CFL Securities Law & Regulatory Compliance 2

Question 1

In securities litigation, 'loss causation' requires the plaintiff to demonstrate that:

Accepted Answer

The fraudulent misstatement caused the economic loss suffered

Answer

The stock price declined after the misstatement was made

Answer

The misstatement was the sole cause of the investment decision

Answer

The defendant profited from the plaintiff's loss

Question 2

Under SEC Rule 10b5-1, an insider can establish an affirmative defense to insider trading by:

Accepted Answer

Entering into a pre-planned trading arrangement before becoming aware of material non-public information

Answer

Disclosing trades to compliance within 48 hours

Answer

Limiting trades to less than 1% of average daily volume

Answer

Obtaining board approval for each trade

Question 3

The SEC's enforcement authority under Section 21(d) of the Exchange Act allows it to seek all of the following EXCEPT:

Accepted Answer

Criminal incarceration directly through SEC proceedings

Answer

Injunctions against future violations

Answer

Disgorgement of ill-gotten gains

Answer

Civil monetary penalties

Question 4

Which doctrine holds that a tippee who receives material non-public information from an insider can be liable for insider trading if the tipper received a personal benefit?

Accepted Answer

The Dirks tipper-tippee liability doctrine

Answer

The misappropriation theory

Answer

The temporary insider doctrine

Answer

The constructive possession rule

Question 5

A financial litigator representing a company in an SEC enforcement action would most likely assert which defense to a disgorgement order when the company's profits are difficult to trace?

Accepted Answer

Lack of a sufficient causal nexus between the violation and the profits

Answer

Statute of limitations under the 5-year repose period

Answer

Good faith reliance on counsel's advice

Answer

Absence of a private right of action

Question 6

Under the Sarbanes-Oxley Act Section 304, a CEO or CFO must reimburse the company for bonuses and profits from stock sales if the company is required to restate its financials due to:

Accepted Answer

Misconduct resulting in material noncompliance with financial reporting requirements

Answer

Any accounting error regardless of cause

Answer

An SEC-initiated investigation

Answer

A material weakness identified by external auditors