Business Law 305 CH34

Rule _______ applies to situations where the insider tips another who trades on the information, also known as ________ liability.

- 10b-5, traditional insider trading - 10b-5, tipper-tippee

Rule 10b-5 specifically prohibits: _______. (Choose all the correct answers)

- doing anything that would operate as a fraud - using any scheme to defraud - making any untrue statement of a material fact

Under Rule 10b-5 a secretary of a corporate attorney can be considered a(n) "_______". (Choose all the correct answers)

- insider - tipper - tippee

Under the Exchange Act, scienter means the seller of securities: _______. (Choose all correct answers)

- knew the facts were untrue - lacked reasonable basis for a representation - believed the facts were untrue

Material facts can be related to _______ that may increase the investor's risk.(Choose all the correct answers)

- litigation - financial disclosures

Tippee liability requires that the information is ______ and ______, and used the information by trading for her own benefit.

- material - nonpublic

Courts define _______ to the tipper to include a gift or favor to a friend who trades based on the tip. (Choose two correct answers)

- personal benefit - nondisclosure

Under the _______ theory, deceptive trading is performed by an _______ who owes no duty to shareholders but does owe some type of duty to the source of the information. (Choose two correct answers)

- personal benefit, outsider - misappropriation, outsider

The Exchange Act's broad array of mandates on public companies includes: _______. (Choose all the correct answers)

- regular disclosure reports - restrictions on proxy voting - disclosure of tender offers

Recent court cases have divided personal benefits into two categories, when the gift is to a(n) (1) ______, or (2) _______. (Choose two correct answers)

- relative who later trades on the information - nonrelative acquaintance

Under Section 16(b), a clawback provision allows a corporation to recapture any profits earned by an insider on the purchase and sale of the company's stock that occurred within a _______ period. (Choose two correct answers)

- six-month - one-year

There are two statutory reporting triggers under the Exchange Act: (1) _____ and (2)_______. (Choose two correct answers)

- size of the issuer - public offerings without a listing

To trigger liability under 10b-5 for _______, the investor must have: _______. (Choose all the correct answers)

- sold stock in a publicly traded company - insider trading

Section 13 of the Exchange Act requires public companies to file _______ reports with the SEC in order to maintain their registration and to provide the public with ongoing disclosures. (Choose all the correct answers)

- special - annual - quarterly

Section 16(a) classifies any person who is a shareholder with _______ or more of ownership of the total stock as an insider. (Choose two correct answers)

10%

A company becomes a reporting company subject to the Exchange Act if it has a class of equity securities has ________ and ________.

500 nonaccredited investors, total assets of over $10 million

_______ is used by the SEC in prosecuting insider trading cases.

Rule 10b-5

The _______ Act of 2002 imposed new requirements on both reporting requirements and corporate governance. The reporting requirements are discussed in this chapter.

Sarbanes-Oxley

_______ of the Exchange Act imposes restrictions and reporting requirements on ownership positions and stock trades made by certain corporate insiders named in the statute.

Section 16

_______ liability can be extended to other third parties the person told about the internal information who used the information to trade for their personal benefit.

Tippee

_______ liability requires that the tipper breached a duty by tipping _______ information.

Tippee, confidential

Under the _______ rule, those who have a fiduciary duty of trust/confidence and encounter information that is nonpublic and material have a duty to abstain from trading or to disclose the information publicly. (Choose two correct answers)

abstain/disclose

Section 10(b) of the Exchange Act is the primary _______ provision covering the trading of securities.

anti-fraud

Section 10(b) makes it a(n) _______ to engage in any fraud, directly or indirectly, in connection with the purchase and sale of any security.

criminal offense

If a company has begun the dissolution and wind-down process, the board of directors may vote to ______ the company to avoid the statutory mandates.

delist

When the board of a company that is subject to the Exchange Act votes to terminate the statutory mandates, it is voting to _______.

delist

The Exchange Act imposes _______ requirements on any entity that acquires more than _______ of a public company's equity securities.

disclosure, 5%

The Exchange Act mandates extensive _______ for publicly traded companies and regulates the sale of securities between _______.

disclosures, investors

Tipper liability under Rule 10b-5 is triggered if the tipper had a _______ duty to keep _______ nonpublic information confidential.

fiduciary, material

A corporate "_______" is on who has access to certain information not available to the general investing public.

insider

Under SEC Rule 10b-5, a(n) "_______" may not trade in the company's stock.

insider

In securities law a(n) _______ is one that - if known to an investor - would impact her decision as to whether or not to invest in the security.

material fact

The _______ theory violates Rule 10b-5 because the outsider engages in deception by pretending loyalty to the principal while secretly converting the principal's information for personal gain.

misappropriation

A(n) _______ is a device used by a shareholder to grant another shareholder the right to vote on his or her behalf.

proxy

Section 14 of the Exchange Act prevents proxies from being used by company management as a "_______" on corporate matters that require _______ approval.

rubber stamp, shareholders

Under the Exchange Act, investors must show _______, which is the intent to defraud, as an essential element of a fraud case.

scienter

Corporate profits earned by an insider on the purchase or sale of the company's stock that occurred within a six month period are called _______.

short-swing profits

In a(n) _______ the investor is attempting to purchase enough stock in a single transaction to establish a controlling interest in the company.

tender offer

Section 13 of the Exchange Act requires the SEC is to perform regular and systematic reviews of the filings of each company at least every _____.

three years

Under the "_______" theory, an insider trades in securities based on material, nonpublic information learned as an insider who owes a duty either to abstain from trading or to disclose the inside information.

traditional insider trading