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:

Federal Fisheries Department

A government body responsible for the management and protection of the country's fisheries resources, including regulation, conservation, and development.

Breach of Contract

A violation of any of the agreed-upon terms and conditions of a binding contract.

Supply Requirements

The specifications and quantities of goods or services needed by a business, organization, or project, often detailed in procurement contracts.

Exemption Clause

A contract provision that seeks to limit or exclude one party’s liability for certain breaches or circumstances.