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Exam 46: Securities Regulation

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Question 1

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The SEC can file criminal charges against those who violate provisions of the 1933 Securities Act and the 1934 Securities Exchange Act.

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Question 2

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Hannah owned 12 percent of the shares of Floating Walls Inc., a furniture manufacturing company, and had significant influence on the members of the board. She was informed about all the important decisions of the company and was also called for various board meetings. On obtaining information-from one of the senior board members-about the fall in the prices of the company's share, Hannah immediately sold 5 percent of her shares in the market. It can be said that Hannah indulged in _____.

A) insider trading
B) proxy solicitation
C) a primary market transaction
D) a capital market transaction
E) a false-swing

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Question 3

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The Foreign Corrupt Practices Act was part of the Securities Exchange Act of 1934 when it was passed into law during the Depression.

The Securities and Exchange Commission may now enjoin people and firms from violating the federal securities laws, and may impose civil fines as well.

A civil injunction is a judicial process or order requiring a person or entity to do a particular act or to refrain from doing a particular act.

The Securities and Exchange Commission is bipartisan: not more than three commissioners may be from the same political party.

Consolidated Cocoa Inc., a large chocolate manufacturing company, sells its shares directly to the public at $50 per share. Ron purchases 100 shares of the company. When the price of the shares goes up to $60, Ron decides to sell 50 shares. He approaches a broker who sells these shares to John at $60. This resale of the shares by the broker represents a sale in the _____ market.

Gloria purchased 200 shares of New You Inc., a cosmetic company, after Dora-a director of New You Inc.-informed her about the company's new undertaking that might boost the share value in the market. Here, Gloria would be considered as a(n) _____.

According to the Supreme Court, notes that are not "investment contracts" can still be considered as securities if certain factors are present. State those factors.

In Reves v. Ernst and Young, the accounting firm had allegedly inflated the assets of a bankrupt cooperative that plaintiffs had invested in. The Court said that

The _____ is the fundamental "truth in securities" law.

What is a blue sky law?

In the Securities and Exchange Commission, the president of the United States can remove and replace commissioners during their terms of office.

The _____ is a body created by the Sarbanes-Oxley that oversees, inspects, and regulates accounting firms in their capacity as auditors of public companies.

Members of the general pulic may be at a significant disadvantage when dealing with professionals in the area of securities.

Daniel, one of the most influential members of the board of Fun Sports Inc., holds 15 percent of the registered security of the company. It can be said that Daniel is a corporate insider.

_____ is a legal term that refers to having intent or knowledge of wrongdoing.

The dissenting Justices in Dirks believ______________?

The law that relates to the recapture of short-swing profits -- Section 16(b) of the Securities Exchange Act ??--applies to any company with more than $10 million in assets and at least five hundred or more shareholders of any class of stock.

What are the three options that the Securities and Exchange Commission (SEC) has when it believes that a violation has occurred?