business law Chapter 31

Under the 1934 insiders must report any transactions in their securities within ______ following the end of the month in which the transaction occurs.

10 days

Under the 1934 Act, the most important periodic reports are the mandatory _______ and the ______ reports.

10-K annual, quarterly

The ______ requires the issuer of securities ______ with the SEC prior to their offer or sale to the public.

1933 Act, to register the securities

Under the 1934 Act, an issuer must register a class of equity securities with at least ______ shareholders and the securities must be traded in ______.

500; interstate commerce

The Uniform Securities Act of 1985 includes which of the following? (Check all that apply)

A requirement for the registration of securities Antifraud provisions A requirement for broker-dealer registration

Which of the following are examples of investment contracts? (Check all that apply)

A scotch whiskey receipt A restaurant property with a management contract A contract for the care of live animals

In a Rule 10b-5 action for damages, a private plaintiff must be which of the following? (Check all that apply)

A seller of securities A purchaser of securities

True or false: Under the 1934 Act, liability for short-swing profits requires scienter.

False Reason: No, liability for short-swing profits is without regard to intent or actual use of insider information.

True or false: Under Rule 10b-5, negligence to defraud is enough to warrant liability

False Reason: No, scienter (intent) is needed for liability to attached.

True or false: The Securities and Exchange Commission (SEC) was created by the 1933 Act.

False Reason: No, the Securities and Exchange Commission (SEC) was created by the 1934 Act.

Which of the following is not listed as an important securities exemption? (only one correct answer)

Future sale of securities

Why is "spoofing" illegal under the Dodd-Frank Act? (Check all that apply)

It exploits deception for the spoofing entity's benefit It misleads market participants

The liability provisions of the 1933 Act are intended to assist the United States Congress in accomplishing all but which of the following objectives?

Preventing dividend payments to preferred stockholders

Most state securities statutes regulate which of the following activities? (Check all that apply)

Proof of brokers' financial responsibility Disclosure by dealers of avoidance of fraudulent securities Disclosure by dealers of pertinent facts about securities being sold

State regulation of tender offers is designed to do which of the following? (Check all that apply)

Require long minimum offering periods to the target company Require long periods of advance notice to the target company Protect local businesses from hostile takeovers

Under the 1934 Act, which of the following provisions may require a corporation to immediately and accurately disclose material information unless it has a valid business purpose for withholding disclosure?

Rule 10b-5

Under the 1934 Act, securities need not be registered for _____ to apply, and it applies to both securities exchanges as well as ______ transactions.

Rule 10b-5, face-to-face

Dodd-Frank is designed to complement provisions in the ______ Act that require lawyers to report securities violations.

Sarbanes-Oxley

Under the 1934 Act, the most important liability section is: ______.

Section 10(b)

When a person offers or sells unregistered securities and nonexempt securities under the 1933 Act, he is liable under ______ of the Act.

Section 12(1)

Which section of the 1933 Act imposes liability on any person who has violated the timing, manner, and content restrictions on offers and sales of new issues?

Section 12(1)

Which section of the 1933 Act prohibits misstatements or omissions of material fact made in a prospectus?

Section 12(2)

Which section of the 1933 Act broadly prohibits the use of any device to defraud, as well as the use of any untrue or misleading statement in connection with the offer or sale of any security?

Section 17(a)

Which of the following are examples of exempted securities: _______. (Check all that apply)

Securities of nonprofit issuers Government backed securities ICC-regulated issuers

Which of the following organizations adopted the Uniform Securities Act of 1985?

The National Conference of Commissioners on Uniform State Laws

Which organization's Rule 16b-3(d) exempts from the coverage of Section 16(b) of the 1934 Act transactions between an issuer and a director that are approved by the board of directors of the issuer?

The Securities and Exchange Commission

Which of the following is correct concerting state statutes regulating tender offers?

The U.S. Supreme Court has made clear that a property-worded statute will be permitted.

Which of the following executives are required by Section 906 of the Sarbanes-Oxley Act to certify by written statement the accuracy of the company's periodic financial reports required under the 1934 Act?

The chief executive officer The chief financial officer

Which of the following is correct regarding the activities prohibited by Rule 10b-5?

The incorporation process is not covered by the rule.

True or false:Fraud committed in the course of selling a security that is exempt from the 1933 Act can be attacked by someone who is defrauded.

True Reason: The fraud can be attacked by either the person(s) who are defrauded or the SEC.

True or false: A securities transaction can be exempt today, but later may have to be registered if the transaction is not exempt.

True Reason: Yes, a security sale may be exempt today because it is sold pursuant to a transaction exemption, yet tomorrow it may have to be registered when the security is offered or sold again in a transaction for which there is no exemption.

The following factors make securities exempt from the registration provisions of the 1933 Act. (Check all that apply)

When the purchasers of the securities can adequately protect themselves When the character of the issuer makes registration unnecessary Then the issuance of securities is subject to regulation under another statutory scheme

The _______ Act amendments were passed to provide investors with more information regarding _______ decisions.

Williams, tender offer

Under the ______ Act, a bidder making a(n) ______ must file a statement with the SEC before the offer is made, and must keep the offer open for at least _______ days before any shares are purchased.

Williams, tender offer, 20

If a transaction does not involve ______, the the securities regulations do not apply.

a security

Under the 1934 Act, the illegal practice of ______ occurs when a person simultaneously buys and sells the same stock in order to stimulate substantial trading activity and thereby affect the price of the security.

a wash sale

The following may be liable for Section 11 defective registrations under the 1933 Act: _______. (Check all that apply)Potentially liable for such misleading or false information in the registration statement are all of its signers, all directors (whether or not they signed), all "experts" who gave consent to be named in the registration state- ment as having prepared or certified part of it (such as auditors, lawyers, geologists, or engineers), and the underwriters of the distribution of the security. The purchaser's remedy under Section 11 is for damages caused by the misstatement or omission.

all directors all of the experts who are named in the registration statement all the signers of the registration statement

Section 16(b) of the 1934 Act requires that ______ file individual statements disclosing their holdings in any shares of a publicly traded company.

all insiders

The 1933 Act has two (2) principal regulatory components, and they are ______. (Check the two that apply)

antifraud provisions registration provisions

Violations of the 1933 Act's ______ provisions may subject the defendant to civil and ______ actions.

antifraud; criminal

Most state blue-sky statutes grant broad power to investigate fraud to the ______ or his appointee as securities administrator.

attorney general

State securities laws are frequently referred to as ______ because the early statutes were designed to protect investors from promoters and security salespersons who offered stock in companies organized to pursue visionary schemes.

blue-sky laws

Under the _______ theory of insider trading liability, violations of Section 10(b) and Rule 10b-5 occur when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information.

classical

The 1933 Act contains rules about the issuer's ability to: ______. (Check all that apply)

communicate with prospective purchasers change the timing of the offer or sale

Under Rule 10b-5, a person is liable if she has a duty of trust or ______ and omits a ______ when she has a duty to disclose the information.

confidence; material fact

Numerous activities are prohibited under Rule 10b-5, from actual fraud to ______ violations. (Check all that apply)

continuous disclosure price manipulation insider trading

Under the 1934 Act, the 10-K annual filing must include: ______. (Check all that apply)

current information on conduct of business status of the securities audited financial statement

Trading on material, nonpublic information qualifies as a type of _______ under the classical theory of insider trading when the person has a special place of trust or confidence between herself and the shareholders of the corporation.

deceptive device

Under Rule 10b-5, a person who was ______ a security because of false statements ______ recover his lost profits because he was not an actual ______.

deterred from; cannot; purchaser

The 1934 Act is primarily concerned about _______ information to investors.

disclosing material

The 1933 Act requires issuers to make necessary ________ when they are selling securities to the public.

disclosures

The trading on a(n) ______ by a person with ______ violates Rule 10b-5, even though the buyer and seller never meet.

exchange; insider information

Check all of the following functions that are ascribed to the Securities and Exchange Commission.

executive legislative judicial

SEC Rule 16b-3(d) ______ the coverage of Section 16(b) transactions between an issuer and a director that are approved by the ______ of the issuer.

exempts from; board of directors

Under the 1934 Act, Section 18 imposes liability on any person responsible for a(n) ________ statement of _______ in any document filed with the SEC.

false or misleading, material fact

The United States Supreme Court has established a uniform ______ statute of limitations which a lawsuit be filed within one year after discovery of the violation, but no more than ______ years after the violation has occurred.

federal; three

Under the 1934 Act, a security could include all of the following: ______. (Check all that apply)

fractional undivided interest oil or gas rights investment contract certificate of participation in profit-sharing

Under a _________ theory, the investor's reliance on the integrity of the market was found to justify a presumption of reliance on the misrepresentation.

fraud-on-the-market

Section 9 of the 1934 Act prohibits deceptive practices that may be used to ______.

fraudulently stimulate market activity

The Private Securities Litigation Reform Act recognizes that ______ litigation can impose substantial costs on companies and individuals whose conduct ______ the law.

frivolous; conforms to

The term investment contract has been defined by the courts as an investment of money in a common enterprise with an expectation of profits ______.

from the efforts of others

Under the 1933 Act, the registration statement must include all of the following: ______. (Check all that apply)

historical data about the issuer full details of the securities offered use of the issuance proceeds

A(n) _______ occurs when the offering price is usually well above the market price of the shares and made with opposition from the target company's management.

hostile tender offer

The 1934 Act regulates all of the following activities: ______. (Check all that apply)

insiders transactions periodic disclosures tender offers

Section 10(b) is extremely broad and prohibits any ________ that will harm the public or investors.

manipulative or deceptive device

Information that is likely to have an impact on the price of a security in the market is considered: ________.

material

A person is liable under Rule 10b-5 if he omits ______ when he has a ______.

material facts; duty to disclose

Prior to the 1960s, the predominant procedure by which one corporation acquired another was via the use of a(n) ______ which required the consent and cooperation of the target corporation's management.

merger

The theory outlaws trading on the basis of nonpublic information by a corporate outsider in breach of a duty - not to a trading party - but to the source of the information.

misappropriation

Under the ______ theory, Mark's undisclosed, self-serving use of Simon's information to purchase securities in breach of a duty of loyalty and confidentiality defrauds Simon who provided Mark with the information.

misappropriation

When a person with insider information acquires it by breaching a duty of confidentiality or trust, the _______ theory holds that he violates Section 10(b) and Rule 10b-5 when he uses that information for securities trading purposes,

misappropriation

Rule 10b-5 imposes liability on persons who: ______.

misstate material facts when they have a duty to disclose

Under the 1934 Act, an issuer must register any security traded on a ______, such as common shares traded on the ______.

national stock exchange; American Stock Exchange

Many Rule 10b-5 cases involve the failure to disclose ______, ______ information ______ to an insider.

nonpublic; corporate; known

In ______ cases where the investor need only prove that the fact was material, ______ is not usually required.

omission; reliance

The 1933 Act is primarily a(n) _______ statute, although it does cover fraudulent sales of publicly-sold securities.

one-time disclosure

According to the 1933 Act, the SEC review of the registration statement involves analysis of whether it contains any _______ statements.

per se fraudulent

In contrast to the 1933 Act, the mandatory disclosure provision of the 1934 Act requires ______ disclosures from issuers of securities.

periodic

Unlike the 1933 Act, the 1934 Act requires ______ by issuers with ______ equity securities.

periodic disclosure, publicly held

Under Section 906 of the Sarbanes-Oxley Act, the top management of publicly traded companies are required to certify by written statements the accuracy of the company's ______ reports required under the 1934 Act.

periodic financial

The primary purpose of the 1934 Act is the _______ that ensure investors have the information they need at all times to make intelligent investment decisions.

periodic reporting

The 1934 Act requires that any issuer who has made a registered offering under the 1933 Act must file: ______.

periodic reports with the SEC

Section 12 of the 1933 Act has a(n) ______ requirement, which means that the purchaser may sue only those persons from whom she actually purchased the security.

privity

Material facts would include any of the following: _______. (Check all that apply)

proposed mergers tender offers for corporate stock plans for an important new product

The ______ is the basic selling document of the 1933 Act, and contains most of the information in the securities registration statement.

prospectus

Under the 1933 Act, the function of the ______ is to allow an investor to make his investment decision based on ______, in addition to the favorable information the issue discloses.

prospectus, all the issuer's relevant data

The 1933 Act is primarily concerned with ______ of securities.

public distribution

Under the 1934 Act, an issuer with ______ must report material information both annually and quarterly to its shareholders.

publicly traded equity securities

Under Rule 10b-5, private persons suing under the rule must be: ______ using an instrumentality of ______.

purchasers or sellers, interstate commerce

Most of the state securities statutes regulate professional sellers of securities. These statutes ______ securities brokers and ______ dealers.

register; require proof of the financial responsibility of

The most important rule of the 1933 Act is that every transaction in securities must be ______ the SEC or ________.

registered with, be exempt from registration

As with the securities exemptions, transaction exemptions only apply to the 1933 Act's ________ provisions.

registration

The 1933 Act requires an issuer of the securities to file a(n) ______ with the SEC and to make a(n) ______ available to prospective purchasers.

registration statement; prospectus

The most important elements of a Rule 10b-5 violation are: ______. (Check all that apply)

reliance scienter misstatement of material fact

Under the 1933 Act, Section 11 liability was quite radical first and foremost because: _______.

reliance is not usually required

Private plaintiffs using Rule 10b-5 to sue a defendant must prove that they on the misstatement of material fact.

relied

Under the 1933 Act, a purchaser's remedy for violating Section 12(1) is limited to ______ or damages.

rescission

The recently enacted ________ legislation creates legal immunity for companies that make optimistic forecasts about future earnings or new products.

safe harbor

Under the new _______ statute, as long as companies warn the public about factors that might undermine their forecasts, they will be immune from liability if the predictions prove false.

safe harbor

Under Rule 10b-5, for fraud, deception, or manipulation to exist, the defendant must have acted with ______.

scienter

Under the 1934 Act, it is a violation of Rule 10b-5 to buy or sell either on an exchange when one has information not available to the general public. This prohibition applies to the following types of people: ______. (Check all that apply)

secretaries in the company directors and officers of the company government personnel with inside information

Under the 1933 Act, exempt ________ never need to be registered, regardless of who sells the securities, how they are sold, or to whom they are sold.

securities

The 1933 Act broadly defines a(n) ______ as any note, stock, certificate of interest of participation in any profit-sharing agreement, or investment contract.

security

Under the 1934 Act, ______ profits made by an insider are recoverable by the issuer if the profits resulted from the sale or purchase of stocks within a six-month period.

short-swing

The Dodd-Frank Act contains a provision which expands the Commodity Exchange Act's anti-fraud provisions by prohibiting "_______", which occur(s) when traders bid or make an offer with the actual intent to cancel the bid or offer before execution.

spoofing

For many years, fraud claims under Section 10(b) and Rule 10b-5 were governed by ______ established under the various state laws.

statutes of limitations

A(n) ______ is a public offer by a bidder to purchase a target company's equity securities directly from its shareholders at a specified price for a fixed period of time.

tender offer

Complying with the registration requirements of ______ is expensive, burdensome, and a time-consuming process.

the 1933 Act

As a check against abusive litigation by private parties alleging violations of Section 10(b) of the 1934 Act, the United States Congress enacted ______.

the Private Securities Litigation Reform Act

Under the 1933 Act, securities that are exempt from registration provisions, are not exempt from: ______.

the antifraud provisions of the 1933 Act

In a confidential setting, Dr. Willis receives non-public information from his patient Mrs Brown about her husband's unannounced appointment to BankAmerica CEO. In this situation, Dr Willis would be the _______ and Mrs Brown would be the ______.

tippee, tipper

In recent cases involving insider trading, courts have held that a(n) ______ is generally not liable unless it can be shown that the insider (the ______) would personally benefit from the disclosure.

tippee, tipper

In recent cases involving insider trading, courts have held that a tippee is generally not liable unless she knew, or should have known, of a benefit to the ______.

tipper

Under the 1933 Act the most important exemptions are the: ______.

transaction exemptions

Under the 1933 Act, securities sold in exempt ______ are exempt from the registration requirements for those particular transactions only.

transactions

Under the Securities Exchange Act of 1934, a purchaser-plaintiff need not prove that the defendant: _______.

was negligent or acted with scienter

The essence of fraud, deception, and manipulation is falsity or nondisclosure under Rule 10b-5 occurs: _______.

when there is a duty to speak

The primary purpose of the Dodd-Frank Wall Street Reform and Consumer Protection Act is to provide incentives for _________.

whistleblowers