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Exam 17: Regulation of Securities, Corporate Governance, and Financial Markets

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Question 41

Multiple Choice

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Fred is a corporate insider and has made some very large profits through the buying and selling of his corporation's stock during the previous six months. These profits would be called:

A) short-term profits.
B) short-range profits.
C) short-spell profits.
D) short-swing profits.

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

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Question 42

Multiple Choice

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One form of private placement exemption involves sales of securities:

A) in limited dollar amounts to nonaccredited investors.
B) only to employees, officers, and board members of the issuing corporation.
C) to accredited investors.
D) to other corporations, with no sales to individuals permitted.

E) B) and C)
F) A) and B)

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Question 43

Multiple Choice

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Wayne is the president and CEO of a corporation. He owns 25 percent or the company's total stock and has been selling large chunks of his holdings over the past three months. If the SEC investigates him for short-swing profits, it would do so under:

Under TARP provisions:

The Securities Act of 1933 focuses on the:

If a company files bankruptcy, preferred stockholders have priority over common stockholders and will be paid from the bankruptcy estate first if payments are to be made.

An ________ investor is one who has experience, business savvy, and knowledge of the market to the extent that the law imputes a certain cognizance of investment risk and the ability to protect his or her own interests.

The Financial Stability Oversight Board created by the Restoring American Financial Stability Act of 2010 has the power to:

The purchase and sale of issued securities between investors is called the:

With regard to financial reporting and corporate governance, what is now required of public companies under the Sarbanes-Oxley Act?

Donald is the president and CEO of Formerly Fat Inc., a health and diet company that promotes weight loss through its "revolutionary" feast and famine diet. The diet calls for eating anything you want on Tuesdays and Thursdays, with fasting on Mondays, Wednesdays, and Fridays. On weekends, food is limited to one big lunch each day. Formerly Fat has a celebrity spokesperson who claims she and all her Hollywood friends swear by this diet, and the company has infomercials running on television constantly. On a Friday afternoon, Donald is called by a reporter, who asks if he's concerned that the New England Journal of Medicine, one of the most respected and prestigious medical journals in the country, is about to publish an article on Tuesday documenting that numerous practitioners of this diet suffer from serious medical problems and that three deaths have occurred relating to the diet. The article's authors will be calling for an investigation and eventual ban on advertising and promotion of the diet. Donald laughs and claims the article will be challenged and shown to be inaccurate. As soon as he hangs up, he calls his wife, who has the company stock in her name for liability reasons, and then his brother and says to each, "I just got word that the company is in trouble, and we will have problems soon. Sell your stock immediately." On Monday morning, his wife and brother sell all of their holdings. On Tuesday the article is published, and by Wednesday the stock value is down 40 percent. Discuss this situation.

The primary market consists of securities sales in public markets, while the secondary market consists of security sales in private placements.

Frank is the president and CEO of a publicly held corporation and is quoted in the paper as saying that the company is solid and has a bright future. He mentions a number of projects and plans that he anticipates will be successful in both the short term and long term, thus benefiting the company. Betty Sue reads this article and calls a broker, directing him to buy shares in Frank's company. After two years the stock is below the price she paid for it, and she brings suit, claiming that Frank committed a fraud when he stated that the company was solid and would be very successful in the future. What must be proved by each side, and what is the likely outcome of this suit?

The SEC has the power to suspend or revoke the licenses of brokers that violate securities laws.

Sunshine Corporation has just filed bankruptcy. Among the investors, who will be paid first?

The most commonly used debt instrument is:

Evidence of specific intent to deceive, manipulate, or defraud is called _______.

Preferred stock is the most frequently used form of equity instrument.

State security laws are generally referred to as ________ laws.

Brent has opened a fruit and vegetable business named Brent's Country Stand near an affluent suburban neighborhood. After six months Brent wishes to raise capital for expansion, so he offers a number of his customers the following deal: If the individual gives Brent $10,000, Brent will provide a promissory note, payable in five years with full repayment of the principal and a 10 percent interest rate of return. Brent's Country Stand is the maker of the notes, and about 10 customers have purchased these notes. Do these promissory notes qualify as securities? Why or why not?