Corporate Governance Fiduciary Duties & Legal Liability 3

Question 1

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 primarily impose liability on directors and officers for:

Accepted Answer

Fraudulent or misleading statements in connection with the purchase or sale of securities

Answer

Excessive executive compensation without shareholder approval

Answer

Failure to declare dividends when the company is profitable

Answer

Issuing stock options below fair market value

Question 2

Under Section 16(b) of the Securities Exchange Act, a corporate insider must return to the company any profit made from matching purchases and sales of company stock within:

Accepted Answer

6 months

Answer

30 days

Answer

90 days

Answer

12 months

Question 3

Which of the following best describes the concept of 'piercing the corporate veil'?

Accepted Answer

Holding shareholders or parent entities personally liable for corporate obligations by disregarding the corporate form

Answer

A court order requiring a corporation to disclose confidential board minutes

Answer

An SEC enforcement action freezing corporate assets during a fraud investigation

Answer

A merger structure that eliminates minority shareholders without a shareholder vote

Question 4

When a board forms a Special Litigation Committee (SLC) to evaluate a derivative lawsuit, the SLC's primary purpose is to:

Accepted Answer

Independently assess whether pursuing the litigation serves the corporation's best interest

Answer

Negotiate settlement terms directly with the plaintiffs' attorneys

Answer

Determine the appropriate level of director indemnification

Answer

Satisfy SEC requirements for internal investigation disclosure

Question 5

A director's fiduciary duties run primarily to:

Accepted Answer

The corporation and its shareholders as a whole

Answer

Only the controlling shareholder that elected them

Answer

The CEO who recommended their appointment

Answer

Federal and state regulatory agencies

Question 6

Which of the following is typically NOT covered by a Directors & Officers (D&O) liability insurance policy?

Accepted Answer

Losses resulting from intentional fraud or criminal conduct

Answer

Defense costs for securities class action lawsuits

Answer

Judgments arising from shareholder derivative suits

Answer

Settlements in SEC enforcement actions

Question 7

The Sarbanes-Oxley Act Section 304 requires CEOs and CFOs to return bonuses and stock sale profits if a company restates its financials due to:

Accepted Answer

Material noncompliance with financial reporting requirements resulting from misconduct

Answer

A change in generally accepted accounting principles

Answer

An economic downturn reducing reported earnings

Answer

A voluntary correction of an immaterial error