Ch 4 Deck 4

Question 1

Most records must be kept for

Answer 1

three years, two years on site in an accessible place.

Question 2

Account records must be kept for

Answer 2

6 years.

Question 3

The SEC has the authority to prohibit the use of manipulative and deceptive acts. The authority extends to

Answer 3

exempt securities (securities that are not registered with the SEC).

Question 4

A forbidden market manipulation technique is any activity intended to create

Answer 4

a false impression of active trading in a security

Question 5

A forbidden market manipulation technique is entering a buy order to match an identical sell order which is called

Answer 5

Matched Orders

Question 6

A forbidden market manipulation technique is Trading for the sole purpose of

Answer 6

increasing the price of a security

Question 7

A forbidden market manipulation technique is Transactions with the same

Answer 7

seller or buyer to create the impression of active trading

Question 8

A forbidden market manipulation technique is Circulating

Answer 8

rumors to induce a purchase or sale

Question 9

when a price is artificially maintained at a certain level by manipulative activity, it is called

Answer 9

Price Fixing (Pegging, Stabilization)

Question 10

Price Fixing is also known as

Answer 10

Pegging or Stabilization

Question 11

if price fixing occurred, the injured party is entitled to

Answer 11

sue for damages and costs

Question 12

No Misrepresenting facts including

Answer 12

leaving out material information

Question 13

Need to be careful when presenting Pro Forma Balance Sheets that they don’t

Answer 13

deceive or manipulate an investor’s impressions

Question 14

Not allowed to suggest that the registration of a broker-dealer with the SEC constitutes

Answer 14

a seal of approval by the SEC

Question 15

Statue of Limitations – If harmed by fraudulent or misleading activities, suit can be brought forward, but must be

Answer 15

within three years of occurring or 1 year of discovery

Question 16

A purchase transaction is considered complete

Answer 16

when payment is made (except advanced purchases)

Question 17

A purchase transaction that involved payment in advance is considered complete

Answer 17

when the security is delivered to the customer’s account.

Question 18

A sale transaction is considered complete when

Answer 18

the security is delivered to the broker-dealer

Question 19

Definition of insider

Answer 19

Anyone who has access to material non-public information about a company

Question 20

Examples of insiders

Answer 20

Directors
Officers
Shareholders with more than 10% of outstanding shares

Question 21

Insider trading rules do not apply to just company insiders, they apply to anyone who has access to material non-public information and

Answer 21

purchases or sells securities based on this information

Question 22

John who is an insider (tipper) tells his neighbor about a potential merger, his neighbor trades on the information (tippee). Who is liable?

Answer 22

Both the tipper and the tippee are potentially liable.

Question 23

theory that broadens liability for insider trading further

Answer 23

Misappropriation theory

Question 24

Under misappropriation theory people who misappropriate (steal) information from their employer and

Answer 24

trades on that information are guilty of insider trading

Question 25

Insider trading by misappropriation applies not just to the stock of the company from which the information is stolen, but also

Answer 25

using it to trade in any stock

Question 26

Misappropriation extends to anyone who is expected to keep the information confidential, but then

Answer 26

ends up profiting from it.

Question 27

Maximum Individual Civil Penalties for insider trading

Answer 27

three times the profit gained or the loss avoided

Question 28

Maximum Individual Criminal Penalties for insider trading:

Answer 28

$5 million or 20 years in prison

Question 29

Insider trading Fines are paid to

Answer 29

the US Treasury

Question 30

Statute of limitation for insider trading is

Answer 30

5 years from violation

Question 31

With insider trading The SEC is allowed to pay

Answer 31

bounties for whistleblowers (cannot exceed 10% of penalty)

Question 32

SEC bounties for insider trading whistleblowers cannot exceed

Answer 32

10% of penalty

Question 33

Regulation FD refers to

Answer 33

“Fair Disclosure” but might better be described as “non-selective disclosure”

Question 34

Under Reg FD, When an issuer discloses material, non-public information to any person outside of its company, the issuer must

Answer 34

publicly disclose the information.

Question 35

Under Regulation FD, If a disclosure was intentional, the firm must make public disclosure

Answer 35

simultaneously.

Question 36

Under Regulation FD, If a disclosure was, the issuer must make a public disclosure

Answer 36

promptly (within 24 hours)

Question 37

Under Regulation FD, one option for disclosure is form

Answer 37

8-K

Question 38

Under Regulation FD, means of disclosure must be

Answer 38

widely available and non-exclusionary

Question 39

Under Regulation FD, specific examples of widely available and non-exclusionary means of disclosure are

Answer 39

press-release
company websites if well-known
webcasts

Question 40

what would the balance sheet look like if some action was taken shown by

Answer 40

pro forma balance sheet

Question 41

Maximum firm civil penalties for insider trading

Answer 41

$1M

OR

3 times profit gained or loss avoided

Question 42

Maximum firm criminal penalties for insider trading

Answer 42

$25M