Financial Misconduct and Insider Trading

Financial Misconduct and Insider Trading

#7910EXAM MATERIAL

7910 Final Exam • 1

FINANCIAL MISCONDUCT AND INSIDER TRADING (COURSE #7910)

COURSE DESCRIPTION

This course will address financial misconduct and the penalties associated with it, plus a review of insider trading and market manipulation. The course uses British terminology, therefore some of the spelling/terminology reflects that dialect. PLEASE NOTE: Course material is similar to #7890: Corruption and Fraud in Financial Markets; therefore, we recommend that you should not take both courses in the same CPE reporting period. All course material provided. No prerequisites. Course level: Basic. Course #7910 - 4 CPE hours.

LEARNING ASSIGNMENTS AND OBJECTIVES

As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment.

ASSIGNMENT 1: SUBJECTFinancial Misconduct and Market-Based Penalties

Study the course materials from pages 1 to 44Complete the review questions at the end of each chapterAnswer the exam questions 1 to 11

Objectives:

• To identify the various financial regulations used in the U.S. to combat corporate misconduct

ASSIGNMENT 2: SUBJECTInsider Trading and Market Manipulation

Study the course materials from pages 45 to 62Complete the review questions at the end of each chapterAnswer the exam questions 12 to 20

Objectives:

• To recall the consequences of strict enforcement of laws aimed at preventing financial market abuse

ASSIGNMENT 3:• Complete the Answer Sheet and Course Evaluation and submit to PES

2 • 7910 Final Exam

NOTICE

This course and test have been adapted from supplemental materials and uses the materials entitled Corruption and Fraud in Financial Markets © 2020 Carol Alexander and Douglas Cumming. Displayed by permission of the publisher, John Wiley & Sons, Inc., Hoboken, New Jersey.

Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2020

Program Publication Date 8/24/2020


FINANCIAL MISCONDUCT AND INSIDER TRADING (COURSE #7910)

EXAM INFORMATION

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within ONE YEAR from the date of purchase.

TEST FORMAT: The following final exam, consisting of 20 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test.

LICENSE RENEWAL INFORMATION: The Financial Misconduct and Insider Trading course (#7910) qualifies for 4 CPE hours.

PROCESSING: You must score 70% or better to pass. If you mail or fax your exam, when you pass, your Certificate of Completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this. When completing your exam online, grading is instantaneous. Upon achieving a passing score, the completion certificate is immediately available in your account under “My Completed CPE.” Please note: failed exams may be retaken. Per NASBA and AICPA guidelines, missed questions cannot be indicated until after you pass.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. If mailing or faxing, make sure to fill out your Answer Sheet completely prior to submitting it.

• ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. Once all answers have been selected, click the “Submit/Grade Answers” button at the bottom of the page for instant grading and certification. If you do not see the exam listed, click on “My CPE in Progress.” Click on the “Add Exam to Account” button and follow the instructions.

• MAIL – Your exam will be graded and your certificate of completion mailed to you within one business day. Your certificate will be dated according to the postmark date. Please mail your Answer Sheet to:

Professional Education Services, LP4208 Douglas Blvd., Ste 50

Granite Bay, CA 95746

• FAX – Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) 791-4099.

THANK YOU FOR USING PROFESSIONAL EDUCATION SERVICES.

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FINANCIAL MISCONDUCT AND INSIDER TRADING (COURSE #7910) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. Although the legal definitions of securities fraud may vary across jurisdictions, one typical requirement is the presence of ________________, or the state of mind which accompanies the act.

A. scienterB. quid pro quoC. ratio scriptaD. sui juris

2. Which of the following is a common limitation of the empirical proxies used by researchers when studying corporate fraud:

A. researchers typically use detected fraud to proxy all fraud committed, which disregards undetected fraud

B. empirical researchers often use accusations of misconduct to proxy actual misconduct, which is inaccurate because an accusation does not equate to guilt

C. no empirical proxy perfectly aligns with the legal definition of fraud

D. all of the above

3. Which of the following was the seventh largest U.S. company by revenue in 2000 and its accounting fraud constitutes one of the most notorious corporate scandals of this century:

A. WorldComB. EnronC. ExxonMobilD. Wells Fargo

4. In 2003, which of the following committed, per the SEC, “one of the largest and most brazen financial frauds in history” when it admitted to overstating assets by €3.95 billion:

A. WorldComB. ParmalatC. Nortel NetworksD. Enron

5. Which of the following is correct regarding Rule 10b-5 of the Securities Exchange Act of 1934:

A. Rule 10b-5 is no longer enforceable due to recent legislation

B. violations of Rule 10b-5 are only enforceable through public mechanisms

C. federal courts have exclusive jurisdiction to hear 10b-5 related securities lawsuits

D. only the SEC may initiate regulatory actions against violators of Rule 10b-5

6. Which of the following was enacted in the wake of high-profile corporate scandals including Enron and WorldCom:

A. the Securities Exchange Act of 1934B. the Private Securities Litigation Reform Act

of 1995C. the Sarbanes-Oxley Act of 2002D. the Dodd-Frank Wall Street Reform and

Consumer Protection Act of 2010


7. Per several academic studies, passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 led to which of the following consequences:

A. in the wake of Dodd-Frank, credit rating agencies such as Standard & Poor’s and Moody’s tend to issue lower ratings, more false warnings, and less informative downgrades

B. Dodd-Frank has led to a reduction in the filings of meritorious lawsuits

C. director and officer insurance premiums have tripled since the passage of Dodd-Frank

D. passage of Dodd-Frank directly led to a reduction in accrual-based earnings management

8. Which of the following is correct regarding legal penalties for financial fraud and misconduct:

A. generally, most research has concluded that legal penalties are sufficient to deter corporate misconduct

B. personal fines levied against executives and directors serve as a highly effective penalty for perpetrating corporate fraud

C. executives and directors may incur negligible out-of-pocket expenses from fraud accusations

D. both A and B are correct

9. Empirical evidence shows that in the wake of financial misconduct and accounting restatements, firms experience which of the following:

A. better operating performanceB. fewer liquidity restraintsC. lower insurance premiumsD. restricted access to financing

10. Which of the following is correct regarding individual-level penalties for corporate financial misconduct:

A. executive officers and directors experience increased turnover

B. executive officers and directors experience impaired career prospects

C. executive officers and directors experience decreased or restructured compensation

D. all of the above

11. Which of the following is correct regarding the personal characteristics of CEOs and the likelihood of fraud occurring:

A. there appears to be no correlation between a CEO’s personal character and the likelihood of their firm committing fraud

B. characteristics such as social or political connectedness make it far less likely that fraud will occur

C. firms are more likely to be sued when their CEOs have poor personal ethics

D. both A and B are correct

12. Which of the following refers to the use of private information to trade assets:

A. insider tradingB. market manipulationC. front runningD. price squeezing

13. Which of the following is considered the centerpiece for regulatory enforcement for the detection, prevention, and investigation of financial crime in the United States:

A. the Department of Justice (DOJ)B. the Federal Bureau of Investigation (FBI)C. the Securities and Exchange Commission

(SEC)D. the Federal Trade Commission (FTC)


14. Which of the following has been the result of better and more strict enforcement of laws aimed at preventing financial market abuse:

A. enforcement of these laws has led to virtually no economic benefits

B. enforcement of laws aimed at preventing financial market abuse have received little to no popular support

C. enforcement of more detailed exchange trading rules and surveillance over time significantly increases the number of suspected cases of insider trading

D. preventing market abuse encourages investment and assists long-term economic growth and wealth creation

15. Which of the following has been effective in combating financial crime:

A. regulatory enforcementB. whistleblowersC. investigative journalismD. all of the above

16. Which of the following occur regularly in markets due to demand and supply shocks and are exemplified by the Hunt brothers’ cornering the silver market in the 1970s:

A. insider tradingB. front running/pre-positioningC. price/market squeezesD. self-dealing

17. The Lehman Brothers scandal is an example of which type of white-collar crime investigated by the FBI:

A. falsification of financial informationB. fraudulent trades designed to inflate profits

or hide lossesC. illicit transactions designed to evade

regulatory oversightD. self-dealing by corporate insiders

18. The FBI found which of the following to be guilty of misusing corporate property for personal gain:

A. Martha StewartB. TycoC. Deutsche BankD. Worldcom

19. An early empirical study of 452 persons successfully prosecuted for insider trading in the U.S. found which of the following to be true:

A. more people were civilly prosecuted rather than criminally prosecuted

B. the median trading profit was substantially larger for those civilly prosecuted when compared to those persons criminally prosecuted

C. those civilly prosecuted for insider trading tended to be securities professionals

D. all of the above are correct

20. In 2015, the U.S. Federal Reserve announced that it would impose fines totaling more than $1.8 billion against all of the following banks for their “unsafe and unsound practices in the foreign exchange markets” except:

A. UBS AGB. Wells Fargo & CompanyC. Citigroup Inc.D. Bank of America Corporation

Congratulations –

you’ve completed the exam!



FINANCIAL MISCONDUCT AND INSIDER TRADING #7910 (4 CPE HOURS) – ANSWER SHEET (8/20)

IMPORTANT NOTE: For certification, this answer sheet must be completed and submitted to PES for grading within ONE YEAR from the date of purchase. Please use BLACK INK and PRINT for quicker processing – thank you.

Full Name (as it appears on your license) _______________________________________________________________________________

Address (□ Home □ Work ) ___________________________________________________________________________________

City _____________________________________________________ State ______________________________ Zip _________

Daytime Phone ( ) ___________________________________ E-mail ___________________________________________

License Number ______________________ State _______ Exp Date: ____/____ Are you a: □ CPA □ CFP □ EA (check all that apply)

PTIN Number (if applicable) ______________________________________________________________________________________

If course was ordered by another party, please indicate their name here: _____________________________________________

GRADING OPTIONS – Please choose only ONE of the following:ONLINE GRADING – Visit our website at www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. If you do not see the exam listed, click on “My CPE in Progress,” then click on the “Add Exam to Account” button and follow the instructions.

Mail – Mail your exam to: PES, 4208 Douglas Blvd., Ste 50, Granite Bay, CA 95746

Fax – Fax your exam to (916) 791-4099 and choose one of the following options: □ Mail my results □ Fax my results (_____)__________________ □ Phone my results (_____)__________________

PLEASE INDICATE YOUR ANSWER BY FILLING IN THE APPROPRIATE CIRCLE

Please complete the attached course evaluation - your opinion is extremely valuable!


FINANCIAL MISCONDUCT AND INSIDER TRADING #7910 COURSE EVALUATION

Rate on a scale of 1-10 with 1 being poor and 10 being excellent.

1. The course met the course objectives described in the promotional material. ______

2. The course was up to date, held my interest, was timely, and effective. ______

3. The course materials were understandable, valuable, and suitable for a correspondence course. ______

4. The amount of advance knowledge and stated prerequisites were appropriate. ______

5. The completion time was appropriate for the number of credits allowed. ______

6. The course met my professional education needs. ______

Please answer the following questions – mark/rate any and all that may apply

1. How would you rate PES’s order desk ______ customer service ______

2. What can PES do to keep you as a valued customer? __________________________________

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3. Any other comments regarding this course or our company would be appreciated. ____________

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4. What other courses/subjects would you like to see PES offer in the future? __________________

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PLEASE MAIL YOUR EVALUATION TO: Professional Education Services, LP

4208 Douglas Blvd., Ste 50 • Granite Bay, CA 95746


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Financial Misconduct and Insider Trading