Question 1

A controlling shareholder is traditionally considered an insider.

Accepted Answer

A) True 
 B)False

Question 2

Security laws contain no provision for the payment of bounties to individuals whose tips result in insider trading prosecutions.

Accepted Answer

A) True 
 B)False

Question 3

The Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act)provides that "political intelligence" firms,but not Congressional staff,can be liable for trading based on material nonpublic information derived from the officials' positions.​

Accepted Answer

A) True 
 B)False

Question 4

Under Rule 10b-5,any use of the mails is sufficient to satisfy the interstate commerce condition even if the mail does not leave the state.

Accepted Answer

A) True 
 B)False

Question 5

In CASE 22.5 Somers v.Digital Realty Trust Inc.,the court addressed the question of whether an employee who reports possible violations of securities laws only internally,and not to the SEC,is entitled to the whistleblower protections of the Dodd-Frank Act.How did the court rule?

Accepted Answer

A)   The court held that whistleblowers may recover under the Dodd-Frank Act even if they have only reported suspected violations of law internally and not to the SEC.
B)   The court found that internal reporting brings a higher likelihood of a problem being addressed,along with an increased risk of employer retaliation.
C)   Whistleblower protections under Dodd-Frank are only available to individuals in an auditor capacity.
D)   The court found that the SEC regulation incorrectly reflects congressional intent to provide protection for those who make internal disclosures as well as those who make disclosures to the SEC.E) B) and D)
F) A) and B)

Question 6

To prevail on a securities fraud claim,a plaintiff must prove "loss causation," that the defendant's misstatement caused the plaintiff to suffer economic loss.

Accepted Answer

A) True 
 B)False

Question 7

Under the blue sky laws in certain states,investors who allege that they did not sell their securities because of the defendants' fraud may bring __________ claims.

Accepted Answer

A)   federal
B)   meritless
C)   class action
D)   holderE) A) and B)
F) All of the above

Question 8

Which of the following is NOT true regarding the misappropriation theory of insider trading?

Accepted Answer

A)   If a trader discloses to a source of nonpublic information that he or she plans to trade on the basis of that information,there is no violation under the misappropriation theory.
B)   Liability under the misappropriation theory requires deception.
C)   The misappropriation theory widens the class of persons who can be found liable for insider trading.
D)   The trader cannot be held liable unless he or she is an insider of the company whose securities are traded.E) B) and D)
F) C) and D)

Question 9

A right of action under section 10(b)may expire before any plaintiffs discover they have been wronged or even before damages have been suffered at all.

Accepted Answer

A) True 
 B)False

Question 10

Temporary insiders are persons not directly employed by the corporation,but who acquire confidential information through the performance of professional services.

Accepted Answer

A) True 
 B)False

Question 11

The safe harbor provision applies to forward-looking statements in connection with an initial public offering.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following represents the general duty under Rule 10b-5 in regard to the duty of a company to reveal corporate developments?

Accepted Answer

A)   A company has no general duty under Rule 10b-5 to reveal corporate developments unless the company or its insiders (1) trade in securities,or (2) recommend trading to someone else.
B)   A company has no general duty under Rule 10b-5 to reveal corporate developments unless the company or its insiders (1) trade in securities,(2) recommend trading to someone else,or (3) disclose the information as a tip while withholding it from the general public.
C)   A company has a general duty under Rule 10b-5 to reveal corporate developments that are material.
D)   A company had a general duty under Rule 10b-5 to reveal corporate developments if it appears (1) that developments are material,and (2) that the material developments will have a negative effect on the company's financial reports.E) All of the above
F) B) and C)

Question 13

In order to be actionable under Rule 10b-5,misstatements or omissions must be made with:

Accepted Answer

A)   negligence.
B)   lack of due care.
C)   scienter.
D)   recklessness.E) B) and D)
F) All of the above

Question 14

In determining materiality,a court will consider several factors,including all of the following EXCEPT:

Accepted Answer

A)   an increase in the stock price after public announcement of a merger.
B)   whether the information comes from an insider.
C)   whether the information was sent through the mail.
D)   whether information concerning a potential acquisition is accompanied by implied certainty.E) A) and B)
F) A) and C)

Question 15

The SEC and the U.S.Attorney's offices may use section 17(a)to prosecute securities fraud,but private parties may not sue based on it.

Accepted Answer

A) True 
 B)False

Question 16

Under Section 16(b) pertaining to short-swing profits,a person will be considered a(n) __________ of any securities held by his or her immediate family or any other relative living in his or her household.

Accepted Answer

A)   family owner
B)   beneficial owner
C)   actual owner
D)   imputed ownerE) A) and B)
F) C) and D)

Question 17

Research shows that because of the severe penalties involved,insider trading in China is very rare.

Accepted Answer

A) True 
 B)False

Question 18

In CASE 22.1 Securities and Exchange Commission v.Texas Gulf Sulphur Co.(1971) ,the question was whether a press release giving a misleading impression about the results of a drilling operation violated Rule 10b-5.How did the court rule?

Accepted Answer

A)   The company acted only in response to rumors and had no obligation to set forth additional facts regarding the drilling operation,thereby negating any basis for Rule 10b-5 liability.
B)   The company violated Rule 10b-5 by issuing the misleading press release.
C)   A press release standing alone may not violate Rule 10b-5,and the company could not be held liable because it made no actionable statements outside the press release.
D)   The company could be held liable under Rule 10b-5 but only because it issued other statements in addition to the press release.E) None of the above
F) B) and C)

Question 19

Under the efficient capital market hypothesis,in an open and developed securities market,the market price of a company's stock equals its true value.

Accepted Answer

A) True 
 B)False

Question 20

A securities fraud claim can be used as a predicate act in a civil case under the Racketeer Influenced and Corrupt Organizations Act regardless of whether the defendant has been criminally convicted in connection with the fraud.

Accepted Answer

A) True 
 B)False

Exam 22: Securities Fraud And Insider Trading

In determining materiality,a court will consider several factors,including all of the following EXCEPT:

Correct AnswerverifiedShow Answer

To prevail on a securities fraud claim,a plaintiff must prove "loss causation," that the defendant's misstatement caused the plaintiff to suffer economic loss.

Correct AnswerverifiedShow Answer

Under Section 16(b) pertaining to short-swing profits,a person will be considered a(n) __________ of any securities held by his or her immediate family or any other relative living in his or her household.

Correct AnswerverifiedShow Answer

Research shows that because of the severe penalties involved,insider trading in China is very rare.

Correct AnswerverifiedShow Answer

In order to be actionable under Rule 10b-5,misstatements or omissions must be made with:

Correct AnswerverifiedShow Answer

The safe harbor provision applies to forward-looking statements in connection with an initial public offering.

Correct AnswerverifiedShow Answer

Which of the following represents the general duty under Rule 10b-5 in regard to the duty of a company to reveal corporate developments?

Correct AnswerverifiedShow Answer

A controlling shareholder is traditionally considered an insider.

Correct AnswerverifiedShow Answer

Security laws contain no provision for the payment of bounties to individuals whose tips result in insider trading prosecutions.

Correct AnswerverifiedShow Answer

Temporary insiders are persons not directly employed by the corporation,but who acquire confidential information through the performance of professional services.

Correct AnswerverifiedShow Answer

A right of action under section 10(b)may expire before any plaintiffs discover they have been wronged or even before damages have been suffered at all.

Correct AnswerverifiedShow Answer

A securities fraud claim can be used as a predicate act in a civil case under the Racketeer Influenced and Corrupt Organizations Act regardless of whether the defendant has been criminally convicted in connection with the fraud.

Correct AnswerverifiedShow Answer

Under Rule 10b-5,any use of the mails is sufficient to satisfy the interstate commerce condition even if the mail does not leave the state.

Correct AnswerverifiedShow Answer

The SEC and the U.S.Attorney's offices may use section 17(a)to prosecute securities fraud,but private parties may not sue based on it.

Correct AnswerverifiedShow Answer

Under the efficient capital market hypothesis,in an open and developed securities market,the market price of a company's stock equals its true value.

Correct AnswerverifiedShow Answer

Under the blue sky laws in certain states,investors who allege that they did not sell their securities because of the defendants' fraud may bring __________ claims.

Correct AnswerverifiedShow Answer

The Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act)provides that "political intelligence" firms,but not Congressional staff,can be liable for trading based on material nonpublic information derived from the officials' positions.​

Correct AnswerverifiedShow Answer

Which of the following is NOT true regarding the misappropriation theory of insider trading?

Correct AnswerverifiedShow Answer

In CASE 22.5 Somers v.Digital Realty Trust Inc.,the court addressed the question of whether an employee who reports possible violations of securities laws only internally,and not to the SEC,is entitled to the whistleblower protections of the Dodd-Frank Act.How did the court rule?

Correct AnswerverifiedShow Answer

In CASE 22.1 Securities and Exchange Commission v.Texas Gulf Sulphur Co.(1971) ,the question was whether a press release giving a misleading impression about the results of a drilling operation violated Rule 10b-5.How did the court rule?

Correct AnswerverifiedShow Answer

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The Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act)provides that "political intelligence" firms,but not Congressional staff,can be liable for trading based on material nonpublic information derived from the officials' positions.

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