Q&A Hero

Q: Executive control over the Federal Communications Commission, and other agencies, may be exercised through a presidential veto of a. Congress's modifications of the agency's authority. b. the agency's final rules. c. the agency's final orders. d. none of the choices.

Q: The Merit Systems Protection Board issues a rule. Like other administrative agencies' "legislative rules," this rule is as a. binding as a law passed by Congress. b. persuasive as an expert's opinion. c. suggestive as a newspaper's editorial. d. unenforceable as a salesperson's puffery.

Q: The Federal Aviation Administration uses notice-and-comment rulemaking. The final rule in such a proceeding is sometimes referred to as a. a legislative rule. b. an interpretive rule. c. an adjudicatory order. d. an executive edict.

Q: Plastix Produx Company is subject to a decision by the Consumer Product Safety Commission. Opposed to the decision, Plastix Produx wants a court to review it. First, however, the firm must use all of the potential administrative remedies. This is a. an actual controversy at issue. b. standing to sue. c. the exhaustion doctrine. d. the ripeness doctrine.

Q: Persons who favor the creation of a National Biotech Agency to regulate the production of genetically altered agricultural products should concentrate their lobbying efforts on a. Congress. b. federal administrative agencies that oversee agricultural products. c. the United States Supreme Court. d. the president of the United States.

Q: Nemo's Seafood Restaurant Company pays income and other taxes collected by the Internal Revenue Service (IRS). Like other federal administrative agencies, the IRS was created by a. Congress, through enabling legislation. b. the courts, through the adjudicatory process. c. the U.S. Constitution, through the tax and spend clause. d. the U.S. Department of the Treasury, through a legislative rule.

Q: Playground Equipment, Inc., is subject to regulations issued by the Occupational Safety and Health Administration (OSHA). Like other federal administrative agencies, the OSHA was created by a. Congress, through enabling legislation. b. the Federal Trade Commission, through the rulemaking process. c. the president, through an executive order. d. the U.S. Department of Labor, through a final order.

Q: Congress leaves it to the Bureau of Prisons to oversee the promulgation of detailed regulations in areas under the agency's jurisdiction. This is a. divine right. b. the delegation of legislative powers. c. gap-filling power. d. unconstitutional conduct.

Q: The U.S. Social Security Administration is a federal agency. The Iowa Department of Social Services is a parallel state agency. If these agencies' regulations conflict a. the federal agency's regulations take precedence. b. the state agency's regulations take precedence. c. the two agencies' regulations take equal precedence. d. the two agencies' regulations cancel each other.

Q: Independent regulatory agencies such as the Federal Trade Commission are a. not part of the government's executive branch. b. outside the major departments of the government's executive branch. c. subagencies of executive agencies. d. subject to more executive authority than executive agencies.

Q: An agency must conduct a regulatory flexibility analysis whenever a new regulation will have an impact on a "small number of substantial entities."

Q: Federal agencies must consider ways to reduce the economic impact of new regulations on small businesses.

Q: The public must be provided with adequate advance notice of scheduled federal administrative agency meetings and agendas.

Q: Every portion of every meeting of a federal administrative agency does not have to be open to public observation.

Q: The federal government must disclose certain records to any person or entity on written request only if there is a rational reason for the request.

Q: All federal government agencies must make their records available electronically on the Internet.

Q: If the meaning of a statute's language is unclear and an agency interprets it, a court must follow the interpretation as long as it is reasonable.

Q: If the meaning of a statute's language is unclear and an agency interprets it, a court must overturn the interpretation.

Q: An administrative adjudicatory hearing does not have to meet the constitutional standards of due process.

Q: Administrative agencies generally exercise substantial discretion over the type of hearing procedures that they use.

Q: Frequently, disputes over violations of administrative rules are resolved through informal adjudication proceedings.

Q: In most instances, an agency is not required to obtain a search warrant before a physical search for evidence is conducted.

Q: Administrative agencies can conduct warrantless searches in some situations.

Q: If a business firm refuses to comply with an agency's request to inspect facilities or business records, the agency must defer to the refusal.

Q: Often, an administrative agency itself enforces its rules.

Q: Final administrative rules have binding legal effect unless the courts later overturn them.

Q: Final administrative rules do not have binding legal effect unless the courts later declare them to be binding.

Q: Only experts can submit comments on a proposed administrative rule.

Q: The period for persons to comment on a proposed administrative rule must be at least thirty days.

Q: Unlike those who violate statutes, violators of agency rules are not punished.

Q: Rulemakingthe formulation of new administrative regulationsis a major function of Congress, not administrative agencies.

Q: The Administrative Procedure Act does not apply to a particular agency procedure.

Q: A party can challenge an administrative regulation as so irrational as to be arbitrary and capricious.

Q: There is a precise definition of what makes an administrative rule arbitrary and capricious.

Q: An administrative agency can issue an interpretive rule to indicate how the agency plans to interpret its statutory authority.

Q: Under the exhaustion doctrine, a party must feel "exhausted" about an administrative action or regulation to challenge it in court.

Q: A party seeking court review of an administrative action must first exhaust all of his or her administrative remedies before seeking court review.

Q: Interpretive rules simply declare policy and do not affect legal rights or obligations.

Q: Administrative agencies cannot make legislative rules, or substantive rules, that are as legally binding as laws that the Congress passes.

Q: Federal administrative agencies can regulate beyond the powers granted by enabling legislation.

Q: By delegating some of its authority to make and implement laws, Congress violates the U.S. Constitution.

Q: State regulation, when not preempted, may cover many of the same activities as federal regulation.

Q: Independent regulatory agencies include the cabinet departments of the executive branch.

Q: Federal executive agencies are outside the federal executive departments.

Q: Like statutory law, administrative law is created by legislatures.

Q: When Looking Glass Corporation wishes to issue certain securities, it must provide sufficient information for Alice, and other unsophisticated investors, 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 Alice consider material?

Q: In May 2013, National Biotech Corporation generally advertises that it will make a $4 million offering of stock in June. National makes the offering as advertised and, ten days after the first sale, notifies the Securities and Exchange Commission (SEC). All buyers of the stock are given material information about the company, its business, and the stock. Before the end of the year, the offering is completely sold out. The buyers include forty unaccredited investors and fifty accredited investors. National does not register the offering. The SEC files a suit against National, seeking civil sanctions on the ground that this offering was not exempt from registration. National argues that the applicable exemption is Rule 505 of Regulation D of the Securities Act of 1933 and that because of this exemption, any resale of the stock is also exempt. Who is correct?

Q: Catalina promises high returns to Darby and other investors, who then agree to trust their funds to Catalina. She uses these funds to pay previous investors. This is a. a Ponzi scheme. b. a stock option. c. an accredited investor. d. a tombstone ad.

Q: Madison is the chief executive officer of Nitro Medico, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Madison must a. certify that the reports are complete and accurate. b. designate a corporate official to assume liability for inaccuracies. c. do nothing. d. read the reports and be prepared to answer questions about them.

Q: Heavy Hauling, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that Heavy Hauling's financial results are accurate and timely, the firm's senior officers must set up and maintain a. internal "disclosure controls and procedures." b. external "release and reveal timetables." c. personal "peruse and review liability policies." d. public "information and discussion forums."

Q: Maple Products Corporation is a public company, which New Hampshire regulates and in which Orin invests. The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to a. public companies. b. private investors. c. state regulators. d. none of these choices.

Q: Hi-Five Aero Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates a. the declaration of dividends by Hi-Five's board of directors. b. the later re-registration of Hi-Five's securities. c. the short-swing activities of Hi-Five's insiders. d. the solicitation of proxies from Hi-Five's shareholders.

Q: North American Properties, Inc., and its officers, directors, and shareholders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers a. all purchases and sales of securities. b. only purchases and sales of securities involving misappropriation. c. only purchases and sales of securities involving short-swing profits. d. only purchases and sales of securities involving tippers and tippees.

Q: Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares of EPC stock. One week later, EPC announces that it will merge with a competitor, Fuel Oil Company, and the price of EPC stock increases. One month later, Della sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Della would not be liable if, after buying the stock, she had waited a. less than fourteen days to sell it. b. more than six months to sell it. c. ninety days to sell it. d. two months to sell it.

Q: Dee, an accountant, does not work for Emergent Company, but wrongfully obtains inside information concerning Emergent. Based on the information, Dee buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prosecutes Dee, arguing that she is liable because she stole information rightfully belonging to another. This argument is a. the blue-sky theory. b. the misappropriation theory. c. the red-herring theory. d. the tipper/tippee theory.

Q: Riley, an engineer for Shur-2-Gro Seed Corporation, learns that Shur-2-Gro has developed a corn hybrid to triple the output of any farm. Riley buys 20,000 shares of Shur-2-Gro stock. He tells Tess, who buys 15,000 shares. After the new hybrid is announced publicly, the price of Shur-2-Gro stock increases. Riley and Tess sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on a. none of these parties. b. Riley and Tess only. c. Riley only. d. Riley, Shur-2-Gro, and Tess.

Q: Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. Under the Securities Exchange Act of 1934, Hu is most likely a. liable for insider trading. b. not liable because Hu is only a tippee, not a tipper. c. not liable because Hu is too far down the chain of disclosure. d. not liable because Hu traded on the basis of a true fact.

Q: Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. Under the Securities Exchange Act of 1934, Geoff is most likely a. liable for insider trading. b. not liable because Geoff did not prevent others from profiting. c. not liable because Geoff did not solicit information from Dhani. d. not liable because Geoff does not work for Eureka.

Q: Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. Under the Securities Exchange Act of 1934, Fay is most likely a. liable for insider trading. b. not liable because Fay did not prevent others from profiting. c. not liable because Fay did not solicit information from Dhani. d. not liable because Fay does not work for Eureka.

Q: Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. If Dhani is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of Eureka stock was a. a forward-looking forecast. b. not material. c. not yet public. d. not yet true.

Q: Lexy, a salesperson for My-T-Fine Corporation, learns that My-T-Fine will increase the dividend it pays to shareholders. Lexy buys 10,000 shares of My-T-Fine stock. When the price increases, Lexy sells the shares for a profit. Lexy would not be liable for insider trading if the information about the dividend was a. material when she sold the stock. b. public after she bought the stock. c. public before she bought the stock. d. speculative when she bought the stock.

Q: Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit. Regarding Sid's profits on the purchase and sale of Tech stock, under Section 16(b) of the Securities Exchange Act of 1934 Tech may recapture a. all of Sid's profits. b. half of Sid's profits. c. 10 percent of Sid's profits. d. none of Sid's profits.

Q: Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit. Under SEC Rule l0b-5, Sid would not be liable if he had waited to buy Tech stock until a. after Sid told Uri of the new game. b. after Uri bought Tech stock. c. after the public release of the game. d. just before the game was released.

Q: To raise capital to form Plasticity Corporation with Quinn, Rona sells bonds and stock in other companies, and plans to register an initial public offering under the Securities Act of 1933. SEC Rule l0b-5 covers a. most forms of securities. b. only bonds. c. only securities registered under the Securities Act of 1933. d. only stock.

Q: Nouveau Riche Corporation's officers, directors, and shareholders buy and sell securities. SEC Rule 10b-5 applies to a. only the purchase or sale of a security by a financial corporation. b. only the purchase or sale of a security involving an officer or director. c. only the purchase or sale of a security involving a shareholder. d. the purchase or sale of any security.

Q: Global Investments Corporation buys and sells securities. Section 10(b) of the Securities Exchange Act of 1934 applies to a. only the purchase or sale of a security involving an insider. b. only the purchase or sale of a security involving short-swing profits. c. only the purchase or sale of a security involving a tipper and tippee. d. the purchase or sale of any security.

Q: Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to a. Fresh Seasonal Fruit and Gourmand Pastries. b. Fresh Seasonal Fruit only. c. Gourmand Pastries only. d. neither Fresh Seasonal Fruit nor Gourmand Pastries.

Q: GR8 Stuf Company files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. GR8 Stuf is charged with violating the Securities Act of 1933. GR8 Stuf's best defense is a. the investors were not aware of the misrepresentations. b. the issuer reasonably believed the misstatements were true. c. the offering was made available to the general public. d. the untrue statements were not material.

Q: Players Video Game Centers, Inc., wants to issue stock of $1 million in a single offering. Players must provide all investors with material information about itself, its business, and its securities if a. all investors are accredited. b. under any circumstances. c. any investors are accredited. d. any investors are unaccredited.

Q: To raise $12 million to expand operations, Star Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. Star plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an "exempt" transaction a. as is. b. if all of the investors are also given certain material information. c. if the offering is also made available to the general public. d. under no circumstances.

Q: Fresh Cream, Inc., wants to make an initial public offering of securities. Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. If Fresh is exempt from the federal registration requirement, Fresh is a. automatically exempt from any state registration requirement. b. not subject to any state securities laws. c. not necessarily exempt under a state registration requirement. d. automatically subject to all state registration requirements.

Q: Fresh Cream, Inc., wants to make an initial public offering of securities. Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. Fresh decides to sell its new securities via the Internet. This offering a. will avoid the payment of commissions to brokers or underwriters. b. is an investment scam. c. is a Ponzi scheme. d. constitutes insider trading.

Q: Kitsch Niche Corporation is a noninvestment company that wants to issue $3 million of stock in a twelve-month period. Kitsch Niche, with less than $20 million in annual sales, qualifies as a small business issuer. Before Kitsch Niche sells the stock, it must provide investors with a. an offering circular. b. a notice of the issue. c. a red herring prospectus. d. a tombstone ad.

Q: Flo-Thru Corporation is poised to issue securities that, under the Securities Act of 1933, are "exempt." This means that the securities can be sold a. on the basis of a material omission or misrepresentation. b. on the basis of nonpublic information. c. within any six-month period by certain insiders. d. without being registered.

Q: Celfone Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain a. a copy of prospectuses to be provided to investors. b. a description of securities being offered for sale. c. a record of pre-registration sales in securities. d. a sample of advertising to be used to attract investments in Celfone.

Q: Squeaky Clean Corporation wants to make an offering of securities to the public. This offering is not exempt from registration under the Securities Act of 1933. Before Squeaky sells its securities, it must provide investors with a. a forward-looking financial forecast. b. an investment contract. c. a prospectus. d. samples of its products.

Q: Bild-It-Rite Corporation is a public company that is preparing to issue securities that do not qualify for an exemption from registration. This means that Bild-It-Rite must a. file a registration statement with the SEC. b. issue the securities through an online registration site. c. refrain from issuing the securities to unregistered investors. d. register the securities with a national stock exchange.

Q: Readmore Bookstore Corporation files a registration statement with the Securities and Exchange Commission and provides a prospectus describing the securities to investors. These items are intended to provide sufficient information so that the financial risks involved can be evaluated by a. market professionals to explain to all investors. b. government regulators to disclose to the general public. c. sophisticated investors only. d. unsophisticated investors.

Q: Olive Grove Enterprises, Inc., completes its registration process and issues a free-writing prospectus. This tells prospective investors a. about investing freely. b. how to write their own prospectus. c. that they can "freely write their own ticket" to buy Olive's securities. d. that they may obtain the prospectus at the SEC's Web site.

Q: RingTone Corporation is a public company whose securities are traded among investors. Under the Securities Act of 1933, a security is a. almost any stake in the ownership or debt of a company. b. an investment that is guaranteed to make a profit. c. only such common forms of debt and equity as bonds and stocks. d. whatever a company represents to the public as a security.