the first three quarters of each year and is known as the
118 quarterly report.
MODULE 22 FEDERAL SECURITIES ACTS AND ANTITRUST LAW
swer (d) is incorrect because there is no such exemption for
stockbroker transactions.
26. (d) Under Rule 504 of Regulation D, general offer-
ings and solicitations are permitted. Also, the issuer need
not restrict the purchasers' right to resell. Note that both I
and Il are requirements of Rules 505 and 506 of Regulation
D.
B. Securities Exchange Act of 1934
27. (c) Under the Securities Exchange Act of 1934,
issuers of securities registered under this Act must file
quarterly reports (Form lO-Q) for the first three quarters of
each fiscal year. The financial data in these may be un-
audited; however, material misinformation is a violation of
the 1934 Act. Answer (a) is incorrect-the Federal Trade
Commission Act does not apply to this action. Answer (b)
is incorrect because the Securities Act of 1933 applies to the
initial issuance of securities and not to the secondary market
of publicly traded securities. Answer (d) is incorrect be-
cause NAFT A is an agreement designed to promote free
trade between the US, Mexico, and Canada.
28. (b) Purposes of Section lO(b) of the Securities Ex-
change Act of 1934 include deterring fraud in the securities
industry and encouraging disclosure of relevant information
so investors can make better decisions. The SEC does not
rate the securities.
29. (c) Under the Securities Exchange Act of 1934,
issuers of securities registered under this Act must file an-
nual and quarterly reports with the SEC. The company must
also file current reports covering certain material events such
as a change in the amount of issued securities, a change in
corporate control, or a change in newly appointed officers.
Answer (a) is incorrect because a competitor's making a
tender offer need not be reported to the SEC. Answer (b) is
incorrect because Integral Corp. need not notify the SEC of
stockholder "short swing profits." Answer (d) is incorrect
because the company need not report information on the
market price of its stock to the SEC. This market price in-
formation is already public information because the stock is
traded on the New York Stock Exchange. .
30. (b) Securities must be registered with the SEC if
they are traded on any national securities exchange. Securi-
ties must also be registered if t11ey are traded in interstate
commerce where the corporation has more than $10 million
in assets and 500 or more shareholders.
31. (a) The Securities Exchange Act of 1934 has reg-
istration provisions that require specified disclosures in-
cluding bonus and profit-sharing arrangements, the financial
structure and nature of this business, and names of officers
and directors.
32. (c) Under the Federal Securities Act of 1933, which
incorporates the filing requirements of the Federal Securities
Exchange Act of 1934,' the issuer must file with the SEC an
annual report on Form lO-K. Answer (a) is incorrect be-
cause the issuer must file the annual report with the SEC but
is not required to distribute it to its stockholders. An-
swer (b) is incorrect because the solicitation of proxies trig-
gers certain proxy solicitation rules. Answer (d) is incorrect
because it is the current report on Form 8-K that is filed
when material events occur. The Form lO-Q is filed each of
MODULE 22 FEDERAL SECURITIES ACTS AND ANTITRUST LA W
41. (c) Forms lO-K (annual reports) and lO-Q (quarterly
reports) must be filed with the SEC. Forms 10-K containing
financial statements must be audited by independent public
accountants. However, this is not true of Forms lO-Q which
cover the first three fiscal quarters of each fiscal year of the
issuer. The financial statements in 10-Qs must be reviewed
by public accountants.
42. (b) When certain material events take place, such as
a change in corporate control, the corporation covered under
the 1934 Act must file Form 8-K, a current report, with the
SEC within four days after the material event occurs. An-
swer (a) is incorrect because Burk Corporation must file
Forms lO-K, annual reports, and Forms lO-Q,.quarterly re-
ports, whether or not a material event has taken place. An-
33. (b) Under the 1934 Act, insiders include officers
and directors of the corporation as well as owners of 10% or
more of the stock of the corporation. Accountants, attor-
neys, and consultants can also be insiders subject to further
regulation under the 1934 Act. Creditors, that is, owners of
debentures are not considered to be insiders.
34. (a) Under Rule lOb-5, it is unlawful to use schemes
to defraud in connection with the purchase or sale of any
security. Note that this rule was made from powers given
the SEC under the Securities Exchange Act of 1934, which
applies to purchases in addition to sales of securities.
35. (c) For the Securities Exchange Act of 1934 to ap-
ply, including the antifraud provisions of Rule lOb-5, there
must be shown a federal constitutional basis such as use of
the mail, interstate commerce;or a national securities ex-
change. Answer (a) is incorrect because the antifraud provi-
sions apply whether or not the securities had to be registered
under either the 1933 Act or the 1934 Act. Answer (b) is
incorrect because under Rule lOb-5, the plaintiff must prove
more than negligence (i.e., either knowledge of falsity or
reckless disregard for the truth in misstating facts). An-
swer (d) is incorrect because the plaintiff could recover if the
defendant acted with reckless disregard for the truth.
36. (b) If the shares are listed on a national securities
exchange, they are subject to the reporting provisions of the
1934 Act. There is no provision concerning a corporation
owning more than one class of stock that by itself requires
that it be subject to the reporting provisions of the 1934 Act.
37. (a) Under the 1934 Act, Link must file with the SEC
annual reports (Form lO-K), quarterly reports (form lO-Q),
current reports (Form 8-K) of certain material events, and
proxy statements when proxy solicitations exist.
,38. (a) When there is a proxy solicitation, Link must
make a report of this to the SEC. Also, reports of tender
offers to purchase securities need to be submitted to the
SEC.
39. (a) A tender offer is a request to the shareholders of
a given company to tender their shares for a stated price. If
the tender offer was unsolicited, the corporation must report
this to the SEC under the reporting provisions of the Securi-
ties Exchange Act of 1934. Also, trading by insiders such as
officers, directors, or shareholders owning at least 10% of
the stock of a corporation registered with the SEC must also
be reported to the SEC under the 1934 Act. Likewise, so-
licitation of proxies must be reported to the SEC.
40. (c) Under the Securities Exchange Act of 1934
which applies if interstate commerce or the mail is used, any
purchaser of more than 5% of a class of equity securities
must file a report with the SEC. Answer (d) is incorrect
because the required annual report (Form 10-K) must be
certified by independent public accountants. Answer (a) is
incorrect because each company must also comply with the
filing requirements under the Securities Act of 1933. An-
swer (b) is incorrect because there is no exemption from
filing proxy statements simply because the company has
only one class of stock.
swer (c) is incorrect because there is no such exception pro-
vided. Answer (d) is incorrect because Rules 504, 505, and
506 under Regulation D apply to the initial issuance of se-
curities under the Securities Act of 1933 and do not relieve
Burk Corporation from the filing requirements with the SEC
under the 1934 Act.
43. (c) Government creation of monopoly status
through a patent is permissible under the antitrust law as
long as no other anticompetitive conduct is involved, Loop
Corporation is, therefore, entitled to sell the micropencil at a
price determined by the normal competitive forces of supply
and demand. A patent grants the holder a twenty-year ex-
clusive right to market the product. The twenty years starts
at the application date. For design patents, the period is
fourteen years. Answer (a) is incorrect because prohibiting
the retailers from selling competing products is an exclusive
dealing agreement which is illegal where the effect is to
substantially lessen competition in that market. Answer (b)
is incorrect because tying agreements involving patented
products are illegal per se if a substantial amount of business
is involved. Answer (d) is incorrect because imposing a
minimum resale price on the retailers is a vertical price fix-
ing agreement which is also illegal per se.
44. (b) The R~binson-Patman Act prohibits price dis-
crimination in interstate commerce of commodities of like
grade and quality. A violation of the act exists if the effect
of the price discrimination may be to substantially lessen
competition or tend to create a monopoly. Therefore, all that
Patman must do to maintain a suf~cient legal action is to
allege that due to Robinson's pricing activities there is a
reasonable possibility that competition may be adversely
affected. Answer (a) is incorrect because Patman does not
have to show actual injury to competition; Patman must
show that such discrimination may substantially lessen com-
petition. Answer (c) is incorrect because Congress pur-
posely adopted the Robinson-Patman Act to prevent unilat-
eral price determination which has the resultant effect of
les ening competition or tending to create a monopoly. An-
swer (d) is incorrect because the reasonableness of the prices
charged is irrelevant. The issue is whether the price dis-
crimination may substantially lessen competition or tend to
create a monopoly.