Stock Lawyer SEC Enforcement and Litigation 3

Question 1

What must the SEC prove to establish 'aiding and abetting' liability under Section 20(e) of the Securities Exchange Act?

Accepted Answer

That a primary violation occurred, the aider and abettor knew of it, and the aider and abettor knowingly provided substantial assistance

Answer

Only that the defendant knew of the primary violator's scheme

Answer

That the defendant directly profited from the primary violation

Answer

That the defendant had a fiduciary relationship with the primary violator

Question 2

What is 'penny stock fraud' and what enhanced protections does the SEC require for penny stock transactions?

Accepted Answer

Manipulative schemes involving low-priced securities, subject to enhanced broker disclosure requirements under Rule 15g-9

Answer

Fraud involving any stock trading below $5 per share without any special requirements

Answer

Fraud involving counterfeit physical stock certificates

Answer

Any short sale of a stock trading below $1 per share

Question 3

What is the 'in pari delicto' defense and how might it apply in securities litigation?

Accepted Answer

A defense where the defendant argues the plaintiff was equally at fault in the wrongdoing, barring the plaintiff's recovery

Answer

A defense based on the plaintiff being a foreign national

Answer

A defense based on the statute of limitations having expired

Answer

A defense claiming the SEC lacked jurisdiction over the transaction

Question 4

What is an SEC 'Accounting and Auditing Enforcement Release' (AAER)?

Accepted Answer

An SEC public document announcing enforcement actions involving financial reporting fraud, accounting violations, or auditing misconduct

Answer

A mandatory annual audit requirement for all public companies

Answer

A PCAOB rule requiring release of audit workpapers

Answer

An SEC release exempting certain accounting practices from enforcement

Question 5

What is a 'Section 21(a) Report' (Report of Investigation) issued by the SEC?

Accepted Answer

A public report the SEC may issue after an investigation, describing conduct without necessarily bringing formal charges, to guide market participants

Answer

A criminal referral from the SEC to the Department of Justice

Answer

A mandatory annual compliance report filed by broker-dealers

Answer

An SEC order requiring a company to restate its financial statements

Question 6

What is the 'disgorgement plus prejudgment interest' remedy in SEC enforcement actions?

Accepted Answer

A remedy requiring defendants to return profits from violations plus interest calculated from the date of the violation to the date of judgment

Answer

A penalty equal to double the amount of ill-gotten gains

Answer

A fine assessed at market interest rates on civil penalties

Answer

An annual payment obligation until a compliance monitor approves reforms