55) The Howey test for defining a security is based on three elements or characteristics: a) a
common enterprise; b) a reasonable expectation of profit; and c) profits derived exclusively from
one’s own efforts.
56) An organizational directive is the first part of the registration statement the SEC requires
from issuers of new securities. It contains material information about the business and its
management, the offering itself, the use to be made of the funds obtained, and certain financial
statements.
57) An underwriter is an investment banking firm that agrees to purchase a securities issue from
the issuer, usually on a fixed date at a fixed price, with a view to eventually selling the securities
to brokers who, in turn, sell them to the public.
58) A red herring is an investment banking firm that purchases a securities issue from the issuing
corporation with a view to eventually selling the securities to brokerage houses, which, in turn,
sell them to the public.
59) State the new rules regarding written communication by issuers before and during
registration of securities.
60) Describe the exemptions from the registration process under the Securities Act of 1933.
61) The ________ regulates the trading in securities once they are issued.
A) Trust Indenture Act of 1939
B) Securities Act of 1933
C) Securities Exchange Act of 1934
D) Investment Company Act of 1940
62) The Securities Exchange Act of 1934 regulates the ________.
A) actions of brokers and dealers who trade in securities
B) use of public utility and holding companies
C) public issuance of bonds
D) structure and operation of public investment companies
63) The Regulation Fair Disclosure (FD) required companies to ________.
A) publicize all potentially market-moving data at the time the data become available
B) make market-moving data available only to certain analysts
C) have more open relations with analysts who ask for data about the company’s market
performance
D) not share market-moving data with analysts or the public
64) Which of the following is a difference between an exchange market and an over-the-counter
(OTC) market?
A) An exchange market is a securities market, whereas an OTC market is a goods market.
B) An exchange market has no membership qualifications, whereas an OTC has membership
qualifications.
C) An exchange market provides a physical facility for the buying and selling of securities,
whereas an OTC market has no physical facility.
D) An exchange market involves brokers buying directly from the public, whereas an OTC
market involves brokers buying and selling stocks through registered specialists.
65) Amendments to the Securities Exchange Act in 1975 required any exchange or over-the-
counter market to ________.
A) register each individual market transaction with the Securities and Exchange Commission
B) obtain advance approval from the Securities and Exchange Commission prior to any rule
changes
C) report profits and losses to the Securities and Exchange Commission on a monthly basis
D) cease all trading activity in times of severe recession
66) Which of the following terms refers to buying out a hostile shareholder at a price far above
the current price of the target company’s stock in exchange for the hostile shareholder’s
agreement not to buy more shares for a period of time?
A) golden parachute
B) poison pill
C) porcupine provision
D) greenmail
67) Atlas Consultancies, a financial consulting firm, has received a tender offer for a takeover
from a rival firm. In order to retain the goodwill of its management, Atlas gave its employees
large bonus packages and other forms of compensation. Which of the following defensive
strategies is Atlas using?
A) porcupine provision
B) golden parachute
C) white knight
D) greenmail
68) Supreme Motors, a car manufacturer in the United States, decides to move to Delaware to
avoid a hostile takeover bid. Delaware is known to have strong antitakeover laws. Which of the
following defense strategies is Supreme Motors using?
A) scorched-earth policy
B) porcupine provision
C) white knight
D) shark repellent
69) Which of the following defensive strategies refers to bankrupting a company?
A) porcupine provision
B) scorched-earth policy
C) shark repellent
D) white knight
70) Diane is the chief executive officer of a U.S.-based pharmaceutical firm. Over the years, she
has been purchasing significant amounts of stock in the company. The rejection of the company’s
new drug, by the FDA, resulted in a huge drop in the company’s stock value. Diane knew of the
rejection before it was made public and sold her stock. Diane is guilty of ________.
A) false accounting
B) black marketeering
C) insider trading
D) influence peddling
71) A person engaged in the business of buying and selling securities for others’ accounts is
called a dealer.
72) An exchange market is a securities market that provides a physical facility for the buying and
selling of stocks and prescribes the number and qualifications of its broker-members. These
brokers buy and sell stocks through the exchange’s registered specialists, who are dealers on the
floor of the exchange.
73) A tender offer is a public offer made by an individual or a corporation made directly to the
shareholders of another corporation in an effort to acquire the targeted corporation at a specific
price.
74) What is Regulation Fair Disclosure? Explain the views of those favoring and opposing
Regulation FD.
75) State the amendments made to Rule 14(a) in 1983 with respect to exclusion of a shareholder
proposal.
76) State securities laws are often referred to as ________ laws.
A) blue sky
B) dark water
C) open prairie
D) barbed wire
77) Which of the following is true of state securities laws?
A) They are also referred to as “clear sky” laws.
B) They require that securities be registered with federal authorities only.
C) Securities are only regulated by state laws.
D) They regulate securities purchased and sold in intrastate commerce.
78) Which of the following is a correct statement regarding securities regulations?
A) Securities are regulated by state law, not federal law.
B) Securities are regulated by federal law, not state law.
C) Securities are regulated concurrently by state and federal laws.
D) Securities are regulated sequentially by state and federal laws.
79) State laws require that securities be registered (or qualified) with ________ authorities.
A) state, not federal
B) federal, not state
C) both state and federal
D) neither state nor federal
80) The Uniform Securities Act has been adopted in part by some states to bring ________ to
state security laws.
A) diversity
B) accessibility
C) uniformity
D) accountability
81) The 1995 National Securities Markets Improvement Act limited regulation of investment
companies to the ________ and did away with some state authority in this area.
A) New York Stock Exchange (NYSE)
B) Federal Trade Commission (FTC)
C) Securities and Exchange Commission (SEC)
D) Federal Reserve Board (FRB)
82) State securities laws are also referred to as “blue sky” laws.
83) What are “blue sky” laws?
84) Online IPOs are a frequent occurrence that has brought ________ to the marketplace of
securities.
A) efficiency
B) predictability
C) privacy
D) accountability
85) Investors and companies can take advantage of the ________ database, which includes proxy
statements, annual corporate reports, and a multitude of other documents that are filed with the
SEC.
A) NORM
B) EDGAR
C) MELVIN
D) ROGER
86) The amount of securities information available via the Internet allows the Securities and
Exchange Commission (SEC) to accomplish its goal of ________ disclosure.
A) business-to-business (B2B)
B) confidential
C) full
D) “need to know” only
87) Which of the following Internet activities has particularly affected the development of
securities fraud online?
A) email
B) private blogs
C) chat rooms
D) browsing
88) Often, a stock price is “pumped up” as a result of information obtained in chat rooms. After it
is “pumped,” it is quickly “________.” The SEC has been tracing such actions that seek to
manipulate stock prices in violation of the 1934 Exchange Act.
A) diluted
B) split
C) dumped
D) floated
89) Discuss how the Internet affects the marketplace for securities.
90) Under the Securities Act of 1933, commerce between any foreign country and the United
States is referred to as ________ commerce.
A) domestic
B) intrastate
C) interstate
D) international
91) The Foreign Corrupt Practices Act of 1977 is aimed at ________.
A) U.S. companies attempting to bribe foreign officials
B) foreign companies attempting to bribe U.S. officials
C) foreign companies engaging in insider trading
D) U.S. companies conspiring with foreign companies to engage in insider trading
92) The anti-bribery provisions of the Foreign Corrupt Practices Act of 1977 prohibit all
________ firms from offering or authorizing a “corrupt” payment to a foreign official, a foreign
political party, or a foreign political candidate to induce the recipient to act, or to refrain from
acting, so that a U.S. corporation can obtain business it would not ordinarily get without the
payment.
A) alien
B) foreign
C) domestic
D) multinational
93) Under the FCPA’s anti-bribery provisions, the standard of criminal conduct to which
corporate officials and employees are held is ________.
A) knowing
B) reckless
C) negligent
D) strict liability
94) If a payment is known to violate the FCPA, the corporation can be fined up to $________
million.
A) 1
B) 2
C) 5
D) 10
95) If a payment is known to violate the FCPA, officers, directors, stockholders, employees, and
U.S. agents of a corporation can be fined up to $________.
A) 25,000
B) 50,000
C) 100,000
D) 1 million
96) If a payment is known to violate the FCPA, officers, directors, stockholders, employees, and
U.S. agents of a corporation can be imprisoned for up to ________.
A) 6 months
B) 1 year
C) 5 years
D) 7 years
97) The FCPA is jointly enforced by the ________ and the ________.
A) United Nations; FTC
B) U.S. Justice Department; SEC
C) U.S. Department of Commerce; FTC
D) Department of Homeland Security; SEC
98) Which of the following is a correct statement regarding enforcement of the FCPA?
A) The SEC cannot investigate alleged FCPA violations.
B) The SEC cannot bring civil charges under the FCPA’s bribery provisions.
C) The SEC refers criminal cases to the U.S. Justice Department for prosecution.
D) The SEC tries FCPA criminal cases internally, pursuant to the prosecutorial mandate assigned
the commission under the act.
99) Schedule B of the Securities Act of 1933 sets forth disclosure requirements for initial
offerings by foreign issuers of stock on U.S. exchanges.
100) Describe the International Securities Enforcement Cooperation Act of 1990.