The Legal Environment of Business: Text and Cases (MindTap Course List)
10th Edition
ISBN: 9781305967304
Author: Frank B. Cross, Roger LeRoy Miller
Publisher: Cengage Learning
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Chapter 28, Problem 1IS
Summary Introduction
Case summary: Companies issue various securities to raise capital from the public. A company is required to provide sufficient information so that the financer is able to evaluate the financial risk that is involved in the buying of security. The company will be made liable, if the company makes a false statement or omission, which is considered material.
To find: The information which is considered material by the investors.
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Perform an Internet search to access the text of the Securities Exchange Act of 1934. Read and summarize the internal control requirements of Section 13(b)(2) of the act.
When a corporation wishes to issue certain securities, it must provide sufficient information for an unsophisticated investor to evaluate the financial risk involved. Specifically, the law imposes liability for making a false statement or omission that is "material."
What sort of information would an investor consider "material" pursuant to the Securities Exchange Act of 1934? Be sure to explain the Act and provide two recent case examples where material representation or omission amounted to securities fraud in violation of SEC Rule 10b-5.
Which of the following statements about the Securities Act of 1933 is not true?(1) The third-party user does not have the burden of proof that she/he relied on thefinancial statements.(2) The third party has the burden of proof that the auditor was either negligent orfraudulent in doing the audit.(3) The third-party user does not have the burden of proof that the loss was causedby the misleading financial statements.(4) The auditor will not be liable if he or she can demonstrate due diligence inperforming the audit.
Chapter 28 Solutions
The Legal Environment of Business: Text and Cases (MindTap Course List)
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- Outline the ways the Securities Act has sought to fight insider trading.arrow_forwardYour former accounting professor recently contacted you because she knows that you currently work for an accounting firm that performs compilation services for several privately held mining companies. The professor requested data concerning whether your firm’s clients capitalize or expense certain environmental clean-up costs. Your clients discuss their accounting policies openly with you, but do not disclose these policies to outsiders. Your professor has agreed in writing to keep your clients’ accounting policies confidential. Because the professor is a member of the AICPA, and she will not achieve any financial gain, you may disclose the requested information to the professor. Select one: True Falsearrow_forward1. Exempt from the registration requirement of the Securities Act of 1933 are offerings of securities a. made to a small number of knowledgeable investors. b. issued by for-profit organizations. c. involving a large dollar amount. d. only for large organizations that are for-profit. 2. Global Investments is a foreign investor. With respect to the operations of a limited liability company in the United States, Global can a.not become a member but can participate. b. become a member and participate.c. not become a member or participate. d. Become a member but cannot otherwise participate. 3. Quorum requirements include _________ a. number of decision-makers that must be present before business can be conducted. b. how often decision-makers must meet each year. c. maximum number of shareholders allowed in for-profit companies. d. all other answer choices 4. Fiduciary duties of the directors and officers include a.duty of care b. duty of loyalty c.…arrow_forward
- The company will allow a policy change from a lower premium to a higher premium provided the insured A) Buys a new plan altogether B) Presents satisfactory evidence of insurability C) Momentarily assigns the policy to the company D) Obtains written consent from his or her spousearrow_forwardHow does SEBI define and regulate different types of securities, such as shares, debentures, and derivatives?arrow_forwardABC Bank was forced to close because its building was destroyed by fire. Mr. A, one of its depositors filed an insurance claim with the PDIC. Will the claim prosper? Answer with reasons.arrow_forward
- You are a broker. Your sales associate is new and can't remember the key differences between lien types. You remind them: Liens can be voluntary or involuntary. Voluntary liens are created with the owner's consent. A lien can only apply to one piece of property a debtor owns Because of this, liens are always specific. Legally, liens cannot be involuntary. They must be created with the owner's consent and if they're not, they're illegal All liens affect all of the debtor's property. That's why they're also called general liens.arrow_forwardSuppose you had inside information that your employer was thinking about declaring bankruptcy, and you find out that a family member was about to purchase $20,000 in the stock of your employer. To what extent would it be unethical for you to dissuade the family member from making the investment?arrow_forwardRisk management is an important facet of corporate governance. The ultimate responsibility for ensuring that the corporation meets all legal and regulatory requirements related to risk management resides with the A.) Directors and officers of the firm B.) Corporate Compliance section of the firm C.) Shareholders of the firm D.) Professional risk manager of the firmarrow_forward
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