79. Shareholders who solicit proxies need not comply with Section 14 of the 1934 Act.
a. True
b. False
80. If the earnings of a company are revealed to be false, the officers who earned bonuses based on these earnings
must forfeit them.
a. True
b. False
81. The trend in international markets is away from regulating insider trading.
a. True
b. False
82. Insider trading rules apply to information exchanged over the Internet and chat rooms.
a. True
b. False
83. Pump and dump is the act of hyping a stock in order to benefit from a sale once the hype affects the price.
a. True
b. False
84. Sarbanes-Oxley requires all covered companies to have a code of ethics for financial officers.
a. True
b. False
85. Under Sarbanes-Oxley, a company must file an 8-K if it has waived its code of ethics for a financial reporting
officer.
a. True
b. False
86. Under Sarbanes-Oxley, audit committees of publicly held companies’ boards need not be made up of independent
members so long as the majority of the board is independent.
a. True
b. False
87. Destruction of documents related to the financial reports of a company carries a 20-year penalty.
a. True
b. False
88. Attorneys who represent publicly traded companies need not report any financial fraud to boards because of
attorney-client privilege.
a. True
b. False
89. An auditor for a company cannot also perform appraisal functions.
a. True
b. False
90. Section 404 of Sarbanes-Oxley is the section that requires certification of the adequacy of a company’s internal
controls.
a. True
b. False
91. Under Sarbanes-Oxley, audit partners in charge of accounts must be rotated every 10 years.
a. True
b. False
92. EBITDA is the same as GAAP accounting.
a. True
b. False
93. Under Sarbanes-Oxley, every board audit committee must have at least one financial expert.
a. True
b. False
94. Sarbanes-Oxley has special anti-retaliation protections for employees who raise questions about financial reports
and internal accounting.
a. True
b. False
95. A primary offering is an:
a. initial offering of securities.
b. offering by a 1933 or 1934 Act company.
c. offer of treasury shares to original shareholders.
d. none of the above
96. Which of the following would not be considered a security under the 1933 Act?
a. limited partnership interest
b. bonds
c. pension fund
d. Subchapter S corporate stock
97. Which of the following is not an exempt security under the 1933 Act?
a. municipal bonds
b. insurance policies
c. promissory notes
d. annuities
e. All of the above are exempt securities.
98. Which of the following is not required for the intrastate exemption?
a. The investors and issuer must all be residents of the same state.
b. Of the issuer’s income, 100 percent must be earned in its resident state.
c. Of the issuer’s assets, 80 percent must be located in its resident state.
d. Of the proceeds from the sale, 80 percent must be earned on operations in the state.
e. All of the above are requirements.
99. Regulation A offerings:
a. still require registration.
b. are available for offerings up to $10 million.
c. are now part of Regulation D.
d. none of the above
100. Which of the following is not an accredited investor for purposes of Regulation D?
a. any bank
b. a partner of the issuer
c. a purchaser of $150,000 or more of the securities
d. any person with income greater than $150,000
101. Regulation D offerings:
a. are all restricted on the number of purchasers.
b. cannot use advertising.
c. are not subject to transfer restrictions.
d. all of the above
102. A comment or deficiency letter:
a. is a denial of registration.
b. must be issued within 20 days of the filing of the registration statement.
c. can only be issued once.
d. all of the above
103. Which of the following can be done before the registration statement is effective?
a. tombstone ads
b. red herrings
c. offers to sell to accredited investors
d. a and b
e. all of the above
104. Which of the following is not a Section 12 violation?
a. false statements in the registration statement
b. failure to file a registration statement
c. false statement in the prospectus
d. All of the above are Section 12 violations.
105. Who is liable for a Section 11 violation?
a. directors
b. officers
c. only directors who sign the registration statement
d. both a and b
e. none of the above
106. Which firms would be required to file a 10–K?
a. company with 600 shareholders and $5 million in assets and not listed on national exchange
b. company with 300 shareholders and $10 million in assets and not listed on a national exchange
c. company with 700 shareholders and $6 million in assets and listed on a national exchange
d. all of the above
107. Section 10(b) applies only to:
a. stock exchange listed stores.
b. public corporations.
c. officers, directors, and 10 percent shareholders.
d. none of the above
108. Tippees:
a. are people who get information from corporate insiders.
b. are relatives of corporate directors who are given nonpublic information.
c. can be liable under section 10(b).
d. all of the above
109. Who would have standing to bring a civil suit under section 10(b)?
a. purchaser of shares
b. contractor with firm who loses business
c. person who refrained from buying because of overly pessimistic information
d. person who refrained from selling because of overly optimistic information
e. all of the above
110. The scienter required for proof of a 10(b) violation is:
a. intent to defraud.
b. gross negligence.
c. negligence.
d. a or b
111. Section 16 applies to:
a. all shareholders.
b. only directors who also own stock.
c. an officer of a corporation.
d. only officers who own stock.
e. none of the above
112. The 1934 Act proxy registration requirements:
a. apply only to management.
b. include a requirement for shareholders’ proposals.
c. are not applicable to dissenters‘ solicitations.
d. none of the above
113. The 1934 Act proxy regulations apply:
a. only to corporations.
b. only to annual meeting solicitations.
c. to all corporations.
d. none of the above
114. Under Section 14, a shareholder proposal in the proxy materials:
a. is limited to 200 words.
b. must be made by a shareholder who owns at least 5 percent of the outstanding shares of the corporation.
c. need not be included if management objects.
d. all of the above
115. Which of the following is true of a Rule 504 offering?
a. It must be made only to accredited investors.
b. It is limited to $1 million.
c. It is limited to 35 purchasers.
d. all of the above
116. A tombstone ad:
a. is permitted in Regulation D offerings.
b. is an offer to sell securities.
c. can be run prior to the effective date of the registration.
d. all of the above
117. Section 10(b) would apply to which of the following situations?
a. a financial printer trading stock based on takeover information in the printing he is doing for a corporation
b. an accounting firm performing an audit in a grossly negligent fashion that results in misleading financial
statements
c. a guest at a reception trading on information she overheard at the party
d. none of the above
118. Section 16 applies:
a. only to shareholders.
b. to directors of all covered corporations.
c. when there is a purchase followed by a sale within a six-month period.
d. all of the above
119. Maxine Knight is an investment banker who has just completed negotiations for a merger between two major
motion picture studios. Maxine lives with Ron Heywood and suggests dinner to celebrate the successful
negotiations that will become public in three days. Ron celebrates with Maxine and the next morning buys
substantial blocks of shares in both the firms. After the merger is announced, the value of the shares doubles.
Which of the following statements is true?
a. Ron has violated Section 10(b).
b. Ron is not an insider and therefore has not violated 10(b).
c. Ron has probably violated Section 16.
d. none of the above
120. Venture Capital, Inc. needs to raise $10 million in capital and has been able to obtain the agreements of ten
insurance companies to invest $1 million each. If Venture wishes to avoid the cost of full SEC registration, it should:
a. simply register under the state blue sky laws.
b. use a Rule 504 exemption.
c. use Regulation A.
d. none of the above
121. Which of the following is not a security for purposes of the 1933 Act?
a. a limited partnership interest
b. a promissory note due in six months
c. a demand note
d. All of the above are securities.
122. Which of the following does not have resale restrictions?
a. intrastate sales
b. Rule 505
c. Regulation A
d. none of the above
123. In Stoneridge, Charter Communications engaged in which of the following activities?
a. Misclassification of its customer base
b. Improper capitalization
c. Delayed reporting of material facts
d. All of these
124. Who would be a tippee for purposes of insider trading?
a. a janitor who gathers information by reading files on corporate counsel’s desk
b. an MBA student who tracks the market very closely
c. a broker who once worked in the pharmaceutical industry
d. All of the above would be tippees.
125. Which of the following exemptions under the 1933 Securities Act does not have limitations on the number of
purchasers?
a. Rule 504
b. Rule 505
c. Rule 506
d. All of the above have limitations on the number of purchasers.
126. Which of the following is not a defense to false information in the registration statement?
a. due diligence
b. limited time as a director
c. purchaser knew the information was false at the time of purchase
d. None of the above is a defense.