Question 1

Which of the following is true regarding remedies available under Rule 10b-5?

Accepted Answer

A)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; and the court may award prejudgment interest; but punitive damages are unavailable. 
B)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, and the court may award prejudgment interest; but punitive damages are unavailable. 
C)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; the court may award prejudgment interest; and punitive damages are available in appropriate cases. 
D)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, the court may award prejudgment interest, and punitive damages are available in appropriate cases. 
A)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; and the court may award prejudgment interest; but punitive damages are unavailable. 
B)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, and the court may award prejudgment interest; but punitive damages are unavailable. 
C)  The measure of damages is typically out-of-pocket loss, or an investor may elect to rescind the transaction; the court may award prejudgment interest; and punitive damages are available in appropriate cases. 
D)  The measure of damages is typically out-of-pocket loss with no right on the part of an investor to elect to rescind the transaction, the court may award prejudgment interest, and punitive damages are available in appropriate cases. A

Question 2

Under Rule 10b-5,any use of the mails is sufficient to satisfy the interstate commerce condition even if the mail does not leave the state.

Accepted Answer

A) True 
 B)False  True

Question 3

Susan,an accountant,prepared an audit report for a company that wanted to include the report in a registration statement. What must Susan do before the company can do so? What step should she perform in relation to events occurring subsequent to the date of the certified balance sheet in the registration statement?

Accepted Answer

Susan must sign a written consent before the audited report can be included in the registrations statement. Before doing so,she should do an S-1 review,which is a review of events subsequent to the date of the certified balance sheet in the registration statement to ascertain whether any material change has occurred in the company's financial position that should be disclosed to prevent the financial statements from being misleading. This review includes comparing recent financial statements to earlier ones,reading minutes of the shareholders' and directors' meetings,and investigating changes in material contracts,bad debts,and newly discovered liabilities.

Question 4

Under the London Stock Exchange rules,if a listed company's share price moves significantly on the basis of rumor and the rumor is true,the company must disclose the existence of the rumored event.

Accepted Answer

A) True 
 B)False

Question 5

The materiality of a misstatement or omission under Rule 10b-5 is judged at the time

Accepted Answer

A)  the statement is made. 
B)  of the stock purchase. 
C)  of the injury. 
D)  of the lawsuit. 
A)  the statement is made. 
B)  of the stock purchase. 
C)  of the injury. 
D)  of the lawsuit.

Question 6

Which of the following is false regarding the misappropriation theory of insider trading?

Accepted Answer

A)  If a trader discloses to a source of nonpublic information that he or she plans to trade on the basis of that information, there is no violation under the misappropriation theory. 
B)  Liability under the misappropriation theory requires deception. 
C)  The misappropriation theory widens the class of persons who can be found liable for insider trading. 
D)  The trader cannot be held liable unless he or she is an insider of the company whose securities are traded. 
A)  If a trader discloses to a source of nonpublic information that he or she plans to trade on the basis of that information, there is no violation under the misappropriation theory. 
B)  Liability under the misappropriation theory requires deception. 
C)  The misappropriation theory widens the class of persons who can be found liable for insider trading. 
D)  The trader cannot be held liable unless he or she is an insider of the company whose securities are traded.

Question 7

Which of the following is true regarding the state of mind needed in order to find a violation of Section 16(b)involving short-swing trading?

Accepted Answer

A)  Liability is imposed under Section 16(b) regardless of the insider's state of mind. 
B)  Intent to violate the securities laws must be found in order for there to be a violation of Section 16(b). 
C)  A trader must at least act without caution in order to be found liable for violating Section 16(b). 
D)  A trader must at least act negligently in order to be found liable for violating Section 16(b). 
A)  Liability is imposed under Section 16(b) regardless of the insider's state of mind. 
B)  Intent to violate the securities laws must be found in order for there to be a violation of Section 16(b). 
C)  A trader must at least act without caution in order to be found liable for violating Section 16(b). 
D)  A trader must at least act negligently in order to be found liable for violating Section 16(b).

Question 8

Accountants have to sign a written consent before their audited report can be included in a registration statement.

Accepted Answer

A) True 
 B)False

Question 9

An employee who trades or tips using confidential information belonging to his or her employer can be liable under the Mail and Wire Fraud Acts.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a part of the safe harbor provision for forward-looking statements under the 1934 Act?

Accepted Answer

A)  A statement containing a projection of revenues, income, or other financial items. 
B)  A statement of the plans and objectives of management for future operations. 
C)  A statement of future economic performance. 
D)  A statement in a financial statement prepared in accordance with generally accepted accounting principles. 
A)  A statement containing a projection of revenues, income, or other financial items. 
B)  A statement of the plans and objectives of management for future operations. 
C)  A statement of future economic performance. 
D)  A statement in a financial statement prepared in accordance with generally accepted accounting principles.

Question 11

Under the Sarbanes-Oxley Act of 2002,it is a misdemeanor to knowingly execute a scheme to defraud any person in connection with any security of a publicly traded company.

Accepted Answer

A) True 
 B)False

Question 12

Under the Securities Fraud Enforcement Act,when may a brokerage house be fined?

Accepted Answer

A)  If it knew or recklessly disregarded information that would indicate insider trading activities on the part of its employees. 
B)  Whenever an employee is found guilty of insider trading. 
C)  If it was negligent in failing to discover insider trading. 
D)  A brokerage house may not be fined under the Act. 
A)  If it knew or recklessly disregarded information that would indicate insider trading activities on the part of its employees. 
B)  Whenever an employee is found guilty of insider trading. 
C)  If it was negligent in failing to discover insider trading. 
D)  A brokerage house may not be fined under the Act.

Question 13

Scienter requires more than mere negligence or lack of due care.

Accepted Answer

A) True 
 B)False

Question 14

A controlling shareholder is traditionally considered an insider.

Accepted Answer

A) True 
 B)False

Question 15

In order to be actionable under Rule 10b-5,misstatements or omissions must be made with

Accepted Answer

A)  negligence. 
B)  without due care. 
C)  scienter. 
D)  facts. 
A)  negligence. 
B)  without due care. 
C)  scienter. 
D)  facts.

Question 16

Under Section 16(b)pertaining to short-swing profits,a person will be considered a(n)________ of any securities held by his or her immediate family or any other relative living in his or her household.

Accepted Answer

A)  family owner 
B)  beneficial owner 
C)  actual owner 
D)  imputed owner 
A)  family owner 
B)  beneficial owner 
C)  actual owner 
D)  imputed owner

Question 17

A prediction about the future can be a misstatement under Rule 10b-5,but only if the person making the prediction does not believe it at the time.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following was the result in SEC v.Texas Gulf Sulphur Co.,the case in the text involving whether a press release giving a misleading impression about the results of a drilling operation violated Rule 10b-5?

Accepted Answer

A)  That the company acted only in response to rumors and had no obligation to set forth additional facts regarding the drilling operation, thereby negating any basis for Rule 10b-5 liability. 
B)  That the company violated Rule 10b-5 by issuing the misleading press release. 
C)  That a press release standing alone may not violate Rule 10b-5 and that the company could not be held liable because it made no actionable statements outside the press release. 
D)  That the company could be held liable under Rule 10b-5 but only because it issued other statements in addition to the press release. 
A)  That the company acted only in response to rumors and had no obligation to set forth additional facts regarding the drilling operation, thereby negating any basis for Rule 10b-5 liability. 
B)  That the company violated Rule 10b-5 by issuing the misleading press release. 
C)  That a press release standing alone may not violate Rule 10b-5 and that the company could not be held liable because it made no actionable statements outside the press release. 
D)  That the company could be held liable under Rule 10b-5 but only because it issued other statements in addition to the press release.

Question 19

In the case of a(n)________,the U.S.Supreme Court has ruled that the reliance will be presumed under Rule 10b-5 if the fact was material.

Accepted Answer

A)  public statement 
B)  misstatement 
C)  omission 
D)  tip 
A)  public statement 
B)  misstatement 
C)  omission 
D)  tip

Question 20

Which of the following is true regarding Section 16(c)'s restriction on selling stock short?

Accepted Answer

A)  Section 16(c) prohibits officers, but not directors, from selling any of their company's equity securities short. 
B)  Section 16(c) prohibits directors, but not officers, from selling any of their company's equity securities short. 
C)  Section 16(c) prohibits officers or directors from selling any of their company's equity securities short. 
D)  Section 16(c) allows both officers and directors to sell their company's equity securities short so long as the equities are obtained and delivered within twenty days after the short sale. 
A)  Section 16(c) prohibits officers, but not directors, from selling any of their company's equity securities short. 
B)  Section 16(c) prohibits directors, but not officers, from selling any of their company's equity securities short. 
C)  Section 16(c) prohibits officers or directors from selling any of their company's equity securities short. 
D)  Section 16(c) allows both officers and directors to sell their company's equity securities short so long as the equities are obtained and delivered within twenty days after the short sale.

Exam 22: Securities Fraud and insider trading

Which of the following is true regarding remedies available under Rule 10b-5?

Under Rule 10b-5,any use of the mails is sufficient to satisfy the interstate commerce condition even if the mail does not leave the state.

Under the London Stock Exchange rules,if a listed company's share price moves significantly on the basis of rumor and the rumor is true,the company must disclose the existence of the rumored event.

The materiality of a misstatement or omission under Rule 10b-5 is judged at the time

Which of the following is false regarding the misappropriation theory of insider trading?

Which of the following is true regarding the state of mind needed in order to find a violation of Section 16(b)involving short-swing trading?

Accountants have to sign a written consent before their audited report can be included in a registration statement.

An employee who trades or tips using confidential information belonging to his or her employer can be liable under the Mail and Wire Fraud Acts.

Which of the following is not a part of the safe harbor provision for forward-looking statements under the 1934 Act?

Under the Sarbanes-Oxley Act of 2002,it is a misdemeanor to knowingly execute a scheme to defraud any person in connection with any security of a publicly traded company.

Under the Securities Fraud Enforcement Act,when may a brokerage house be fined?

Scienter requires more than mere negligence or lack of due care.

A controlling shareholder is traditionally considered an insider.

In order to be actionable under Rule 10b-5,misstatements or omissions must be made with

Under Section 16(b)pertaining to short-swing profits,a person will be considered a(n)________ of any securities held by his or her immediate family or any other relative living in his or her household.

A prediction about the future can be a misstatement under Rule 10b-5,but only if the person making the prediction does not believe it at the time.

Which of the following was the result in SEC v.Texas Gulf Sulphur Co.,the case in the text involving whether a press release giving a misleading impression about the results of a drilling operation violated Rule 10b-5?

In the case of a(n)________,the U.S.Supreme Court has ruled that the reliance will be presumed under Rule 10b-5 if the fact was material.

Which of the following is true regarding Section 16(c)'s restriction on selling stock short?

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