CEP Regulatory Compliance & Standards 3

Question 1

Under Section 16(b) of the Securities Exchange Act, a 'short-swing profit' is recoverable if a purchase and sale occur within:

Accepted Answer

6 months

Answer

Section 16(b) requires insiders to disgorge any profits from matching purchases and sales (or sales and purchases) within any six-month period.

Question 2

A company grants performance share units (PSUs) that vest based on TSR relative to peers. Under ASC 718, the fair value of these PSUs should be measured using:

Accepted Answer

A Monte Carlo simulation

Answer

Market conditions like relative TSR require a Monte Carlo simulation to capture the probability-weighted distribution of outcomes when measuring fair value under ASC 718.

Question 3

The Sarbanes-Oxley Act Section 304 allows the SEC to require a CEO or CFO to reimburse the company for incentive compensation if the company is required to restate financials due to:

Accepted Answer

Material noncompliance with financial reporting requirements resulting from misconduct

Answer

SOX Section 304 clawback applies when financial restatement results from material noncompliance with reporting requirements due to misconduct.

Question 4

Under the SEC's 2022 clawback rules (implementing Dodd-Frank Section 954), listed companies must recover erroneously awarded incentive compensation from covered executives within:

Accepted Answer

The three fiscal years preceding the restatement

Answer

The Dodd-Frank clawback rule requires recovery of excess compensation paid during the three fiscal years preceding the date the company is required to prepare the restatement.

Question 5

A 10b5-1 trading plan must be established when the insider:

Accepted Answer

Does not possess material nonpublic information

Answer

A valid 10b5-1 plan must be adopted at a time when the person is not aware of material nonpublic information to provide an affirmative defense against insider trading claims.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Regulatory Compliance & Standards 3