TBCh23F - CHAPTER 23 Securities Fraud and Insider Trading...

C H A P T E R 2 3
Securities Fraud and Insider Trading
T
RUE
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ALSE
Q
UESTIONS
1. Section 10(b) of the 1934 Act regulates only the purchase and sale of registered securities.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
2. More suits are brought under Section 16(b) of the 1934 Act than under any other provision of that
statute.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
3. Rule 10b-5 does not result in any private rights of action.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
4. Accountants have to sign a written consent before their audited report can be included in a
registration statement.
ANSWER: True
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
5. Secondary actors (such as an accountant, lawyer, or bank) can be held liable in private suits
alleging violations of Section 10(b) if their conduct satisfies the requirements for primary
liability.
ANSWER: True
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
6. A prediction about the future cannot be a misstatement for purposes of the 1933 Act, even if the
person making the prediction does not believe it at the time.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
7. Under Rule 10b-5, any use of the mails is sufficient to satisfy the interstate commerce condition
even if the mail does not leave the state.
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MANAGERS AND THE LEGAL ENVIRONMENT
ANSWER: True
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
8. Under the London Stock Exchange rules, if a listed company’s share price moves significantly on
the basis of rumor and the rumor is true, the company must disclose the existence of the rumored
event.
ANSWER: True
SKILL LEVEL: AACSB Diversity
OBJECTIVE: AICPA Legal
9. The U.S. Supreme Court has adopted a bright-line rule for determining whether a statement is
material.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
10. Scienter requires more than mere negligence or lack of due care.
ANSWER: True
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
11. The safe harbor provision applies to forward-looking statements in connection with an initial
public offering.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
12. All instances of trading on inside information constitute a securities act violation.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
13. Under the efficient market theory, in an open and developed securities market, the market price of
a company’s stock equals its true value.
ANSWER: True
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal
14. Under the Sarbanes-Oxley Act of 2002, it is a misdemeanor to knowingly execute a scheme to
defraud any person in connection with any security of a publicly traded company.
ANSWER: False
SKILL LEVEL: AACSB Analytic
OBJECTIVE: AICPA Legal

CHAPTER 23 SECURITIES FRAUD AND INSIDER TRADING
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15. Temporary insiders are persons not directly employed by the corporation, but who acquire
confidential information through the performance of professional services.