Ch 4 Deck 4 Flashcards
Most records must be kept for
three years, two years on site in an accessible place.
Account records must be kept for
6 years.
The SEC has the authority to prohibit the use of manipulative and deceptive acts. The authority extends to
exempt securities (securities that are not registered with the SEC).
A forbidden market manipulation technique is any activity intended to create
a false impression of active trading in a security
A forbidden market manipulation technique is entering a buy order to match an identical sell order which is called
Matched Orders
A forbidden market manipulation technique is Trading for the sole purpose of
increasing the price of a security
A forbidden market manipulation technique is Transactions with the same
seller or buyer to create the impression of active trading
A forbidden market manipulation technique is Circulating
rumors to induce a purchase or sale
when a price is artificially maintained at a certain level by manipulative activity, it is called
Price Fixing (Pegging, Stabilization)
Price Fixing is also known as
Pegging or Stabilization
if price fixing occurred, the injured party is entitled to
sue for damages and costs
No Misrepresenting facts including
leaving out material information
Need to be careful when presenting Pro Forma Balance Sheets that they don’t
deceive or manipulate an investor’s impressions
Not allowed to suggest that the registration of a broker-dealer with the SEC constitutes
a seal of approval by the SEC
Statue of Limitations – If harmed by fraudulent or misleading activities, suit can be brought forward, but must be
within three years of occurring or 1 year of discovery
A purchase transaction is considered complete
when payment is made (except advanced purchases)
A purchase transaction that involved payment in advance is considered complete
when the security is delivered to the customer’s account.
A sale transaction is considered complete when
the security is delivered to the broker-dealer
Definition of insider
Anyone who has access to material non-public information about a company
Examples of insiders
Directors
Officers
Shareholders with more than 10% of outstanding shares
Insider trading rules do not apply to just company insiders, they apply to anyone who has access to material non-public information and
purchases or sells securities based on this information
John who is an insider (tipper) tells his neighbor about a potential merger, his neighbor trades on the information (tippee). Who is liable?
Both the tipper and the tippee are potentially liable.
theory that broadens liability for insider trading further
Misappropriation theory
Under misappropriation theory people who misappropriate (steal) information from their employer and
trades on that information are guilty of insider trading
Insider trading by misappropriation applies not just to the stock of the company from which the information is stolen, but also
using it to trade in any stock
Misappropriation extends to anyone who is expected to keep the information confidential, but then
ends up profiting from it.
Maximum Individual Civil Penalties for insider trading
three times the profit gained or the loss avoided
Maximum Individual Criminal Penalties for insider trading:
$5 million or 20 years in prison
Insider trading Fines are paid to
the US Treasury
Statute of limitation for insider trading is
5 years from violation
With insider trading The SEC is allowed to pay
bounties for whistleblowers (cannot exceed 10% of penalty)
SEC bounties for insider trading whistleblowers cannot exceed
10% of penalty
Regulation FD refers to
“Fair Disclosure” but might better be described as “non-selective disclosure”
Under Reg FD, When an issuer discloses material, non-public information to any person outside of its company, the issuer must
publicly disclose the information.
Under Regulation FD, If a disclosure was intentional, the firm must make public disclosure
simultaneously.
Under Regulation FD, If a disclosure was, the issuer must make a public disclosure
promptly (within 24 hours)
Under Regulation FD, one option for disclosure is form
8-K
Under Regulation FD, means of disclosure must be
widely available and non-exclusionary
Under Regulation FD, specific examples of widely available and non-exclusionary means of disclosure are
press-release
company websites if well-known
webcasts
what would the balance sheet look like if some action was taken shown by
pro forma balance sheet
Maximum firm civil penalties for insider trading
$1M
OR
3 times profit gained or loss avoided
Maximum firm criminal penalties for insider trading
$25M
