Exam 41: Corporations: Securities and Investor Protection

Which of the following is true regarding examples of securities?

The SEC may issue bounty payments to insider-trading whistle-blowers.

Which of the following is false regarding what must occur in order for the exemption involving intrastate issues to apply?

ABC Company, a designer of computer software, had a number of new products ready to launch. Jason, a seller of office supplies to ABC Company, was talking with Susie, the president of the company, regarding a product order. Susie was called away from her office for a few minutes, and Jason, who liked to snoop, took the opportunity to go through the papers on her desk. Jason discovered a description of the new software products. He immediately bought lots of ABC Company stock and made a significant profit following the public announcement of the new software and the resulting increase in the price of ABC Company stock. Is there any theory on which Jason could be held liable for a securities violation, and, if so, what? Describe any such theory.

"Coffee shops." Bernice wants to open a chain of coffee shops but needs some investors. Her friend Robbie tells Bernice that she should be sure that she satisfies requirements of the SEC. Robbie tells her that she has to provide information to the SEC involving a description of the securities, an explanation of how proceeds will be used, information regarding the management of the company and other matters. He tells her that she also has to provide a document to the SEC that will be provided as an advertising tool to potential investors who can rely on it to decide whether they should buy the securities. Bernice says that she does not want to do that. She explains to Robbie that insofar as the coffee shop venture is concerned, she does not want to advertise; and she wants to offer securities only to a limited number of wealthy friends. Particularly, she has in mind Scott who has a net worth of at least $3 million. -Which of the following is the term for the document referenced by Robbie to be provided to the SEC that will be used as an advertising tool to potential investors who can rely on it to decide whether they should buy securities?

The SEC issues opinions regarding the worth of securities.

A person who violates the 1933 Securities Act can be fined but not sent to jail.

If a violation of federal securities laws is serious enough to merit criminal prosecution, the Fraud Section of the Securities and Exchange Commission prosecutes the action.

Which of the following references stock and bonds issued by corporations to raise capital for corporate expansion?

Which of the following prohibits fraud associated with the purchase or sale of all securities?

Which of the following is a reason Congress passed the Private Securities Litigation Reform Act of 1995?

Which of the following did Congress pass in an effort to prevent exploitation of small investors?

Which of the following allows the SEC to suspend securities trading if prices vary excessively in a short time period?

Which of the following is a person who controls, is controlled by, or is in common control with the issuer?

Which of the following created the Public Company Accounting Oversight Board to regulate public accounting firms?

A[n] ______ prospectus is a prospectus with a warning written in red print at the top of the page warning investors that the registration has been filed with the SEC but has not yet been approved.

Which of the following is true regarding who may be considered an insider under the Securities Exchange Act of 1934?

"Presidential Profits." Linda was president of a publicly traded tractor company, Tough Tractors. Linda became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made. Before the news was made public, Linda immediately purchased a significant number of shares in Tough Tractors. Linda also told her friend Frank about the contract to purchase assets although she told him to keep it quiet because it had not been made public yet. Nevertheless, unable to keep a secret, Frank told his brother, George. Frank and George purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement was made and the purchase of assets went through, Linda, George and Frank, all sold their shares in Tough Tractors and made a nice profit. -Which of the following would describe Frank in providing information about the asset sale to George?

Set forth the Howey three-part test for determining if a security exists.

Which of the following refers to the practice of an owner of a particular stock telling other investors about the virtues of the stock, artificially increasing demand for the stock, and causing an increase in price only to sell it for a quick profit?