Chapter 40- Investor Protection and Online Securities Offerings Quiz

1. Doug trades in securities on a regional securities exchange. These trades are subject to regulation by

a. the National Securities Markets Improvement Commission.
b. the Securities and Exchange Commission.
c. the U.S. Department of Justice.
d. none of the above.

2. Great Stores, Inc., makes a public offering of securities that is subject to the Securities Act of 1933. Under the act, the securities can be sold

a. as soon as a registration statement is filed.
b. by an underwriter only.
c. only if an investor is furnished with a prospectus.
d. without a registration statement.

3. Consumer Industries Corporation (CIC) plans to issue stock for sale to the public. Before the sale can take place, CIC must file a registration statement with the SEC that contains, among other things,

a. a description of the accounting firm that audits CIC.
b. a description of the security being offered for sale.
c. a financial forecast for CIC's next fiscal year.
d. all of the above.



4. Consumer Products Corporation wants to make an offering of securities to the public. This offering is not exempt from registration under the Securities Act of 1933. Before the firm sells its securities, it must provide investors with

a. a prospectus.
b. a registration statement.
c. a tombstone ad.
d. all of the above.

5. Ornamental Windows, Inc., completes its registration requirements and begins advertising the availability of its new issue of securities. Ornamental places a tombstone ad in the financial papers. This ad tells prospective investors

a. about the company's background.
b. about the merits of the securities.
c. where the investors can obtain a prospectus.
d. none of the above.

6. Acme Enterprises, Inc., a corporation traded on a national stock exchange, wants to offer bonds for sale to the public. All-Rite Insurance Company, a state-regulated insurance company, wants to offer annuity contracts for sale to the public. Before any sale, registration must be made with the SEC for

a. Acme's bonds only.
b. All-Rite's annuity contracts only.
c. Acme's bonds and All-Rite's annuity contracts.
d. none of the above.

7. Wholesale Suppliers, Inc., wants to issue stock of $1 million in a single offering. Wholesale does not have to provide any investors with any material information about itself, its business, or its securities if

a. all of the investors are accredited.
b. all of the investors are unaccredited.
c. any of the investors are accredited.
d. any of the investors are unaccredited.



8. Zip Enterprises, Inc., is a noninvestment company that wants to issue stock of $3 million in a twelve-month period. Zip, with less than $20 million in annual sales, qualifies as a small business issuer. Before Zip sells the stock, it must provide investors with

a. a notice of the issue.
b. an offering circular.
c. a red herring prospectus.
d. all of the above.

9. Adam, the chief executive officer of National Products, Inc. (NPI), intentionally misrepresents material facts in information provided to investors as part of an issue of stock in NPI. Kay buys the stock and suffers a loss. Adam may be subject to

a. only government prosecution.
b. only a private suit by Kay.
c. government prosecution and a private suit by Kay.
d. none of the above.

10. As part of a stock offering for AmCorp, Inc., Bill, AmCorp's accountant, intentionally misrepresents material facts in the prospectus. Ed buys the stock unaware of the misrepresentation and suffers a loss. Bill may be subject to

a. a fine and imprisonment only.
b. damages only.
c. a fine, imprisonment, and damages.
d. none of the above.

11. Mike is a stockbroker. The National Association of Securities Dealers (NASD) is a national securities association. The Securities Exchange Act of 1934 regulates the activities of

a. Mike only.
b. the NASD only.
c. Mike and the NASD.
d. none of the above.

12. Intrastate Sales, Inc., has assets of less than $10 million and fewer than five hundred shareholders. National Discount Corporation has assets of more than $10 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to

a. Intrastate Sales only.
b. National Discount only.
c. Intrastate Sales and National Discount.
d. none of the above.

13. International Investment Corporation, and its officers, directors, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 covers

a. all purchases and sales of securities.
b. only purchases and sales of securities by investment companies.
c. only purchases and sales of securities involving short-swing profits.
d. only purchases and sales of securities involving tippers and tippees.

14. Paula, a director of National Foods Corporation, learns that the company has developed a new fat-free food. Paula buys 1,000 shares of National stock. One week later, the new product is announced, the price of the stock increases, and Paula sells her shares for a profit. Under SEC Rule l0b-5, Paula would not be liable if she had waited

a. a reasonable time after the product was announced to buy the stock.
b. a reasonable time after the purchase of the stock to sell it.
c. thirty days after she learned of the product to buy the stock.
d. thirty days after the purchase of the stock to sell it.

15. Coastal Financial Corporation, and its officers, directors, and shareholders, buy and sell securities. SEC Rule 10b-5 applies to

a. all purchases and sales of securities.
b. only purchases and sales of securities by investment companies.
c. only purchases and sales of securities involving short-swing profits.
d. only purchases and sales of securities involving tippers and tippees.

16. Jill, an accountant for U.S. Molecular, Inc. (USM), learns of undisclosed company plans to market a revolutionary new computer that uses atoms and molecules instead of chips and wires. Jill buys 1,000 shares of USM stock. She reveals the company plans to Ken, who buys 500 USM shares. Ken tells Laura, who buys 100 shares. Laura knows that Ken got his information from Jill. When USM publicly announces its new computer, they all sell their stock for large profits. To avoid liability, Jill and Ken should have refrained from investing in USM, after the company announced its new computer,

a. for six months.
b. for a reasonable time.
c. forever.
d. none of the above.

17. Jill, an accountant for U.S. Molecular, Inc. (USM), learns of undisclosed company plans to market a revolutionary new computer that uses atoms and molecules instead of chips and wires. Jill buys 1,000 shares of USM stock. She reveals the company plans to Ken, who buys 500 USM shares. Ken tells Laura, who buys 100 shares. Laura knows that Ken got his information from Jill. When USM publicly announces its new computer, they all sell their stock for large profits. If Ken is subject to liability, it would be because the information on which he based his purchase of USM stock was

a. about USM's future plans.
b. not material.
c. not public.
d. none of the above.

18. Jill, an accountant for U.S. Molecular, Inc. (USM), learns of undisclosed company plans to market a revolutionary new computer that uses atoms and molecules instead of chips and wires. Jill buys 1,000 shares of USM stock. She reveals the company plans to Ken, who buys 500 USM shares. Ken tells Laura, who buys 100 shares. Laura knows that Ken got his information from Jill. When USM publicly announces its new computer, they all sell their stock for large profits. Subject to liability, under the Securities Exchange Act of 1934, for insider trading is

a. Jill only.
b. Ken only.
c. Jill and Ken.
d. none of the above.

19. Jill, an accountant for U.S. Molecular, Inc. (USM), learns of undisclosed company plans to market a revolutionary new computer that uses atoms and molecules instead of chips and wires. Jill buys 1,000 shares of USM stock. She reveals the company plans to Ken, who buys 500 USM shares. Ken tells Laura, who buys 100 shares. Laura knows that Ken got his information from Jill. When USM publicly announces its new computer, they all sell their stock for large profits. Laura is

a. an insider.
b. a tippee.
c. a tipper.
d. none of the above.



20. Gail, a salesperson for International Sales, Inc. (ISI), learns that ISI will increase the dividend it pays to shareholders. Gail buys 1,000 shares of ISI stock. When the price of the stock increases, Gail sells her shares for a profit. Gail would not be liable for insider trading if the information about the dividend was

a. material when she sold the stock.
b. public before she bought the stock.
c. public after she bought the stock.
d. too speculative when she bought the stock.

21. Nick, an engineer for Omega Company, learns that Omega has developed a computer chip to triple the speed of any computer. Nick buys 1,000 shares of Omega stock. Nick talks about his job and the chip to Sue, who buys 500 shares. After the new chip is announced publicly, the price of Omega stock increases. Nick and Sue sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on

a. Nick only.
b. Sue only.
c. Nick and Sue.
d. none of the above.

22. Dave, an accountant, does not work for Eagle Oil Company, but wrongfully obtains inside information concerning Eagle. Based on the information, Dave buys and sells Eagle stock to his personal gain. The SEC prosecutes Dave, arguing that he is liable because he stole information rightfully belonging to another. The SEC's argument is

a. the blue-sky theory.
b. the misappropriation theory.
c. the red-herring theory.
d. the tipper/tippee theory.


23. Adam, a director of Beta Computer Company, learns that a Beta engineer has developed a new, significantly faster computer chip. Adam buys Beta stock and tells his friend Cathy, who also buys Beta stock. When the new chip is announced three weeks later, Adam and Cathy sell their stock for a big profit. Under SEC Rule l0b-5, Adam would not be liable if he had waited to buy Beta stock until

a. after Adam told Cathy of the new chip.
b. after Cathy bought Beta stock.
c. a reasonable time had passed after the chip was announced.
d. none of the above.

24. Adam, a director of Beta Computer Company, learns that a Beta engineer has developed a new, significantly faster computer chip. Adam buys Beta stock and tells his friend Cathy, who also buys Beta stock. When the new chip is announced three weeks later, Adam and Cathy sell their stock for a big profit. Regarding Adam's profits on the purchase and sale of Beta stock, under Section 16(b) of the Securities Exchange Act of 1934 Beta may recapture

a. all of Adam's profits.
b. half of Adam's profits.
c. 10 percent of Adam's profits.
d. none of the above.

25. Phil, an officer for Quality Company, buys 1,000 shares of Quality stock. One week later, Eagle announces that it will merge with Rich Industries, Inc. The next day, the price of Quality stock increases, and Phil sells his shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Phil would not be liable if he had waited

a. a reasonable time after the merger was announced to buy the stock.
b. a reasonable time after the purchase of the stock to sell it.
c. six months after the merger was announced to buy the stock.
d. six months after the purchase of the stock to sell it.

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