CFL Securities Law & Regulatory Compliance 3

Question 1

In a securities class action, the lead plaintiff is selected based primarily on which criterion under the PSLRA?

Accepted Answer

The member with the largest financial interest in the relief sought

Answer

The first plaintiff to file the complaint

Answer

The plaintiff with the most complex claims

Answer

The investor with the longest holding period

Question 2

The Securities Litigation Uniform Standards Act (SLUSA) preempts state law class actions that allege:

Accepted Answer

A misrepresentation or omission in connection with the purchase or sale of a covered security

Answer

Breach of contract in the sale of municipal bonds

Answer

Common law fraud unrelated to securities trading

Answer

Violations of state blue sky laws by non-reporting companies

Question 3

Under Section 20(a) of the Securities Exchange Act, a 'controlling person' can be jointly and severally liable for a controlled person's securities violation unless the controlling person proves:

Accepted Answer

Good faith and no direct or indirect inducement of the violation

Answer

Lack of knowledge of the controlled person's trading activity

Answer

That the controlled person acted without authorization

Answer

That the controlling person held no equity in the controlled entity

Question 4

An investment bank underwrites a public offering and fails to conduct adequate due diligence on the issuer's financial statements, which contain material misstatements. Under Section 11 of the Securities Act, the underwriter's primary defense is:

Accepted Answer

Due diligence—that it had reasonable grounds to believe the statements were accurate

Answer

That it relied on the issuer's representations without verification

Answer

That the misstatements were immaterial to the offering price

Answer

That investors had access to public filings and could investigate independently

Question 5

Which of the following is a key element distinguishing the misappropriation theory of insider trading from classical insider trading?

Accepted Answer

The trader breaches a duty owed to the source of the information, not to the company whose securities are traded

Answer

The trader must be a registered broker-dealer

Answer

The insider information must be obtained from a corporate officer

Answer

The trade must involve derivatives rather than common stock

Question 6

The SEC's whistleblower program under Dodd-Frank Section 922 entitles eligible whistleblowers to a monetary award of:

Accepted Answer

10–30% of sanctions collected when the SEC obtains over $1 million in sanctions

Answer

5–15% of all amounts collected by any government agency

Answer

25% of the first $5 million collected and 10% thereafter

Answer

A fixed $250,000 regardless of sanction size