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61 Cards in this Set
- Front
- Back
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Securities Act of 1933 |
Regulate initial offering of securities by requiring the filing of a registration statement with the SEC prior to sale or offer to sell |
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State Securities laws (called) |
blue-sky laws - federal securities law preempt blue-sky laws |
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Objectives of Securities Act of 1933 |
disclosure to potential investors of all material information prevention of fraud |
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issuer |
individual or the business organization initially offering a security for sale to the public includes a controlling person, one who owns more than 10% of the company's stock |
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underwriter |
person who participates in the original offering of securities from the issuer with the intention of distributing htem |
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dealer |
person who is engaged in the business of offering, selling, buying, dealing, or otherwise trading in securities issued by another |
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broker |
person who executes securities transactions for others |
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4 types of issuers |
nonreporting- need not file reports under the 1934 act (form s-1)
unseasoned- reported for at least 3 consecutive years under the 1934 act (form s-1) seasoned- filed for at least 1 year and has market capitalization of $75 million (form s-3) well-known seasoned- filed for at least 1 year and has worldwide market capitalization of $700 million or has issued registered offering of at least $1 billion in the past 3 years (form s-3) |
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Comply with Act 1933- must prepare and file: |
1. registration statement
2. prospectus |
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registration statement |
provide adequate and accurate public disclosure of financial and other pertinent info that potential investors may use to evaluate the merits of the securities. Includes: --Description of: 1. business, property, competition 2. significant provisions of the security to be offered for sale 3. management compensation, their holdings of the registrants securities and material transactions with these individuals 4. material legal proceedings 5. principal purpose for which proceeds will be used --audited financial statements and MD&A --indication of whether independent public accountant has changed in last 2 years --signatures of issuer, CEO, CFO, chief accounting officer, and majority of directors |
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prospectus |
purpose- to supply sufficient facts to make an informed investment decision. |
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Effective date of registration statement |
20th day after filing with the SEC unless accelerated or requires an amendment |
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Shelf registration |
after registration statement is filed, the securities are put on a shelf for up to 3 years until the best time for offering is determined. Only available to seasoned issuers and well-known seasoned issuer |
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Exempt securities under the 1933 Act |
-Domestic government (if used for governmental purposes) -not-for-profit organizations -domestic banks and savings and loan associations -issuers that are federally regulated common carriers -receiver or trustee in bankruptcy with prior court approval -state-requested insurers (insurance policies and annuity contracts exempt) -corporation in reorganization if approved by court or other governmental body -issuer that exchanges them with the issuer's existing security holders if no commission or other consideration is paid (ex. stock dividend/stock split) |
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intrastate offering (Rule 147) |
1. issuer is organized/incorporated in state where issue is made 2. 80% of proceeds are to be used in that state 3. 80% of assets are located there and 80% of revenues are within that state 4. all purchasers/offerees are residents of the state 5. no resales to nonresidents for 9 months after initial sale by issuer is completed 6. steps are taken to prevent interstate distribution |
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Regulation A |
permits certain issuers to offer $5 million in securities in any 12-month period with full registration. No limitations on number/nature of investors. No restrictions on resale. Excludes issuers that report under the 1934 Act |
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Jobs Act of 2012 (Regulation A) |
Second tier of regulation A offerings- amount sold in 12-month period must not exceed $50 million Issuer must file audited financial statements annually and other disclosures required by the SEC |
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Regulation D Exemption (qualification) Rules- 504, 505, 506 |
1. No general solicitation or advertising is permitted 2. Issuer must exercise reasonable care to ensure purchasers are not underwriters and are purchasing strictly for own investment purposes 3. SEC must be notified by filing form D within 15 days of the first offering 4. Exemption is only for transactions in which the securities are offered or sold by issuer All rules apply to 505 and 506. Only rule 3 applies to rule 504. |
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accredited investors |
most institutional investors and individuals that meet income or net worth thresholds (excluding the value of a person's primary residence) |
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Rule 504 |
issuer to sell up to $1 million of securities during 12-month period to any number of purchasers. Registration is not required and issuer need not provide specific financial information. nonaccredited and accredited investors may purchase general solicitation is allowed |
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Rule 505 |
exemption from registration to all issuers other than investment companies for a limited offering of securities up to $5 million in any 12-month period. May be purchased by an unlimited number of accredited investors Issuer must reasonably believe no more than 35 purchasers are not accredited investors |
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Rule 506 |
transactions by issuer not involving any public offering. No ceiling amount. Offering may be purchased by unlimited number of accredited investors. no more than 35 not accredited investors (knowledge and experience must suffice to allow them to evaluate the risks/merits of investment) issuer must take reasonable steps to ensure purchasers are accredited investors Generally, issuer requires purchaser to sign an investment letter stating (s)he is purchasing for investment only and not for resale. Shares are called lettered stock. |
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Rule 4(6) |
Exempts up to $5 million Only sold to accredited investors (unlimited #) General advertising/solicitation not permitted SEC informed of sales under exemption Resale is restricted Precautions taken to prevent nonexempt or unregistered resales |
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Securities Exchange Act of 1934 |
addresses secondary distribution (resales) of securities 1. Registration of all regulated public companies 2. Periodic reporting- providing up-to-date statements about business operations and matters potentially affecting the value of securities 3. antifraud provisions 4. insider liability for short-swing profits |
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SEC -- (power to:) |
Enforce the federal securities laws 1. issue rules 2. investigate violations 3. conduct hearings to decide whether violations have occurred 4. impose penalties May deny/suspend/revoke registration or order suspension of trading of the securities May prohibit an individual who has committed securities fraud from serving as an officer/director or a public company Oversees the PCAOB |
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1934 Act (requires registration of all companies that:) |
1. -list securities on the nation securities exchange -have at least 500 shareholders of equity securities and total gross assets exceeding $10 million 2. - issuer that has registered securities under the 1933 act - national securities exchanges 3. charitable organizations, investment companies, and savings and loans are exempt |
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Periodic Reporting (Act 1934) Annual Report |
(Form 10-K) large accelerated filers (within 60 days of the last day of the fiscal year) accelerated filers (within 75 days of the last day of the fiscal year) nonaccelerated filers (within 90 days of the last day of the fiscal year) |
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large accelerated filers |
$700 million or more in public float (ex. shares held by the public and not insiders) |
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accelerated filers |
$75 million to $700 million in public float |
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nonaccelerated filers |
less than $75 million in public float |
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10-K Report (includes) |
1. Business Activities 2. Securities 3. Stock Prices 4. Management- Related Persons (officers) 5. Disagreements about accounting and disclosure 6. Audited financial statements 7. other matters |
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Periodic Reporting (Act 1934) Quarterly Report |
(Form 10-Q) include financials that have been reviewed by independent auditor (doesn't need to be audited financials) large accelerated filers/accelerated filers (within 40 days of the last day of the first 3 quarters) nonaccelerated filers (within 45 days of the last day of the first 3 quarters) |
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10-Q Report (includes) |
Financial Information & Changes during the quarter 1. Legal proceedings 2. changes in nature or amount of securities/indebtedness 3. matters submitted to shareholders for a vote 4. exhibits/ reports on form 8-k 5. other material events not reported on form 8-k 6. anticipated effect of recently issued accounting standards on financial statements when they are adopted in a future period |
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Periodic Reporting (Act 1934) Current Report |
Form 8-K -- material events disclosed within 4 calendar days 1. changes in control of the registrant 2. acquisition or disposition of a significant amount of assets other than in the ordinary course of business 3. bankruptcy or receivership 4. resignation or a director 5. change in registrant's certifying accountant |
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Proxy Solicitation under 1934 Act |
Section 14 (a) unlawful! |
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Tender Offers |
general invitation by an individual or corp. to all shareholders of another corp. to tender their shares for a specified price |
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Tender Offers (must file statement with SEC) |
1. any person/group that acquires beneficial ownership of more than 5% of a class of registered securities 2. a person/group that makes a tender offer for more than 5% of such securities 3. an issuer offering to repurchase its registered securities 4. the target of a hostile tender offer |
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Section 11 of 1933 Act |
an accountant who prepares or audits and certifies the financial statements included in a registration statement or prospectus is civilly liable without proof of fault
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to recover under Section 11, plaintiff must prove: |
1. plaintiff acquired a security subject to registration 2. plaintiff incurred a loss 3. registration statement contained a material misstatement or ommission |
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If plaintiff proves basic elements for recovery under Section 11 any defendant except the issuer avoids liability by proof of__________ |
due diligence |
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due diligence |
reasonably believed at the time did not contain an omission or misstatement of a material fact belief must be based on a reasonable investigation |
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Section 10 (b) of the 1934 Act |
Rule 10b-5 states that it is illegal for any person, directly or indirectly to use interstate commerce or a national securities exchange to defraud anyone in connection with the purchase or sale of any security, whether or not required to be registered |
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Rule most often applied to insider trading |
10b-5 (1934 Act) |
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Sarbanes- Oxley Act of 2002 (SOX) |
established PCAOB applies to issuers of publicly traded securities subject to federal securities laws |
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Audit Committee |
must be directly responsible for appointing, compensating, and overseeing the work of the public accounting firm employed by the issuer. accounting firm must report directly to the audit committee not to management members must be independent form the board of directors (at least one must be a financial expert) |
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Section 404 of SOX |
management must establish and document internal control procedures and include in the annual report on the company's internal control over financial reporting |
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Section 404 of SOX (audit opinions) |
1. Internal Controls 2. Financial Statements |
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Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010 |
Extends to : financial services industry consumer protection financial markets securities laws financial reporting and governance broker-dealer audits |
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Financial Stability Oversight Council |
1. identify, in advance, financial system risks 2. comment to the SEC about accounting issues 3. report annually to Congress about financial market and regulartory matters |
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accountant's duties (regarding contractual obligations) |
perform engagement with due care (nonnegligently) and in compliance with professional standards |
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Contractual Defenses |
1. failure of consideration 2. alleged obligation not within scope of contract 3. full or substantial performance rendered 4. purpose of contract contrary to law or public policy 5. suspension or termination of performance justified because of client's breach 6. failure of condition precedent, an event that must occur before contractual performance is due |
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negligent misrepresentation |
occurs when accountant makes a false representation of a material fact not known to be false but intended to induce reliance |
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gross negligence |
failure to use even slight care accountant may be liable for punitive damages is gross negligence is proven |
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liability for fraud |
finding of fraud requires proof of: 1. accountant made a misrepresentation 2. misrepresentation was made with scienter 3. misrepresentation was of a material fact 4. misrepresentation induced reliance 5. another person justifiably relied on the misstatement 6. the other person suffered a loss |
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scienter |
actual or implied knowledge of fraud |
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comparative negligence |
plaintiff who is responsible for his or her own injuries may recover the percentage of damages attributable to the defendant's action |
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liability to third parties for fraud |
all reasonably foreseeable users of the work product |
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defenses to fraud |
negligence of the client is not a defense expiration of the statute of limitations is a defense |
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accountant- client privilege |
federal law does not recognize privilege for client-accountant communication client communications with accountants retained by attorneys to aid in litigation are protected by the attorney-client privilege (accountant is considered the attorney's agent) |
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working papers are the property of ___________ |
the accountant |
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third party access to working papers |
absent a court order or client consent, third parties have no right of access to working papers |
