Stock Lawyer Stock Market 4

Question 1

A company's CEO sells shares one week after learning of an upcoming earnings miss that has not yet been announced. Which legal theory most directly applies?

Accepted Answer

Classical insider trading theory (classical theory)

Answer

Under classical insider trading theory, a corporate insider who trades on material non-public information obtained through their position breaches a duty to shareholders.

Question 2

Under the Securities Act of 1933, which section imposes strict liability on issuers for material misstatements in a registration statement?

Accepted Answer

Section 11

Answer

Section 11 of the Securities Act imposes liability on issuers, underwriters, and other signatories for material misstatements or omissions in a registration statement, with issuers facing strict liability.

Question 3

What is a 'poison pill' defense mechanism in corporate law?

Accepted Answer

A shareholder rights plan that dilutes an acquirer's stake by allowing other shareholders to buy shares at a discount

Answer

A poison pill (shareholder rights plan) is triggered when an acquirer reaches a threshold stake, allowing other shareholders to buy additional shares at a discount, diluting the acquirer.

Question 4

Which federal statute governs the conduct of securities broker-dealers and requires them to register with the SEC?

Accepted Answer

Securities Exchange Act of 1934

Answer

The Securities Exchange Act of 1934 established the SEC and requires broker-dealers to register with the SEC and comply with its regulations.

Question 5

What does 'decimalization' refer to in the context of U.S. stock markets?

Accepted Answer

The conversion of stock price quotes from fractions to decimal increments (cents)

Answer

Decimalization, completed in 2001, changed U.S. stock quoting from fractions (e.g., 1/8 of a dollar) to decimal increments, reducing bid-ask spreads.

Stock Lawyer Practice Test

Stock Lawyer Practice Test

Stock Lawyer Stock Market 4