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

Dura Pharmaceuticals v. Broudo held that plaintiffs must prove the alleged fraud caused the actual investment loss, not merely that they paid an inflated price.

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

Rule 10b5-1 plans allow insiders to establish trading plans when not in possession of MNPI, providing an affirmative defense for trades executed under the plan.

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

The SEC can seek civil penalties and disgorgement but cannot directly impose criminal sanctions—criminal charges must be referred to the DOJ.

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

In Dirks v. SEC, the Supreme Court held that tippee liability flows from the tipper's breach of fiduciary duty, which requires the tipper to have received a personal benefit.

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

Courts require a causal connection between the violation and the profits subject to disgorgement; attenuated or unrelated gains may be excluded.

CFL - Certified Financial Litigator Practice Test

CFL - Certified Financial Litigator Practice Test

CFL Securities Law & Regulatory Compliance 2