Test Your Knowledge: Insider-Trading Prevention Quiz
Stay out of trouble. Test your knowledge of the securities laws that apply to stock compensation. (For more educational materials about insider trading, see the Think Twice video series, produced by our sister company Brumberg Publications.)

Please answer the following 10 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading

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1. Which of the following is insider trading?

You sell your company's stock because you know it is about to announce poor earnings
Your company starts supplying parts for a customer's secret major product, so you buy the client's stock
You dump a company's shares after your broker confidentially tells you the CEO at that company just sold stock, but the sale has not yet been publicly reported
All of the above

2. While feeling good at a family party, you tell your brother-in-law that your company is about to announce a big deal with Microsoft. What are you guilty of?

Talking shop
Consumer fraud
Tipping / insider trading
All of the above

3. What is a blackout period?

A period when your company's stock price is lower than the exercise price of your options
A period of stock-trading activity that you cannot remember during an SEC interview
A period during which your company prohibits you from buying or selling its stock
A period during which a company prohibits its insiders from exercising their stock options or receiving restricted stock

4. What would probably not be considered insider trading during a blackout period if you knew inside information?

Exercising and holding stock options
Exercising and selling stock options
Trading company stock in a 401(k)
None of the above

5. What arrangement can you make to provide an affirmative defense against charges of insider trading?

A Section 83(b) election
A Section 16 election
A Rule 10b5-1 trading plan
A Rule 144 trading plan

6. Which members of a company are affiliates subject to special SEC filings for their stock sales?

All employees
The CEO and CFO
The board
Executives, directors, and large-block shareholders

7. Under Section 16 and Rule 144, what SEC form(s) must executives and directors file when they exercise stock options and sell all the shares?

Form 3 and Form 144
Form 144 and Form 4
Forms 4 and 5
Forms 3, 4, and 5

8. During what period after a purchase or sale must executives and directors avoid a corresponding opposite transaction to avoid short-swing-profit liability?

One day
One year
Six months
One month

9. What is the maximum civil penalty for insider trading?

Disgorgement of any profit made or loss avoided
Disgorgement of any profit made or loss avoided plus twice this amount
Disgorgement of any profit made or loss avoided plus three times this amount
Disgorgement of any profit made or loss avoided plus ten times this amount

10. What was Martha Stewart convicted of?

Lying under oath
Insider trading
Insider tipping
All of the above

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