Exam 26: Investor Protection, insider Trading, and Corporate Governance

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

Private parties cannot sue violators of Section 10(b) and Rule 10b-5.

Squeaky Clean Corporation wants to make an offering of securities to the pub-lic.This offering is not exempt from registration under the Se-curities Act of 1933.Before Squeaky sells its securities,it must provide in-vestors with

Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders.Gourmand Pastries,Inc.,has assets of more than $50 mil-lion and more than five hundred shareholders.The Securities Exchange Act of 1934 applies to

Violations of the Securities Exchange Act of 1934 may be subject to criminal prosecution,but not civil liability.

Sid,a director of Tech Software Company,learns that a Tech engineer has developed a new,exciting video game.Sid buys Tech stock and tells his friend Uri,who also buys Tech stock.When the new game is released three weeks later,Sid and Uri sell their stock for a big profit. -Refer to Fact Pattern 26-2.Regarding Sid's profits on the purchase and sale of Tech stock,under Section 16(b) of the Securities Exchange Act of 1934 Tech may recapture

Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit. -Refer to Fact Pattern 26-3.Under the Securities Ex-change Act of 1934,Geoff is most likely

Generally,stock offerings that are made in a limited manner during any twelve-month period are ex-empt from the registration requirement.

RingTone Corporation is a public company whose securities are traded among investors.Under the Securities Act of 1933,a security is

Riley,an engineer for Shur-2-Gro Seed Corporation,learns that Shur-2-Gro has developed a corn hybrid to triple the output of any farm.Riley buys 20,000 shares of Shur-2-Gro stock.He tells Tess,who buys 15,000 shares.After the new hybrid is announced publicly,the price of Shur-2-Gro stock in-creases.Riley and Tess sell their shares for a profit.Under the Securities Exchange Act of 1934,liability may be imposed on

Generally,federal se-curities law are patterned after states' antifraud laws.

Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s to market a new laptop.Dhani buys 1,000 shares of Eureka stock.He re-veals the company plans to Fay,who buys 500 shares.Fay tells Geoff,who tells Hu.Both Geoff and Hu buy 100 shares.They know that Fay got her informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit. -Refer to Fact Pattern 26-3.Under the Securities Ex-change Act of 1934,Hu is most likely

Private parties can sue violators of the Securities Act of 1933.

Flo-Thru Corporation is poised to issue securities that,under the Securities Act of 1933,are "exempt." This means that the securities can be sold

Cotton Products Corporation is a public company whose shares are traded in the public securities markets.The Securities Act of 1933 requires Cotton to disclose financial and other significant information concerning its securities in order to

SEC Rule 10b-5 prohibits the commission of fraud in connection with the purchase or sale of any security.

Kitsch Niche Corporation is a noninvestment company that wants to is-sue $3 million of stock in a twelve-month period.Kitsch Niche,with less than $20 mil-lion in annual sales,qualifies as a small business issuer.Before Kitsch Niche sells the stock,it must provide investors with

A registration statement must include a financial statement certified by an independent public accounting firm.

Fresh Cream,Inc.,wants to make an initial public offering of securi-ties.Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. -Refer to Fact Pattern 26-1.If Fresh is exempt from the federal registration requirement,Fresh is

Nouveau Riche Corporation's officers,directors,and sharehold-ers buy and sell securities.SEC Rule 10b-5 applies to