Chapter 7: The Securities Exchange Act of 1934

Question 1

The difference between the Securities Act of 1933 and the Securities Exchange Act of 1934 is:

Answer 1

that the 1933 act is a one-time disclosure law whereas the 1934 act provides for continuous periodic disclosures by publicly held corporations

Question 2

SEC Rule 10b-5 only applies to cases concerning the trading of securities on organized exchanges, such as the New York Stock Exchange.

Answer 2

False

Question 3

Insider trading involves individuals who are:

Answer 3

insiders within publicly traded companies, including officers, directors, and majority shareholders.

Question 4

two theories under which outsiders may be held liable for insider trading.

Answer 4

1. Tipper/Tippee Theory

2. Misapporpiation Theory

Question 5

The Tippee Is Liable Only If the Following Requirements Are Met:

Answer 5

1. There is a breach of a duty not to discloe inside info.
2. The disclosure is made in exchange for personal benefit
3. The tippee knows ( or should know) of this breach and benefits from it

Question 6

Section 16(b) of the Securities Exchange Act of 1934 provides for the:

Answer 6

recapture by a corporation of short-swing profits resulting from insider trading.

Question 7

Trevor is the director of Special Energy. His wife and he own a large number of shares. She is an attorney in a law firm and finds out that her firm is filing a class-action lawsuit against Special Energy. They predict that the shares in Special Energy will drop after the lawsuit hits the news. Trevor and his wife:

Answer 7

must disclose that they know about the lawsuit if they want to sell their stock before news about the lawsuit becomes public knowledge.

Question 8

Liability under Section 16(b) is strict liability, which means that:

Answer 8

neither scienter nor negligence is required

Question 9

The two sections and rules under which private parties can sue violators.

Answer 9

1. Section 10(B)

2. Rule 10b-5