522 - Exam 1 - Chapter 12

Question 1

SEC Rule 10(b)-5 (1Q)

• the law/act that created it
• what it says (4 things)

Answer 1

Rule 10(b)-5 of Securities Exchange Act of 1934:

1. Prohibits disclosures of material untruths
2. Omissions of disclosures
3. Imposes explicit liabilities and penalties on fraudulent reporting
4. Disallows insider trading

Question 2

SOX 2002 (1Q)

Answer 2

1. Est. PCAOB
2. Prohibits auditors from NAS at the same time
3. Requires CEO and CFO to certify FS are free from untrue statements
4. Requires CEO and CFO to be responsible for IC’s (SEC. 302 & 404)
5. Requires executives to return bonuses if restatement is needed becasue of fraud
6. Increases prison sentence for mail and wire fraud
7. Document shredding illegal and subject to prison time
8. Lead partner and audit partner required to rotate every 5 years