Chp 37 Corporate Securities

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 1. Doug trades in securities on a regional securities exchange. These trades are subject to regulation by
a. the National Securities Markets Improvement Commission.
b. the Securities and Exchange Commission.
c. the U.S. Department of Justice.
d. none of the above.

 

____ 2. Consumer Products 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. a prospectus.
b. a registration statement.
c. a tombstone ad.
d. all of the above.

 

____ 3. Consumer Industries Corporation (CIC) plans to issue stock for sale to the public. Before the sale can take place, CIC must file a registration statement with the SEC that contains, among other things,
a. a description of the accounting firm that audits CIC.
b. a description of the security being offered for sale.
c. a financial forecast for CIC's next fiscal year.
d. all of the above.

 

____ 4. Great Stores, Inc., makes a public offering of securities that is subject to the Securities Act of 1933. Under the act, the securities can be sold
a. as soon as a registration statement is filed.
b. by an underwriter only.
c. only if an investor is furnished with a prospectus.
d. without a registration statement.

 

____ 5. Ornamental Windows, Inc., completes its registration requirements and begins advertising the availability of its new issue of securities. Ornamental places a tombstone ad in the financial papers. This ad tells prospective investors
a. about the company's background.
b. about the merits of the securities.
c. where the investors can obtain a prospectus.
d. none of the above.

 

____ 6. Acme Enterprises, Inc., a corporation traded on a national stock exchange, wants to offer bonds for sale to the public. All-Rite Insurance Company, a state-regulated insurance company, wants to offer annuity contracts for sale to the public. Before any sale, registration must be made with the SEC for
a. Acme's bonds only.
b. All-Rite's annuity contracts only.
c. Acme's bonds and All-Rite's annuity contracts.
d. none of the above.

 

____ 7. Fast Food, Inc., is a noninvestment company that wants to issue stock of $4 million in a twelve-month period. Fast Food, with more than $25 million in annual sales, does not qualify as a small business issuer. Before the firm sells the stock, it must provide investors with
a. a notice of the issue.
b. an offering circular.
c. a red herring prospectus.
d. all of the above.

 

____ 8. Technix Corporation wants to issue stock of $10 million in a single offering. Technix does not have to provide any investors with any material information about itself, its business, or its securities if
a. all of the investors are accredited.
b. all of the investors are unaccredited.
c. any of the investors are accredited.
d. any of the investors are unaccredited.

 

____ 9. Adam, the chief executive officer of National Products, Inc. (NPI), intentionally misrepresents material facts in information provided to investors as part of an issue of stock in NPI. Kay buys the stock and suffers a loss. Adam may be subject to
a. only government prosecution.
b. only a private suit by Kay.
c. government prosecution and a private suit by Kay.
d. none of the above.

 

____ 10. As part of a stock offering for AmCorp, Inc., Bill, AmCorp's accountant, intentionally misrepresents material facts in the prospectus. Erin buys the stock unaware of the misrepresentation and suffers a loss. Bill may be subject to
a. a fine and imprisonment only.
b. damages only.
c. a fine, imprisonment, and damages.
d. none of the above.

 

____ 11. Mike is a stockbroker. The National Association of Securities Dealers (NASD) is a national securities association. The Securities Exchange Act of 1934 regulates the activities of
a. Mike only.
b. the NASD only.
c. Mike and the NASD.
d. none of the above.

 

____ 12. Intrastate Sales, Inc., has assets of less than $10 million and fewer than five hundred shareholders. National Discount Corporation has assets of more than $10 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to
a. Intrastate Sales only.
b. National Discount only.
c. Intrastate Sales and National Discount.
d. none of the above.

 

____ 13. International Investment Corporation, and its officers, directors, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 covers
a. all purchases and sales of securities.
b. only purchases and sales of securities by investment companies.
c. only purchases and sales of securities involving short-swing profits.
d. only purchases and sales of securities involving tippers and tippees.

 

____ 14. Gail, a salesperson for International Sales, Inc. (ISI), learns that ISI will increase the dividend it pays to shareholders. Gail buys 1,000 shares of ISI stock. When the price of the stock increases, Gail sells her shares for a profit. Gail would not be liable for insider trading if the information about the dividend was
a. material when she sold the stock.
b. public before she bought the stock.
c. public after she bought the stock.
d. too speculative when she bought the stock.

 

Fact Pattern 37-1
Jill, an accountant for U.S. Molecular, Inc. (USM), learns of undisclosed company plans to market a revolutionary new computer that uses atoms and molecules instead of chips and wires. Jill buys 1,000 shares of USM stock. She reveals the company plans to Ken, who buys 500 USM shares. Ken tells Laura, who buys 100 shares. Laura knows that Ken got his information from Jill. When USM publicly announces its new computer, they all sell their stock for large profits.

____ 15. Refer to Fact Pattern 37-1. If Ken is subject to liability, it would be because the information on which he based his purchase of USM stock was
a. about USM's future plans.
b. not material.
c. not public.
d. none of the above.

 

____ 16. Refer to Fact Pattern 37-1. To avoid liability, Jill and Ken should have refrained from investing in USM, after the company announced its new computer,
a. for six months.
b. for a reasonable time.
c. forever.
d. none of the above.

 

____ 17. Refer to Fact Pattern 37-1. Subject to liability, under the Securities Exchange Act of 1934, for insider trading is
a. Jill only.
b. Ken only.
c. Jill and Ken.
d. none of the above.

 

____ 18. Refer to Fact Pattern 37-1. Laura is
a. an insider.
b. a tippee.
c. a tipper.
d. none of the above.

 

____ 19. Paula, a director of National Foods Corporation, learns that the company has developed a new fat-free food. Paula buys 1,000 shares of National stock. One week later, the new product is announced, the price of the stock increases, and Paula sells her shares for a profit. Under SEC Rule l0b-5, Paula would not be liable if she had waited
a. a reasonable time after the product was announced to buy the stock.
b. a reasonable time after the purchase of the stock to sell it.
c. thirty days after she learned of the product to buy the stock.
d. thirty days after the purchase of the stock to sell it.

 

____ 20. Coastal Financial Corporation, and its officers, directors, and shareholders, buy and sell securities. SEC Rule 10b-5 applies to
a. all purchases and sales of securities.
b. only purchases and sales of securities by investment companies.
c. only purchases and sales of securities involving short-swing profits.
d. only purchases and sales of securities involving tippers and tippees.

 

____ 21. Nick, an engineer for Omega Company, learns that Omega has developed a computer chip to triple the speed of any computer. Nick buys 1,000 shares of Omega stock. Nick talks about his job and the chip to Sue, who buys 500 shares. After the new chip is announced publicly, the price of Omega stock increases. Nick and Sue sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on
a. Nick only.
b. Sue only.
c. Nick and Sue.
d. none of the above.

 

____ 22. Doug, an accountant, does not work for National Software, Inc. (NSI), but wrongfully obtains inside information concerning NSI. Based on the information, Doug buys and sells NSI stock to his personal gain. The SEC prosecutes Doug, arguing that he should be held liable because he stole information rightfully belonging to another. The SEC's argument is
a. the blue-sky theory.
b. the misappropriation theory.
c. the Section l6(b) theory.
d. the tipper/tippee theory.

 

Fact Pattern 37-2
Paula, a director of Medical Drug Company (MDC), learns that a scientist employed by the corporation has developed a new drug. Paula buys MDC stock and tells her friend Quinn, who also buys MDC stock. When the new drug is announced three months later, Paula and Quinn sell their stock for a big profit.

____ 23. Refer to Fact Pattern 37-2. Under SEC Rule l0b-5, Paula would not be liable if she had waited to buy MDC stock until
a. after Paula told Quinn of the new drug.
b. after Quinn sold his MDC stock.
c. a reasonable time had passed after the drug was announced.
d. none of the above.

 

____ 24. Refer to Fact Pattern 37-2. Regarding Paula's profits on the purchase and sale of MDC stock, under Section 16(b) of the Securities Exchange Act of 1934 MDC may recapture
a. all of Paula's profits.
b. up to 50 percent of Paula's profits.
c. up to 10 percent of Paula's profits.
d. none of the above.

 

____ 25. 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.
b. only purchases and sales of securities by investment companies.
c. only purchases and sales of securities involving short-swing profits.
d. only purchases and sales of securities involving tippers and tippees.

 

____ 26. Dave, an officer for Eagle Company, buys 1,000 shares of Eagle stock. One week later, Eagle announces that it will merge with American Products, Inc. The next day, the price of Eagle stock increases, and Dave sells his shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Dave would not be liable if he had waited
a. a reasonable time after the merger was announced to buy the stock.
b. a reasonable time after the purchase of the stock to sell it.
c. six months after the merger was announced to buy the stock.
d. six months after the purchase of the stock to sell it.

 

____ 27. Consolidated Industries, Inc. (CII), is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates
a. the declaration of dividends by CII's board of directors.
b. the short-swing activities of CII's insiders.
c. the solicitation of proxies from CII's shareholders.
d. none of the above.

 

____ 28. In a court, Carol is charged with the commission of securities fraud. If Carol is found guilty, the court can bar her from serving a publicly held corporation as
a. a director only.
b. an officer only.
c. an officer or a director.
d. none of the above.

 

____ 29. Mark, an accountant for National Manufacturing Corporation, receives a bounty payment. This is a payment by
a. a company officer to an insider to obtain inside information.
b. a government official to reward a recipient for an act beneficial to the state.
c. a tippee to an insider for passing on inside information.
d. none of the above.

 

____ 30. Tom, an accountant for Universal Company, learns that Vicky, a Universal director, has violated insider-trading laws. Tom does not suffer a loss in trading with Vicky, but reports her to the Securities and Exchange Commission. Tom may be entitled to
a. a bounty payment.
b. damages equal to the amount of Vicky's profits.
c. damages equal to the amount of Universal's losses (if any).
d. triple the profits gained by Vicky.

 

____ 31. American Mutual Fund, Inc., is a mutual fund. American's activities are
a. not subject to regulation if American existed before 1930.
b. not subject to regulation if American has no unaccredited investors.
c. regulated by the Investment Company Act of 1940.
d. regulated solely by state law.

 

____ 32. First National Bank is a bank, and Community Savings & Loan is a savings and loan association. Institutions that do not have to register with the SEC under the Investment Company Act of 1940 include
a. First National Bank only.
b. Community Savings & Loan only.
c. First National Bank and Community Savings & Loan.
d. none of the above.

 

____ 33. Great Investments Corporation (GIC) is an investment company. GIC must file with the Securities and Exchange Commission
a. annual reports only.
b. a notification of registration only.
c. annual reports and a notification of registration.
d. none of the above.

 

____ 34. New Tech Corporation wants to make an initial public offering of securities over the Internet. To do so, New Tech must comply with
a. federal filing requirements only.
b. state filing requirements only.
c. federal filing requirements and state filing requirements.
d. none of the above.

 

____ 35. Metro Transport Company offers its stock for sale only in a single state. If the law in Metro's state is like the law in most states, Metro's offer is subject to state securities statutes that include
a. antifraud provisions only.
b. disclosure requirements only.
c. antifraud provisions and disclosure requirements.
d. none of the above.