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Exam 20: Investor Protection and Corporate Governance

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Question 41

Multiple Choice

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Squeaky 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 Squeaky sells its securities,it must provide investors with

A) a forward-looking financial forecast.
B) an investment contract.
C) a prospectus.
D) samples of its products.

E) A) and C)
F) None of the above

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Question 42

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Exemptions from federal securities law are not exemptions from state laws.

A) True
B) False

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Question 43

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Any corporation with less than $10 million in assets and fewer than five hundred shareholders must register their securities with the Securi-ties and Exchange Commission.

Private parties may sue violators of Section 10(b)and Rule 10b-5.

 Lyman is the chief financial officer of Moneysworth Corporation,which is re-quired to file certain financial statements with the Securities and Exchange Commission (SEC) .Under the Sarbanes-Oxley Act of 2002,Lyman must personally​

State securities laws apply mainly to interstate transactions.

​Fact Pattern 20-2 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. -Refer to Fact Pattern 20-2.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

Fact Pattern 20-3 Dhani,an accountant for Eureka,Inc.,learns of undisclosed com-pany plan-s 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 informa-tion from Dhani.When Eureka publicly an-nounces its new laptop,Dhani,Fay,Geoff,and Hu sell their stock for a profit. -Refer to Fact Pattern 20-3.Under the Securities Ex-change Act of 1934,Fay is most likely​

Against a charge of a violation of the Securities Act of 1933,only an issuer of stock can assert the due diligence defense.

SEC Rule 10b-5 prohibits the commission of fraud in connection with the purchase or sale of any security.

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 mil-lion and more than five hundred shareholders.The Securities Exchange Act of 1934 applies to

The definition of security in the Securities Act of 1933 does not include instruments commonly known as securities.