Reference - in Trouble

question 40

Multiple Choice

Reference - 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 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 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. Is Rick correct in that the SEC would have no authority to send Bruno to jail?

• A) Rick is correct because there are no criminal penalties for violating the 1933 Act.
• B) Rick is incorrect because the SEC criminally prosecutes some violators although the action would only be a misdemeanor.
• C) Rick is correct in that the SEC itself would not send Bruno to jail, but the SEC could recommend criminal action to the Department of Justice resulting in imprisonment for up to five years for a violation.
• D) Rick is incorrect because the SEC criminally prosecutes some violators, and a violation of the act is considered a felony that could lead to a prison term of 10 years.
• E) Rick is correct in that the SEC itself would not send Bruno to jail, but the SEC could recommend criminal action to the Federal Bureau of Investigation resulting in imprisonment for up to ten years for a violation.

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Definitions:

Social Awareness

The ability to understand and respond to the needs and challenges of others in a societal context, fostering empathy and social cohesion.

Emotional Intelligence Competencies

The skills and capabilities that enable individuals to recognize, understand, and manage their own emotions and those of others effectively.

Transformational Leadership

A leadership approach that causes change in individuals and social systems, enabling followers to transcend their own self-interests for the good of the group or organization.

Vision

A statement that clarifies the purpose of the organization and expresses what it hopes to be in the future.