Ch 41: Investor Protection, E-securities, and Wall Street Reform

Question 1

Securities and Exchange Commision(SEC)

Answer 1

Federal administrative agency with the power to administer federal securities laws

Question 2

Common Security

Answer 2

-Common stock
-Bond
-Debenture
-Warrant

Question 3

Statutorily defined security

Answer 3

Interest or instrument mentioned in securities acts

Question 4

Investment Contract

Answer 4

Flexible standard for defining a security
Howey Test: Investor does nothing after investing money and has expectation to receive a share of profit

Question 5

Securities Act of 1933

Answer 5

-Regulates the issuance of Securities by corporations, limited partnerships ,and associations.

Question 6

Securities Exchange Act of 1934

Answer 6

Requires reports to be filed by companies
Regulates trading securities
Regulates security exchanges

Question 7

Section 10 (B) and Rule 10B-5

Answer 7

-Section 10 (b): prohibits use of manipulative and deceptive devices in the purchase or sale of securities.
- Rule10b-5: clarifies the reach of section 10 (b) against deceptive and fraudulent activities in purchase and sale of securities.
-Only if scienter( intentional misconduct)

Question 8

Violations of 1934 Act

Answer 8

-Civil liability: if intentionally deceived to purchase stocks or securities plaintiff may bring civil action
-Criminal liability: offense to willfully violate provisions of the act.
-Insider trading
-Tipper-tippee liability
>Tipper is the one who makes the information available
>Tippee one who uses the information
-Misappropriation Theory: Outsider illegaly gets information about a company then trades in securities of the company.

Question 9

Short-swing profits

Answer 9

Profits made by statutory Insiders on trades involving Securities that occur within a time period of six months

Question 10

Statutory Insider

Answer 10

A person who is an executive officer, a director,or a 10% shareholder of a security of the company.

Question 11

Section 16 (b)

Answer 11

Profits made by statutory Insider on transactions involving short swing profits belong to the corporation.

Question 12

Dodd-Frank Wall Street Reform and Consumer Protection Act

Answer 12

Regulates funds and provides protection to consumers regarding financial products and services.

Question 13

State “blue-sky” laws

Answer 13

laws that regulate issuance and trading of securities.