BLAW E4 c28

Boats & Yachts Corporation is a public company, which California regulates and in which Dorian invests. The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to a. public companies. b. private investors. c. state regulators. d. the Securities and Exchange Commission.

A

Cattle Ranch Company offers its stock for sale only in a single state. The law in Cattle Ranch's state is like the law in most states. Cattle Ranch's offer is subject to state securities statutes that include a. antifraud and disclosure provisions. b. antifraud provisions only. c. disclosure provisions only. d. neither antifraud nor disclosure provisions.

A

Dhani, an accountant for Eureka! Inc. learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who tells Geoff. Both Fay and Geoff buy 100 shares. Geoff knows that Fay got her information from Dhani. When Eureka! publicly announces its new laptop, Dhani, Fay, and Geoff sell their stock for a profit. 12. Refer to Fact Pattern 28-1. Under the Securities Ex¬change Act of 1934, Fay is most likely a. liable for insider trading. b. not liable because Fay did not prevent others from profiting. c. not liable because Fay did not misappropriate any information. d. not liable because Fay does not work for Eureka!

A

Dhani, an accountant for Eureka! Inc. learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who tells Geoff. Both Fay and Geoff buy 100 shares. Geoff knows that Fay got her information from Dhani. When Eureka! publicly announces its new laptop, Dhani, Fay, and Geoff sell their stock for a profit. Refer to Fact Pattern 28-1. Under the Securities Ex¬change Act of 1934, Geoff is most likely a. liable for insider trading. b. not liable because Geoff is only a tippee, not a tipper. c. not liable because Geoff is too far down the chain of disclosure. d. not liable because Geoff traded on the basis of a material fact.

A

Fleet Delivery Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is "exempt." This enables Fleet to a. reduce the compliance costs by not requiring an auditor report. b. buy and sell the securities without liability for "recaptures." c. make forward-looking financial forecasts without liability. d. withhold inside information from accredited investors.

A

Global Trade Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that Global Trade must a. file a registration statement with the SEC. b. issue the securities through an online registration site. c. refrain from issuing the securities to unregistered investors. d. register the securities with a national stock exchange.

A

HVAC Heating & Air Conditioning, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that HVAC's financial results are accurate and timely, the firm's senior officers must set up and maintain a. internal "disclosure controls and procedures." b. external "release and reveal timetables." c. personal "peruse and review liability policies." d. public "information and discussion forums."

A

Riverwalk Restaurants Corporation is a noninvestment company that wants to issue stock of $3 million in a twelve-month period. Riverwalk, with less than $20 million in annual sales, qualifies as a small business issuer. Before Riverwalk sells the stock, it must provide investors with a. an offering circular. b. a notice of the issue. c. a red herring prospectus. d. a tombstone ad.

A

Rollo is the chief executive officer of Specialty Magazines, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Rollo must a. certify that the reports are complete and accurate. b. designate a corporate official to assume liability for inaccuracies. c. do nothing. d. read the reports and be prepared to answer questions about them.

A

To raise capital to form Business Apps Corporation with Cris, Dona sells bonds and stock in other companies, and plans to register an initial public of¬fer¬ing under the Securities Act of 1933. SEC Rule l0b-5 covers a. just about any form of securities. b. only bonds. c. only securities registered under the Securities Act of 1933. d. only stock.

A

As part of a stock offering for Designer Studio Corporation, the firm's accountant Evelyn intention¬ally misrepresents material facts in the pro¬spectus. Flores buys the stock unaware of the misrepresentation and suf¬fers a loss. Evelyn may be subject to a. a fine and damages only. b. a fine and imprisonment only. c. a fine, imprisonment, and damages. d. damages only.

C

Cotton Products Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933 a. imposes increased responsibility on chief corporate executives. b. prevents insiders from trading among themselves. c. requires disclosure. d. creates a "safe harbor" for companies to make forward-looking statements.

C

Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 mil¬lion and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to a. Fresh Fruit and Gourmand Pastries. b. Fresh Fruit only. c. Gourmand Pastries only. d. neither Fresh Fruit nor Gourmand Pastries.

C

Household Products Corporation wants to make an offering of securities to the public. This offering is not exempt from registration under the Securities Act of 1933. Before Household Products sells its securities, it must provide investors with a. a forward-looking financial forecast. b. an investment contract. c. a prospectus. d. samples of its products.

C

OnSpec, Inc., and its officers, directors, and share¬holders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of securities involving a. corporate insiders. b. misappropriation. c. short-swing profits. d. tippers and tippees.

C

Rico does not work for Street Bikes Company, but wrong¬fully obtains inside information concerning the firm. Based on the in¬forma¬tion, Rico buys and sells Street Bikes stock for personal gain. The Securities and Exchange Commission prose¬cutes Rico, arguing that he is liable because he stole in-formation right¬fully belonging to another. This argument is a. the blue-sky theory. b. the misappropriation theory. c. the free-writing prospectus theory. d. the tipper/tippee theory.

B

Bonds & Stocks Corporation, and its officers, directors, and shareholders, buy and sell securities. SEC Rule 10b-5 applies to the purchase or sale of a. a security by a financial corporation only. b. a security involving a corporate insider only. c. a security involving short-swing profits only. d. any security.

D

Grain Mills Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates a. the declaration of dividends by Grain Mills's board of directors. b. the later re-registration of Grain Mills's securities. c. the short-swing activities of Grain Mills's insiders. d. the solicitation of proxies from Grain Mills's shareholders.

D

Guitar Factory Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by a. market professionals to explain to all investors. b. government regulators to disclose to the general public. c. sophisticated investors only. d. unsophisticated investors.

D

Space Trips Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. Space Trips is charged with violating the Securities Act of 1933. Space Trips's best defense is a. the investors were not aware of the misrepresentations. b. the issuer reasonably believed the misstatements were true. c. the offering was made available to the general public. d. the untrue statements were not material.

D