BUSA311 - Exam 3 Study Guide

Are horizontal price-fixing and vertical price-fixing per se violations of the Sherman Act? a. Yes; Yes b. Yes; No c. No; Yes d. No; No

b

CPA Question: Hamilton Corp. makes a $4.5 million securities offering under Rule 506 of Regulation D of the Securities Act of 1933. Under this regulation, Hamilton is: a. required to provide full financial information to accredited investors only. b. allowed to make the offering through a general solicitation to both accredited and unaccredited investors. c. limited to selling to no more than 35 accredited investors. d. allowed to sell an unlimited amount of stock.

d

Question: Suppose that the legislature of the state of Kentucky was unhappy with the national automobile emissions standards set by the EPA. Under the Clean Air Act, could it pass a statute setting a different standard? What if it wanted its standards for air toxics to be different from those set by the EPA? Strategy: There are different rules for automobile emissions and other air pollutants. Why is that?

Kentucky does not have the right to create its own standards for auto pollution, but it does have the right to adopt California's rules. States can set tighter, but not looser, standards for other air pollutants. It is important to have national standards for auto emissions because car manufacturers cannot produce different vehicles for each state. For the other pollutants, uniformity does not matter.

CPA QUESTION When a common stock offering requires registration under the Securities Act of 1933, _________. a. the registration statement is automatically effective when filed with the SEC b. the issuer would act unlawfully if it were to sell the common stock without providing the investor with a prospectus c. the SEC will determine the investment value of the common stock before approving the offering d. the issuer may make sales ten days after filing the registration statement

b

Dell sold computers online that were supposed to be loaded with a particular software. But, because the software was not yet available, Dell sent customers a coupon for the software "when available." What did Dell do wrong? I. Failed to offer buyers the opportunity to cancel their orders II. Did not automatically cancel the orders III. Did not ship the software within 30 days a. I and II b. I, II, and III c . I and III d. II and III

b

Francisco owns a business that sells doughnuts to grocery stores. He has worked hard to develop his business in the best possible way. Francisco only uses the best ingredients, he has created a cost-effective marketing strategy, and he sells his product at a reasonable price. As a result, Francisco's business has eighty percent of the market share. Is Francisco's maintenance of eighty percent of the market a violation of the Sherman Act? a. Yes, it is because Francisco has a monopoly. b. Yes, it is because Francisco's monopoly harms other businesses in the product market. c. No, it is not because Francisco used legal means to obtain a monopoly. d. Yes, it is because Francisco's monopoly harms other businesses in the geographic market.

c

Milo is going over the procedures that her manufacturing plant has for disposing of its wastewater. The plant has two point sources: one discharges into a self-contained large lake and the other is piped into a river near the state border at a point just before the river flows into a neighboring state. Under the Clean Water Act (CWA), Milo must obtain a permit for: a. neither point source. b. only the point source that discharges into the lake. c. only the point source that discharges into the river. d. both point sources.

c

Abram purchased a four-wheeler from Outback Camping Supply Company. The four-wheeler came with a one-page statement about the four-wheeler that said: "Warranty. This four-wheeler is fully warranted for twelve months." That was the only information Abram received about any warranty. Does this warranty violate the Magnuson-Moss Warranty Act? a. It does not violate the Magnuson-Moss Warranty Act because the Act applies to sales of services, not sales of consumer goods. b. It does not violate the Magnuson-Moss Warranty Act because written warranties are not required under the Act. c. It does not violate the Magnuson-Moss Warranty Act because it provides a full warranty. d. It violates the Magnuson-Moss Warranty Act by not providing important presale disclosures.

d

If Sterling Steel (SS) refused to buy concrete from Carat Concrete (CC) unless CC bought steel from SS, would that arrangement be a violation of antitrust laws? a. Yes, a per se violation. b. It used to be a violation but is no longer. c. Yes, if it has an anticompetitive impact. d. Yes, if SS has a monopoly.

d

If you receive a product in the mail that you did not order, ______. a. you must pay for it or return it b. you must pay for it only if you use it c. you must throw it away d. it is a gift to you e. you must return it, but the company must reimburse you for postage

d

Lily would like to raise money for her video game start-up by selling shares. If she decides to raise money through crowdfunding, she _____. a. can only sell to accredited investors b. can sell up to $5 million in stock during each 12-month period c. can sell through any website d. must file a report with the SEC

d

Which of the following are a point source requiring a permit under the CWA? I. Farm fields II. A waste treatment plant that dumps water into wells that then travel a brief distance through groundwater to the ocean III. A canal that collects water and discharges it into an intermittent stream that sometimes flows into a navigable water a. I, II, and III b. I and II c. II and III d. II

d

Question: The U.S. Forest Service planned to build a road in the Nez Perce National Forest in Idaho to provide access to loggers. Is the Forest Service governed by any environmental statutes? Must it seek permission before building the road? Strategy: Does a road significantly affect the quality of the environment? Is an EIS required?

As an agency of the federal government, the Forest Service must prepare an EIS (under the National Environmental Policy Act) for every action that significantly affects the quality of the environment. Although the road itself may not have been significant enough to require an impact statement, its purpose was to provide access for logging, which did require an EIS.

Suppose that, when you apply for a job at Workleigh Inc., the interviewer asks you to sign a document releasing Workleigh from any claims for any information the company may seek about you when arriving at an employment decision. The employer is seeking protection from liability under a statute discussed in this chapter. Which one?

The employer may have been trying to avoid liability under the Fair Credit Reporting Act, which prohibits a potential employer from requesting a consumer report on a job applicant without the applicant's permission.

Question: Jonah bought 12 paintings from Theo's Art Gallery at a total cost of $1 million. Theo told Jonah that the paintings were a safe investment that could only go up in value. (If anyone ever tells you that, run!) The gallery permitted purchasers to trade in a painting in return for any other artwork the gallery owned. In the trade-in, the purchaser would get credit for the amount of the original painting and then pay the difference if the new painting was worth more. When Jonah's paintings did not increase in value, he sued Theo for a violation of the securities laws. Were these paintings securities? Strategy: Are all the elements of a security present here?

The paintings were not securities because there was no "common enterprise." The investors did not pool funds or share profits with other investors.

Question: You are the president of Turbocharge, Inc., a publicly traded company. You have been buying stock recently because you think the company's product—a more efficient hybrid engine—is very promising. One day, you show up at work and find your desk in the hallway. The CEO has fired you. In a huff, you sell all your company stock. The only silver lining to your cloud is that you make a large profit. Or is this a silver lining? Strategy: You can be in violation of §16 even if you did not have any inside information when you traded.

You are in violation of §16. Even though you acted without any bad intent, you must turn over all your profits to the company.

Rosalyn sees an ad in the paper for a washing machine that says it is on sale for half price. Rosalyn goes to the store on the very first morning of the sale to buy the washing machine. The salesperson tells Rosalyn that he thinks they have plenty of washing machines, but says he wants to show her a better washing machine first. The salesperson shows Rosalyn a washing machine that costs twice the price of the washing machine in the ad. The salesperson tells Rosalyn that this is a much better quality washing machine, and she would be wise to buy this one instead. Rosalyn insists that she wants to buy the washing machine that is on sale. The salesperson goes to the back of the store to check the supply, and comes back and tells Rosalyn that they are sold out of the washing machine that is on sale. This salesperson has practiced bait-and-switch, and: a. bait-and-switch is illegal under the TCPA. b. bait-and-switch is an illegal deceptive trade practice. c. bait-and-switch is a legal trade practice. d. bait-and-switch is allowed as long as the salesman does not present false information about the quality of the two washing machines.

b

The Toxic Substances Control Act . a. requires manufacturers to test new chemicals, or old chemicals being used in a new way, for safety before they can be used in products b. requires the EPA to test new chemicals, or old chemicals being used in a new way, before they can be used in products c. does not allow any chemicals to be used in products before the EPA certifies that they are safe d. requires the EPA, within seven years, to test all chemicals that are currently being used in products e. permits the EPA to require testing of a chemical only if there is evidence that it is dangerous

b

Three months ago, Noah bought stock under Rule 506 in TreesNFlowers, Inc. He has lost interest in the company and would like to sell the stock. Which of the following statements is true? a. He can sell the stock now, so long as he sells it to an accredited investor. b. He can sell the stock now, so long as the company grants permission. c. He must hold on to the stock for at least nine more months. d. He could sell the stock now, but only if the company has gone public in the meantime.

d

Question: Astro Circuit Corp. in Lowell, Massachusetts, produced twice as much wastewater as its treatment facility could handle. Astro's production supervisor, David Boldt, directed that the surplus be dumped into the city sewer. Has he violated the law? If so, what penalties might he face? Strategy: Whenever water is involved, look at the provisions of the CWA.

Although Boldt was in an unfortunate situation—he could have lost his job if he had not been willing to dump the industrial waste—he was found guilty of a criminal violation of the CWA. There are worse things than being fired—such as being fired and sent to prison.

A company offered credit cards to consumers with low credit scores. These cards had a $300 limit, a $75 sign-up fee, a $6 per month participation fee, and a $5 monthly fee for paper billing. Despite the fees, 98,000 people signed up. Is there anything wrong with that?

During the first year, credit card fees must be less than 25 percent of a card's credit limit.

Question: When Edo applied for insurance with Geico, the company reviewed his credit history and financial circumstances. It did not offer him the best possible premium, but this decision was based on his current finances, not his credit history. Was this an "adverse decision" under the FCRA, and was Geico required to notify him? Strategy: Review the requirements of the FCRA. An adverse decision means that Edo was worse off because of a bad credit report.

Edo's premium was based on his current situation, not his credit history. Geico did not have to notify Edo of an adverse decision because his premium would have been the same even if his credit report had been neutral.

At an Alcoholics Anonymous meeting, a man told his mentor, Timothy McGee, that he had started drinking again because he was so stressed out about his company being acquired. McGee bought stock in that company. Has McGee done anything wrong legally? Ethically?

He was guilty of misappropriation under §10(b). United States v. McGee, 763 F.3d 304 (3d Cir. 2014).

Question: Ticketmaster sells tickets online to sports and entertainment events. RMG sued Ticketmaster, alleging that it was engaged in an illegal effort to monopolize national ticket sales. What was the relevant market? Strategy: RMG had to define both a product market and a geographic market.

If Ticketmaster raises the prices for NFL tickets in Miami, customers will probably not choose instead to buy seats to a Taylor Swift concert in Oakland, California. Therefore, national ticket sales are not the relevant market. Rather, the markets are small and focused. The court dismissed RMG's monopolization claim because the company had defined the wrong market.

Businesses in Silicon Valley often struggle to recruit enough engineers and, as a result, salaries are highly competitive. Adobe, Apple, Google, Intel, Intuit, Pixar, Lucasfilm, and eBay entered into various agreements with each other not to recruit the other's employees. Is this legal?

The Justice Department charged them with violating Section 1 of the Sherman Act—for entering into agreements that unreasonably restrained trade.

After acquiring the Schick brand name and electric shaver assets, North American Phillips controlled 55 percent of the electric shaver industry in the United States. Remington, a competitor, claimed that the acquisition of such a large market share was a violation of the law because the increased competition from Phillips would decrease Remington's profits. Does Remington have a valid claim?

The court held that a 55 percent market share creates a presumption of antitrust illegality. It reasoned, however, that a decrease in Remington's profits did not constitute an antitrust injury. The law seeks to prevent injury from reduced competition, not from increased competition. As long as the market is highly competitive, the court was unwilling to intervene. It dismissed Remington's claim. This decision uses classic Chicago School analysis. Note the emphasis on protecting competition not competitors. Remington Products, Inc. v. North American Phillips Corp., 755 F. Supp. 52, 1991 U.S. Dist. LEXIS 494 (D. Conn. 1991).

Question: A group of cemeteries required everyone who purchased a burial plot to also buy the gravestone from the cemetery. Is this an illegal tying arrangement? Strategy: To answer this question, you need to determine if the seller has significant power in the market for the tying product. To do that, you must first know what the relevant market is.

The plaintiffs in this case argued that each cemetery was its own market and, therefore, controlled the market. But if you look at the preceding section called "What Is the Market?" you will see that the relevant question is: If a cemetery raises its prices, what will consumers do? The answer is that they will choose another cemetery nearby, of which there were plenty. Thus, the market was all the cemeteries within reasonable driving distance. Therefore, the tying arrangement was not illegal because no one cemetery had significant market power.

Do you love ice cream? Here is an opportunity for you! For only $800, you can buy a cow from Berkshire Ice Cream. The company gets milk from the cow, and you get to share in the profits from the sale of the ice cream. Just last month, Berkshire mailed $32,000 worth of checks to investors, who are expecting a 20 percent annual rate of return. Are there any problems with this plan?

This ice cream company is selling a security and must comply with both state and federal securities laws.

Ariana owns fifty shares of stock in Ban Ray Enterprises. Ariana bought the stock when it was first issued, and the offering was required to be registered with the Securities and Exchange Commission (SEC) because the securities were traded on the New York Stock Exchange. Ariana offers to sell her fifty shares to Edwardo. Does the sale between Ariana and Edwardo have to be registered with the SEC? a. No, the average investor who resells shares of stock does not have to file a registration statement with the SEC. b. Yes, it must be registered because the original offering was required to be registered with the SEC. c. Yes, it must be registered because the securities are traded on the New York Stock Exchange. d. No, it is not required because the securities are traded on the New York Stock Exchange.

a

Makenna and Hudson each own major grocery store chains that operate throughout the United States. Makenna and Hudson meet to discuss best practices in their grocery stores. Together, they decide to set minimum prices on certain products to prevent a bidding war between them. Have Makenna and Hudson violated any laws? a. Yes, Makenna and Hudson have violated Section 1 of the Sherman Act. b. No, they have not because cooperation within the marketplace is encouraged by the government. c. No, they have not because in a free economy, merchants are free to set their own prices. d. Yes, they have because Makenna and Hudson set a minimum price but not a maximum price.

a

Ernie is a supervisor in the maintenance department of Big Chem Company. Ernie is responsible for properly disposing of any hazardous waste that Big Chem produces. Ernie wants to save the company money and save himself what he considers to be unnecessary work, so Ernie decides to dump the hazardous waste in a local stream instead of properly disposing of the waste. Under the Resource Conservation and Recovery Act (RCRA), Ernie's action can result in some pretty severe penalties, including: a. civil or criminal fines, but not imprisonment. b. civil fines, criminal fines, and/or imprisonment. c. criminal penalties only, but not civil penalties. d. civil penalties only, but not criminal penalties.

b

Penguin Airlines coordinates with other airlines to set standard prices for air travel and to coordinate their markets. Has Penguin Airlines and the other airlines violated the Sherman Act? a. Yes, they have because price fixing is a violation of § 1 of the Sherman Act. b. No, they have not because the Federal Aviation Administration (FAA) has primary regulatory authority over airlines. c. No, they have not because air travel is not a commercial activity and, therefore, does not fall under the Sherman Act. d. Yes, they have because price fixing is a violation of § 2 of the Sherman Act.

b

Anytown Sailing sells life jackets to retail stores. Anytown buys eight other life jacket manufacturing companies and now has ninety percent of the market. Small Pop Sails, a much smaller distributor, is now at a definite disadvantage in competing against Anytown. Anytown controls the market! Small Pop Sails complains to the government that Anytown has created an illegal monopoly. Who can sue Anytown Sailing for a violation of antitrust laws? a. The Federal Trade Commission (FTC) can bring civil proceedings, or the Department of Justice (DOJ) can bring criminal proceedings. b. The Federal Trade Commission (FTC) can bring civil proceedings only. c. The Department of Justice (DOJ) can bring criminal proceedings, the Federal Trade Commission (FTC) can bring civil proceedings, and Small Pop Sails can bring a civil action and possibly receive treble damages. d. The Department of Justice (DOJ) can bring criminal proceedings only.

c

Bernard owns a warehouse near the river. Bernard receives a notice from the Environmental Protection Agency that the property on which the warehouse sits contains toxic chemicals left there by a previous owner. The previous owner is Surefine Oil Company. During the time that Surefine Oil Company owned the property, Surefine allowed Fleming Electric to dispose of polychlorinated biphenyls (PCBs) on the property. The estimated cost to clean up the property is $100,000. The parties who will be held responsible for cleaning up the PCBs from the property are: a. Bernard only, because he is the current owner. b. Surefine Oil Company, because it owned the property at the time of disposal. c. Bernard, Surefine Oil Company, and Fleming Electric. d. Fleming Electric only, because Fleming is the party that generated the PCBs.

c

Question: Clyde goes into a Tesla dealership to investigate buying a car. He does not look as if he can afford a Tesla, so the sales staff orders a credit report on him before assisting him. After all, no point in wasting their time. Do they have the right to order a report on Clyde? Which consumer statute applies? Strategy: The FCRA regulates the issuan

A car dealership cannot obtain a consumer report on someone who simply wants to test-drive a car or who asks general questions about prices and financing; nor can the dealer order a report to use in negotiations. However, a dealer has the right to a report to arrange financing requested by the consumer or to verify a buyer's creditworthiness when he pays for a vehicle with a personal check.

Question: Paul was an investment banker who sometimes bragged about deals he was working on. One night he told a bartender, Ryanne, about an upcoming deal, without revealing his connection to it. Ryanne bought stock in the company Paul had mentioned. Both were prosecuted for insider trading. Ryanne was acquitted but Paul was convicted, even though Ryanne was the one who made money. How is that possible? Strategy: Note that there are different standards for tippers and tippees.

Paul is liable if he knew the information was confidential and he benefited directly or indirectly. A gift counts as personal gain. Ryanne was not liable because she did not know the information was confidential and that it came from an insider who was violating his fiduciary duty.

Question: Sandy is about to graduate from Excellent University with an MBA . . . and piles of debt. But he has a brilliant idea: He will sell shares in his career. For only $1,000, an investor can obtain a small percentage of his future earnings. Is Sandy's plan legal? Strategy: Sandy is selling a security. Buyers would be investing in him, hoping that they can earn a profit from his efforts. So he must comply with securities laws.

Sandy can do an offering himself. He might consider Rule 147A, if he is only selling to friends and family who all live in his state, or Regulation D if he wants to sell stock in more than one state. Crowdfunding is also a possibility.

Question: Two medical supply companies in San Francisco provided oxygen to patients at home. The companies were owned by the doctors who prescribed the oxygen. These doctors made up 60 percent of the lung specialists in the area. Did this arrangement create an antitrust problem? Strategy: Did the seller have significant power in the market for the tying product (lung patients)? Was it shutting out a significant part of the market for the tied product (oxygen)?

The FTC accused the doctors of an illegal tying arrangement. Because the doctors effectively controlled such a high percentage of the patients needing the service, other oxygen companies could not enter the market. The doctors settled the case.

Question: Edward lives on a ranch near Wind River. He uses water from the river for irrigation. To divert more water to his ranch, he builds a dam in the river using scrap metal, cottonwood trees, car bodies, and a washing machine. This material does not harm downstream water. Has Edward violated the CWA? Strategy: The CWA prohibits the discharge of pollution without a permit. Was this pollution?

Yes, the court ruled that the material Edward placed in the water was pollution. It was irrelevant that the material did not flow downstream.

Companies must obtain permission from a consumer before charging for overdrafts on . a. debit cards b. credit cards c. neither d. both

b

A horizontal merger is automatically illegal if . a. the resulting company controls at least 90 percent of the market b. the resulting company controls at least 50 percent of the market c. the resulting company has the ability to exclude competitors d. All of these

c

Isadora is the chairman of the board of directors of New Hampshire Sales Cooperative (NHS), a corporation with its principal place of business in Concord, New Hampshire. All NHS shareholders are residents of New Hampshire. NHS needs to raise funds to expand its warehouses, so it offers a new stock offering. The offering is only available to New Hampshire residents. Is NHS required to register its new stock offering with the Securities and Exchange Commission (SEC)? a. Yes, registration is required because it is an intrastate offering. b. Yes, registration is required because it is an interstate offering. c. No, registration is not required because it is an intrastate offering. d. No, registration is not required because it is an interstate offering.

c

Suppose that you are the manager of a General Motors plant that is about to start producing Hummers. The Hummer requires special protective paint that, as it turns out, reacts with other chemicals during the application process to create a pollutant. What does the CAA require of you? a. Reduce other emissions from the plant so that the total quantity of pollutants is the same b. Provide an analysis showing that the benefits outweigh the costs c. Provide the EPA with evidence that your plant meets the national ambient air quality standards d. Obtain a PSD certificate from the EPA

c

Pace Corp. previously issued 300,000 shares of its common stock. The shares are now actively traded on a national securities exchange. The original offering was exempt from registration under the Securities Act of 1933. Pace has $2.5 million in assets and 425 unaccredited shareholders. With regard to the Securities Exchange Act of 1934, Pace is _________. a. required to file a registration statement because its assets exceed $2 million in value b. required to file a registration statement even though it has fewer than 500 unaccredited shareholders c. not required to file a registration statement because the original offering of its stock was exempt from registration d. not required to file a registration statement unless insiders own at least 5 percent of its outstanding shares of stock

b

You own property on which hazardous wastes are found. You know the identity of three former owners. You are ______. a. liable for all the costs of the cleanup because you are the current owner b. liable for one-quarter of the costs of the cleanup c. liable for the percentage of the harm that you are able to show that you actually caused d. not liable for any of the costs of the cleanup because the damage occurred before you bought the land

c

Paul owns his own home, which is financed with Green Forest Home Loans. Paul has been paying his mortgage for four years and is concerned that his remaining balance is not being reduced appropriately. When Paul investigates, he discovers his payments are not being credited on the day they are received, which means that more interest is accruing on the loan than there should be. Paul files a complaint with the Consumer Financial Protection Bureau (CFPB), which sends the complaint to Green Forest. Once Green Forest receives the complaint: a. Green Forest must respond to the complaint within 30 days. b. Green Forest must respond to the complaint within 120 days. c. Green Forest must respond to the complaint within 90 days. d. Green Forest will have 15 days to respond to the complaint and 60 days to resolve the issue.

d

Saundra is the CEO of Boat Kingdom, a jet ski manufacturing plant. She is very proud of the quality jet skis her company produces. She wants to include a written warranty that promises to repair any jet ski that incurs damage within the first year after it is purchased, as long as the jet ski is returned to the manufacturer by the consumer. Terryl, the CFO of the company, discourages Saundra from providing any written warranty at all. To comply with the Magnuson-Moss Warranty Act, Saundra: a. must provide a written warranty, and it must be written in simple, understandable language. b. must provide a written warranty that explains the parts that are covered in the warranty. c. must provide a written warranty, but it only needs to give the consumer the name and address of the person to contact to obtain warranty service. d. need not provide a written warranty.

d

Zach sells Cutco Knives door to door. Which of the following statements is false? a. The buyer has three business days to cancel the order. b. Zach must tell the buyer of her rights. c. Zach must give the buyer a written notice of her rights. d. The seller can cancel orally or in writing. e. If the seller cancels, Zach must return her money within ten days.

d

Question: BAR/BRI was the largest bar review company in the country, with branches in 45 states. Barpassers was a much smaller company located only in Arizona and California. BAR/BRI distributed pamphlets on campuses falsely suggesting that Barpassers was near bankruptcy. Enrollments in Barpassers' courses dropped, and the company was forced to postpone plans for expansion. Did Barpassers have an antitrust claim against BAR/BRI? Strategy: It is illegal to use improper conduct to acquire or maintain a monopoly. Was this conduct improper?

A jury found that BAR/BRI had violated §2 of the Sherman Act by attempting to create an illegal monopoly. The jury ordered BAR/BRI to pay Barpassers more than $3 million.

This post appeared on Instagram: khloekardashian Ever since I started taking two @sugarbearhair a day, my hair has been fuller and stronger than ever!! Even with all the heat and bleaching I do to it! #sugarbearhair Is there anything wrong with that?

Ads on Instagram must clearly indicate that they are ads. Two weeks later, "#ad" was added at the beginning of this post.

Question: This is another example of a bar review company behaving badly. The industry is highly competitive because the product—test preparation materials—is relatively indistinguishable. Harcourt Brace Jovanovich (HBJ) agreed not to sell its bar review materials in Georgia, and BRG agreed not to compete with HBJ outside the state. Did this agreement violate the antitrust laws? Strategy: These two competitors have agreed to allocate territory.

Agreements among competitors to allocate territory are illegal under §1 of the Sherman Act.

David Sokol worked at Berkshire Hathaway for legendary investor Warren Buffett, who is renowned not only for his investment skills but also for his ethics. Bankers suggested to both Sokol and the CEO of Lubrizol that the company might be a good buy for Berkshire. Sokol then found out that the CEO of Lubrizol planned to approach Berkshire about a possible acquisition. Sokol purchased $10 million worth of Lubrizol stock before recommending Lubrizol to Buffett. Sokol mentioned to Buffett "in passing" that he owned shares of Lubrizol. Buffett did not ask any questions about the timing or amount of Sokol's purchases. Sokol made a $3 million profit when Berkshire acquired Lubrizol. Did Sokol violate insider trading laws? Did he behave ethically? What are Buffett's ethical obligations?

An insider trading is a process which is very attractive and alluring method of making profits quickly. This profit is not legitimate and thus it ispunishable under the law by fine and imprisonment. This is detrimental and risky for the interests of investors and it also leads to loss of confidence of investors in the market This is like having marked cards in a poker game and losing the game In the given case David Sokol did not violate the laws of insider trading. The suggestion came from the bankers and thus at the first instance, the laws of insider trading are not being violated. The behavior was ethical and thus the profit was earned ethically. Warren Buffet has behaved ethically in acquiring Lubrizol

The Lordship Point Gun Club operated a trap and skeet shooting club in Stratford, Connecticut, for 70 years. During this time, customers deposited millions of pounds of lead shot on land around the club and in the Long Island Sound. Was the Gun Club in violation of the RCRA?

Argument for the Gun Club: The Gun Club does not dispose of hazardous wastes, within the meaning of the RCRA. Congress meant the statute to apply only to companies in the business of manufacturing articles that produce hazardous waste. If the Gun Club happens to produce wastes, that is only incidental to the normal use of a product. Argument for the Plaintiff: Under the RCRA, lead shot is hazardous waste. The law applies to anyone who produces hazardous waste, no matter how.

Question: In 1963, FMC Corp. purchased a manufacturing plant in Virginia from American Viscose Corp., the owner of the plant since 1937. During World War II, the government's War Production Board had commissioned American Viscose to make rayon for airplanes and truck tires. In 1982, inspections revealed a chemical used to manufacture this rayon in groundwater near the plant. American Viscose was out of business. Who is responsible for cleaning up the chemical? Under what statute? Strategy: Look at the statutes that govern waste disposal.

Both FMC and the U.S. government were liable for cleanup under CERCLA.

Question: In August, Ethel went to First American Mortgage and Loan Association of Virginia (the Bank) to sign a second mortgage on her home. The Bank never made the required TILA disclosures. Her first mortgage was with a different bank. Ethel defaulted on her loan payments and, the following May, the Bank began foreclosure proceedings on her house. In June, she notified the Bank that she wished to rescind the loan. Does Ethel have a right to rescind the loan ten months after it was made? Strategy: In questions about mortgages, it is important to notice if the question involves a first or subsequent mortgage because the rules are different. Also, it matters whether the bank is the same for both mortgages.

Ethel obtained a second mortgage that was not from the same bank as her first mortgage. Because the lender violated the disclosure provisions of TILA, Ethel could rescind for up to three years.

Question: Lawyers who were paid by the government to represent poor clients in Washington, D.C., agreed among themselves not to accept any new cases until their fees were raised to the level they had agreed upon. Have the lawyers violated the Sherman Act? If so, what kind of violation is it? Strategy: This is a trick question because the lawyers committed not one but two violations of the Sherman Act. Remember, too, that there are two types of Sherman Act violations—rule of reason and per se.

First, the attorneys were fixing prices—they agreed together on their fees. Price-fixing is a per se violation and therefore automatically illegal. In addition, they engaged in a refusal to deal. This is a rule of reason violation, which is illegal only if it harms competition.

Fluor, an engineering and construction company, was awarded a $1 billion project to build a coal gasification plant in South Africa. Fluor signed an agreement with a South African client that prohibited them both from announcing the agreement until March 10. Accordingly, Fluor denied all rumors that a major transaction was pending. Between March 3 and March 6, the State Teachers Retirement Board pension fund sold 288,257 shares of Fluor stock. After the contract was announced, the stock price went up. Did Fluor violate Rule 10b-5?

Fluor was not in violation because the company lacked scienter. Fluor had no intent to defraud investors; it was simply making a good faith effort to comply with the terms of its contract. State Teachers Retirement Board v. Fluor Corp., 654 F.2d 843 (2d Cir. 1981).

Question: Events occurred in the following order: Halliburton made a series of statements about its potential liabilities and expected revenue. Erica purchased Halliburton stock on the open market. The company corrected its prior disclosures. Its stock price fell, causing Erica to lose money. Erica filed suit against Halliburton, alleging that the company's initial statements had violated Rule 10b-5. Will Erica win? Strategy: Under Rule 10b-5, Erica must show reliance. Can she do so with these facts? Who carries the burden of proof?

In cases involving open-market trades, the court assumes that the plaintiff did rely on the false statements, unless the defendant proves otherwise. Here, the court ruled that Erica had relied.

Tariq disposed of some of his laboratory's hazardous chemicals by shipping them via DHL to his home overseas. What law has Tariq violated?

Tariq was convicted of transporting hazardous waste in violation of the Resource Conservation and Recovery Act.

Question: Kathleen, a single woman, applied for an ExxonMobil credit card. ExxonMobil rejected her application without giving any specific reason and without providing the name of the credit bureau it had used. When Kathleen asked for a reason for the rejection, she was told that the credit bureau did not have enough information about her to establish creditworthiness. In fact, ExxonMobil had denied her credit application because she did not have a major credit card or a savings account, she had been employed for only one year, and she had no dependents. Did ExxonMobil violate the law? Strategy: ExxonMobil violated two laws. Review the statutes in the "Consumer Credit" section of the chapter.

The court held that ExxonMobil violated: the Fair Credit Reporting Act, which required ExxonMobil to tell Kathleen the name of the credit bureau that it used, and the Equal Credit Opportunity Act, which required ExxonMobil to tell Kathleen the real reasons for the credit denial.

Question: Leo was an auto mechanic who owned his own business. One morning, after a heavy rainstorm, he noticed the edge of what turned out to be an underground storage tank sticking out of the ground. He dug it up and, without looking to see what was inside it, sent the tank to an auto salvage site. Has Leo violated the law? Strategy: Review the requirements on waste disposal. Leo has violated the law three times.

To start, he should have notified the EPA of the underground tank. Second, he needed to determine if the tank contained any hazardous wastes. If it did, then he had to obtain an EPA permit to dispose of the waste. Third, he should have sent the tank to a certified facility, not to an auto salvage site.

Cecil was showing Carlotta around his used car lot. He stopped at a 1972 Mustang convertible and popped the hood. "This is the best little car ever made. She'll out-run a Cadillac any day." Carlotta was impressed. She believed that statement meant the Mustang would go at least eighty miles an hour, because that's what her old Cadillac would do, so she bought the Mustang. When she later found out the top speed the Mustang could reach was seventy miles an hour, she tried to return the Mustang, claiming Cecil had been deceptive with his statements comparing the speed of a Mustang to the speed of a Cadillac. In this case, Cecil's statements: a. are not deceptive but do create a warranty. b. are mere puffery and would not be considered deceptive. c. are deceptive, but Carlotta will not be able to return the Mustang. d. are deceptive, and Carlotta will be able to return the Mustang for a full refund.

b

Halona works for Mercy Hospital in its groundskeeping department. One of Halona's duties is to gather the hazardous waste from across the hospital and properly dispose of it. Halona is very careful to wear proper equipment and make sure that no human contact occurs with the hazardous waste. Halona transports the waste to the local landfill, along with the ordinary garbage from the hospital, and dumps it there twice a week. Halona does not know what percentage of the garbage she takes to the landfill is hazardous, because she does not keep any records. Halona's procedures in handling the hazardous waste generated by Mercy Hospital: a. violates EPA standards because the hazardous waste is not disposed of at a certified facility. b. violates EPA standards because the hazardous waste is not tracked from creation to final disposal and is not disposed of at a certified facility. c. violates EPA standards because the hazardous waste is not tracked from creation to final disposal. d. does not violate EPA standards because there is no human contact with the hazardous waste.

b

First Federal Savings and Loan sells short-term notes to its customers, the federal government issues a new series of savings bonds, Fennington Corp. issues new stock in its company, and Liberty Insurance Company sells annuity contracts. Which of these offerings must be registered with the Securities and Exchange Commission (SEC)? a. The short-term notes sold by First Federal Savings and Loan and the stock issued by Fennington Corp. must be registered with the SEC. b. All of these offerings must be registered with the SEC. c. Only the stock offered by Fennington Corp must be registered with the SEC. d. The short-term notes sold by First Federal Savings and Loan, the savings bonds issued by the federal government, and the annuity contracts sold by Liberty Insurance Company must be registered with the SEC.

c

Fred is the chief financial officer for Tellcom Industries. Tellcom is preparing a registration statement to be used in conjunction with a new stock offering. To make the offering attractive to investors, Fred provides inflated financial information about the company in the registration statement. Samantha purchases the stock, and, when she finds out about the fraudulent information, she sues. To successfully sue Tellcom and Fred, Samantha must prove: a. that she relied on the registration statement, that there was a material misstatement or omission, and that she lost money. b. that she read the registration statement, that there was a material misstatement or omission, and that she lost money. c. only that there was a material misstatement or omission and that she lost money. d. that she relied on the registration statement, and that there was a material misstatement or omission.

c

Reserve Supply Corp., a cooperative of 379 lumber dealers, charged that Owens-Corning Fiberglass Corp. violated the Robinson-Patman Act by selling at lower prices to Reserve's competitors. It presented proof that these prices had harmed competition. Owens-Corning admitted that it had granted lower prices to a number of Reserve's competitors to meet, but not beat, the prices of other insulation manufacturers. Is Owens-Corning in violation of the RPA? a. Yes because the RPA requires that manufacturers charge all competitors the same price. b. Yes because any difference in price is a per se violation of the RPA. c. Yes because these price variations harmed competition. d. No because a manufacturer is not liable under the RPA if it charges lower prices to meet competition.

d

The Department of Homeland Security wished to build a large office building on its campus in Washington, D.C. What environmental step must it take first?

Homeland Security had to file an Environmental Impact Statement under the National Environmental Policy Act.

The Navy wanted to conduct training exercises off the coast of California for sonar submarines. Scientists were concerned that the sounds emitted by the sonar would harm marine mammals, such as whales, dolphins, and sea lions. Environmental groups filed suit, asking that the Navy prepare an EIS. The Navy argued that it should not have to do so because the submarine exercises were important for national security. Should the courts permit the Navy to proceed without an EIS?

The court ruled that the Navy did not have to file an EIS. The president—the commander in chief—determined that training with sonar was essential to national security. The courts do not have enough information to overrule him on national security issues. Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7(S. Ct. 2008).

Question: To sell its products, Midland Industries would call a random employee at a target company and say, falsely, that it had done business with the target and just needed to confirm a shipping address. Midland would then send the target unordered, overpriced staples such as lightbulbs and cleaning products. The person who processed the invoices often did not know that no one had ordered the merchandise. Midland would then send further unordered merchandise on a regular basis. Also, when anyone questioned an invoice, the company would lie that it had audio recordings confirming the order. Is this practice legal? Strategy: Review the various sales regulations—more than one is involved in this case.

This sales plan was a trifecta: Midland violated §5 of the FTC Act by engaging in a deceptive practice, the Telemarketing Sales Rule by failing to make full and truthful disclosure, and the rules on unordered merchandise by billing for these products.

The Federal Trade Commission (FTC) files suit against Yange Corp. under § 2 of the Sherman Act. To be successful, the FTC must prove that Yange Corp. possesses monopoly power in the relevant market and that the monopoly power was obtained by illegal means. The FTC has no direct evidence that Yange is using its power to control prices and restrict output. The FTC, therefore, must show that Yange Corp. has monopoly power indirectly, by showing that Yange Corp. has a dominant share of the relevant market and that there are significant barriers for new competitors entering that market. The FTC can calculate the market share that Yange Corp. has by: a. showing the net revenue that Yange Corp. had during the applicable period. b. taking the total sales of the industry over the applicable period and dividing it by the company's total sales over the same period. c. taking the company's sales over the applicable period and dividing it by the total sales of the industry over the same period. d. showing the total sales that Yange Corp. had during the applicable period.

c

Brandon manages a manufacturing plant that makes automobiles. Brandon is frustrated with the air pollution requirements of the Clean Air Act (CAA) because of the cost associated with meeting those standards. Brandon lobbies his state legislature to pass more lenient emissions standards for their state, and Brandon is joined by several other automobile manufacturers in that effort. In response to the efforts of Brandon and the other automobile manufacturers, the state legislature may: a. choose to reject the CAA standards without adopting new standards of their own. b. adopt the California standards, which are more lenient than the CAA standards. c. adopt standards that are more lenient than those contained in the CAA, because each state is allowed to create its own laws. d. not adopt standards that are more lenient than those contained in the CAA.

d

Penelope wants to open a chain of Yoga studios but does not have the funds to do so. Penelope has not had any luck attracting large investors, so her friend suggests she try crowdfunding. Crowdfunding is a cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause or invest in a venture. Penelope may raise money for her Yoga studios venture by crowdfunding as long as: a. she sells the funds on at least seven online sites. b. she provides detailed offering information in all outside advertising. c. she does not prohibit the resale of the security. d. sales of securities are no more than $1 million in any 12-month period.

d