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Exam 23: Securities Regulation

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Question 31

Multiple Choice

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Which of the following was the ruling by a majority of the court in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., the case in the text in which the U.S. Supreme Court addressed the issue of the liability of bankers, lawyers, and other third parties who did not directly mislead investors but worked with corporations that did?

A) That bankers, lawyers, and other third parties who did not directly mislead investors but worked with corporations that did can be held liable to the same extent as the primary wrongdoers.
B) That bankers, lawyers, and other third parties who did not directly mislead investors but worked with corporations that did could be held liable to shareholders only if the primary wrongdoers were insolvent and also that the secondary wrongdoers could be punished by criminal prosecution and enforcement actions by the SEC.
C) That bankers, lawyers, and other third parties who did not directly mislead investors but worked with corporations that did could be held liable to shareholders only if the primary wrongdoers were insolvent and also that the secondary wrongdoers could not be punished by criminal prosecution and enforcement actions by the SEC.
D) That bankers, lawyers, and other third parties who did not directly mislead investors but worked with corporations that did cannot be sued by shareholders and also cannot be held criminally liable or subject to enforcement actions by the SEC.
E) That bankers, lawyers, and other third parties who did not directly mislead investors but worked with corporations that did cannot be sued by shareholders but can be subject to criminal prosecutions and enforcement actions by the SEC.

F) All of the above
G) C) and D)

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Question 32

Multiple Choice

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Which of the following is true regarding the Securities Exchange Act of 1934?

A) It regulates the subsequent trading of securities.
B) It requires that certain issuers file periodic reports with the SEC.
C) It permits the SEC to monitor securities markets for fraud and market manipulation.
D) It regulates the subsequent trading of securities, it requires that certain issuers file periodic reports with the SEC, and it permits the SEC to monitor securities markets for fraud and market manipulation.
E) It regulates the subsequent trading of securities and requires that certain issuers file periodic reports with the SEC, but it does not permit monitoring by the SEC.

F) B) and C)
G) B) and D)

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Question 33

Multiple Choice

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Which of the following would be considered an accredited investor?

Which of the following was the result on appeal in Securities and Exchange Commission v. Texas Gulf Sulphur Co, the case in the text in which it was alleged that corporate employees possessed inside information involving the likelihood of a major mineral find precluding them from trading in their company's stock?

Reference - 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. Frank, who knew that the information was not public, 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 announce 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?

Reference - Coffee shops. Bernice wants to open a chain of coffee shops and begins by asking her friends in various states around the country to invest through the purchase of securities in the coffee shops. Her friend Robbie says that he would like to invest but that she should be sure that she satisfies requirements of the SEC. He 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 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 and Mary, a psychiatrist. Mary recently filed bankruptcy because of some bad decisions involving an elaborate decoration of her office. Although her income for the past couple of years has been in the range of $80,000, business is improving based on her recent involvement with a number of patients suffering anxiety based upon a fear of alien invasion. Which of the following is the term for the document referenced by Robbie involving information to be provided 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?

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

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

Under the Securities Exchange Act of 1934, corporate officers are not considered insiders.

Chinese law fails to provide securities regulation.

Reference - In Trouble. Bruno, an issuer of stock, may be in trouble. He sold stock in a new health club venture before the effective date of registration. He did so because was in financial trouble involving other ventures of his and needed additional funds. Bruno thought that the health club venture would be such a success that he would never get caught in regard to the stock sale. Unfortunately, he was wrong. The health club venture was going very poorly and investors were looking for some way to hold Bruno responsible. Another problem Bruno has is that he inflated information regarding the prospects of the health club in the prospectus. Investors bitterly complained. Rick, a new lawyer, told Bruno that as far as he knew, the SEC could fine Bruno under the Securities Act of 1933 but could not send him to jail. Bruno told Rick that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture. Bruno says that he plans to rely on the due diligence defense. Bruno also asks Rick if he is aware of any other defenses. Bruno says that he has never previously been in trouble with the SEC. Which of the following, if any, may be defenses for Bruno?

Which of the following prohibits the use of manipulative and deceptive devices to bypass SEC rules?

Which of the following was the result on appeal in Liberty Property Trust and Liberty Property Limited Partnership v. Republic Properties Corp., the case in the text involving whether limited partnership units were securities?

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

The Securities and Exchange Commission is headed by how many individuals?

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

Reference - Coffee shops. Bernice wants to open a chain of coffee shops and begins by asking her friends in various states around the country to invest through the purchase of securities in the coffee shops. Her friend Robbie says that he would like to invest but that she should be sure that she satisfies requirements of the SEC. He 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 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 and Mary, a psychiatrist. Mary recently filed bankruptcy because of some bad decisions involving an elaborate decoration of her office. Although her income for the past couple of years has been in the range of $80,000, business is improving based on her recent involvement with a number of patients suffering anxiety based upon a fear of alien invasion. Considering only the information available, which of the following is a term that would describe Mary as an investor?

Reference - 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. Frank, who knew that the information was not public, 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 announce 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. For which of the following is Linda liable?

Set forth the four major responsibilities of the SEC.

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