Chapter 42

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

a.) Gourmand Pastries only.

Reno, an engineer for Shale Corporation, learns that the firm will increase the dividend it pays to shareholders. Reno buys 10,000 shares of company stock. When the dividend is announced to the public and the price of the stock increases, he sells the shares for a profit. He would not be liable for insider trading if the information about the dividend was a.) available to the public after he bought the stock. b.) available to the public before he bought the stock c.) material when he sold the stock. d.) forward-looking when he bought the stock.

b.) available to the public before he bought the stock

Luan, a programmer for Monetized Nation Inc., a business modeling service, learns of undisclosed company plans to distribute a new app. Luan reveals the company plans to a friend, Ono, who buys 5,000 shares of the firm's stock. Under the Securities Exchange Act of 1934, Ono is most likely a.) not liable because Ono does not work for the firm. b.) liable for insider trading. c.) not liable because Ono did not prevent others from profiting. d.) not liable because Ono did not solicit information from Luan.

b.) liable for insider trading.

Space Flight 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. The firm is charged with violating the Securities Act of 1933. Its best defense is a.) the offering was made available to the general public. b.) the issuer reasonably believed the misstatements were true. c.) the untrue statements were not material. d.) the investors were not aware of the misrepresentations.

c.) the untrue statements were not material.

United Delivery Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, United Delivery is required to a.) invest its own managerial or entrepreneurial efforts. b.) issue instruments representing corporate ownership or debt. c.) buy or sell its securities only on a national security exchange d.) register its securities transactions unless they qualify for an exemption.

d.) register its securities transactions unless they qualify for an exemption.

Ross, a sales executive with Steel Mill Inc., learns of undisclosed company plans to produce a new type of steel. Ross tells Tim, who tells Uri, who buys 100 shares of Steel Mill stock. Uri knows that Tim got the information from Ross. When the firm publicly announces its new product, Uri sells the stock for a profit. Under the Securities Exchange Act of 1934, Uri is most likely a.) not liable because Uri traded on the basis of a material fact. b.) liable for insider trading. c.) not liable because Uri is too far removed from the initial disclosure. d.) not liable because Uri is only a tippee, not a tipper.

b.) liable for insider trading.

Market Data Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain a.) a statement that securities being offered for sale are worth the price b.) a copy of prospectuses to be provided to investors c.) a record of pre-registration sales in securities. d.) a description of securities being offered for sale.

d.) a description of securities being offered for sale

As part of a stock offering for Design Media Corporation, the firm's accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to a.) none of the choices. b.) professional censure but no criminal sanctions or civil liability. c.) job termination but no other sanctions, penalties, or liability d.) a fine, imprisonment, and damages.

d.) a fine, imprisonment, and damages

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

d.) file a registration statement with the SEC.

To raise $120 million to expand operations, Primo Inc. makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. The firm plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an exempt transaction a.) as is b.) under no circumstances c.) if the offering is also made to the general public. d.) if all of the investors are also given material information about the firm.

d.) if all of the investors are also given material information about the firm