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Exam 23: Securities Fraud and insider trading

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Question 21

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How are criminal prosecutions of illegal insider trades brought?

A) Through the U.S.Attorney's Office.
B) By the Department of Justice through the U.S.Attorney's Office.
C) By the Federal Attorney General.
D) By the Office of Secured Trading.

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Question 22

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What is the duty of an independent public accountant if,in the course of an audit,the accountant detects information indicating that an illegal act has or may have occurred?

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The accountant must (1)determine whether...

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Question 23

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The U.S.Supreme Court has adopted a bright-line rule for determining whether a statement is material.

There is no provision in the security laws for the payment of bounties to individuals whose tips result in insider trading prosecutions.

Rule 10b-5 does not result in any private rights of action.

Which of the following is not considered a traditional insider?

The U.S.Supreme Court has made it clear that only persons who actually ________ can sue under Rule 10b-5.

There is a split in the circuits as to whether ________ qualifies as scienter.

A prediction about the future cannot be a misstatement for purposes of the 1933 Act,even if the person making the prediction does not believe it at the time.

Accountants have to sign a written consent before their audited report can be included in a registration statement.

Lawsuits under Section 10(b) must be brought within ________ of the date the plaintiff discovered or should have discovered the fraud or within ________ of the date of the violation,whichever is earlier.

If a purchase or sale by an officer,director,or greater-than-10 percent shareholder that would otherwise result in recoverable short-swing profits was involuntary and did not involve the payment of cash and if there was no possibility of speculative abuse of inside information,than a court may hold that it was a(n) ________ to which no liability will attach.

Under the ________ theory,a person who lacks a fiduciary duty to a company may nonetheless violate Rule 10b-5 by trading on nonpublic information in the company's stock.

Under the London Stock Exchange rules,if a listed company's share price moves significantly on the basis of rumor and the rumor is true,the company must disclose the existence of the rumored event.

The misappropriation theory widens the class of persons who can be found liable for insider trading.

Remote tippees may never be found to have violated securities laws by the use of insider information they obtained.

Fact pattern 23-1 Trudy was hired by Food Corporation to handle a products liability lawsuit brought against it alleging that it distributed dangerous dog biscuits.Trudy's investigation has brought to light facts establishing that the biscuits were not defective and that the problem actually law with improper retention policies of retailers.Trudy is aware that this information will result in the stock of Food Corporation increasing dramatically.Trudy immediately buys shares of Food Corporation and tells her fiancé,Frank,about the expected increase as well.Trudy tells Frank because she wants to borrow money from him for the trade and also because she believes that his investment will enable them to take a nicer honeymoon.Trudy's suspicions come true.The lawsuit is dismissed,the stock increases dramatically,and she and Frank go on a great honeymoon.The day after they return,an investigator from U.S.Attorney's Office interviews her regarding her trades and those of Frank. -Refer to fact pattern 23-1.Can Trudy be considered an insider of Food Corporation?

Section 20(a) imposes ________ liability on every person who,directly or indirectly,controls any person liable under the 1934 Act,unless the controlling person acted in good faith and did not directly or indirectly induce the acts constituting the violation.

________ occurs when issuers of publicly traded securities disclose material nonpublic information to securities analysts or selected institutional investors before making full disclosure of the same information to the general public.

All instances of trading on inside information constitute a securities act violation.