Exam 26: Investor Protection, insider Trading, Corp Gov

The key to liability under Section 10(b)of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether undisclosed inside information is material.

Fact Pattern 26-3 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 Exchange Act of 1934,Hu is most likely

Willful violations of the Securities Act of 1933 may be subject to criminal prosecution.

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

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

Maple Products Corporation is a public company,which New Hampshire regulates and in which Orin invests.The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to

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

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

Fact Pattern 26-3 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.If Dhani is liable under the Securities Exchange Act of 1934,it will be because the information on which he based his purchase of Eureka stock was

Securities that are exempt from the registration requirement can generally be sold and resold without being registered.

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

Squeaky Clean Corporation wants to make an offering of securities to the public.This offering is not exempt from registration under the Securities Act of 1933.Before Squeaky sells its securities,it must provide investors with

Few securities can be resold without registration.

Generally,stock offerings that are made in a limited manner during any twelve-month period are not exempt from the registration requirement.

In May 2012,National Biotech Corporation generally advertises that it will make a $4 million offering of stock in June.National makes the offering as advertised and,ten days after the first sale,notifies the Securities and Exchange Commission (SEC).All buyers of the stock are given material information about the company,its business,and the stock.Before the end of the year,the offering is completely sold out.The buyers include forty unaccredited investors and fifty accredited investors.National does not register the offering.The SEC files a suit against National,seeking civil sanctions on the ground that this offering was not exempt from registration.National argues that the applicable exemption is Rule 505 of Regulation D of the Securities Act of 1933 and that because of this exemption,any resale of the stock is also exempt.Who is correct?

Fact Pattern 26-2 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.Under SEC Rule l0b-5,Sid would not be liable if he had waited to buy Tech stock until

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

The least common forms of securities are bonds issued by corporations.

Readmore Bookstore Corporation files a registration statement with the Securities and Exchange Commission and provides a prospectus describing the securities to investors.These items are intended to provide sufficient information so that the financial risks involved can be evaluated by

"Forward-looking" financial forecasts are prohibited under SEC Rule 10b-5.