LGS 200 Final (Ruth Anne Hall)
questions with complete solutions A+
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Business Judgment Rule - correct answer ✔✔As long as decisions are made in good faith/honest belief
that the action was taken in best interest of the company, company CANNOT be held liable for losses to
shareholders.
Entrepreneurs - correct answer ✔✔A person who forms and operates a new business either by him or
herself, or with others.
Importance of choosing the right business organization - correct answer ✔✔1. Easiest for one person to
own a business, but also riskiest because sole proprietor holds all liabilities
2. Incorporating allows you to protect personal assets (same with LLC's).
Securities Act of 1933 - correct answer ✔✔1. Primarily regulates the issuance of securities by a
corporation, a general or limited partnership, an unincorporated association, or an individual
2. Applies to initial issues of securities, including IPOs and sales of new securities by established
companies. Includes issues of securities online
Purpose of laws (Securities Act of 1933) - correct answer ✔✔To require full and honest disclosure of
information to investors.
Security Exchange Commission (SEC) - correct answer ✔✔A federal administrative agency that is
empowered to administer federal securities laws.
- Adopts rules and regulations to interpret and implement federal securities laws
- Investigates alleged securities violations and brings enforcement actions
- Regulates activities of securities brokers and advisors
, Sarbanes-Oxley Act - correct answer ✔✔- Erects wall between investment bankers and securities
analysts
- To bring more transparency to securities markets and eliminate conflicts of interest in the industry
How Sarbanes-Oxley Act applies to securities analysts and investment bankers - correct answer ✔✔1.
Fear that analysts (who provide investment advice to investors) would be pressured to give high marks to
companies being assisted by firm's investment bankers
2. To avoid conflict, protects analysts from review, pressure, and oversight by investment bankers.
Analysts must disclose each research report or public appearance of any conflict of interest known to
exist at the time
Short swing profits / trading - correct answer ✔✔Profits that are made by statutory insiders on trades
involving equity securities of their corporation that occur within six months of each other. These profits
belong to the corporation.
Excludes: involuntary transactions and transactions that occur within six months before becoming an
insider
Insider trading (Sec. 10(b)(5) - correct answer ✔✔- Prohibits the use of manipulative and deceptive
devices in the purchase of sale of securities in contravention of rules and regulations prescribed by the
SEC
- Only intentional conduct (involving scienter) is a violation
- The use of material nonpublic information to make a profit by trading in securities of the company
US v. Baghat - correct answer ✔✔NVIDIA corporation won contract to develop X-box for Microsoft.
Nvidia's CEO notified employees NOT to purchase/trade Nvidia stock and to keep information
confidential. Baghat purchased stock approximately 20 minutes after receiving e-mail and tipped his best
friend who also purchased stock. Baghat was found criminally guilty of insider trading and tipping.
True Insiders - correct answer ✔✔- Individuals who make a profit by personally purchasing shares of the
corporation prior to public release of favorable information or by selling shares prior to public release of
unfavorable information, different than just insiders
- Another name for statutory insiders
- People that own majority of stock in the company
questions with complete solutions A+
rated
Business Judgment Rule - correct answer ✔✔As long as decisions are made in good faith/honest belief
that the action was taken in best interest of the company, company CANNOT be held liable for losses to
shareholders.
Entrepreneurs - correct answer ✔✔A person who forms and operates a new business either by him or
herself, or with others.
Importance of choosing the right business organization - correct answer ✔✔1. Easiest for one person to
own a business, but also riskiest because sole proprietor holds all liabilities
2. Incorporating allows you to protect personal assets (same with LLC's).
Securities Act of 1933 - correct answer ✔✔1. Primarily regulates the issuance of securities by a
corporation, a general or limited partnership, an unincorporated association, or an individual
2. Applies to initial issues of securities, including IPOs and sales of new securities by established
companies. Includes issues of securities online
Purpose of laws (Securities Act of 1933) - correct answer ✔✔To require full and honest disclosure of
information to investors.
Security Exchange Commission (SEC) - correct answer ✔✔A federal administrative agency that is
empowered to administer federal securities laws.
- Adopts rules and regulations to interpret and implement federal securities laws
- Investigates alleged securities violations and brings enforcement actions
- Regulates activities of securities brokers and advisors
, Sarbanes-Oxley Act - correct answer ✔✔- Erects wall between investment bankers and securities
analysts
- To bring more transparency to securities markets and eliminate conflicts of interest in the industry
How Sarbanes-Oxley Act applies to securities analysts and investment bankers - correct answer ✔✔1.
Fear that analysts (who provide investment advice to investors) would be pressured to give high marks to
companies being assisted by firm's investment bankers
2. To avoid conflict, protects analysts from review, pressure, and oversight by investment bankers.
Analysts must disclose each research report or public appearance of any conflict of interest known to
exist at the time
Short swing profits / trading - correct answer ✔✔Profits that are made by statutory insiders on trades
involving equity securities of their corporation that occur within six months of each other. These profits
belong to the corporation.
Excludes: involuntary transactions and transactions that occur within six months before becoming an
insider
Insider trading (Sec. 10(b)(5) - correct answer ✔✔- Prohibits the use of manipulative and deceptive
devices in the purchase of sale of securities in contravention of rules and regulations prescribed by the
SEC
- Only intentional conduct (involving scienter) is a violation
- The use of material nonpublic information to make a profit by trading in securities of the company
US v. Baghat - correct answer ✔✔NVIDIA corporation won contract to develop X-box for Microsoft.
Nvidia's CEO notified employees NOT to purchase/trade Nvidia stock and to keep information
confidential. Baghat purchased stock approximately 20 minutes after receiving e-mail and tipped his best
friend who also purchased stock. Baghat was found criminally guilty of insider trading and tipping.
True Insiders - correct answer ✔✔- Individuals who make a profit by personally purchasing shares of the
corporation prior to public release of favorable information or by selling shares prior to public release of
unfavorable information, different than just insiders
- Another name for statutory insiders
- People that own majority of stock in the company
