127. What does the Securities Litigation Reform Act‘s safe harbor provision do?
a. eliminates director and officer liability under Section 11
b. eliminates auditors‘ liability under Section 11
c. provides liability protection for income predictions in the registration statement
d. all of the above
128. Corporation A merges with Corporation B and becomes Corporation B. The transaction is a:
a. merger.
b. consolidation.
c. tender offer.
d. none of the above
129. Bob’s Grocery merges with Pete’s Produce and becomes PB Foods. The transaction is a:
a. merger.
b. consolidation.
c. tender offer.
d. none of the above
130. Williams Act filings are:
a. only required of offerors.
b. not required of white knights.
c. not required in management offers.
d. none of the above
131. State laws regulating tender offers are:
a. preempted by the Williams Act.
b. unconstitutional under the Commerce Clause.
c. no longer in existence.
d. none of the above
132. State antitakeover statutes:
a. generally require additional filings beyond Williams Act requirements.
b. generally deal with corporate governance.
c. are valid only against corporations formed after passage of the law.
d. none of the above
133. Pacific West Utility has made a takeover offer to the shareholders of San Diego Edison. The board and
management are concerned about the ability of Pacific West to manage San Diego Edison and have solicited the
help of Western Power. Western Power will make a tender offer to the shareholders of San Diego Edison that is
$1.00 more than Pacific West‘s offer. Which of the following statements is true?
a. Pacific West is the target company.
b. Western Power is the target company.
c. Western Power must comply with the Williams Act.
d. Pacific West need not comply with the Williams Act.
134. A hostile tender offer is made:
a. to the board of the target company.
b. to the shareholders of the target company.
c. through SEC communications to shareholders.
d. none of the above
135. The shareholders of Tennis Man, Inc. have just approved an amendment to their articles of incorporation that
requires 75 percent of all shareholders to approve a merger before it can take place. The amendment is an example
of:
a. a tender offer.
b. an illegal act preempted by the Williams Act.
c. a valid antitakeover defense.
d. none of the above
136. Which of the following actions can the SEC take if there is a violation of Section 14 on proxy solicitation?
a. an injunction preventing the vote with the proxies
b. “unwinding” the election results
c. order reimbursement of costs for second solicitation by the party who violated Section 14
d. The SEC can take any of the above actions.
137. Hawkin and Snead is a partnership located in South Dakota that specializes in documentary films. Hawkin and
Snead feel that they need additional capital to expand and their personal assets are fully tapped. The partners
envision a sale of common stock shares only to South Dakota residents and they need about $10,000,000. They also
realize that their pool of investors is large, but shallow. That is, they can recruit many potential share purchasers,
but their investment amounts will be small. They feel they do not have the money for a national offering and full-
blown SEC registration. Which of the following exemptions will suit Hawkin and Snead’s needs best?
a. a Rule 504 offering
b. a Rule 505 offering
c. a Regulation A offering
d. an intrastate offering
e. none of the above
138. To which of the following will the 10b prohibitions on insider trading apply?
a. An officer exercising stock options on the day before the company announces its earnings for the quarter.
b. An officer exercising stock options on the day before the company reveals an SEC investigation.
c. An officer exercising stock options on the day before the company announces an earnings reversal.
d. An officer’s son buying stock on the day before the company announces an earnings increase.
e. All of the above are violations of 10b.
139. Which of the following securities sales must be registered?
a. a sale of $450,000 in shares to 2,003 residents of Oklahoma and Arkansas
b. a sale of $10,000,000 in shares to 353 U.S. residents
c. a sale of $50,000,000 in shares to 10 institutional investors located around the United States
d. a sale of $50,000,000 in shares to 10,000 residents of Arizona by a company doing business only in Arizona
e. All of the above must be registered.
140. When can a company run a tombstone ad?
a. only after the securities registration is approved
b. only if there is a national registration with the SEC
c. only if there is also a blue sky registration
d. after the filing of the registration statement
e. none of the above
141. Who signs the 10-Qs and 10-Ks of publicly trading companies to certify their content?
a. CEO
b. CFO
c. both a and b
d. The treasurer or controller of the company.
142. Which of the following events would be material for purposes of 10b and disclosure?
a. a pending merger
b. not meeting quarterly earnings expectations
c. product liability lawsuit
d. a and c only
e. all of the above
143. Under Sarbanes-Oxley, which of the following would be a conflict of interest for the outside auditor of a company?
a. Providing management consulting services to the company, too.
b. Providing actuarial service to the company, too.
c. Designing the company’s financial system.
d. all of the above
144. Under Sarbanes-Oxley, how often must the audit partner in charge of an audit client be rotated?
a. every year
b. every two years
c. every five years
d. There is no rotation requirement.
145. Pump and dump:
a. is a term for downloading music.
b. refers to posting stock information on the Internet to increase its value before you sell.
c. is not prohibited by the SEC.
d. both b and c
146. Under Sarbanes-Oxley, when must a company file an 8-K?
a. every quarter
b. annually
c. only when selling stock
d. within one day of any changes listed in the statute
147. Under Sarbanes-Oxley, who cannot be a member of an audit committee of a publicly traded company?
a. officer
b. consultant to the company
c. outside lawyer for the company
d. all of the above cannot be a member of the company’s audit committee
148. How long does an officer of a publicly traded company have to file a disclosure of transactions in the company’s
stock?
a. until the end of the month
b. two days
c. three days
d. until the end of the quarter
149. The effect of backdating stock options:
a. will increase their value to the grantee.
b. will postpone the booking of the actual costs to the company.
c. is insignificant to the company’s financial report.
d. both a and b
150. Bernie Madoff used a scheme in his fraud schemes.
a. Bait-and-Switch
b. Ponzi
c. Pump-and-dump
d. Poison Pill
151. Ralph Newsome is an employee at Quest Industries. In the men’s room he overhears two officers discussing a
merger that they say will be announced in two days. Ralph purchases 1,000 shares of Quest. When the merger is
announced, Quest’s stock has a 15% bounce in value.
a. Ralph has engaged in insider trading.
b. Ralph simply overheard a conversation and can trade on that information.
c. Ralph is not an officer and can trade in advance of announcements.
d. none of the above
152. J. Rooney is Chairman of Rooney, Pace Group, Inc. and has decided to acquire stock in Pantry Pride. Rooney is
able to purchase 7 percent of the stock in October 1984. Is Rooney subject to any SEC requirements? Discuss.
153. Lund was the CEO of Verit Co. Lund was contacted by Horowitz, the CEO and Chairman of the Board of P & F.
Horowitz told Lund of an opportunity P & F had to buy into a Las Vegas casino. Lund immediately purchased
10,000 shares of P & F. Three days after Lund‘s purchase, P & F announced its intentions to enter into a joint
venture for a Las Vegas casino. Lund was then able to sell his shares for considerable profit. Discuss the propriety
of Lund‘s actions under the 1934 Act.
154. Consider the following transactions by a director of a corporation listed on the National Stock Exchange.
September 1, 2013, purchased 100 shares of his company’s stock at $10 per share.
October 30, 2013, sold the 100 shares of stock for $7 per share.
November 30, 2014, purchased 100 shares of his company’s stock for $5 per share.
Does the director have any liability under 16b?
155. Discuss Goldman Sachs obligation to disclose to its investors its position in the mortgage instrument markets.
156. Discuss why Bernie Madoff received the sentence he did for his crimes.
157. Charlie Seam is a broker for a major stockbroker in New York City. Charlie took a job at night with a janitorial firm
that is responsible for doing the cleaning on several of the major law firms in New York. These firms also handle the
legal business for the largest companies in the United States. Over the past few years these same firms have
drafted the documents and done the necessary filings for takeovers among these firms. Charlie has discovered that,
as a supervisor, he is able to move freely around the offices and read of developing events on the partners’ desks.
Through this job Charlie has been able to make some very good investments for himself and his clients. Do
Charlie’s actions violate 10(b)?
158. Betty Furnish owns a consignment furniture business that she wishes to expand to several other cities. She does
need capital to be able to do so and needs to raise $1 million. Betty says she cannot afford a full SEC registration.
Can you offer Betty some suggestions for raising the capital?
159. Explain Goldman Sachs trading huddles and its implications.
160. Put the following steps in the securities registration process in chronological order.
Experts‘ opinions
Registration filing
Red herring prospectus
Tombstone ad
Offers to sell securities
Sale of securities
Registration approval
161. Describe who must file 10K, 10Q and 8K reports.
162. Describe shareholders’ rights under Section 14.
163. Gwen Knight is a CPA who works in the internal controls area of Winthrop Industries, a NASDAQ company.
Gwen has discovered that there are problems with the company’s processing of invoices for payments that allow
the postponement of those payments. The company is 18 months behind on some payments. Gwen reports the
problems to her supervisor. Gwen assumes that her supervisor will notify the head of internal audit and take the
appropriate corrective steps. On her next performance evaluation, done three weeks later, Gwen receives her first
poor rating in 10 years. She is put on a six-month performance improvement plan. Discuss Gwen’s position, rights,
and any protections she may have.
164. A shareholder who was buying additional shares in Wayport, Inc., told the shareholder seller “he was not aware of
any bluebirds of happiness in the corporation‘s world.” However, at the time the buyer made the statement he was
aware that the CEO had informed the board via e-mail of a patent sale by Wayport that meant that the corporation
would receive net proceeds of $7.6 million and would increase its year–end cash position by 22%. Which of the
following statements is correct?
a. The statement was too general to constitute a basis for a 10(b) claim.
b. The statement would need to contain numbers to be a material misrepresentation.
c. The buyer has done nothing wrong unless he was the CEO or a member of the board.
d. The seller has a 10(b) claim against the seller.
165. The executive vice president for Best Buy appeared on television in an interview about how Best Buy was doing
because of concerns about the abrupt departure of the company’s CEO. The executive vice president said,
“Customers are lining up at our stores and television sales are going really strong.” Which of the following is
correct about the EVP’s statements?
a. The statement was too general to constitute a basis for a 10(b) claim.
b. The statement does need to contain numbers to be a material misrepresentation.
c. The buyer has done nothing wrong unless he was told to not reveal that information.
d. The seller has a 10(b) claim against the seller.
166. Under the new securities rules issued under the JOBS Act, which of the following companies would need to
register its securities under the 1934 Securities Exchange Act for purposes of periodic reporting?
a. A company with $5 million in assets and 2,000 shareholders.
b. A company with $10 million in assets and 1,500 shareholders.
c. A company with $10 million in assets, 2,000 shareholders, and 550 non-accredited shareholders.
d. A company with $10 million in assets, 2,000 shareholders, and 450 non-accredited investors.
167. Directors A and B of a large, publicly traded company filed advance reports of their plans to sell stock. Such
advanced filed plans allow directors and officers to sell shares without having to worry about whether they have
inside information at the time of the sale. The dates for their sales are locked in for one year. Directors A and B
have, however, encouraged the CEO to announce a boost in sales and revenues prior to the quarterly financial
statement release because such an announcement would allow the information to go public and thereby allow them
to sell their shares, according to their prior-approved plan, at a much higher price. Which of the following is
correct?
a. Directors A and B have engaged in insider trading.
b. Directors A and B have violated their fiduciary duty as directors by requesting the advance announcement.
c. Directors A and B have violated Section 16(b).
d. Directors A and B have not violated 10(b).
168. The following stock transactions were completed by the executive vice president of Vinco, Inc., a publicly traded
corporation:
January 12, 2013 – EVP sells 100 shares @ $40 per share
May 5, 2013 – EVP buys 100 shares @ $20 per share
June 1, 2013 – EVP sells 100 shares @ $30 per share
Which of the following statements is correct?
a. EVP has a short-swing profit of $200.
b. EVP has a net loss of $100.
c. EVP has a short-swing profit of $100.
d. EVP has a short-swing profit of $300.