Securities Fraud Flashcards

1
Q

The secondary market is when __

A

investors trade securities with one another

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2
Q

The secondary market indirectly impacts the primary market by ___

A

providing liquidity to investors

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3
Q

A liquid secondary market supports the accumulation of ___

A

large minority blocks by activist SHs without significant price imapct

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4
Q

Liquidity helps overcome __

A

collective action problems

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5
Q

How does liquidity impact company’s own stock holdings

A

If file with SEC can sell additional stock OR buy back

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6
Q

Stock and options are used as performance pay for executives because ___

A

value tracks stock prices

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7
Q

When one party has more info than another it reduces ___

A

liquidity

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8
Q

What is the Efficient Capital Market Hypothesis (ECMH)?

A

liquid market security prices reflect their fundamental value based on publicly available info

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9
Q

Disclosure enforcement from companies is handled mostly ___

A

by SEC

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10
Q

SEA designates the SEC to _____

A
  • issue additional rules
  • enforce act and rules it issues
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11
Q

Two options when corporations don’t disclose truthfully

A
  • SEC brings enforcement action
  • Specialized plaintiff lawsuit files securities fraud action
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12
Q

Questions to determine if party has a private right of action

A
  • class of persons statute designed to protect
  • clear intent to create or deny private remedy
  • private remedy consistent with statutory purpose?
  • rights traditionally relegated to state law
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13
Q

____ prohibits fraud in purchase of sales of securities

A

10b5

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14
Q

10b5 is a catch all provision in that it ___

A

applies to all securities (registered or not) but it must catch fraud

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15
Q

10b5 (about material facts) makes it unlawful to make ___ or omit __

A

untrue statement of material fact, omit necessary material fact

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16
Q

Securities fraud cases focus on whether ___

A

info misleading and material

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17
Q

Insider trading cases focus on whether D ___

A

had access to inside info and improperly used it

18
Q

Elements of a 10b5 claim

A
  • false/misleading statement
  • about material fact in connection with purchase/sale of stock
  • made with scienter
  • reasonable reliance by the plaintiff
  • causing injury to plaintiff
19
Q

10b5 is not explicit about ___

A
  • intent
  • reliance
    -harm
    -duty to disclose
20
Q

What are fraud on the market cases?

A

class actions that address misrepresentations made to the market as a whole

21
Q

Basic reliance requires that you ___

A

bought or sold shares (can’t say would’ve sold had you knew)

22
Q

Common law fraud elements

A
  • misrepresentation
  • reliance
  • action
  • causation
  • harm
23
Q

Fraud on the market says that ____ are sufficient to establish reliance

A

changes in share price

24
Q

Fraud on the market presumes that __

A

share prices reflect fundamental value

25
10b5 and common law fraud have __
similar elements with special meaning in context of 10b5
26
Basic doesn't require plaintiffs to show they ___ to establish reliance
listened to/read misleading info
27
Basic elements for securities fraud
- alleged misrepresentations publicly known - were material - stock traded in an efficient market - plaintiff traded stock between time misrepresentations made and when truth revealed
28
Basic company had made 3 public statements ___
denying it was engaged in any merger negotiations
29
Basic directors had had conversation about ___
possible merger
30
Basic held that company statements about ____ can be material under 10b5
preliminary merger negotiations (can be, not must be)
31
Basic held that based on fraud on the market there is a ________ that individual members of the class relied on false statements
rebuttable presumption
32
What does Basic offer for if company hadn't said anything at all?
Depends on whether amounts to an omission (fact-specific)
33
Basic says materiality of statements depends on ____
probability that event will occur + magnitude of event
34
Basic says that requiring each individual plaintiff to prove actual reliance would ___
place unnecessary burden
35
Basic dissent says that stocks don't have ___
fundamental value
36
Basic dissent says that investors don't ___
rely on integrity of market price (may trade because believes inaccurately reflects)
37
Halliburton held that Basic's presumption ___
can be rebutted to kill the class (not overruling Basic)
38
Halliburton company made series of misrepresentations about __
liability in asbestos litigation + anticipated merger benefits
39
Halliburton held that defendants can show evidence that __
misrepresentation did not actually affect the market price to rebut reliance
40
Halliburton rebuts reliance by saying that ____
other things than asbestos litigation happened to affect the stock price
41
Halliburton is in part a reflection on ___
vitality of ECMH