Deck 6: Securities Fraud

Question 1

An argument in favor of regulation is that the economy is a social institution needing both efficiency and:

A)fairness
B)competiveness
C)openness
D)effective

Answer 1

A

Question 2

Milken agreed to pay a $600 million fine and serve ______________ years in prison.

A)5
B)2
C)10
D)20

Answer 2

B

Question 3

As a result of the Boesky disclosure, the stock market:

A)showed no reaction.
B)suffered billion-dollar losses.
C)went up 100 points.
D)caused Boesky to lose the rest of his money.

Answer 3

B

Question 4

Ivan Boesky was involved in what aspect of the stock trade?

A)Mergers and acquisitions
B)Arbitrage
C)International finance
D)Investment banking

Question 5

Darlene Gillespie, who went from Mouseketeer to racketeer, is an example that those who commit security fraud:

A)can come from any background.
B)face the hazards of using a broker to make stock purchases.
C)need some background in securities.
D)need a financial base to get started.

Question 6

In return for Ivan Boesky's cooperation, the United States government let Ivan Boesky do all of the following except:

A)use inside information of his deal with the government to sell before others.
B)serve a probated sentence.
C)pay a mere $100 million fine.
D)sell $1 billion in deal stocks before announcement of his cooperation.

Question 7

Dennis Levine was involved in what aspect of the stock trade?

A)Mergers and acquisitions
B)Arbitrage
C)Investment banking
D)International finance

Question 8

Milken and Boesky entered into a parking arrangement that was beneficial to both of them. This arrangement involved:

A)shifting the loss of investment to the fake stock owner.
B)limiting Drexel exposure to loss.
C)a risky but legal arrangement.
D)disguising the true stock owner's identity to comply with regulations.

Question 9

All of the following are terms applicable to Michael Milken's favorite investment vehicle except:

A)asset-stripping to pay debts.
B)the creation of a mutual fund for Milken's investment vehicle.
C)lack of government regulation permitted huge fees for underwriting.
D)it generated 50% of Drexel's profits.

Question 10

Arbitrage involves trading in:

A)junk bonds.
B)common stock.
C)deal stock.
D)penny stock.

Question 11

The investigation that snared Dennis Levine took notice of all of the following except:

A)a proposed merger, trade, or acquisition would occur.
B)a Swiss bank in the Bahamas.
C)heavier-than-usual sales would take place involving companies that would later be involved in a merger, trade, or acquisition.
D)the trades all involved Levin's firm.

Question 12

All of the following major firms have been accused of securities fraud except:

A)Technical Equities Corporation.
B)Charles Schwab.
C)Prudential Securities.
D)E.F.Hutton.

Question 13

Michael Milken's scheme was exposed as a result of:

A)Milken becoming suddenly reclusive and secretive.
B)Ivan Boetsky.
C)salesman defection.
D)Milken's testimony before Congress.

Question 14

High-yield bonds were used for actual or threatened leveraged buyouts of Fortune 500 companies. Negative consequences of these takeovers or attempted takeovers include all of the following except:

A)diversion of assets from company improvement to save the company.
B)bankruptcy avoidance.
C)downsizing.
D)layoffs.

Question 15

Which one of the following terms is associated with the idea that less regulation is better for the securities industry despite the number of securities violations?

A)Level playing field
B)Fixed race
C)Fairness
D)Laissez faire

Question 16

The term "insider trading" involves insiders:

A)using non-public information to buy or sell stock.
B)trading in competitors' stock.
C)stealing from the corporations they work for.
D)providing misinformation to traders.

Question 17

The term "criminogenic" means:

A)a culture conducive to crime.
B)a culture adverse to crime.
C)a culture dominated by street crime.
D)a culture of greed and egomania.

Question 18

Martin Seigel's punishment for insider trading included all of the following except:

A)keeping his pension plan.
B)a 10-year prison sentence.
C)testifying against other securities firm personnel.
D)keeping two homes.

Question 19

How did R.Foster Winans get caught up in insider trading?

A)Bought stock based on tips from Dennis Levine
B)Used his computer knowledge to steal inside information
C)Leaked information about his Wall Street Journal column
D)Placed incorrect information in the Wall Street Journal

Question 20

All of the following statements describe Paul Thayer except:

A)CEO of LTV Corporation
B)Deputy Secretary of Defense in the Reagan administration
C)Used his position on corporate boards to get insider information
D)Made huge profits from his illegal trades

Question 21

In 2003, the Securities and Exchange Commission announced $1.4 billion in fines and disgorged profits against the nation's biggest and most powerful brokerage firms. At the root of the penalties was:

A)recommending stock to investors while privately criticizing the stocks.
B)buying stocks for the firm before making recommendations to clients.
C)failing to make investments requested by clients.
D)charging excess fees.

Question 22

The Great "Chat Room" Conspiracy is notable for two reasons:

A)broker-dealers were charged and sentenced to prison.
B)the source of the information and the insiders involved.
C)the amount of money involved and the government's inability to track wrongdoing.
D)the number of people involved and their occupations.

Question 23

All of the following are true about the Martha Stewart criminal case except:

A)Stewart bought stock based on information from a corporate insider.
B)Stewart was not convinced of insider trading.
C)Stewart's financial gain was negligible in light of her wealth.
D)Stewart was a former stockbroker.

Question 24

Internet financial blogs and chat rooms have created a particularly hospitable environment for securities fraud.

Question 25

Junk bonds have been blamed for causing financial problems in what other industry besides the securities industry?

A)Savings and loan
B)Energy
C)Health care
D)Defense

Question 26

Insider trading and securities fraud have yet to move towards the Internet.

Question 27

The risk/reward ratio of white-collar crime has severely limited the deterrent value of criminal punishments.

Question 28

Some economists have argued that expecting a level playing field or criticisms of fixed races is naïve, and a more laissez-faire atmosphere leads to greater efficiency.

Question 29

Levying fines against wrongdoers is an example of what theory of punishment? This theory does not appear to be working.

A)Incapacitation
B)Restoration
C)Retribution
D)Deterrence

Question 30

Insider traders are stockholders, directors, officers, or any recipients of information not publicly available who take advantage of such limited disclosure for their own benefit.

Question 31

President George W.Bush sold his stock in Harkin Oil for an $835,000 profit eight days before huge losses were disclosed and Harkin stock value dropped like a rock. Bush denied any prior knowledge about the red ink in the audit report. This was unusual in that:

A)he signed the report.
B)he was president of the company at the time.
C)he was a member of the audit committee.
D)his degree is in accounting.

Question 32

In the 1980s, the Internet was used to drive up the price of a stock with false claims and then to sell before the public catches on.

Question 33

"Pump and Dump" is a technique used by individuals, such as the teenage wheeler-dealer, where:

A)the investor pumps up his financial worth, steals the money to invest, and quickly dumps the stock.
B)the salesman pumps up the stock and then dumps his investment into the stocks.
C)a corporate insider pumps up the value of company stock and then dumps bad loans into the business before the business is sold.
D)the salesman pumps up his qualifications and secretly dumps the investors' stock.

Question 34

Economy refers to activities organized around the production and distribution of goods and services.

Question 35

Insider trading is an example of illegal stock manipulation.

Question 36

Corporate restructuring means downsizing, which is a euphemism for large-scale layoffs and firings.

Question 37

Front-running refers to managers buying stock for themselves after buying it for their funds.

Question 38

Some argue that the law has been ineffective in deterring insider trading because:

A)there is little incentive for whistleblowers to turn in wrongdoers.
B)there is no support from the business community.
C)of the risk/reward ratio.
D)the SEC is understaffed.

Question 39

Public confidence in the honesty of its financial markets was shaken in the 1960s by a seemingly endless chain of scandals.

Question 40

The Great "Chat Room" conspiracy in 2000 was the largest criminal insider trading case to date.

Question 41

A form is insider trading is ________________ running.

Question 42

How has corporate effectiveness of general deterrence measures and special deterrence punishment affected the incidence of insider trading? Have businessmen in general and accused individuals in particular learned that crime does not pay when it comes to insider trading?

Question 43

Discuss the various approaches to eliminating or reducing insider trading.

Question 44

Investors have brought an element of violence to Wall Street seldom seen in the white-collar world of securities fraud.

Question 45

It took a national economic crisis and major recession to uncover the Bayou Hedge Fund scandal.

Question 46

Why is the economy considered the most important of all social institutions? How does security fraud affect the public's perception of the economy?

Question 47

Dennis Levine was involved in ________________ and acquisitions.

Question 48

Corporate restructuring usually means ________________.

Question 49

Paul Thayer used his position on corporate boards to get insider ________________.

Question 50

Insider trading is an example of illegal ________________ manipulation.

Question 51

Many scholars have suggested that the ________________ is the most dominant institution in the United States.

Question 52

An argument in favor of regulation is that the economy is a social institution needing both efficiency and ________________.

Question 53

How has the increase in financial information on the Internet changed the nature of securities crimes?

Question 54

________________ trading was criminalized under the Securities Exchange Act of 1934.

Question 55

The term "paper entrepreneurism" places a great deal of emphasis on ________________.

Question 56

Explore Warren Buffett's idea for a 100% tax on stocks owned a year or less.Is the liquidity argument valid?

Question 57

What is insider trading and why is it considered a crime? Who are the victims?

Question 58

Arbitragers are investment specialists who specialize in ________________ stocks.

Question 59

The most publicized of Internet investment schemes involve microcap fraud, often called penny stocks or over-the-counter stocks.

Question 60

Develop a more effective deterrence program for white-collar criminals.What needs to be done that is not being done at present?