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113. The Supreme Court, reviewing various SEC suits against those charged with insider trading, has held that all trading
based on non-public information is illegal.
a. True
b. False
114. SEC Rule 10b-5 is used to bring charges of insider trading. This happens about five times a year.
a. True
b. False
115. To avoid charges of insider trading, executives may use "program trading" on a set time schedule.
a. True
b. False
116. The Supreme Court has ruled that for someone to be guilty of insider trading, the person must violate a fiduciary
duty not to use the inside information.
a. True
b. False
117. A printer worked on financial documents. He read the documents, engaged in insider trading based on what he
read, and earned a profit. The Supreme Court found this action illegal.
a. True
b. False
118. In U.S. SEC v. Ginsburg the appeals court held that Ginsburg was not guilty of insider trading because he did not
trade on information; his relatives traded on information, so they could be prosecuted.
a. True
b. False
119. In U.S. SEC v. Ginsburg the appeals court held that Ginsburg was guilty of insider trading because he provided
valuable inside information to others who could profit from it.
a. True
b. False
120. In general, restrictions on insider trading did not become common in Europe until the 1980s or later.
a. True
b. False
121. Insider trading in most advanced European nations is treated more harshly than it has been in the U.S.
a. True
b. False
122. Like Italy, Japan appears to have a great interest in prosecuting insider trading cases.
a. True
b. False
123. The Insider Trading Sanctions Act holds that someone found guilty of insider trading may pay triple damages.
a. True
b. False
124. The Insider Trading and Securities Fraud Enforcement Act of 1988 provides for maximum fines of $1 million per
criminal action for individuals and $2.5 million per criminal action for corporations.
a. True
b. False
125. Because investment companies sell securities only in order to buy registered securities they are not required to
register with the SEC.
a. True
b. False
126. An open-end investment company is usually called a mutual fund.
a. True
b. False
127. No-load mutual funds are sold to the public directly through the mail only.
a. True
b. False
128. The SEC prohibits investment companies from charging "loads" or commissions on the sale of mutual funds since
the companies also charge a management fee.
a. True
b. False
129. An investment company that does not sell securities to the public, but specializes in internal investing, is exempt
from the Investment Company Act.
a. True
b. False
130. The SEC requires that investment companies pay dividends to investors that equal at least 50% of taxable ordinary
income of the company.
a. True
b. False
131. Investment companies are subject to registration and disclosure requirements just like publicly traded securities.
a. True
b. False
132. At least 40 percent of the directors of investment companies must be outside directors with no business relationship
with the company.
a. True
b. False
133. Some investment companies restrict the ability of their research analysts or investment advisers from investing in
the stocks in which they are specialists for their employer.
a. True
b. False
134. Investment companies may not use funds invested with them for deals that are not "arm's length," that is, with
persons affiliated with the company.
a. True
b. False
135. Investment advisers usually charge an annual advisory fee equal to 0.5 percent of the net asset value of the fund
they manage.
a. True
b. False
136. The Investment Advisers Act requires investment advisers and stock brokers to be registered with the SEC, but not
stock dealers, who are regulated by the stock exchanges.
a. True
b. False
137. Investment advisers may not, by law, be the managers of an investment company.
a. True
b. False
138. A securities dealer is a person engaged in the business of buying and selling securities for their own account.
a. True
b. False
139. A broker is a person engaged in the business of buying and selling securities for their own account.
a. True
b. False
140. Securities professionals, such as stock brokers, may be fined by the SEC for rule violations, but the Supreme Court
has held that they cannot be barred from the industry because that is an unjust taking.
a. True
b. False
141. The regulations adopted by the SEC under the Investment Advisers Act provide regulation of professionals working
in the securities industry.
a. True
b. False
142. Brokers and dealers must make known to their customers any possible conflicts of interest or other such
information that is material to investment decisions.
a. True
b. False
143. Churning is when a securities professional buys a stock for his own benefit and then urges investors to buy the
stock to drive its price up for his benefit.
a. True
b. False
144. Scalping is when a securities professional buys a stock for his own benefit and then urges investors to buy the stock
to drive its price up for his benefit.
a. True
b. False
145. The SEC sets the rules of operation for the stock exchanges and its members.
a. True
b. False
146. The stock exchanges, such as the New York Stock Exchange, are self-regulating but are subject to SEC
monitoring.
a. True
b. False
147. The over-the-counter stock market is governed by the Financial Industry Regulatory Authority (FINRA).
a. True
b. False
148. Individuals who violate the rules of the New York Stock Exchange may face expulsion from the Exchange.
a. True
b. False
149. The FINRA, together with the SEC, regulates the action of persons who actually trade securities.
a. True
b. False
150. Securities dealers may only trade for their own advantage if they first alert the SEC.
a. True
b. False
151. Specialist firms are regulated by the SEC, to prevent fraud or the exploitation of the unique position that specialists
have in market trades.
a. True
b. False
152. Because of their special position within the securities industry, specialist firms may trade for their own account.
a. True
b. False
153. Almost all disputes between registered investment advisers or investment firms and their client investors must be
settled by arbitration; there is rarely a chance to go to court to settle the matter.
a. True
b. False
154. The arbitration process used by investment firms and their clients is governed by SEC rules.
a. True
b. False
155. The use of mandatory arbitration clauses in contracts between investors and their brokerage firms has been
prohibited by the SEC.
a. True
b. False
156. In arbitration cases against securities firms, the arbitrators may award damages for losses, but may not impose
punitive damages.
a. True
b. False
157. The Supreme Court has discouraged the use of arbitration to resolve disputes involving securities firms due to
persistent bias in favor of the industry and against clients.
a. True
b. False
158. The Dodd-Frank Wall Street Reform and Consumer Protection Act imposed new regulations on the trading of
derivatives.
a. True
b. False
159. The Dodd-Frank Wall Street Reform and Consumer Protection Act gave regulators expanded power to intervene
in securities markets in case of a major meltdown.
a. True
b. False
160. The Dodd-Frank Wall Street Reform and Consumer Protection Act is expected to eliminate most investment
scams.
a. True
b. False
161. Most investment scams are aimed at the very wealthy and originate by someone on Wall Street who looks to be
impressive to investors.
a. True
b. False
