Lesson 11

Question 1

Security – Howey Test

Answer 1

A contract, transaction or scheme whereby a person invests his money in a common
enterprise and is led to expect profits solely from the efforts of others.

Question 2

Disclose or Abstain Rule

Answer 2

The Disclose or Abstain Rule is the duty imposed on insiders with inside information. It requires that such insiders must either disclose (generally via press release) the inside information before trading in securities whose value may be affected by the information, or, if they are unwilling or unable to do so, they must refrain from trading in the effected securities until the information becomes public and the market has time to “digest” it.

Question 3

Stock Manipulation

Answer 3

Stock manipulation is behavior designed to create trading (or the appearance of it) in a security to induce others to buy or sell the security.

Question 4

Insider Trading

Answer 4

Insider trading, as a general matter, occurs when a corporate insider buys or sells the corporation’s securities on a stock exchange (or over-the-counter) on the basis of material, inside information.

Question 5

Rule 10(b)5

Answer 5

prohibits in connection with the purchase or sale of any security:

a. The employment of any device, scheme, or artifice to defraud.
b. Any misstatements/omissions of material fact.
c. Any act, practice, or course of business that operates as a fraud or deceit.