Exam 34: Regulation of Trading: The Securities Exchange Act of 1934

In order to trigger liability under 10b-5 for insider trading, the investor must have had a __________ relationship with the source of information as an insider or as a "tippee" if he received information from an insider.

In 1988, Congress passed the __________, which raised the criminal and civil penalties for insider trading, increased the liability of brokerage firms for wrongful acts of their employees, and gave the SEC more power to pursue violations of Rule 10b-5.

Administrative Law Judges are __________ attorneys who are selected, maintained, and funded by the SEC.

Aubrey, the CEO of Rainbow Loom Corp., announces her retirement in February and the board of directors undertakes a search for a new president immediately thereafter. In November, the board announces it has selected Lily as the new president. How do the Section 13 reporting requirements impact these events?

In the context of securities law, a/an__________ fact is one that, if known to an investor, would impact her decision as to whether or not to invest in the security.

The Securities Exchange Act of 1934 requires registration with the SEC for __________ who wish to have their securities offered on a national exchange.

The Securities Exchange Act of 1934 established a system of oversight over the self-regulation of the securities exchanges and trading industry practices. This\ Act mandates __________ disclosures for publicly traded companies.

Companies whose securities (equity or debt) are listed on a national stock exchange are subject to minimal regulatory requirements.

The SEC regularly investigates unusual stock activity as it may be indicative of stock __________.

The Securities Exchange Act of 1934 does not currently require registration with the SEC for issuers who wish to have their securities offered on a national exchange.

In order to trigger liability under 10b-5 for insider trading, the investor must have bought or sold stock in a__________ traded company.

Rule 10(b)(5) of the Securities Exchange Act of 1934 is the primary anti-fraud provision covering the trading of securities.

A company becomes a reporting company subject to the Exchange Act if it is a __________ offering that occurs without a securities exchange listing.

In addition to the SEC's enforcement rights, private citizens also have the right to file __________ against companies and individuals for violations of Rule 10b-5.

Section 16(b) includes a __________ provision that 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 six-month period.

JourneyCo is a publicly held corporation subject to the provisions of the Exchange Act. Brian is the company's chief financial officer, and Nancy is on the board of directors. The company has invested several million dollars on a 10-year research project to produce an alternate fuel product that will result in substantially lower pollution. As of the end of the last year, Brian and Nancy each owned 10,000 shares of JourneyCo's stock. This year, they traded as follows:1. January 1-Brian purchases 1,000 shares at $10/share. Nancy purchases 5,000 shares at $10/share. 2. March 1-Nancy purchases 5,000 additional shares at $10/share. 3. May 1-Nancy purchases 1,000 additional shares at $20/share. Brian sells 1,000 shares at $20/share. 4. November 1-Nancy sells all of his shares of JourneyCo at $25/share. 5. December 1-JourneyCo stock drops to $2/share.Assume further that on October 30, both Brian and Nancy learned in advance of public knowledge that the Environmental Protection Agency (EPA) failed to give regulatory approval to JourneyCo's new alternative fuel and that improvements to the formula would likely take many more years of research and testing. After the public disclosure by the EPA of the adverse decision on November 30, JourneyCo's stock price dropped precipitously. How will these events be analyzed in terms of Section 16 and Rule 10b-5 liability?

A company becomes a reporting company subject to the Exchange Act if: (1) a class of its equity securities (other than exempted securities) is held by either __________ investors or __________ investors who are not accredited investors, and (2) on the last day of the issuer's fiscal year, its total assets exceed $10 million.

The U.S. Supreme Court has recognized __________ complementary theories of insider trading.

The Exchange Act expressly prohibits __________ and requires that a proxy relate to only one specific meeting.

Under the misappropriation theory, deceptive trading is performed by an outsider who owes no duty to shareholders but does owe some type of duty to the source of the information.