Multiple Choice

Identify the choice that best completes the statement or answers the question.
1.
Hobie, the chief executive officer of Ideal Gamers, Inc. (IGI), intentionally understates the amount of
IGI's debts in information provided to investors as part of an issue of IGI stock. Jack buys the stock and
suffers a loss. Hobie may be subject to
a.
b.
c.
d.

government criminal prosecution and Jack's civil suit.

neither government criminal prosecution nor Jack's civil suit.
only government civil prosecution.
only government civil suit.

2.

Section 10(b) of the Securities Exchange Act of 1934 applies to

a.
b.
c.
d.

only the purchase or sale of a security by an investment company.

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.

3.
Lex, a salesperson for Macro Corporation, learns about a new project that Macro will
undertake. Lex buys 1,000 shares of Macro stock. When the price increases, Lex sells his shares for a profit.
Lex would not be liable for insider trading if the information about the project was
a.
b.
c.
d.

Not material when he sold the stock.

public after he bought the stock.
Not material when he bought the stock.
too speculative when he bought the stock.

4.
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 reveals the company plans to Fay, who buys 500 shares. Fay
tells Geoff, who tells Hu, each of whom 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. 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.

5.
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 reveals the company plans to Fay, who buys 500 shares. Fay
tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her information from
Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a
profitUnder the Securities Exchange Act of 1934, Fay is most likely
a. liable for insider trading.

b. not liable because Fay did not prevent others from profiting.
c. not liable because Fay did not solicit information from Dhani.
d. not liable because Fay does not work for Eureka.
6.
Rico, an engineer for Shur-2-Gro Seed Corporation, learns that Shur-2-Gro has developed a corn
hybrid to triple the output of any farm. Rico buys 20,000 shares of Shur-2-Gro stock. He tells Taylor, who
buys 15,000 shares. After the new hybrid is announced publicly, the price of Shur-2-Gro stock increases. Rico
and Taylor 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.

Rico and Taylor only.
Rico only.
Rico, Shur-2-Gro, and Taylor.

7.
Della, an officer of 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.

8.
Ridgeline Sports Gear, Inc., is required to register its securities under Section 12 of the Securities
Exchange Act of 1934. Section 16(b) of the act covers
a.
b.
c.
d.

the declaration of dividends by Ridgeline's board of directors.

the later re-registration of Ridgeline's securities.
the short-swing activities of Ridgeline's insiders.
the solicitation of proxies from Ridgeline's shareholders.

9.
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.

10.
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 corporate governance requirements of
a.
b.
c.
d.

any other public company with which Flux exchanges shares.

any state in which Flux does business.
the Uniform Commercial Code.
the state in which Flux incorporated.

11.
Catalina promises high returns to Darby and other investors, who then agree to trust their funds to
Catalina. She uses these funds to pay previous investors. This is

a.
b.
c.
d.

a Ponzi scheme.
a stock option.
an accredited investor.
a tombstone ad.

12. Which of the following statements is or are accurate?

I.
The Securities and Exchange Commission interprets federal securities laws, but does not investigate
violations.
II.
The Securities and Exchange Commission administrative law judges hear cases involving alleged
securities law violations.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
13.

Which of the following statements is or are accurate?

I.
The definition of security in the 1934 Act does not include instruments and interests commonly
known as securities.
II.
The definition of security in the 1934 Act differs substantially from the definition of securities in the
1933 Act.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
14.

Which of the following statements is or are accurate?

I.
Most private, small-business, noninvestment company offers of securities are not exempt from the
registration requirements.
.

II.

"Forward-looking" financial forecasts are immune from liability for securities fraud.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
15.

Which of the following statements is or are accurate?

I.

Anyone who wrongfully obtains inside information and trades on it for his or her personal gain is
liable in a private civil action under SEC Rule 10b-5.
II.
For criminal sanctions to be imposed under Section 10(b) of the Securities Exchange Act of 1934 and
SEC Rule 10b-5, scienter is not required.
16.116.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
16.

Which of the following statements is or are accurate?

I.
For a defendant to be convicted in a criminal prosecution under the securities laws, there can be no
reasonable doubt that the defendant knew he or she was acting wrongfully.
II.
The Securities and Exchange Commission can bring a civil action against anyone who aids in a
violation of the Securities Exchange Act of 1934.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.

17.
I.

Which of the following statements is or are accurate?

State corporation statutes set up the legal framework for corporate governance.

II.
Under the Sarbanes-Oxley Act of 2002, chief executive officers no longer need to certify the accuracy
of information in corporate financial statements.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
18.

SEC Rule 10b-5 applies to

a. only the purchase or sale of corporate stock of other corporations by a financial

corporation.

b. only the purchase or sale of a security involving an officer or director.

c. only the purchase of a security involving a shareholder.
d. the purchase or sale of corporate bonds.

19.
Sid, a director of Tech Software Company, learns that a Tech engineer has developed "Ur Call," a
new, exciting video game. Sid buys Tech stock and tells his friend Velma, who also buys Tech stock. When
the new game is released three weeks later, Sid and Velma sell their stock for a big profit. 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 Velma of the new game.

after Velma bought Tech stock.
after the public release of the game.
just before the game was released.

20.
Sid, a director of Tech Software Company, Inc. (Tech), learns that a Tech engineer has
developed "Ur Call," a new, exciting video game. Sid buys Tech stock and tells his friend Velma, who also
buys Tech stock. When the new game is released three weeks later, Sid and Velma sell their stock for a big
profit. Regarding Sid's 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 Sid's profits.

half of Sid's profits.
10 percent of Sid's profits.
none of Sid's profits.

21.
Dave, a painter who does not work for Emergent Company but is an independent contractor,
while painting the office of the Chief Executive Officer of Emergent Company, obtains inside information by
overhearing a conversation while in the office concerning Emergent. Based on the information, Dave buys
and sells Emergent stock for personal gain. The Securities and Exchange Commission prosecutes Dave,
arguing that he is liable because he stole information rightfully belonging to another. This argument is
a.
b.
c.
d.

the blue-sky theory.

the misappropriation theory.
the red-herring theory.
the tipper/tippee theory.

22.
Excel Aviation 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 declaration of dividends by Excel's board of directors.

the later re-registration of Excel's securities.
the short-swing activities of Excel's insiders.
the solicitation of proxies from Excel's shareholders.

23.
Ernie contracts to buy securities from Freda. Later, believing that Freda committed fraud in
the deal, Ernie files a suit against her. If Freda is found liable, Ernie may obtain

a. an apology only.
b. damages to the extent of Freda's illegal profits only.
c. damages to the extent of Freda's illegal profits or rescission of Ernie's contract to buy
securities from Freda.
d. rescission of Ernie's contract to buy securities from Freda only.
24.
Maple Products Corporation is a public company, which New Hampshire regulates and in
which Orin invests. The Sarbanes-Oxley Act of 2002 introduced federal corporate governance requirements to
a.
b.
c.
d.

public companies.
private investors.
state regulators.
none of these choices.

25.
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 Hauling's financial results are accurate
and timely, the firm's 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."

26.
Lara is the chief executive officer of Micro, Inc., which is required to file certain financial
reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Lara
must
a. certify that the reports are complete and accurate.
b. designate a corporate official to assume liability for inaccuracies.
c. do nothing.
d. read the reports and be prepared to answer questions about them.
27.

Which of the following statements is or are accurate?

I.
To be considered material, a fact must be significant enough that it would likely affect an investor's
decision to buy or sell a company's securities.
II.
Liability under Section 10(b) of the Securities Exchange Act of 1934 has been extended to include
certain "outsiders."

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
28.

Which of the following statements is or are accurate?

I.
It is always wrong to disclose material, nonpublic information about a company to a person who
would not otherwise be privy to it.
II.
For civil sanctions to be imposed under Section 10(b) of the Securities Exchange Act of 1934 and
SEC Rule 10b-5, scienter must not exist.
29.

Which of the following statements is or are accurate?

I.
Violations of Section 16(b) of the Securities Exchange Act of 1934 include the sale by insiders of
stock acquired less than six months before the time of sale.
II.
For a defendant to be convicted in a criminal prosecution under the securities laws, a jury is allowed
to speculate that the defendant may have acted wrongfully.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.

30.

Which of the following statements is or are accurate?

I.
Private parties can sue violators of Section 10(b) of the Securities Exchange Act of 1934 and SEC
Rule 10b-5 in private civil actions.
II.
Private parties can sue violators of Section 10(b) of the Securities Exchange Act of 1934 and SEC
Rule 10b-5 only through shareholder derivative actions.

a. I only is accurate.
b. II only is accurate.
c. Both are accurate.
d. Neither is accurate.
31.
Dave, a painter who does not work for Emergent Company but is an independent contractor,
while painting the office of the Chief Executive Officer of Emergent Company, obtains inside information by
overhearing a conversation while in the office concerning Emergent Companys plans regarding a tender offer
to the shareholders of Notsinking Corporation.. Based on the information, Dave buys and sells Nonsinking
stock for personal gain. The Securities and Exchange Commission prosecutes Dave, arguing that he is liable
because he stole information rightfully belonging to another. The SEC most likely will base the prosecution
on

a.
b.
c.
d.

Tipper-tippee liability.
Rule 14e-3.
Misappropriation.
Section 11 of the Securities Act.