BLTC 8e-TB-Ch35

37
CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.
Chapter 35
Investor Protection, Insider Trading,
and Corporate Governance
N.B.: TYPE indicates that a question is new, modified, or unchanged,
as follows.
N
A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test
Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1.
The least common forms of securities are stocks and bonds issued
by corporations.
ANSWER: F
NAT: AACSB Analytic
2.
PAGE:
836
TYPE:
LOC: AICPA Legal
A registration statement must state how a corporation plans to use

the proceeds from the sale of the securities.
ANSWER: T
NAT: AACSB Analytic
4.
834
TYPE:
LOC: AICPA Legal
A registration statement must include a financial statement certified

by an independent public accounting firm.
ANSWER: T
NAT: AACSB Analytic
3.
PAGE:
PAGE:
836
TYPE:
LOC: AICPA Legal
Before filing a registration statement, an issuer must attempt to sell,

or at least offer to sell, the securities.
38
UNIT SIX: BUSINESS ORGANIZATIONS
ANSWER: F
NAT: AACSB Analytic
PAGE:
837
TYPE:
LOC: AICPA Legal
39
5.
Sales of securities must occur within twenty days of the filing of a

registration statement.
ANSWER: F
NAT: AACSB Analytic
6.
PAGE:
838
TYPE:
LOC: AICPA Legal
N
from
the
PAGE:
838
TYPE:
LOC: AICPA Legal
PAGE:
838
TYPE:
LOC: AICPA Legal
Generally, stock offerings that involve a small dollar amount are not
exempt from securities registration requirements.
ANSWER: F
NAT: AACSB Analytic
11.
837
TYPE:
LOC: AICPA Legal
A corporation whose security does not qualify for an exemption can

dispense with the requirement of a registration statement.
ANSWER: F
NAT: AACSB Analytic
10.
Securities that are exempt from the registration requirement can

generally be sold and resold without being registered.
ANSWER: T
NAT: AACSB Analytic
9.
PAGE:
Securities of charitable organizations are exempt

registration requirement of the 1933 Securities Act.
ANSWER: T
NAT: AACSB Analytic
8.
837
TYPE:
LOC: AICPA Legal
A free-writing prospectus may be used before the Securities and

Exchange Commission completes its review of a related registration
statement.
ANSWER: T
NAT: AACSB Analytic
7.
PAGE:
PAGE:
840
TYPE:
LOC: AICPA Legal
Generally, stock offerings that are made in a limited manner during

any twelve-month period are exempt from securities registration
requirements.
ANSWER: T
NAT: AACSB Analytic
PAGE:
840
TYPE:
LOC: AICPA Legal
40
41
12.
Private offerings of securities in unlimited amounts can never be

exempt from the registration requirement of the Securities Act of
1933.
ANSWER: F
NAT: AACSB Analytic
13.
PAGE:
842
TYPE:
LOC: AICPA Legal
PAGE:
842
TYPE:
LOC: AICPA Legal
PAGE:
842
TYPE:
LOC: AICPA Legal
Any corporation with more than $10 million in assets and five
hundred or more shareholders must register with the Securities and
Exchange Commission.
ANSWER: T
NAT: AACSB Analytic
18.
842
TYPE:
LOC: AICPA Legal
Private parties cannot sue violators of the Securities Act of 1933.

ANSWER: F
NAT: AACSB Analytic
17.
PAGE:
Against a charge of a violation of the Securities Act of 1933, only an

issuer of stock can assert the due diligence defense.
ANSWER: F
NAT: AACSB Analytic
16.
Willful violations of the Securities Act of 1933 may be subject to

criminal prosecution.
ANSWER: T
NAT: AACSB Analytic
15.
841
TYPE:
LOC: AICPA Legal
Most securities can be resold without registration.

ANSWER: T
NAT: AACSB Analytic
14.
PAGE:
PAGE:
842
TYPE:
LOC: AICPA Legal
Section 10(b) of the Securities Exchange Act of 1934 covers only

corporate officers and directors.
ANSWER: F
NAT: AACSB Analytic
PAGE:
843
TYPE:
LOC: AICPA Legal
42
19.
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.
ANSWER: T
NAT: AACSB Analytic
PAGE:
843
TYPE:
LOC: AICPA Legal
43
20.
Buying or selling securities on the basis of nonpublic information is

illegal only if the profit from the transaction is unreasonable.
ANSWER: F
NAT: AACSB Analytic
21.
PAGE:
843
TYPE:
LOC: AICPA Legal
PAGE:
843
TYPE:
LOC: AICPA Legal
PAGE:
845
TYPE:
LOC: AICPA Legal
Only outsiders who would ordinarily be deemed fiduciaries of the

corporations in whose stock they trade can be liable for insider
trading.
ANSWER: F
NAT: AACSB Analytic
26.
843
TYPE:
LOC: AICPA Legal
Forward-looking financial forecasts are prohibited under SEC Rule

10b-5.
ANSWER: F
NAT: AACSB Analytic
25.
PAGE:
SEC Rule 10b-5 can apply in virtually any case involving the trading
of securities.
ANSWER: T
NAT: AACSB Analytic
24.
SEC Rule 10b-5 prohibits the commission of fraud in connection with

the purchase or sale of any security
ANSWER: T
NAT: AACSB Analytic
23.
843
TYPE:
LOC: AICPA Legal
The Securities Exchange Act of 1934 provides for continuous,

periodic disclosures by publicly held corporations.
ANSWER: T
NAT: AACSB Analytic
22.
PAGE:
PAGE:
847
TYPE:
LOC: AICPA Legal
A corporation can recapture any profits realized by an insider on any

purchase or sale of the firms stock within any twelve-month period.
ANSWER: F
NAT: AACSB Analytic
PAGE:
848
TYPE:
LOC: AICPA Legal
44
27.
Violations of the Securities Exchange Act of 1934 may be subject to

criminal prosecution.
ANSWER: T
NAT: AACSB Analytic
PAGE:
849
TYPE:
LOC: AICPA Legal
45
28.
Private parties cannot sue violators of Section 10(b) and Rule 10b-5.
ANSWER: F
NAT: AACSB Analytic
29.
850
TYPE:
LOC: AICPA Legal
PAGE:
851
TYPE:
LOC: AICPA Legal
PAGE:
851
TYPE:
LOC: AICPA Legal
PAGE:
855
TYPE:
LOC: AICPA Legal
Willful violations of the Sarbanes-Oxley Act of 2002 may be subject

to criminal prosecution.
ANSWER: T
NAT: AACSB Analytic
35.
Corporations chief executive officers are directly accountable for the

accuracy of financial statements filed with the Securities and
Exchange Commission.
ANSWER: T
NAT: AACSB Analytic
34.
Corporate governance can be defined as the relationship between a

corporation and its shareholders.
ANSWER: T
PAGE:
852
TYPE:
NAT: AACSB Reflective LOC: AICPA Critical Thinking
33.
Generally, states do not have antifraud provisions that cover

securities.
ANSWER: F
NAT: AACSB Analytic
32.
Blue sky laws are state securities laws.

ANSWER: T
PAGE:
851
TYPE:
31.
State securities laws apply only to interstate transactions.

ANSWER: F
NAT: AACSB Analytic
30.
PAGE:
PAGE:
856
TYPE:
LOC: AICPA Legal
Pumping and dumping occurs when a person buys shares,

combines them with shares of the same stock that he or she already
owns, and sells them all together.
46
ANSWER: F
PAGE:
857
TYPE:
MULTIPLE CHOICE QUESTIONS

1.
Frothy Beverage Corporation is a public company whose shares are

traded in the public securities markets. Under the Securities Act of
1933, Frothy is required to
a.
b.
c.
d.
contribute to the operations of national stock exchanges.

disclose financial and other information about its securities.
engage in market surveillance to deter undesirable practices.
solicit proxies for voting.
ANSWER: B
PAGE:
833
NAT: AACSB Reflective LOC: AICPA Legal
2.
Cotton Products Corporation is a public company whose shares are

traded in the public securities markets. The Securities Act of 1933
requires Cotton to disclose financial and other significant information
concerning its securities in order to
a.
b.
c.
d.
increase corporate accountability by imposing responsibility on

chief corporate executives.
prevent insiders from trading among themselves.
protect investors.
provide a safe harbor for companies that make forwardlooking statements.
ANSWER: C
PAGE:
833
3.
TYPE:
TYPE:
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
a.
b.
c.
market professionals to explain to all investors.

government regulators to disclose to the general public.
sophisticated investors only.
47
d.
unsophisticated investors.
ANSWER: D
PAGE:
833
TYPE:
48
4.
RingTone Corporation is a public company whose securities are

traded among investors. Under the Securities Act of 1933, a security
is
a.
b.
c.
d.
almost any stake in the ownership or debt of a company.

an investment that is guaranteed to make a profit.
only such common forms of debt and equity as bonds and
stocks.
whatever a company represents to the public as a security.
ANSWER: A
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5.
file a registration statement with the SEC.

issue the securities through an online registration site.
refrain from issuing the securities to unregistered investors.
register the securities with a national stock exchange.
ANSWER: A
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836
TYPE:
Celfone Corporation is required to file a registration statement with

the Securities and Exchange Commission. This statement must
contain
a.
b.
c.
d.
a copy of prospectuses to be provided to investors.

a description of securities being offered for sale.
a record of pre-registration sales in securities.
a sample of advertising to be used to attract investments in
Celfone.
ANSWER: B
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836
7.
Bild-It-Rite Corporation is a public company that is preparing to issue

securities that do not qualify for an exemption from registration. This
means that Bild-It-Rite must
a.
b.
c.
d.
6.
TYPE:
TYPE:
Begin Anew Enterprise, Inc., completes its registration process and

begins advertising the availability of its new issue of securities. The
firm places a tombstone ad in the financial papers. This ad tells prospective investors
49
a.
b.
c.
d.
about investing.
about the company.
where to buy the securities.
where to obtain a prospectus.
ANSWER: D
PAGE:
837
TYPE:
50
8.
Mit-E 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 the firm sells its securities, it must
provide investors with
a.
b.
c.
d.
a forward-looking financial forecast.

an investment contract.
a prospectus.
a road show.
ANSWER: C
PAGE:
837
9.
Flo-Thru Corporation is poised to issue securities that, under the

Securities Act of 1933, are exempt. This means that the securities
can be sold
a.
b.
c.
d.
on the basis of a material omission or misrepresentation.

on the basis of nonpublic information.
within any six-month period by certain insiders.
without being registered.
ANSWER: D
PAGE:
838
10.
TYPE:
TYPE:
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
a.
b.
c.
d.
an offering circular.
a notice of the issue.
a red herring prospectus.
a tombstone ad.
ANSWER: A
PAGE:
838
TYPE:
51
11.
To raise $12 million to expand operations, Star Corporation makes a

stock offering directly to sixty accredited investors and twenty
sophisticated, but unaccredited investors. Star plans to notify the
SEC of sales. Under the Securities Act of 1933, this issue may qualify
as an exempt transaction
a.
b.
c.
d.
as is.
if all of the investors are also given certain material
information.
if the offering is also made available to the general public.
under no circumstances.
ANSWER: B
PAGE:
840
12.
Hobie, the chief executive officer of Ideal Gamers, Inc. (IGI), intentionally understates the amount of IGIs debts in information
provided to investors as part of an issue of IGI stock. Jaq buys the
stock and suffers a loss. Hobie may be subject to
a.
b.
c.
d.
government prosecution and Jaqs suit.

neither government prosecution nor Jaqs suit.
only government prosecution.
only Jaqs suit.
ANSWER: A
PAGE:
842
13.
TYPE:
TYPE:
GR8 Stuf Company files a registration statement with the SEC before
making an offering to the general public. The registration contains
false, immaterial statements of which the investors are unaware.
GR8 Stuf is charged with violating the Securities Act of 1933. GR8
Stufs best defense is
a.
b.
c.
d.
the
the
the
the
investors were not aware of the misrepresentations.

issuer reasonably believed the misstatements were true.
offering was made available to the general public.
untrue statements were not material.
ANSWER: D
PAGE:
842
TYPE:
52
14.
New Discoveries Corporation, and its officers, directors, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to
a.
b.
c.
d.
only the purchase or sale of a security involving

misappropriation.
only the purchase or sale of a security involving short-swing
profits.
only the purchase or sale of a security involving a tipper and
tippee.
the purchase or sale of any security.
ANSWER: D
NAT: AACSB Analytic
15.
PAGE:
843
TYPE:
LOC: AICPA Legal
Lexy, a salesperson for My-T-Fine Corporation, learns that My-T-Fine

will increase the dividend it pays to shareholders. Lexy buys 10,000
shares of My-T-Fine stock. When the price increases, Lexy sells the
shares for a profit. Lexy would not be liable for insider trading if the
information about the dividend was
a.
b.
c.
d.
material when she sold the stock.

public after she bought the stock.
public before she bought the stock.
speculative when she bought the stock.
ANSWER: C
PAGE:
843
TYPE:
Fact Pattern 35-1 (Questions 1617 apply)

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.
16.
Refer to Fact Pattern 35-1. Under SEC Rule l0b-5, Sid would not be liable if he had waited to buy Tech stock until
a.
b.
c.
d.
after Sid told Uri of the new game.

after Uri bought Tech stock.
after the public release of the game.
just before the game was released.
53
ANSWER: C
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TYPE:
54
17.
Refer to Fact Pattern 35-1. Regarding Sids profits on the purchase

and sale of Tech stock, under Section 16(b) of the Securities
Exchange Act of 1934 Tech may recapture
a.
b.
c.
d.
all of Sids profits.

half of Sids profits.
10 percent of Sids profits.
none of Sids profits.
ANSWER: A
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848
18.
most forms of securities.

only bonds.
only securities registered under the Securities Act of 1933.
only stock.
ANSWER: A
PAGE:
843
TYPE:
Fresh Seasonal Fruit Company has assets of less than $10 million
and fewer than fifty shareholders. Gourmand Pastries, Inc., has
assets of more than $50 million and more than five hundred
shareholders. The Securities Exchange Act of 1934 applies to
a.
b.
c.
d.
Fresh Seasonal Fruit and Gourmand Pastries.

Fresh Seasonal Fruit only.
Gourmand Pastries only.
neither Fresh Seasonal Fruit nor Gourmand Pastries.
ANSWER: C
PAGE:
843
20.
To raise capital to form Plasticity Corporation with Quinn, Rona sells

bonds and stock in other companies, and plans to register an initial
public offering under the Securities Act of 1933. SEC Rule l0b-5
covers
a.
b.
c.
d.
19.
TYPE:
TYPE:
Nouveau Riche Corporation, and its officers, directors,

shareholders, buy and sell securities. SEC Rule 10b-5 applies to
a.
and
only the purchase or sale of a security by a financial

corporation.
55
b.
c.
d.
only the purchase or sale of a security involving an officer or

director.
only the purchase or sale of a security involving a shareholder.
the purchase or sale of any security.
ANSWER: D
NAT: AACSB Analytic
PAGE:
843
TYPE:
LOC: AICPA Legal
56
21.
Riley, an engineer for Shur-2-Gro Seed Corporation, learns that Shur2-Gro has developed a corn hybrid to triple the output of any farm.
Riley buys 20,000 shares of Shur-2-Gro stock. He tells Tess, who buys
15,000 shares. After the new hybrid is announced publicly, the price
of Shur-2-Gro stock increases. Riley and Tess sell their shares for a
profit. Under the Securities Exchange Act of 1934, liability may be
imposed on
a.
b.
c.
d.
none of these parties.

Riley and Tess only.
Riley only.
Riley, Shur-2-Gro, and Tess.
ANSWER: B
PAGE:
846
TYPE:
Fact Pattern 35-2 (Questions 2225 apply)

Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans
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
information from Dhani. When Eureka publicly announces its new laptop,
Dhani, Fay, Geoff, and Hu sell their stock for a profit.
22.
Refer to Fact Pattern 35-2. 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
a.
b.
c.
d.
a forward-looking forecast.
not material.
not yet public.
not yet true.
ANSWER: C
PAGE:
846
23.
TYPE:
Refer to Fact Pattern 35-2. Under the Securities Exchange Act of

1934, Fay is most likely
a.
b.
c.
d.
liable for insider trading.

not liable because Fay did not prevent others from profiting.
not liable because Fay did not solicit information from Dhani.
not liable because Fay does not work for Eureka.
57
ANSWER: A
PAGE:
846
24.

not liable because Geoff did not prevent others from profiting.
not liable because Geoff did not solicit information from Dhani.
not liable because Geoff does not work for Eureka.
ANSWER: A
PAGE:
846

not liable because Hu is only a tippee, not a tipper.
not liable because Hu is too far down the chain of disclosure.
not liable because Hu traded on the basis of a true fact.
ANSWER: A
PAGE:
846
TYPE:
High-Five Aero Corporation is required to register its securities under

Section 12 of the Securities Exchange Act of 1934. Section 14(a) of
the act regulates
a.
b.
c.
d.
the
the
the
the
declaration of dividends by High-Fives board of directors.

later re-registration of High-Fives securities.
short-swing activities of High-Fives insiders.
solicitation of proxies from High-Fives shareholders.
ANSWER: D
PAGE:
848
27.
TYPE:

1934, Hu is most likely
a.
b.
c.
d.
26.

1934, Geoff is most likely
a.
b.
c.
d.
25.
TYPE:
TYPE:
North American Properties, Inc., and its officers, directors, and shareholders, buy and sell securities. Section 16(b) of the Securities
Exchange Act of 1934 covers
a.
all purchases and sales of securities.
58
b.
c.
d.
only
purchases
and
sales
of
securities
involving
misappropriation.
only purchases and sales of securities involving short-swing
profits.
only purchases and sales of securities involving tippers and
tippees.
ANSWER: C
PAGE:
848
TYPE:
59
28.
Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares
of EPC stock. One week later, EPC announces that it will merge with
a competitor, Fuel Oil Company, and the price of EPC stock
increases. One month later, Della sells her shares for a profit. Under
Section 16(b) of the Securities Exchange Act of 1934, Della would
not be liable if, after buying the stock, she had waited
a.
b.
c.
d.
less than fourteen days to sell it.

more than six months to sell it.
ninety days to sell it.
two months to sell it.
ANSWER: B
PAGE:
848
29.
Dee, an accountant, does not work for Emergent Company, but

wrongfully obtains inside information concerning Emergent. Based
on the information, Dee buys and sells Emergent stock for personal
gain. The Securities and Exchange Commission prosecutes Dee,
arguing that she is liable because she stole information rightfully
belonging to another. This argument is
a.
b.
c.
d.
the
the
the
the
blue-sky theory.
misappropriation theory.
red-herring theory.
tipper/tippee theory.
ANSWER: B
PAGE:
848
30.
TYPE:
TYPE:
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
a.
b.
c.
d.
a bounty payment.
damages equal to the amount of Virals profits.
damages equal to the amount of Unos losses (if any).
triple Virals profits.
ANSWER: A
PAGE:
850
TYPE:
60
31.
Mo, an officer with NuProduct Company, receives a bounty payment,

which is a payment from
a.
b.
c.
d.
a government official to a recipient for an act beneficial to the

state.
an investor to a company officer for material, inside
information.
a private corporation to an employee for a business
opportunity.
any tippee to any tipper for any tip.
ANSWER: A
PAGE:
850
32.
any other public company with which Flux exchanges shares.

any state in which Flux does business.
the federal government.
the state in which Flux incorporated.
ANSWER: C
PAGE:
855
TYPE:
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 Haulings financial results are accurate and
timely, the firms senior officers must set up and maintain
a.
b.
c.
d.
internal disclosure controls and procedures.

external release and reveal timetables.
personal peruse and review liability policies.
public information and discussion forums.
ANSWER: A
PAGE:
855
34.
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
a.
b.
c.
d.
33.
TYPE:
TYPE:
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
61
a.
b.
c.
d.
certify that the reports are complete and accurate.

designate a corporate official to assume liability for
inaccuracies.
do nothing.
read the reports and be prepared to answer questions about
them.
ANSWER: A
PAGE:
855
TYPE:
62
35.
Kirk is the chief financial officer of Lemon Corporation, which is required to file certain financial statements with the Securities and
Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002,
Kirk must personally
a.
b.
c.
d.
certify that the statements are accurate.

delegate the responsibility for preparing the statements.
deliver the statements to the appropriate SEC officer.
prepare the statements.
ANSWER: A
PAGE:
855
TYPE:
ESSAY QUESTIONS
1.
In May 2009, 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?
ANSWER: The SEC is correct on both points. To be exempt under
Rule 505 of Regulation D of the Securities Act of 1933, a private,
noninvestment company offering for less than $5 million in any
twelve-month period may be sold to any number of accredited
investors but no more than thirty-five unaccredited investors, an
offering must not be generally advertised or solicited, and the SEC
must be notified of the sales. If a sale involves any unaccredited
investor, all investors must be given material information about the
offering company before the sale. Precautions must be taken against
nonexempt, unregistered resales. In this problem, Nationals offering
complies with all of the requirements except the following: the offering is generally advertised, and the stock is sold to forty
63
unaccredited investors. This is enough to remove Nationals offering

from the exemption. Even if the offering were exempt from
registration, however, resales might not be exempt. Securities
initially exempt under Rule 505 are restricted securities. This means
that they must be registered before resale unless they qualify under
a Rule 144 or Rule 144A exemption.
PAGES:
840841 & 842
TYPE:
NAT: AACSB Reflective LOC: AICPA Decision Modeling
2.
When Looking Glass Corporation wishes to issue certain securities, it

must provide sufficient information for Alice, and other
unsophisticated investors, to evaluate the financial risk involved.
Specifically, the law imposes liability for making a false statement or
omission that is material. What sort of information would Alice
consider material?
ANSWER: Most likely, Alice, and any other average unsophisticated
investor, is not concerned with minor inaccuracies but with facts that
if disclosed would tend to deter her from buying the securities. This
would include facts that have an important bearing on the condition
of the issuer and its businessfraud, a dividend change, a significant
change in the firms financial condition, and a new discovery,
process, or product, as well as its liability, loans to officers and
directors, customer delinquencies, and pending lawsuits. Making
false statements or omissions with respect to this type of information could subject a corporation to liability under the securities laws.
PAGES:
843846
TYPE:
NAT: AACSB Reflective LOC: AICPA Decision Modeling

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37

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

A registration statement must state how a corporation plans to use

A registration statement must include a financial statement certified

Before filing a registration statement, an issuer must attempt to sell,

UNIT SIX: BUSINESS ORGANIZATIONS

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

Sales of securities must occur within twenty days of the filing of a

A corporation whose security does not qualify for an exemption can

Securities that are exempt from the registration requirement can

Securities of charitable organizations are exempt

A free-writing prospectus may be used before the Securities and

Generally, stock offerings that are made in a limited manner during

UNIT SIX: BUSINESS ORGANIZATIONS

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

Private offerings of securities in unlimited amounts can never be

Private parties cannot sue violators of the Securities Act of 1933.

Against a charge of a violation of the Securities Act of 1933, only an

Willful violations of the Securities Act of 1933 may be subject to

Most securities can be resold without registration.

Section 10(b) of the Securities Exchange Act of 1934 covers only

UNIT SIX: BUSINESS ORGANIZATIONS

The key to liability under Section 10(b) of the Securities Exchange

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

Buying or selling securities on the basis of nonpublic information is

Only outsiders who would ordinarily be deemed fiduciaries of the

Forward-looking financial forecasts are prohibited under SEC Rule

SEC Rule 10b-5 prohibits the commission of fraud in connection with

The Securities Exchange Act of 1934 provides for continuous,

A corporation can recapture any profits realized by an insider on any

UNIT SIX: BUSINESS ORGANIZATIONS

Violations of the Securities Exchange Act of 1934 may be subject to

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

Willful violations of the Sarbanes-Oxley Act of 2002 may be subject

Corporations chief executive officers are directly accountable for the

Corporate governance can be defined as the relationship between a

Generally, states do not have antifraud provisions that cover

Blue sky laws are state securities laws.

State securities laws apply only to interstate transactions.

Pumping and dumping occurs when a person buys shares,

UNIT SIX: BUSINESS ORGANIZATIONS

MULTIPLE CHOICE QUESTIONS

Frothy Beverage Corporation is a public company whose shares are

contribute to the operations of national stock exchanges.

Cotton Products Corporation is a public company whose shares are

increase corporate accountability by imposing responsibility on

Readmore Bookstore Corporation files a registration statement with

market professionals to explain to all investors.

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

UNIT SIX: BUSINESS ORGANIZATIONS

RingTone Corporation is a public company whose securities are

almost any stake in the ownership or debt of a company.

file a registration statement with the SEC.

Celfone Corporation is required to file a registration statement with

a copy of prospectuses to be provided to investors.

Bild-It-Rite Corporation is a public company that is preparing to issue

Begin Anew Enterprise, Inc., completes its registration process and

CHAPTER 35: INVESTOR PROTECTION, INSIDER TRADING, & CORP. GOV.

UNIT SIX: BUSINESS ORGANIZATIONS

Mit-E Clean Corporation wants to make an offering of securities to

a forward-looking financial forecast.

Flo-Thru Corporation is poised to issue securities that, under the