Q&A Hero

Q: The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether undisclosed inside information is material.

Q: SEC Rule 10b-5 prohibits the commission of fraud in connection with the purchase or sale of any security

Q: A majority shareholder does not owe a fiduciary duty to minority shareholders under any circumstances.

Q: Crimes occurring in the business context are popularly referred to as blue-collar crime.

Q: In certain instances of fraud, a court may "pierce the corporate veil" to hold the shareholders individually liable.

Q: The Securities Exchange Act of 1934 provides for continuous, periodic disclosures by publicly held corporations.

Q: A bribe need not consist of money to be a crime.

Q: Embezzlement may be committed without physically taking property from the possession of another.

Q: SEC Rule 10b-5 applies in relatively few cases involving the trading of securities.

Q: If a corporation fails, the shareholders are all individually liable.

Q: It is a crime to use the mail to defraud the public.

Q: Section 10(b) of the Securities Exchange Act of 1934 covers only corpo­rate officers and di­rectors.

Q: If the corporate directors fail to sue in the corporate name to redress a wrong suffered by the corporation, then the shareholders can do nothing.

Q: Changing a trademark is forgery.

Q: Persons whose names appear in a corporation's stock book are ordinarily entitled to notice of shareholder' meetings and the right to vote.

Q: Any corporation with more than $10 million in assets and five hundred or more shareholders must register their securities with the Securi­ties and Exchange Commission.

Q: Breaking and entering into the dwelling of another with the intent to commit a felony is burglary.

Q: The use of force or intimidation is not necessary for an act of theft to be considered a robbery.

Q: Every shareholder is entitled to inspect corporate records for a proper purpose.

Q: Private parties cannot sue violators of the Securities Act of 1933.

Q: Dividends can be paid only in stock in other corporations.

Q: Against a charge of a violation of the Securities Act of 1933, only an issuer of stock can assert the due diligence defense.

Q: Criminal liability does not depend on the commission or omission of an act.

Q: The ownership right to stock exists independently of a stock certificate.

Q: Willful violations of the Securities Act of 1933 may be subject to criminal prosecution.

Q: Private offerings of securities in unlimited amounts can never be exempt from the registration requirement of the Securities Act of 1933.

Q: Some felonies are actually misdemeanors.

Q: A preemptive right is a preference over other shareholders to cast the determining vote on fundamental changes affecting the corporation.

Q: Securities that are exempt from the registration requirement can generally be sold and resold without being registered.

Q: A crime punishable by imprisonment in a federal or state penitentiary for any period of time is a misdemeanor.

Q: Fred, a successful stockbroker, gives a lecture about investing. Some of the persons who attend the lecture form Gain & Profit, an investment club, and ask Fred to advise them. Gain & Profit allows Fred to set up an account for the club with a brokerage firm and gives Fred control of the account, but does not authorize Fred to withdraw funds for his own benefit. Fred uses the money in the Gain & Profit account to repay personal loans. Charged with embezzlement, Fred defends his actions on the ground that he intended to repay the club. Is Fred guilty of embezzlement? Why or why not?

Q: Shareholder voting agreements are usually held to be invalid and unenforceable.

Q: Susan is the president of United Food Corporation, a wholesale grocery company. An inspection by Tim, a government agent, uncovers unsanitary conditions caused by Val, a United employee, in the United warehouse. Will, a United vice president, assures Tim that the situation will be corrected, but a later inspection reveals no such corrections. Susan knows nothing about any of this. Can United be convicted of a crime in these circumstances? Can Susan be held personally liable?

Q: Most securities can be resold without registration.

Q: Cumulative voting refers to the accumulation of proposals presented annually for a shareholder' vote.

Q: Securities of charitable organizations are exempt from the registration requirement of the 1933 Securities Act.

Q: Sally is charged with violating the Counterfeit Access Device and Computer Fraud and Abuse Act (CFAA). Crime under the CFAA involves a. accessing a computer without authority and taking data. b. accessing a computer without authority or taking data. c. accessing a computer without authority only. d. taking restricted or protected data only.

Q: The articles of corporation cannot exclude or limit shareholder' voting rights.

Q: Generally, stock offerings that are made in a limited manner during any twelve-month period are not ex­empt from the registration requirement.

Q: Shareholder' meetings must occur at least annually.

Q: Britney, an employee of Computer Associates, is arrested at work. A grand jury issues a formal charge against Britney for larceny. This charge is a. an arraignment. b. an indictment. c. an information. d. an inquisition.

Q: Harry, a computer programmer for Inventory Control Corporation, is arrested in his employer's parking lot on suspicion of larceny. Harry must be informed of his right to a. a trial by jury. b. punishment. c. question witnesses. d. remain silent.

Q: Generally, stock offerings that involve a small dollar amount are not ex­empt from the registration requirement.

Q: Shareholders own a corporation.

Q: Shareholders do not need to approve fundamental changes affecting the corporation before the changes can be effected.

Q: A corporation whose security does not qualify for an exemption can avoid the cost and complexity associated with registration.

Q: Bob is arrested at his home, after the police search it and seize certain property to be used as evidence. A judge sets Bob's bail, as required by a state statute, and Bob is put on trial. The U.S. Constitution provides safeguards against all of the following except a. arrests without probable cause. b. excessive bail. c. trying someone for a criminal offense. d. unreasonable searches and seizures.

Q: A director does not need to disclose any conflict of interest before voting on a proposal.

Q: Sales of securities must occur within twenty days of registration.

Q: Holly is granted immunity after she agrees to testify about a crime. Holly has an absolute privilege against self-incrimination and a. can be prosecuted only for the crime about which she agreed to testify. b. cannot be prosecuted for any crime. c. cannot refuse to testify on Fifth Amendment grounds. d. can refuse to testify on Fifth Amendment grounds.

Q: Directors can use corporate funds and confidential information for personal advantage as long as they disclose that they are doing so.

Q: Helen points a gun at Irma, threatening to shoot her. Irma hits Helen, causing her death. Charged with homicide, Irma can most likely successfully claim as a defense, a. consent. b. duress. c. entrapment. d. self-defense.

Q: Before filing a registration statement, an issuer must attempt to sell, or at least offer to sell, the securities.

Q: Corporate directors and officers are insurers of business success.

Q: If a director fails to use a reasonable amount of supervision over corporate officers and employees, then the director can be held liable for negligence.

Q: A registration statement must state how a corporation plans to use the proceeds from the sale of the securities.

Q: A free-writing prospectus may be used before the Securities and Exchange Commission completes its review of a related registration statement.

Q: Barb allows Candy to enter Barb's warehouse and take a DVD player. Charged with theft, Candy can successfully claim, as a defense, a. consent. b. duress. c. entrapment. d. self-defense.

Q: A board of directors can delegate some functions to corporate officers.

Q: A registration statement must include a financial statement certified by an independent public accounting firm.

Q: Evan is charged with a crime. At the time of the offense, Evan suffered a mental defect. Almost all federal courts and some state courts would not hold Evan liable if he lacked substantial capacity to a. appreciate the wrongfulness of his conduct only. b. appreciate the wrongfulness of his conduct and obey the law. c. appreciate the wrongfulness of his conduct or obey the law. d. obey the law only.

Q: A director is a fiduciary of a corporation.

Q: Tim is a businessperson with investments in several legal and illegal operations. Tim may be subject to a suit under RICO a. for making an unprofitable, but legal, investment. b. for the commission of almost any business fraud. c. only in a case involving a "racket." d. only in a case involving organized crime.

Q: Corporate officers can usually be removed by the board of directors without cause.

Q: The least common forms of securities are bonds issued by corporations.

Q: Eve, a First Bank employee, deposits into her account checks that are given to her by bank customers to deposit into their accounts. This is a. embezzlement. b. forgery. c. larceny. d. robbery.

Q: Guy is Hot Java Company's majority shareholder. Guy decides to sell his Hot Java stock. The sale will be an effective transfer of the control of the company. Does Guy owe a duty to Hot Java or its minority shareholders in this situation?

Q: Mona offers Ned, a building inspector, money to overlook the violations in her new warehouse. Ned accepts the money and overlooks the violations. Mona is charged with the crime of bribery. The crime occurred when a. Mona decided to offer the bribe. b. Mona offered the bribe. c. Ned accepted the bribe. d. Ned overlooked the violations.

Q: A corporate officer cannot act as an agent of the corporation.

Q: Mitch is a director and officer of Numero Uno, Inc. Mitch makes a market­ing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduci­ary duty to the corporation. What is Mitch's best defense against this ac­cu­sation? Later, the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation. Mitch is a director and shareholder of One-of-a-Kind. What is Mitch's responsibility in this situation?

Q: Quorum requirements are the same in all jurisdictions.

Q: Jay is charged with embezzlement. Embezzlement is not robbery because embezzlement may be committed without a. a criminal act. b. a criminal intent. c. taking property from its owner. d. the use of force of fear.

Q: Cole is a shareholder of Donut Holes, Inc. Cole will be deemed to have a fiduci­ary duty to Donut Holes and its minority share­holders if he has a. a restriction on the transferability of his shares. b. a right of first refusal. c. a sufficient number of shares to exercise de facto control. d. watered stock.

Q: The minimum number of members of a body of officials that must be present before business can validly be transacted is known as a quorum.

Q: Beth, an employee of City Bank, is charged with embezzlement, which requires a. fraudulently appropriating another's property. b. obtaining lawful possession of property. c. physically taking property from its owner. d. the use of force or fear.

Q: Orin is a shareholder of Pinkwater Corporation. In some states, Orin might in­cur personal liability for unpaid Pinkwater debts if he a. accepts a dividend knowing that it was paid from retained earn­ings. b. buys stock for less than its fair-market value. c. fails to fulfill his fiduciary duty to the majority shareholders. d. sells his shares.

Q: Phil sets fire to his house. At common law, the crime of arson could be committed only if a person burned down a. a commercial building. b. an unoccupied structure. c. his or her own house. d. the house of another person.

Q: Hiring corporate officers and determining their compensation are decisions that would be made by a corporation's board of directors.

Q: Fact Pattern 30-1Ray is a shareholder of Small Biz Company (SBC). When the direc­tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.Refer to Fact Pattern 30-1. Any damages recovered by Ray's suit will go toa. Ray.b. SBC.c. SBC's directors.d. the state in which SBC is incorporated.

Q: Fact Pattern 30-1Ray is a shareholder of Small Biz Company (SBC). When the direc­tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.Refer to Fact Pattern 30-1. Ray's suit is a shareholder'sa. business-judgment rule suit.b. derivative suit.c. duty-of-care suit.d. duty-of-loyalty suit.