Question 1

The goal of securities regulation is to

Accepted Answer

A) contribute to the operations of national security exchanges. 
B) prohibit deceptive and manipulative practices in the securities markets. 
C) prescribe ways and means for investors to fairly break the rules. 
D) none of the choices. 
A) contribute to the operations of national security exchanges. 
B) prohibit deceptive and manipulative practices in the securities markets. 
C) prescribe ways and means for investors to fairly break the rules. 
D) none of the choices. B

Question 2

To avoid sanctions under the Securities Exchange Act of 1934, whoever solicits a proxy must accurately disclose all facts pertinent to the matter on which shareholders are to vote.

Accepted Answer

A) True 
 B)False  True

Question 3

Medico Corporation is a public company whose shares are traded in public securities markets. Medico's officers want to set up and maintain a system of "good corporate governance." What is "corporate governance"? What is its practical significance? What, at a minimum, should a "good" system of corporate governance include?

Accepted Answer

Corporate governance is the relationship between a corporation and its shareholders: the system by which business corporations are directed and controlled. 
Corporate governance is the essential purpose of corporation law, which sets out the structure of a corporation. 
A "good" system of corporate governance involves, at a minimum, (1)the audited reporting of financial progress at the firm, so that its managers can be evaluated and (2)legal protection for shareholders, so that parties who violate the law to take advantage of shareholders can be punished for their misconduct and their victims can recover damages. Practically, good corporate governance in the form of accountability to investors provides the opportunity to enhance corporate wealth, because firms with expanded shareholder rights-a hallmark of good corporate governance-have been shown to have increased profits, sales growth, company value, and other economic advantages.

Question 4

Dairy Stores Inc. owns and operates convenience stores. The firm wants to make an initial public offering of securities. If Dairy qualifies for an exemption from the federal registration requirement, the firm is

Accepted Answer

A) exempt from any state registration requirement. 
B) not subject to any state securities laws. 
C) not necessarily exempt from a state registration requirement. 
D) subject to all state registration requirements. 
A) exempt from any state registration requirement. 
B) not subject to any state securities laws. 
C) not necessarily exempt from a state registration requirement. 
D) subject to all state registration requirements.

Question 5

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

Accepted Answer

A) material when he sold the stock. 
B) available to the public after he bought the stock. 
C) available to the public before he bought the stock. 
D) forward-looking when he bought the stock. 
A) material when he sold the stock. 
B) available to the public after he bought the stock. 
C) available to the public before he bought the stock. 
D) forward-looking when he bought the stock.

Question 6

Under the Sarbanes-Oxley Act of 2002, chief financial officers must certify the accuracy of information in corporate financial statements.

Accepted Answer

A) True 
 B)False

Question 7

Securities can be sold before the effective date of the registration statement without restrictions.

Accepted Answer

A) True 
 B)False

Question 8

Crowdfunding can be exempt from the registration requirements of the Securities Act of 1933 if shares are offered directly to investors.

Accepted Answer

A) True 
 B)False

Question 9

Industrial Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Industrial is required to

Accepted Answer

A) contribute to the operations of national security exchanges. 
B) disclose all essential information about the issuance of its securities. 
C) engage in market surveillance to deter undesirable practices. 
D) meet investors' reasonable expectations to make a profit. 
A) contribute to the operations of national security exchanges. 
B) disclose all essential information about the issuance of its securities. 
C) engage in market surveillance to deter undesirable practices. 
D) meet investors' reasonable expectations to make a profit.

Question 10

Under the Securities Act of 1933, securities include

Accepted Answer

A) any instrument representing corporate ownership or debt. 
B) a common enterprise reasonably expected to make a profit. 
C) an investment in one's own personal entrepreneurial effort. 
D) whatever a corporation represents to the public as profitable. 
A) any instrument representing corporate ownership or debt. 
B) a common enterprise reasonably expected to make a profit. 
C) an investment in one's own personal entrepreneurial effort. 
D) whatever a corporation represents to the public as profitable.

Question 11

Dez is the chief financial officer of Elements Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Dez must personally

Accepted Answer

A) certify that the statements are accurate. 
B) delegate the responsibility for preparing the statements. 
C) deliver the statements to the appropriate SEC officer. 
D) prepare the statements. 
A) certify that the statements are accurate. 
B) delegate the responsibility for preparing the statements. 
C) deliver the statements to the appropriate SEC officer. 
D) prepare the statements.

Question 12

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

Accepted Answer

A) Fresh Fruit and Gourmand Pastries. 
B) Fresh Fruit only. 
C) Gourmand Pastries only. 
D) neither Fresh Fruit nor Gourmand Pastries. 
A) Fresh Fruit and Gourmand Pastries. 
B) Fresh Fruit only. 
C) Gourmand Pastries only. 
D) neither Fresh Fruit nor Gourmand Pastries.

Question 13

Furnaces & Filters Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that the firm's financial results are accurate and timely, its senior officers must set up and maintain

Accepted Answer

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) internal "disclosure controls and procedures." 
B) external "release and reveal timetables." 
C) personal "peruse and review liability policies." 
D) public "information and discussion forums."

Question 14

Bev is the chief executive officer of Chef Cafés Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Bev must

Accepted Answer

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) 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.

Question 15

A Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment.

Accepted Answer

A) True 
 B)False

Question 16

Anyone who has access to or receives inside information of a nonpublic nature and trades on it for personal gain can be liable under SEC Rule 10b-5.

Accepted Answer

A) True 
 B)False

Question 17

Corporate Financial Inc., and its officers, directors, employees, and shareholders, buy and sell securities on behalf of themselves and their clients. SEC Rule 10b-5 applies to the purchase or sale of

Accepted Answer

A) a security by the corporation only. 
B) a security involving a corporate insider only. 
C) a security involving short-swing profits only. 
D) any security. 
A) a security by the corporation only. 
B) a security involving a corporate insider only. 
C) a security involving short-swing profits only. 
D) any security.

Question 18

Only the Securities and Exchange Commission can sue violators of Section 10(b)and Rule 10b-5.

Accepted Answer

A) True 
 B)False

Question 19

Most securities cannot be resold without registration.

Accepted Answer

A) True 
 B)False

Question 20

Fleet Trucking 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

Accepted Answer

A) reduce the compliance costs by not requiring an auditor report. 
B) buy and sell the securities without liability for recaptured profit. 
C) make forward-looking financial forecasts without liability. 
D) withhold inside information from accredited investors. 
A) reduce the compliance costs by not requiring an auditor report. 
B) buy and sell the securities without liability for recaptured profit. 
C) make forward-looking financial forecasts without liability. 
D) withhold inside information from accredited investors.

Exam 39: Investor Protection Insider Trading and Corporate Governance

The goal of securities regulation is to

To avoid sanctions under the Securities Exchange Act of 1934, whoever solicits a proxy must accurately disclose all facts pertinent to the matter on which shareholders are to vote.

Dairy Stores Inc. owns and operates convenience stores. The firm wants to make an initial public offering of securities. If Dairy qualifies for an exemption from the federal registration requirement, the firm is

Under the Sarbanes-Oxley Act of 2002, chief financial officers must certify the accuracy of information in corporate financial statements.

Securities can be sold before the effective date of the registration statement without restrictions.

Crowdfunding can be exempt from the registration requirements of the Securities Act of 1933 if shares are offered directly to investors.

Industrial Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Industrial is required to

Under the Securities Act of 1933, securities include

Dez is the chief financial officer of Elements Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Dez must personally

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

Furnaces & Filters Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that the firm's financial results are accurate and timely, its senior officers must set up and maintain

Bev is the chief executive officer of Chef Cafés Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Bev must

A Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment.

Anyone who has access to or receives inside information of a nonpublic nature and trades on it for personal gain can be liable under SEC Rule 10b-5.

Corporate Financial Inc., and its officers, directors, employees, and shareholders, buy and sell securities on behalf of themselves and their clients. SEC Rule 10b-5 applies to the purchase or sale of

Only the Securities and Exchange Commission can sue violators of Section 10(b)and Rule 10b-5.

Most securities cannot be resold without registration.

Fleet Trucking 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

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