176. Under securities law, misleading information that would reasonably affect investment decisions by securities
owners includes:
a. overly optimistic statements by executives
b. cautious speculation by shareholders about future profits
c. commentary from an unbiased stock analyst
d. a newspaper reporter’s speculation that the price of a stock will increase
e. an independent website’s prediction that a company will have a successful quarter
177. Overly optimistic statements by executives are:
a. occasionally the grounds for private suits seeking damages based on a claim of securities fraud
b. rarely the cause of private suits for damages based on a claim of securities fraud
c. one of the most common grounds for private suits seeking damages based on a claim of securities fraud
d. encouraged by stock brokers
e. none of the other choices are correct
178. The president of a company says that new products to be introduced are sure to double company profits. Based on
this, investors buy stock in the company, pushing up its price. The products flop, the company loses money, so the
stock price falls. Investors are most likely to sue the president of the company under what theory provided by the
securities law?
a. liability for mismanagement
b. liability for insider trading
c. liability for misstatements
d. liability for securities negligence
e. none of the other choices; there is no basis for a lawsuit here
179. The president of a company says that new products to be introduced are sure to double company profits. Based on
this, investors buy stock in the company, pushing up its price. The products flop, the company loses money, so the
stock price falls. Investors are most likely to sue the president of the company under what theory provided by the
securities law?
a. liability for mutual securities fraud
b. liability for insider trading
c. liability for securities negligence
d. liability for proxy fraud
e. none of the other choices
180. The Securities Litigation Reform Act of 1995:
a. makes companies strictly liable for misstatements
b. makes it safer for firms to make careful predictions about profits and success
c. imposes greater liability on companies that make predictions about future performance
d. changes the liability standard in securities fraud cases to negligence
e. does none of these things
181. The Securities Litigation Reform Act of 1995:
a. makes companies strictly liable for misstatements
b. gives companies and executives a safe harbor when making forecasts about the future
c. imposes greater liability on companies that make predictions about future performance
d. changes the liability standard in securities fraud cases to negligence
e. does none of these things
182. The Securities Litigation Reform Act of 1995:
a. makes companies strictly liable for misstatements
b. increases the prison terms for securities violators
c. imposes greater liability on companies that make predictions about future performance
d. changes the liability standard in securities fraud cases to negligence
e. none of the other choices
183. Companies that make forecasts that are accompanied by “meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those in the forward-looking statement” are
protected from litigation by:
a. the Securities Litigation Reform Act of 1995
b. the Securities Act of 1933
c. the Securities Exchange Act of 1934
d. the Howey Act
e. the Safe Harbor Act of 1995
184. Companies that make forecasts that are accompanied by “meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those in the forward-looking statement” are
protected from litigation by:
a. the Safe Harbor Act of 1995
b. the Securities Act of 1933
c. the Securities Exchange Act of 1934
d. the Howey Act
e. none of the other choices are correct
185. The Securities Litigation Uniform Standards Act of 1998 requires:
a. securities litigation to be part of the federal criminal code
b. securities litigation involving nationally-traded securities to be in federal court
c. all state securities laws to come into conformance with federal standards
d. internationally traded securities to come under the rules of the London Treaty
e. none of the other choices
186. The Securities Litigation Uniform Standards Act of 1998 requires:
a. securities litigation to be part of the federal criminal code
b. the SEC to issue stronger, consistent rules against insider trading
c. all state securities laws to come into conformance with federal standards
d. internationally traded securities to come under the rules of the London Treaty
e. none of the other choices
187. Under the , securities suits involving nationally traded securities must be brought exclusively in federal court
under federal law.
a. Safe Harbor Act of 1995
b. Securities Act of 1933
c. Securities Exchange Act of 1934
d. Securities Litigation Uniform Standards Act of 1998
e. Securities Litigation Reform Act of 1995
188. Under the , securities suits involving nationally traded securities must be brought exclusively in federal court
under federal law.
a. Safe Harbor Act of 1995
b. Securities Act of 1933
c. Securities Exchange Act of 1934
d. Securities Litigation Reform Act of 1995
e. none of the other choices are correct
189. In City of Livonia Employees Retirement System v. Boeing Co., City sued Boeing on behalf of all persons
who bought Boeing stock in a certain time period on the basis that the company was overly optimistic about the
time schedule for the new 787 aircraft. When problems with the plane developed, the stock fell ten percent. Suit
claimed that company executives made false statements about the plane, so committed securities fraud. The
appeals court held that Boeing was:
a. liable for securities fraud because the reports about the plane were not sufficiently identified as a forward-
looking statement
b. not liable for securities fraud because the Private Securities Litigation Reform Act requires that plaintiffs
“demonstrate fraud” in company statements, which did not happen
c. Not liable for securities fraud because there is no evidence Boeing knew of the problems in advance
d. American Express was liable for all damages due to its overly optimistic statements
e. American Express was liable for securities fraud because it did not have a separate section of the report that
identified it as a forward looking statement
190. In City of Livonia Employees Retirement System v. Boeing Co., City sued Boeing on behalf of all persons
who bought Boeing stock in a certain time period on the basis that the company was overly optimistic about the
time schedule for the new 787 aircraft. When problems with the plane developed, the stock fell ten percent. Suit
claimed that company executives made false statements about the plane, so committed securities fraud. The
appeals court held that Boeing was:
a. liable for securities fraud because the reports about the plane were not sufficiently identified as a forward-
looking statement
b. liable for securities fraud because the Private Securities Litigation Reform Act requires that plaintiffs
“demonstrate fraud” in company statements, which was done
c. was liable for securities fraud because it did not have a separate section in its report that identified it as a
forward looking statement
d. was liable for all damages due to “actual knowledge” of overly optimistic statements
e. none of the other choices are correct
191. The Sarbanes-Oxley Act requires large companies with publicly traded stock to:
a. have the CEO personally certify the company’s financial reports to the SEC
b. file all litigation in federal court, not state court
c. provide the SEC with a report of all insider trades by company managers
d. have the CEO personally certify the company‘s financial reports to the SEC and file all litigation in federal
court, not state court
e. have the CEO personally certify the company‘s financial reports to the SEC and file all litigation in federal
court, not state court and provide the SEC with a report of all insider trades by company managers
192. The Sarbanes-Oxley Act:
a. requires large companies with publicly traded stock to have the CEO personally certify the company’s
financial reports to the SEC
b. requires all securities litigation to be filed in federal court, not state court
c. provides whistle-blower protection from those reporting securities violations
d. requires large companies with publicly traded stock to have the CEO personally certify the company’s
financial reports to the SEC and provides whistle-blower protection fro those reporting securities violations
e. requires large companies with publicly traded stock to have the CEO personally certify the company’s
financial reports to the SEC and requires all securities litigation to be filed in federal court, not state court and
provides whistle-blower protection fro those reporting securities violations
193. The requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of large companies
that have publicly traded stock personally certify that financial reports made to the SEC comply with SEC rules and
that the information in the reports is accurate.
a. Safe Harbor Act of 1995
b. Sarbanes-Oxley Act of 2002
c. Securities Exchange Act of 1934
d. Securities Litigation Reform Act of 1995
e. none of the other choices are correct
194. The requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of large companies
that have publicly traded stock personally certify that financial reports made to the SEC comply with SEC rules and
that the information in the reports is accurate.
a. Safe Harbor Act of 1995
b. Securities Act of 1933
c. Securities Exchange Act of 1934
d. Securities Litigation Reform Act of 1995
e. none of the other choices are correct
195. Under securities law, knowingly making a misstatement in company reports is a:
a. criminal offense with fines up to $5 million and up to 20 years in prison
b. criminal offense with fines up to $2 million, but no possibility of prison time
c. criminal offense with fines up to $5 million, but no possibility of prison time
d. criminal offense with up to 20 years in prison, but no possibility of fines
e. criminal offense with up to 30 years in prison and $4 million in fines
196. Under securities law, knowingly making a misstatement in company reports is punishable by which of the following:
a. fines up to $5 million
b. fines up to $10 million
c. up to 20 years in prison
d. up to 30 years in prison
e. both a and c are possible
197. The Public Company Accounting Oversight Board, which has authority to set accounting standards and discipline
CPAs for misconduct, was established by the:
a. Safe Harbor Act of 1995
b. Sarbanes-Oxley Act of 2002
c. Securities Exchange Act of 1934
d. Securities Litigation Reform Act of 1995
e. none of the other choices are correct
198. The Public Company Accounting Oversight Board, which has authority to set accounting standards and discipline
CPAs for misconduct, was established by the:
a. Safe Harbor Act of 1995
b. Securities Act of 1933
c. Securities Exchange Act of 1934
d. Securities Litigation Reform Act of 1995
e. none of the other choices are correct
199. The , which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards
and discipline CPAs for misconduct.
a. Public Executive Oversight Board
b. Public Company Accounting Oversight Board
c. Public Corporation Regulation Board
d. Public and Private Accounting Monitoring Board
e. none of the other choices are correct
200. The , which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards
and discipline CPAs for misconduct.
a. Public Executive Oversight Board
b. Public Investment Oversight Board
c. Public Corporation Regulation Board
d. Public and Private Accounting Monitoring Board
e. none of the other choices are correct
201. Which of the following is an important impact of the Sarbanes-Oxley Act:
a. it made private equity markets more attractive compared to public markets
b. it raised the cost of listing a stock in the U.S. relative to other stock exchanges
c. it had a chilling effect on managers’ willingness to take risks
d. it threatens U.S. listed companies with more lawsuits and brings criminal liability into civil disputes
e. all of the other specific choices are correct
202. Studies indicated that the enactment of the Sarbanes-Oxley Act has:
a. led to more investment in U.S. stock exchanges
b. led to lower costs for small businesses
c. led to corporate business shifting away from the U.S. to competitors such as London
d. led to corporate business shifting away from places like London and to the U.S.
e. an increase in purchases of government bonds
203. Insider trading is:
a. the buying or selling of stock by persons who have access to information, not yet revealed to the public, that
affects the value of the stock
b. only the buying of stock by persons who have access to information, not yet revealed to the public, that
affects the value of the stock
c. only the selling of stock by persons who have access to information, not yet revealed to the public, that
affects the value of the stock
d. stock trades inside a one–year time period by directors
e. none of the other choices
204. Insider trading is:
a. stock trades inside a thirty–day time period by corporate insiders
b. only the buying of stock by persons who have access to information, not yet revealed to the public, that
affects the value of the stock
c. only the selling of stock by persons who have access to information, not yet revealed to the public, that
affects the value of the stock
d. stock trades inside a one–year time period by directors
e. none of the other choices
205. The buying or selling of stock by persons who have access to information affecting the value of the stock that has
not yet been revealed to the public is called:
a. outsider trading
b. insider trading
c. false trading
d. preemptive trading
e. unreasonable trading
206. The buying or selling of stock by persons who have access to information affecting the value of the stock that has
not yet been revealed to the public is called:
a. outsider trading
b. unreasonable trading
c. false trading
d. preemptive trading
e. none of the other choices are correct
207. The rationale behind prohibiting insider trading is that:
a. it gives the public an unfair advantage
b. it puts people with inside information at a competitive disadvantage
c. it gives people in high positions in a company an unfair advantage
d. it reduces the compensation packages of executives
e. it is a perk of the job for executives
208. The rationale behind prohibiting insider trading is that:
a. it gives the public an unfair advantage
b. it puts people with inside information at a competitive disadvantage
c. it is a perk of the job for executives
d. it reduces the compensation packages of executives
e. none of the other choices
209. Insider trading is:
a. legal if no profit is made
b. legal if the insider gets an outsider to buy or sell
c. illegal because insiders are strictly prohibited from stock trading under SEC Rule 10b-5
d. illegal when insiders trade based on information they have a fiduciary duty not to trade on
e. illegal because employment contracts for insiders prohibit trading in the securities issued by their employer
210. Insider trading is:
a. legal if no profit is made
b. legal if the insider gets an outsider to buy or sell
c. illegal because insiders are strictly prohibited from stock trading under SEC Rule 10b-5
d. illegal because employment contracts for insiders prohibit trading in the securities issued by their employer
e. none of the other choices
211. You are on the subway in New York when you overhear two people you do not know talking about an upcoming
merger, news not yet public. They seem to know their stuff. If you buy stock based on this information, and profit
when the information turns out true, you have:
a. profited, but are an outsider and so your actions are probably not illegal
b. engaged in insider trading that is probably illegal
c. not engaged in insider trading because you are not a corporate officer
d. not engaged in insider trading because once you overheard the information it was public
e. violated the Insider Trading Sanctions Act and could face criminal charges
212. You are on the subway in New York when you overhear two people you do not know talking about an upcoming
merger, news not yet public. They seem to know their stuff. If you buy stock based on this information, and profit
when the information turns out true, you have:
a. violated the Insider Trading Sanctions Act and are likely to face criminal charges
b. engaged in insider trading that is probably illegal
c. not engaged in insider trading because you are not a corporate officer
d. not engaged in insider trading because once you overheard the information it was public
e. none of the other choices
213. The CEO of Big Ships knows his company has won a $2 billion contract to build ships for the Navy. He is told by
the Navy to keep this quiet until the official announcement. Knowing that Big Ships stock will rise when the
announcement is made, he tells his children to buy as much Big Ships stock as they can right away. He does not
buy any stock. The CEO may:
a. not be sued for insider trading since he did not engage in trades; his relatives can be sued
b. not be sued for insider trading because he did not engage in trades; his relatives may not be sued because
they have no relation to the company
c. not be sued for insider trading under the Supreme Court rule in the Dirks case
d. be sued for insider trading because he gave out inside information he had a fiduciary duty to keep secret
e. be sued only if his employment contract or contract with the Navy prohibits trading
214. The CEO of Big Ships knows his company has won a $2 billion contract to build ships for the Navy. He is told by
the Navy to keep this quiet until the official announcement. Knowing that Big Ships stock will rise when the
announcement is made, he tells his children to buy as much Big Ships stock as they can right away. He does not
buy any stock. The CEO may:
a. not be sued for insider trading since he did not engage in trades; his relatives can be sued
b. not be sued for insider trading because he did not engage in trades; his relatives may not be sued because
they have no relation to the company
c. not be sued for insider trading under the Supreme Court rule in the Dirks case
d. be sued only if his employment contract or contract with the Navy prohibits trading
e. none of the other choices
215. Someone who engages in insider trading:
a. may be prosecuted by the SEC
b. may lose their U.S. citizenship
c. may be required to serve a certain number of community service hours
d. may be prosecuted by the governor of their state
e. none of the other choices are correct
216. Chiarella worked at a company that printed financial documents. In one documents, he read confidential information
that allowed him to buy stock and make a nice profit because of his knowledge. When sued by the SEC for insider
trading, the Supreme Court found Chiarella:
a. guilty of violating Rule 10(b)-5 because he failed in his duty to disclose relevant information
b. guilty of violating Rule 10(b)-5 because he traded in securities based on inside information c.
guilty of violating Section 16(b) because he engaged in short-swing trading for profit
d. guilty of securities fraud based on common law fraud
e. none of the other choices
217. Chiarella worked at a company that printed financial documents. In one documents, he read confidential information
that allowed him to buy stock and make a nice profit because of his knowledge. When sued by the SEC for insider
trading, the Supreme Court found Chiarella:
a. guilty of violating Rule 10(b)-5 because he failed in his duty to disclose relevant information
b. guilty of violating Rule 10(b)-5 because he traded in securities based on inside information c.
guilty of violating Section 16(b) because he engaged in short-swing trading for profit
d. not guilty of insider trading because he had no fiduciary duty not to use the information
e. none of the other choices
218. Someone who does not have a fiduciary duty to the shareholders of a company and uses inside information to make
a profit with company stocks:
a. is probably guilty of insider trading
b. is probably not guilty of insider trading
c. can only be guilty of insider trading if he shares the information with others
d. is guilty of insider trading if he makes more than $50,000 in profits
e. none of the other choices are correct
219. Jones works at an investment firm that helps corporations merge with other companies. Because of her work, she
knows that two clients of her firm are going to merge. She also knows that when the announcement is made, the
price of stock in these companies will jump. She buys stock in the companies before the announcement. She is:
a. probably guilty of insider trading
b. not guilty of insider trading under the Dirks case because she is outside of the companies
c. not guilty of insider trading under the Chiarella case because she owes no fiduciary duty to the companies
d. probably not guilty of insider trading because, under SEC Rule 10b-5, one must be a director or manager of
the firms in question for the law to apply
e. none of the other choices
220. In SEC v. Ginsburg, Ginsburg was CEO of a company that merged with another company, and he told his
relatives that the merger might occur. Knowing that the stock price might then rise, the relatives bought stock in the
company and profited. Ginsburg was prosecuted by the SEC for insider trading. The appeals court held that:
a. Ginsburg was guilty and would pay a $1 million fine
b. Ginsburg had misappropriated company information by passing information on to his relatives, but that was
not insider trading, so he could not be convicted
c. Ginsburg may have used poor judgment but his relatives have no obligation to the company, so there is no
legal issue here
d. Ginsburg had violated his fiduciary obligation and can be sued for any losses that the company suffers as a
result, but has not violated the rule against insider trading
e. none of the other choices
221. In SEC v. Ginsburg, Ginsburg was CEO of a company that merged with another company, and he told his
relatives that the merger might occur. Knowing that the stock price might then rise, the relatives bought stock in the
company and profited. Ginsburg was prosecuted by the SEC for insider trading. The appeals court held that
Ginsburg:
a. violated the criminal statute against insider trading and was sent to five years in prison
b. had misappropriated company information by passing information on to his relatives, but that was not insider
trading, so he could not be convicted of insider trading
c. may have used poor judgment but his relatives have no obligation to the company, so there is no legal issue
here
d. had violated his fiduciary obligation and can be sued for any losses that the company suffers as a result, but
has not violated the rule against insider trading
e. none of the other choices
222. In SEC v. Ginsburg, Ginsburg was CEO of a company that merged with another company, and he told his
relatives that the merger might occur. Knowing that the stock price might then rise, the relatives bought stock in the
company and profited. Ginsburg was prosecuted by the SEC for insider trading. The appeals court held that:
a. there was not enough evidence to reasonably permit the inference that Ginsburg conveyed nonpublic
information to his family members
b. there was enough evidence to reasonably permit the inference that Ginsburg conveyed nonpublic information
to his family members, so he was liable for securities fraud
c. Ginsburg did not have a fiduciary obligation to the company, so could not be guilty of insider trading
d. Ginsburg had a fiduciary obligation to the company, but his conduct could not be proven to have violated it
e. Ginsburg did not use the information himself so there was no fraud