test, a security exists if an investor invests money in a common enterprise and expects to make a profit from the significant efforts of others.

Investment contracts

All defendants except the ________ may assert a due diligence defense against the imposition of Section 11 of the 1933 act liability.

Issuer

The SEC is a quasi-________ and quasi-________ body.

Judicial; Legislative

Scienter means that there was ________ of the ________ of the statement made.

Knowledge; Falsity

Securities laws are designed to create a ________ ________ ________, not give any investor an ________.

Level playing field; Advantage

Under the ________ ________, liability may be imposed on anyone, even an outsider, who misappropriates information about a company in violation of his or her fiduciary duty and then trades on those securities.

Misappropriation theory

The ________ lists the stocks and securities of approximately 3,000 of world's largest companies for trading.

NYSE

New York Stock Exchange (NYSE) is operated by ________ ________.

NYSE Euronext

The ________ ________ of ________ ________ ________ ________ ________ (________) is an electronic stock market that has the largest trading volume of any securities exchange in the world.

National Association of Securities Dealers Automated Quotation System (NASDAQ)

________ ________ is an exemption from registration which states that securities transactions not made by an issuer, an underwriter, or a dealer do not have to be registered with the SEC. An example of this is normal purchases of securities by investors.

Nonissuer Exemption

The ________ ________ ________ permits issuers to raise capital from an unlimited number of accredited investors and no more than thirty-five nonaccredited investors without having to register the offering with the SEC.

Private placement exemption

Insider trading is a situation in which an insider makes a profit: (1) by personally ________ shares of the corporation prior to public release of ________ information or (2) by ________ shares of the corporation prior to the public disclosure of ________ information

Purchasing; Favorable; Selling; Unfavorable

________ ________ is a regulation that permits an issuer to sell securities pursuant to a simplified registration process.

Regulation A

The financial crisis in 2008 was due in part to low ________ and high reliance on large ________.

Regulation; Banks

If unregistered securities are sold, (1) investors can ________ their purchase and recover damages, and (2) the U.S. government can impose ________ ________.

Rescind; Criminal penalties

Buying and selling securities is a competition in which there are winners and losers. When buying and selling securities, there is always a ________.

Risk

Major responsibilities of the SEC include (1) adopt ________, (2) ________ alleged securities ________ and bring ________ ________, (3) bring ________ action to recover ________ ________ from violators of securities laws, and (4) regulate activities of securities ________ and ________.

Rules; Investigate violations; Enforcement actions; Civil; Monetary damages; Brokers and advisors

________ is intentional conduct. It is required for there to be a violation of Section 10(b) and Rule 10b-5

Scienter

The two main laws that regulate securities are the ________ ________ of ________ and the ________ ________ ________ of ________.

Securities Act of 1933; Securities Exchange Act of 1934

The SEC was created by the ________ ________ ________ of ________.

Securities Exchange Act of 1934

________ ________ ________ of ________ is a federal statute that primarily regulates trading in securities.

Securities Exchange Act of 1934

The ________ and ________ ________ (________) is the federal administrative agency that is empowered to administer federal securities laws.

Securities and Exchange Commission (SEC)

________ ________ is the federal and state governments have enacted statutes that regulate the issuance and trading of securities.

Securities law

Which of the following is NOT true about the Securities Act of​ 1933? A. The Securities Act of 1933 is a federal statute that regulates primarily the issuance of securities by companies and other businesses. B. Securities that are issued online are not covered by the 1933 Act. C. The 1933 Act prohibits fraud during the sale of issued securities. D. The 1933 Act applies to the original issue of​ securities, including initial public offerings​ (IPOs) by new public companies and the sales of new securities by existing companies. E. The primary purpose of the 1933 Act is to require full and honest disclosure of information to investors at the time of the issuance of the securities.

Securities that are issued online are not covered by the 1933 Act.

________-________ ________ are trades involving equity securities occurring within six months of each other.

Short-swing profits

The ________ ________ ________ ________ (________) is a method for small companies to sell up to $1 million of securities to the public by using a question-and-answer disclosure form called Form U-7. This form is available only to domestic businesses.

Small Company Offering Registration (SCOR)

The ________ ________ ________ is an exemption from registration that permits the sale of securities not exceeding $1 million during a twelve-month period.

Small offering exemption

________ ________ ________ are interests and instruments that are expressly mentioned in securities acts as being securities, such as interests in oil, gas, and mineral rights.

Statutorily defined securities

Under Section 16(b) of the SEA of 1934, there is an automatic presumption that any profits made by a ________ ________r on transactions involving ________-________ profits belong to the ________.

Statutory insider; Short-swing; Company

Short-swing profits are profits that are made by ________ ________ on trades involving equity securities of their corporation that occur within ________ ________ of each other.

Statutory insiders; Six months

Which of the following is NOT true about the Securities Exchange Act of​ 1934? A. This act has been applied to prohibit insider trading and other frauds in the purchase and sale of securities in the​ aftermarkets, such as trading on securities exchanges and other purchases and sales of securities. B. The 1934 Act requires continuous reporting—annual ​reports, quarterly​ reports, and other reports—to investors and the Securities and Exchange Commission​ (SEC). C. The 1934 Act applies to the original issue of​ securities, including initial public offerings​ (IPOs) by new public companies and the sales of new securities by existing companies. D. The Securities Exchange Act of 1934 is a federal statute designed primarily to prevent fraud in the subsequent trading of securities. E. Securities that are sold online and on electronic stock exchanges are regulated by the 1934 Act.

The 1934 Act applies to the original issue of​ securities, including initial public offerings​ (IPOs) by new public companies and the sales of new securities by existing companies.

A ________ is a person who receives material nonpublic information from a tipper.

Tippee

The ________ is liable for acting on material information that he or she knew or should have known was not public

Tippee

A ________ becomes liable for the profits made by the tippee or any remote tippee.

Tipper

A ________ is a person who discloses material nonpublic information to another person.

Tipper

________-________ ________ occurs when a person, the tipper, discloses material nonpublic information to another person, the tippee.

Tipper-Tippee Liability

Sale of ________ securities violates the Securities Act of 1933.

Unregistered

To ensure financial cooperation by financial insiders and fight corruption in the financial industry, the Dodd-Frank Act contains a ________ provision to encourage those with original information about securities violations to report them to the government. They receive a ________ reward.

Whistleblower; Financial