Securities Regulation, Insider Trading and Dividends

Question 1

Rule 10b-5 governs Employment of Manipulative and Deceptive Practices.

Answer 1

Rule 10b-5:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Question 2

When it comes to materiality, there (is/is not) liability for minor or unimportant statements

Answer 2

IS NOT

Question 3

An omitted fact is material if there is a ___ likelihood that a ___ shareholder would consider it ___ in deiciding how to ___

Answer 3

substantial

reasonable

important

vote

Question 4

Materiality at any time will depend on the balancing of both the ____ that the event will occur and the ____ of the event in light of the totality of the company activity

Answer 4

indicated probability

anticipated magnitude

Question 5

Materiality also depends on the significance that the reasonable ___ would place on the ___. or ___ information

Answer 5

investor

withheld

misrepresented

Question 6

The securities plaintiff must have been ___ of the defendants ____ and ____ on it in deciding to purchase or sell ____

Answer 6

aware

false statement

relied

securities

Question 7

Fraud on the market theory

Answer 7

In an open and developed securities market, the price of a company’s stock is determined by the available material information about the company/its business. Misleading statements therefore defraud purchasers of stock even if not directly relied upon. The causal connection is not less significant than a direct reliance.

Question 8

Name the elements of SF

My. Shareholder. Remembers.Lots of Corporations

Answer 8

Misrepresentation
Scienter (P must prove the D acted with the required state of mind)
Reliance
Loss Causation

Question 9

In loss causation, theP must show that the ____ caused the ___ in value, rather than merely ___ the transaction

Answer 9

misrepresentation

decline

inducing

Question 10

Whether the plaintiff has proven causation is usually reserved for the ____

Answer 10

trier of fact (or jury)

Question 11

Under the Bespeaks Caution doctrine, cautionary language, if sufficient, renders the alleged omission or misrepresentation ____ as a matter of law

Answer 11

immaterial

Question 12

Under the Bespeaks Caution doctrine, cautionary language must be ____ related to the alleged misrepresentations or omissions

Answer 12

directly

Question 13

Insider trading referes to the illegal act of a ____ ___ such as a director, officer, or employee to use ___ and ___ information to trade in the corporations own stock

Answer 13

corporate insider

material

non-public

Question 14

With insider trading, when is there no duty to disclose? (3 instances)

Answer 14

When the person who traded on the info was 1) not a corporations agent, 2) not a fiduciary, or was 3) not a person whom the sellers placed their trust and confidence

Question 15

A duty to disclose arises from the ___ between the parties and not merely from one’s ability to acquire information because of his _____

Answer 15

relationship

position in the market

Question 16

A ___ is when someone, in order to gain control of a company, attempts to purchase a large number of a company’s shares rom the existing shareholders in exchange for cash or securities

Answer 16

Tender off

Question 17

___ is essential to the misappropriation theory

Answer 17

Deception

Question 18

If the fiduciary discloses to the source that they plan to trade using non public information, then there is no ___ and therefore, no ___

Answer 18

deception

misappropriation

Question 19

Section 14(e) governs:

Answer 19

transactions in securities on the basis of material, non-public information in the context of tender offers

Question 20

Under Section 16(a), every person who is ___ or ___ the beneficial owner of more than ___ of any equity security shall file the statements required with the Commission

Answer 20

directly

indirectly

10%

Question 21

Under Section 16(a)(1), the statements required to be filed shall be filed _____ of registration of security or by the ____ of a registration statement

Answer 21

at the time of

effective date

Question 22

Under Section 16(a)(2)(B), the statements required to be filed can also be filed within ___ days after he or she becomes such beneficial owner

Answer 22

10

Question 23

Under Section 16(a)(C), if there has been a change in ownership, the statements required to be filed must be filed before the end of the ____ following the day which the transaction was ____, unless not feasible

Answer 23

second day

executed

Question 24

Under Section 16(a)(3)(A), the satements required to be filed must contain a statement of the amount of ____ which the filing person in the beneficial ___

Answer 24

all equity securities

owner

Question 25

A ___ is a special type of distribution, a payment to shareholders by the corporation out of its current or retained earnings in proportion to the number of shares owned by the shareholder.

Answer 25

Dividend

Question 26

The GR for dividends is that a corportation should not pay a dividend if the returns that it can earn are ____than the ___ that the shareholder could earn if the money were distributed to them

Answer 26

higher

returns

Question 27

A _____ means a direct or indirect transfer of cash or other property (except a corporation’s own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares.

Answer 27

Distribution

Question 28

A ____ may be in the form of a payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; a distribution in liquidation; or otherwise.

Answer 28

Distribution

Question 29

Under § 6.40,
(a) A ____ may authorize and the corporation may make distributions to its _____ subject to restriction by the articles of incorporation and the limitation in subsection § 6.40(c).

Answer 29

board of direction

shareholders

Question 30

Under MBCA § 6.40
(c) No distribution may be made if (1) the corporation _____ or (2) the corporation’s ______ plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

Answer 30

would not be able to pay its debts as they become due

total assets would be less than the sum of its total liabilities

Question 31

A director who votes for or assents to a distribution in ____ of what may be authorized is ____ to the corporation for the amount of the distribution that ____ what ould have been distributed

Answer 31

excess
personally liable
exceeds