Exam 41: Corporationssecurities Law Corporate Governance

Fact Pattern 41-1A 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, each of whom buy 100 shares. They knows 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 41-1A. Under the Securities Ex?change Act of 1934, Geoff is most likely

Dave, an accountant, does not work for Emergent Company, but wrong?fully obtains inside information concerning Emergent. Based on the in?forma?tion, Dave buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prose?cutes Dave, arguing that he is liable because he stole in?formation right?fully belonging to another. This argument is

Fact Pattern 41-1B 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 41-1B. Under SEC Rule l0b-5, Sid would not be li?able if he had waited to buy Tech stock until

Celfone Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain

Start-Up Enterprises, Inc., completes its registration process and be?gins ad?vertising the availability of its new issue of securi?ties. Start-Up places a tomb?stone ad in the financial papers. This ad tells pro?spective investors

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

Mo, an officer with NuProduct Company, receives a bounty payment, which is a payment from

Drew is an officer of Energy Fuel, Inc. Drew knows that an Energy engi?neer recently developed a new, inexpensive method for converting hy?dro?gen into fuel. Drew takes advantage of this information to buy Energy stock from Gert and, after the discovery is announced, to sell the stock to Holly at a profit. Gert claims that this is a violation of federal law. Is Gert correct? If so, what federal law has Drew violated, and what are its possible penalties?

Against a charge of a violation of the Securities Act of 1933, only an issuer of stock can assert the due diligence defense.

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

Fine Café Company offers its stock for sale only in a single state. The law in Fine's state is like the law in most states. Fine's offer is sub?ject to state securities statutes that include

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

Riley, an engineer for Super Seed Corporation, learns that Super Seed has developed a corn hybrid to triple the output of any farm. Riley buys 10,000 shares of Super Seed stock. He tells Tess, who buys 5,000 shares. After the new hybrid is announced publicly, the price of Super Seed stock in?creases. Riley and Tess sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on

Cotton Products Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Cotton's disclosure of financial and other significant information concerning its securities is designed to

Flux Corporation is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, Flux is subject to the direct corporate governance requirements of

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

Thom, an accountant for Uno Company, learns that Viral, a Uno director, has violated insider-trading laws. Thom does not suffer a loss in trading with Viral, but reports her to the Securities and Exchange Commission. Thom may be entitled to

Fact Pattern 41-1A 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, each of whom buy 100 shares. They knows 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 41-1A. Under the Securities Ex?change Act of 1934, Fay is most likely

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

Fact Pattern 41-1B 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 41-1B. 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