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Law
Q:
A wash sale is a legal practice that is designed to stimulate substantial trading activity.
Q:
Negligence is an important element of Rule 10b-5 violation.
Q:
A person with inside information must either disclose the information before trading or refrain from trading.
Q:
A bidder making a tender offer must file a tender offer statement with the SEC before the offer is made.
Q:
Unlike the Uniform Securities Act of 1956, the new act of 1985 contained an additional provision demanding broker-dealer registration.
Q:
The Securities Act of 1933:
A. is concerned primarily with private distributions of securities.
B. regulates the sale of securities while they are passing from the hands of the issuer into the hands of the private investors.
C. requires that issuers selling securities make necessary disclosures at the time the issuer sells the securities to the public.
D. requires that any material information about the issuer be disclosed as it is obtained by the issuer.
Q:
Which of the following statements is true?
A. The Securities Exchange Act of 1934 requires periodic disclosures from issuers of securities.
B. The 1933 Act regulates the sale of securities while they are passing from the hands of the issuer into the hands of the private investors.
C. The Securities and Exchange Commission (SEC) was created by the 1933 Act.
D. Unlike other federal administrative agencies, the SEC has only legislative functions.
Q:
Insurance policies are exempt from both the registration and antifraud provisions of the 1933 Act.
Q:
A registration statement is the basic selling document of a 1933 Act registered offering.
Q:
The most important rule of the 1933 Act is that every transaction in securities must be registered with the SEC or be exempt from registration.
Q:
When a security is sold in exempt transaction, all its subsequent sales are also covered by the exemption.
Q:
Section 11 of the 1933 Act is considered a radical liability section because the defendant has the burden of proving that he exercised due diligence.
Q:
The 10-K annual report is intended to update the information required in the 1934 Act registration statement.
Q:
The SEC requires that any person soliciting proxies from holders of securities registered under the 1934 Act furnish each shareholder with a proxy statement containing certain information.
Q:
The Securities Act of 1933 is a one-time disclosure statute, although some of its liability provisions purport to cover all fraudulent sales of securities.
Q:
The definition of a security in the 1934 Act is similar to the 1933 Act definition except that it excludes notes and drafts that mature not more than nine months from the date of issuance.
Q:
What strategies has the SEC pursued to protect U.S. investors throughout the world?
Q:
The Securities Act of 1933 is concerned primarily with private distributions of securities.
Q:
Which of the following statements is true about blue-sky laws?
A. They are state laws that provide penalties for fraudulent sales and permit the issuance of injunctions to protect investors from anticipated fraudulent acts.
B. They are state laws that give investors the information they need to make intelligent decisions about whether to purchase securities.
C. All blue sky statutes provide civil penalties for selling fraudulent securities and conducting fraudulent transactions.
D. They give the bidder and the target company equal opportunities to present their cases to the shareholders.
Q:
Registration by coordination:
A. allows the issuer to file the 1933 Act registration statement with the state securities administrator.
B. is prohibited by both the 1933 and 1934 Acts.
C. increases the issuer's expense of complying with state law when making an interstate offering.
D. is concerned primarily with public distributions of securities.
Q:
Why are some securities exempted from the registration provisions of the 1933 Act? Give two examples of such securities. Are they exempted from the antifraud provisions of the act as well?
Q:
While auditing the financial statements of Foible Corp. (which are to be included in a Securities Act registration statement), Ernie, a certified public accountant, fails to review any of Foible's journal entries, does not read the details of meetings of the board of directors, and does not even speak with the comptroller of Foible. Consequently, Ernie does not discover that substantial loans, which went unmentioned in the financial statements, had been made to Foible officers. As a result, the registration statement omits any mention of the loans. Assuming the omitted fact is a material one and that Ernie is not an officer or director of Foible, does Ernie face potential liability under Section 11 of the Securities Act of 1933? Discuss the reasons for your answer.
Q:
What are the two types of securities that must be registered under the Securities Exchange Act of 1934?
Q:
Describe the provisions against insider trading under Rule 10b-5 of the Securities Exchange Act of 1934.
Q:
The U.S. Supreme Court has ruled that fraud claims under Section 10(b) and Rule 10b-5 must be brought:
A. within one year after discovery of the facts constituting the violation and not more than three years after the violation has occurred.
B. within three years after discovery of the facts constituting the violation and not more than five years after the violation has occurred.
C. within five years after discovery of the facts constituting the violation and not more than ten years after the violation has occurred.
D. within two years after discovery of the facts constituting the violation and not more than ten years after the violation has occurred.
Q:
Jodie's brother is a director at Trip Corporation. He calls her and says that Trip's earnings, as yet unannounced, will be up 75 percent and that Jodie should buy Trip common stock. Under these circumstances, Jodie:
A. can trade because she obtained public information from an insider.
B. cannot trade because she is not an insider.
C. can trade because the information will eventually be made public.
D. cannot trade because she is the relative of an insider.
Q:
Under this theory, a person's undisclosed, self-serving use of another's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the individual who provided the information.
A. The classical theory of insider trading liability.
B. The misappropriation theory of insider trading liability.
C. The fraud-on the-market theory.
D. The price disparity theory.
Q:
The Safe Harbor Legislation:
A. aims at giving the bidder and the target company equal opportunities to present their cases to the shareholders.
B. applies only when the target company's equity securities are registered under the 1934 Act.
C. holds companies immune from liability as long as they warn the public about factors that might undermine their forecasts.
D. applies to transactions executed on a securities exchange as well as face-to-face transactions.
Q:
The public offer by a bidder to purchase a target company's equity securities directly from its shareholders at a specified price for a fixed period of time is called a(n) ____.
A. bond exchange offer
B. prospectus
C. investment contract
D. tender offer
Q:
The Williams Act amendments to the 1934 Act were designed to:
A. provide penalties for fraudulent sales and permit the issuance of injunctions to protect investors from anticipated fraudulent acts.
B. give investors the information they need to make intelligent decisions about whether to purchase securities.
C. force corporations to comply with stockholder's social goals of meeting the EPA's new source emission standards.
D. give the bidder and the target company equal opportunities to present their cases to the shareholders.
Q:
When is a shareholder permitted to sue as a representative of a corporation?
Q:
Under this theory, the investor's reliance on the integrity of the market was found to justify a presumption of reliance on the misrepresentation.
A. The classical theory.
B. The misappropriation theory.
C. The fraud-on-the-market theory.
D. The interdependence theory.
Q:
How does common stock differ from preferred stock?
Q:
What requirements must be met if a shareholder meeting is to be conducted remotely?
Q:
Under the MBCA, what types of corporate documents does a shareholder have a right to inspect?
Q:
Acme Corp. made a public offering of its shares. Stein bought 100 shares at $10 each. Three months later, Acme announced that it planned to merge with another company. Under the terms of the merger, Acme shareholders would receive $14 per share, which was $1 more than the market price on the day prior to the announcement. Acme's shareholders approved the merger. Stein did not vote for or against the merger, but he turned in his shares and received $14 for each share. Stein later argued Acme's directors acted improperly in approving the merger. He also believed the price he and other shareholders received was grossly inadequate. Will Stein be able to enforce his appraisal rights?
Q:
A _____ occurs when two or more corporations become part of a new corporation.
A. merger
B. takeover
C. partnership
D. consolidation
Q:
When a number of people have a right or claim against the same defendant, growing out of essentially the same set of facts, a(n) _____ may be brought by any one of them.
A. class action
B. suit
C. litigation
D. appellate
Q:
Which of the following must exist before a shareholder can bring a derivative action?
A. The shareholder must also be an officer or director.
B. The shareholder must have owned shares at the time of the wrong against the corporation.
C. A majority of the common shareholders must support the action.
D. The shareholder should not be an employee of the firm.
Q:
Under which of the following conditions would a shareholder be liable to the corporation or its creditors?
A. If he/she buys stock that was fully paid for when issued.
B. If he/she deals only with dividends and not shares.
C. If he/she is involved in "watered stock" situations.
D. If he/she was unaware of the illegality of the dividends.
Q:
Distributions of shares in the corporation itself are called ____.
A. stock dividends
B. cash dividends
C. property dividends
D. equity securities
Q:
Stock splits:
A. are a type of dividend.
B. change the par value of the shares.
C. decrease the number of shares outstanding.
D. change the retained earnings account.
Q:
One type of stock enables the shareholder to get his/her usual dividend. Then, after the common shareholders receive their normal dividend, he/she is able to share in any additional income with the common shareholders. This type of stock is ____.
A. cumulative preferred
B. noncumulative preferred
C. participating preferred
D. cumulative to the extent earned
Q:
The dividends on this stock if not paid this year will be payable in any year the funds are available.
A. Cumulative preferred
B. Noncumulative preferred
C. Participating preferred
D. Cumulative to the extent earned
Q:
The directors of Acme Corp. unanimously approved a merger agreement between Acme and Generic, Inc. The MBCA is in effect in the state where both corporations were incorporated. The two corporations begin performing the various duties set out in the merger agreement. Certain shareholders of Acme then institute suit in an effort to block the merger agreement from being implemented. The shareholders maintain that the proposed merger should have been submitted to them for approval. Nothing in Acme's articles of incorporation requires the directors to submit such matters to the shareholders. The directors claim that the merger was carefully considered and is in the best interests of the corporation. Under these circumstances:
A. the directors will prevail if they can prove that the merger was in the corporation's best interests.
B. the shareholders will be successful in their suit because under the MBCA, approval of all classes of shares is required for a merger or consolidation.
C. the directors will prevail because the MBCA gives them the right to overrule the shareholders' decisions in mergers.
D. the shareholders will not be successful in their suit because the directors have acted in the best interests of the corporation.
Q:
Turnstile Corporation's meeting of shareholders is being held. Principles of cumulative voting apply to the election of directors. If 400 shares are being voted and four directors are to be elected, how many votes are needed to elect one director?
A. 100
B. 101
C. 80
D. 81
Q:
Rocky is a shareholder of Specific General, Inc., a large corporation having thousands of shareholders. Because he wishes to communicate with other shareholders concerning matters related to corporate business, Rocky makes a written request that Specific General's management provide him access to a list containing the names of all shareholders of the corporation. Citing the administrative burden that would be created if requests of such nature were granted routinely, the Specific General management informed Rocky of its policy that shareholders could not review such records. If management persists in denying Rocky access to the shareholder list, Rocky:
A. can bring suit to enforce his right to examine the shareholder list as he has proper purpose.
B. cannot hold Specific General liable because his request lacks proper purpose.
C. can appeal for amendment of the corporation's laws.
D. has to abide by the rules incorporated by the management of the corporation.
Q:
Under the MBCA, a corporate official who denies a proper demand by a shareholder to inspect the shareholder list:
A. is liable for a penalty of 10 percent of the value of the shares of the demanding shareholder.
B. is liable for a penalty of 30 percent of the value of the shares of the demanding shareholder.
C. is not subject to any liability under the MBCA.
D. is liable for a penalty of 15 percent of the value of the shares of the demanding shareholder.
Q:
To appoint a proxy, the MBCA requires a ____.
A. court order
B. written document
C. waiver
D. vote of approval from other shareholders
Q:
The SEC requires proxy statements to include:
A. information about employment contracts but not stock option benefits.
B. information on any material transaction between a nominee and the corporation.
C. whether or not the proxy is coupled with an interest.
D. a choice to vote for or withhold a vote from all of the shareholders.
Q:
Which of the following is true about the rights of shareholders?
A. They do not have the right to be informed about their investment.
B. They are aimed at protecting the interests of only major shareholders.
C. They have the right to make bylaws.
D. They do not have the right to put ceilings on the salaries of top executives.
Q:
Which of the following is true for debentures?
A. It is a type of short term equity security.
B. It is a type of long-term secured debt security.
C. It can have a term of 10 years or less.
D. It is a type of long-term unsecured debt security.
Q:
One can become a shareholder:
A. by buying newly-issued shares that are sold through a stockbroker but which have not been underwritten.
B. only by subscribing to shares that are being issued by an existing corporation.
C. by buying newly-issued shares that have been underwritten by an investment banker and also sold by him.
D. by subscribing to shares in a new corporation and having them accepted by the board of directors after incorporation.
Q:
Under the MBCA, a subscription to buy stock in a corporation that is not yet in existence is usually treated as a(n) ______ until incorporation is completed.
A. offer
B. promissory bid
C. acceptance
D. void
Q:
A shareholder's function includes:
A. election of investors.
B. approval of mergers or a voluntary dissolution.
C. approval of loans to directors by the corporation.
D. approval of stock option plans for other shareholders.
Q:
If the required notice of a shareholder meeting is not given, actions taken at the meeting:
A. are of no effect.
B. are effective only if two-thirds of the stockholders approve the action.
C. are effective, but subject to amendment.
D. are effective only if half of the stockholders approve the action.
Q:
Which of the following shareholders are entitled to vote?
A. Someone who owns a preferred stock and has it listed in his name.
B. Those who are shareholders of record on a date prior to that established by the directors.
C. A stockbroker without a proxy from the record holder.
D. A person with legal title to the stock.
Q:
Under the MBCA, a corporation does not need shareholder approval to purchase securities out of:
A. equity surplus.
B. unrestricted earned surplus.
C. capital surplus.
D. restricted earned surplus.
Q:
Which of the following statements about debt securities is true?
A. They transfer an ownership interest in the corporation.
B. They do not arise in the form of a debenture.
C. They arise in the form of notes, debentures, or bonds.
D. They are generally in the form of stocks and not loans.
Q:
Short-term debt instruments are called:
A. par mechanisms.
B. notes.
C. debentures.
D. bonds.
Q:
Long-term, secured debt securities are called:
A. bonds.
B. indentures.
C. debentures.
D. notes.
Q:
The value assigned to shares in the articles of incorporation is referred to as:
A. stated value.
B. par value.
C. fair value.
D. capital surplus.
Q:
Identify the statement which correctly describes preferred stocks.
A. Preferred stock can never be converted into common stock.
B. The right to vote is usually granted only in the event that dividends due are fully repaid.
C. Redemption of preferred stocks is allowed irrespective of whether the cost would make the corporation insolvent.
D. A corporation can buy back preferred stocks from holders even if they do not wish to sell them.
Q:
Kirby subscribed to purchase 100 shares of stock to be issued by Globule, Inc., an already existing corporation. Globule accepted the subscription. The price set forth in the subscription agreement was $10 per share. The par value of the stock was $8 per share. When the time came for Kirby to pay the amount of his subscription, Kirby paid only $6 per share, claiming that such amount represented the fair value of the shares. Globule delivered the stock certificates to Kirby, but demanded the other $4 per share. Is Kirby liable for the other $4 per share?
A. No, because regardless of what the subscription price was, he cannot be forced to pay more than the fair market value of the shares.
B. Yes, because Globule's delivery of the stock certificates implied its rights to collect the extra $4 from Kirby.
C. Yes, because regardless of the fair value, a purchaser is liable for stocks issued for less than the par value.
D. No, but he is liable for another $2 per share.
Q:
The following arises through the sale of ownership interests in the business in the form of shares of corporate stock.
A. Bond securities
B. Equity securities
C. Debt securities
D. Proxies
Q:
If a corporation has only one type of stock, it is:
A. common stock.
B. preferred stock.
C. cumulative stock.
D. convertible stock.
Q:
Holders of secured notes have priority over bondholders as to the assets securing the debt.
Q:
A corporation as well as its subsidiaries can vote treasury shares.
Q:
Shareholders are prohibited from submitting resolutions that are social or political in nature.
Q:
Dividends must always be paid in cash.
Q:
Dividends on noncumulative preferred stock need to be paid later if they are not earned and paid in the year due.
Q:
A shareholder can sue a corporation if it did not pay a preferred dividend and can also recover the expenses in bringing suit.
Q:
An illegally paid dividend may be recovered from a shareholder who received it with knowledge of the illegality.
Q:
The value assigned to the shares in the articles of incorporation is called "par value."
Q:
Shares are never worth more than the par or stated value.
Q:
Under the MBCA, shareholder approval is required for employee and director stock option plans.
Q:
Corporations do not have inherent power to borrow money necessary for their operations by issuing debt securities.
Q:
Debt securities transfer ownership interest in the corporation.
Q:
If permitted in the articles, preferred stock can be redeemed by the corporation even if the holders do not wish to sell.
Q:
With preferred stocks, the right to vote is usually granted to a shareholder only in the event that dividends due are not paid.