123) What is the general reason for restrictions against insider trading under the Securities Exchange Act of 1934?

A) Corporate insiders should not own stock in the corporation because it is a conflict of interest.

B) Use of inside information is unfair to the other party to the transaction, and goes against the philosophy of allowing all participants in the market to have the same information.

C) Insider trading generally leads to lower stock prices.

D) Insider trading results in an imbalance of buyers and sellers in the market.

E) The value of a prospectus is compromised when insider trading is conducted.

124) When an insider discloses material insider information to a non-insider tippee, the tipper is liable for:

A) the tipper’s own trading only.

B) the tippee’s profits, but not the profits made by any remote tippees.

C) the profits made by the immediate tippee, as well as the profits made by any remote tippees.

D) the profits made by all traders during the period before the information becomes public.

E) only the pay the tipper received for providing the information to the tippee.

125) Which of the following individuals would not be considered an officer regarding Rule 16 enforcement?

A) an executive officer who participates in policy-making functions

B) an executive officer who does not participate in policy-making functions

C) a chief executive officer

D) a vice president in charge of business units

E) a chief financial officer

126) Which of the following is true about Rule 16(a) of the Securities Exchange Act of 1934 regarding short-swing profits?

A) It applies only to officers and directors of the corporation.

B) It provides for recovery from a statutory insider by the other party to the transaction.

C) It covers any trades occurring within one year of each other.

D) It provides that any profits made by a statutory insider on trades occurring within six months of each other belong to the corporation.

E) It provides that any profits made by a statutory insider on trades occurring within six months of each other belong to the corporation, but only if insider information was used to generate the profits.

127) Short-swing profits are profits made through the buying and selling of a security by a statutory insider occurring within ________.

A) one month

B) three months

C) six months

D) nine months

E) twelve months

128) What are securities laws passed by states typically called?

A) “blue-sky” laws

B) “red-sky” laws

C) “dark-sky” laws

D) prohibitive laws

E) regulatory laws

129) Best, Inc. wishes to issue new stock to raise capital. Best is incorporated, and does all of its business in Indiana. Best intends to offer and sell its new stock only to residents of Indiana, and to restrict sales to individuals from other states for the proper time. Which of the following best describes the status of Best’s new stock?

A) This transaction is exempt as an intrastate offering.

B) This transaction is exempt as an intrastate offering, but only if Best sells exclusively to accredited investors.

C) This transaction is exempt as an intrastate offering, but only if Best issues less than $1.5 million in securities.

D) This transaction is exempt as a private placement.

E) Because the securities are traded only in interstate commerce, the securities themselves are exempt.

130) Zelda is a certified public accountant for Kite Company, a company that makes designer kites. An audit discloses the Kite Company’s profits have doubled since the previous year, and Zelda rightfully discloses that fact to Rhonda, Kite Company’s chief financial officer. The information regarding the profits is material and nonpublic until the corporation announces its earnings in ten days. Both Zelda and Rhonda buy stock in Kite Company. After the earnings information is made public, the price of the stock increases. Are Zelda and Rhonda liable for any violations of federal securities laws?

A) They are both liable for violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.

B) Zelda is liable for violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, but Rhonda has committed no violations.

C) Rhonda is liable for violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, but Zelda has committed no violations.

D) Neither Rhonda nor Zelda is liable for any violation, unless it can be shown that the company’s reputation was harmed by their actions.

E) Neither Rhonda nor Zelda is liable for any violation, unless it can be shown that the other stockholders were harmed by their actions.

131) Karl is the vice president of a medium-size corporation that operates retail sporting goods stores in seven states. Karl has considerable stock that he purchased and received over the years while working there. Karl has purchased no stock for the last three years, because all his excess funds have gone for college expenses for his oldest son. Karl’s daughter will begin college in the fall, and Karl needs to sell some stock. Karl knows that one of the retail locations where the corporation owns the real estate was once used as a toxic dump. The corporation is legally obligated to clean up this site, and the costs will have a material effect on the corporation’s net income for several years. This information is not yet public. Karl can:

A) freely sell his stock without any liability, because it has been more than six months since he purchased any stock.

B) sell his stock, but only if he tells the purchaser about the liability for cleaning up the toxic waste.

C) sell his stock only to an accredited investor.

D) not sell his stock under any circumstances until the information about the toxic waste becomes public.

E) sell his stock, but only if he agrees to repurchase it within one year, subject to the buyer’s request.