In Trouble

question 85

Multiple Choice

In Trouble.Bruno,an issuer of stock,may be in trouble.He sold stock in a new health club venture before the effective date of registration.He did so because he was in financial trouble involving other ventures of his and needed additional funds.Bruno thought that the health club venture would be such a success that he would never get caught in regard to the stock sale.Unfortunately,he was wrong.The health club venture was going very poorly and investors were looking for some way to hold Bruno responsible.Another problem Bruno has is that he inflated information regarding the prospects of the health club in the prospectus.Investors bitterly complained.Rick,a new lawyer,told Bruno that as far as he knew,the Securities and Exchange Commission (SEC) could fine Bruno under the Securities Act of 1933 but could not send him to jail.Bruno told Rick that was good news and that no one should feel sorry for the investors because none of them made any effort to check on information contained in the prospectus or to investigate the future profitability of the health club venture.Bruno says that he plans to rely on the due diligence defense.Bruno also asks Rick if he is aware of any other defenses.Bruno says that he has never previously been in trouble with the SEC.Which of the following,if any,may be defenses for Bruno?

• A)Except for the violation of selling securities before the effective registration date,Bruno could raise the defense that an omitted or false statement was immaterial to the sale of the security.
• B)Except for the violation of selling securities before the effective registration date,Bruno could raise the defense that the plaintiff was aware of the omission or false statement when the security was purchased.
• C)Except for the violation of selling securities before the effective registration date,Bruno could raise the defense that a plaintiff was aware of the omission or false statement when the security was purchased,and that any omitted or false statement was immaterial to the sale of the security.
• D)For any alleged violations,Bruno could raise the specific filing rule.
• E)No defenses are available to Bruno because he had already been held liable by the SEC on one occasion.

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Definitions:

Aggregate Demand

Represents the total demand for goods and services within a particular economy at a given overall price level and in a given time period.

Tax Cut

A tax cut involves a reduction in the amount of taxes imposed by a government, which can affect consumer spending, investment, and economic growth.

MPC

The marginal propensity to consume (MPC) indicates the proportion of an increase in income that a consumer will spend on consumption rather than saving.

Crowding-out Effect

A situation where increased government spending leads to a reduction in private sector investment due to higher interest rates.