FEDERAL SECURITIES LAW

Question 1

WHAT IS A SECURITY?

______where there is an ______of _____ primarily from the _____ of others

Answer 1

WHAT IS A SECURITY?

investment where there is an expectation of profits primarily from the efforts of others

Question 2

WHAT IS AN INSIDER?
anyone who learns of _____ _____ information as a ______ of his corporate ______or has a ______ relationship to the corp– such as _____, ________ _______ s/h, senior ____, a_____, a______)

Answer 2

WHAT IS AN INSIDER?
anyone who learns of material nonpublic information as a consequence of his corporate position or has a fiduciary relationship to the corp (D, O, controlling s/h, senior employees, attys, accountants)

Question 3

RULE 10B-5 _____ anyone from using ______ ____ to defraud or make an ____ statement of _____ _____or _______in connection with ____ or ____ of any security.

Answer 3

RULE 10B-5 prohibits anyone from using ISC to defraud or make an untrue statement of material fact or omission in connection with purchase or sale of any security

Question 4

RULE 10B-5 
A private P must show, in addition to\_\_\_\_ \_\_\_\_\_  (phone, m\_\_\_, etc.) to create \_\_\_\_\_:
1. F\_\_\_\_/ M\_\_\_\_ / B\_\_\_\_ of \_\_\_\_ Duty
2.	S\_\_\_\_\_: intent to d
3.	C\_\_\_\_\_\_\_: actually b \_\_\_\_\_or s \_\_\_\_
4.   R\_\_\_\_\_  P \_\_\_\_\_ on D’s statement
4. D\_\_\_\_\_\_
FMBoFD= Fred My Mangy Big old Fat Dog is Scared of Cats and Runs Past Dogs
S
C
RP
D

Answer 4

RULE 10B-5

a. A private P must show, in addition to ISC (phone, mail, etc.) to create liability:
1) Fraudulent/Misstatement, misrepresentation,/breaches fiduciary duty
2) Scienter: Intent to deceive.
ii. Causation: P actually bought or sold the security
iii. Reliance: P relied on D’s statement. Often assume for material omissions. 4. DAMAGES

FMBoFD= Fred My Mangy Big old Fat Dog is Scared of Cats and Runs Past Dogs
S
C
RP
D

Question 5

RULE 10B-5

1) Fraudulent conduct: M_______, m________, or om______ that breaches ________ duty

Answer 5

RULE 10B-5

1) Fraudulent conduct: Misstatement, misrepresentation, or omission that breaches fiduciary duty

Question 6

RULE 10B-5
Fraud must show: Materiality:
a r_____ i______ would consider it _____in making an ________ decision

Answer 6

RULE 10B-5
Fraud must show: Materiality:
A reasonable investor would consider it important in making an investment decision

Question 7

RULE 10B-5

Fraud must show: S_____: Intent to ______, _____, or d_______. At least r________ as to t_____.

Answer 7

RULE 10B-5

Fraud must show: Scienter: Intent to deceive, manipulate, or defraud. At least recklessness as to truth.

Question 8

RULE 10B-5

Fraud must show C_____: P actually _____ or ____ the ______ form any _____.

Answer 8

RULE 10B-5

Fraud must show Causation: P actually bought or sold the security form any source.

Question 9

RULE 10B-5
Fraud must show R_____: P ____ on D’s _____.
Often assume for _____ omissions.

Answer 9

RULE 10B-5

Fraud must show Reliance: P relied on D’s statement. Often assume for material omissions.

Question 10

RULE 10B-5

_____ law fraud (W/_____ _____) may apply to overt _______made regarding ______info

Answer 10

RULE 10B-5

Common law fraud (W/punitive results) may apply to overt misrepresentation made regarding market info

Question 11

INSIDER TRADING:
An _____ breaches 10b-5 by _____ on _____ information and _____ a duty of____ and _____ owed to ______, _____ of issuer, or (for m______) source of M______ N_____ I_____

Answer 11

INSIDER TRADING: An insider breaches 10b-5 by trading on insider information and breaching a duty of trust and confidence owed to issuer, s/h of issuer, or (for misappropriation) source of material nonpublic info

Question 12

10b-5 Tipper liability:
If an ______ intentionally discloses
M_____N____I ____
in a breach of his ______ duty and _____ a _____ benefit (broad: g___, m____, r_____ gain, etc.) he may be _____.

Answer 12

Tipper liability:
If an insider intentionally discloses Material Nonpublic I in a breach of his fiduciary duty and receives a personal benefit (broad: gift, money, reputational gain, etc.) he may be liable.

Question 13

10b-5 Tippee may be liable _____if tipper_____ a ____ + tippee _____ on MNI knowing ____ was breaching

Answer 13

Tippee may be liable only if tipper breached a duty + tippee traded on MNI knowing tipper was breaching

Question 14

10b-5 Misappropriation: The _____ can prosecute under 10b-5 for ____on ____ ____ ____ in breach of a duty of ____and_____ owed to the _____ (not _______ corp ______)

Answer 14

i. Misappropriation: The gov’t can prosecute under 10b-5 for trading on market information in breach of a duty of trust and confidence owed to the source (not necessarily corp directly)

Question 15

SECTION 16(B) requires _______ of _____-term profits (aka s____ s____ p___) by any D, O, or s/h of a _____corp owning ____%+ of a ____ security, if he _____ a security w/in___6 months of a _____ or ____, while a ___% ____ both at ___ of purchase and _____.

Answer 15

SECTION 16(B) requires surrender of short-term profits (aka short swing profits) by any D, O, or s/h of a public corp owning 10%+ of a class security, if he sells a security w/in 6 months of a purchase or sale, while a 10% owner both at time of purchase and sale.

Question 16

SECTION 16(B) 
“Profit” is determined by \_\_\_\_\_ \_\_\_\_\_ sales price v. \_\_\_\_\_ p\_\_\_\_\_ price during \_\_-month period.

Answer 16

SECTION 16(B)
Profit” is determined by matching highest sales price v. lowest purchase price during 6-month period.

Question 17

SECTION 16(B) 
No t \_\_\_\_\_\_ p\_\_\_\_\_\_ within \_\_ months.

Answer 17

SECTION 16(B) 
No trading profits within six months.

Question 18

SARBANES-OXLEY ACT (2002):
SOX regulates ______ of ____&_____.
1) Requires that ____ and _____ certify that
2) based on their _____,
3) the _____ _____ with the _____ do not contain any m ____ m______ or o_____,
4) and they _____represent the ______position of the company.
5.) Only _____ acting ____ may issue _____ ____

Answer 18

SARBANES-OXLEY ACT (2002):
SOX regulates behavior of D&O.
1) Requires that CEO and CFOs certify that
2) based on their knowledge,
3) the reports filed with the SEC do not contain any material misrepresentations or omissions,
4) and they fairly represent the financial position of the company.
5.) Only public acting firms may issue audit reports

Question 19

SARBANES-OXLEY ACT (2002):
No ______ f____ f____
NO ____ during ______ OR b_____ p_____.

Answer 19

SARBANES-OXLEY ACT (2002):
No knowingly false filings
NO benefits during falsehood OR blackout periods.

Question 20

SARBANES-OXLEY ACT (2002):

Must have _____ a_____ committee from ____, may recover ____ during _____ statements or ____ b_____.

Answer 20

SARBANES-OXLEY ACT (2002):

Must have indep audit committee from BOD, may recover profits during false statements or stock blackout.

Question 21

SARBANES-OXLEY ACT (2002):

1) Enhanced c _______ r _______ requirements
2) Increased c ______ p _______

Answer 21

SARBANES-OXLEY ACT (2002):

1) Enhanced corporate reporting requirements
2) Increased criminal penalties.

Question 22

16(b), a person is a more than ____% shareholder if he ______ or ______ owns more than __% of any ____ of ____ security of the _____ at the time _____ b___ b___ the p____ and the s___.

Answer 22

16(b), a person is a more than 10% shareholder if he directly or indirectly owns more than 10% of any class of equity security of the corporation at the time immediately before both the purchase and the sale

Question 23

Section 16(b) provides that

1) any _____realized by a d____, o____, or s_____
2) ______ more than __% of the ____ shares of the _____ from any p____ and ____, or s____ and p____,
3) of any _____ s_____ of his corporation
4) within a ____ of ___ than ___ months
5) must be ____ to the corporation.

Answer 23

Section 16(b) provides that

1) any profit realized by a director, officer, or shareholder
2) owning more than 10% of the outstanding shares of the corporation from any purchase and sale, or sale and purchase,
3) of any equity security of his corporation
4) within a period of less than six months
5) must be returned to the corporation.

Question 24

preferred share is ____ to a ____ distribution (d_____) before the ____ shares get their _____.

Answer 24

preferred share is entitled to a fixed distribution (dividend) before the common shares get their distribution.