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37 Cards in this Set
- Front
- Back
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Securities Act of 1933 |
Original issuance of securities |
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Securities Act of 1934 |
purchases and sales after initial issuance |
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Security Defined |
Any Investment Contract, very broadly defined - If the investor is passive the investment is most likely a security - Stocks, bonds, debentures, oil well interest, stock options, collateral trust certificates, warrants, and limited partnership interests Certificates of deposit and general partnerships interests are generally not deemed to be securities (exceptions) |
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Securities Act of 1933 - Purpose |
Provide investors with sufficient investment information - assures investors have sufficient information on which to make an informed investment decisions - Requires most issuers to register new issues of securities with the SEC and provide prospectuses containing material information regarding the securities to prospective investors - SEC does not guarantee the accuracy of information, evaluate the offerings financial merits, or give assurance against loss. |
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Securities Act of 1933 - Required to Register |
Issuers, Underwriters, and Dealers Issuer - entity whose securities are being sold Underwriter - intermediary who sells an issuers securities to the general or to dealers Dealer - one who sells or trades securities on a full or part time basis |
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(1933) Registration Satement |
Most securities cannot be sold unless they are first registered with the SEC |
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(1933) Registration Statement Part 1 - Prospectus |
Written offer to sell securities Summarized important information contained in part 2 Each investor must receive a copy of the prospectus before or contemporaneous with every sale of the security |
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(1993) Registration Statement Part 2 - Information about the securities being issued must include |
Audited balance sheet (90 days) and Profit and Loss Statement (Preceding 5 years) F/S must be certified by a public accounting firm registered with the PCAOB Other Material Facts Requiring Disclosure - Names and address of directors, officers, underwriters and shareholders owning more than 10% of shares - Stock and debt the issuer has outstanding - principal purpose for which the offering proceeds will be used - Anything that might affect the value of the securities being issued |
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(1933) Shelf Registrations |
Prepare just one registration statement for all securities that they will offer in the future Shelf registration is permitted if issuer has continuously filed under 1934 Act for one year and the information is continuously updated (not a first time issuer) |
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(1933) Processing the statement |
SEC reviews statement to ensure both parts are complete |
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(1933) Registration Effective date |
20 days after filling with the SEC |
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(1933) Blue Sky Laws |
State laws governing sale of stock |
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(1933) Thirty Days Before Registration |
No Sales Activity Allowed However, permitted to negotiate with an underwriter |
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(1933) After Registration but Before Effectiveness |
20 day waiting period, sales are generally prohibited but some are allowed: - Oral offers to sell - Tombstone Ads (identify security, price, and who will execute orders) - Preliminary (red herring) prospectus (contain statement in red ink that it is not yet final) - Summary prospectus are allowed |
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(1933) After Effective Date |
20 days after the filling date securities may be sold but all investors must receive a prospectus before or with the sale |
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Special Rules for some 1934 Act Reporting Companies |
Large Private Companies now going public (WKSIs) - Seasoned issuers (at least 12 months) - Well-known season issuers (700mill in equity outstanding) - WKSI may make oral or written offers at any time, also have special form of shelf registration that is effective immediately |
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(1933) Securities Exemptions |
BRINGS - Banks - Not-for-Profit Organizations - Government - Railroads (common carriers) - Short term commercial paper with maturity date of nine months or less - Insurance policies |
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(1933) Exempt Transactions |
Casual Sales of Stock - sales by a nonissuer, underwriter or dealer Exchanges with existing holders and corporate reorganizations - Stock dividends and stock splits Intrastate sales |
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(1933) Exempt Transactions - Regulation A |
Partial Exemption - permits a simplified form of registration (unaudited f/s are ok) - Issuer files offering statement which consists of a notification and n offering circular - Sales may not exceed $5million in a 12-month period |
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(1933) Exempt Transactions - Regulation D, Private Offerings |
Three private offering exemptions under Regulation D - 504, 505, and 506 |
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Regulation D General Conditions |
- General solicitation sometimes prohibited (exceptions under 504 and 506) - Immediate Resale to public prohibited (two year or more holding period) - SEC must be informed within 15 days after first sale |
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Requirements of Rule 504 |
- $1 million limit within a 12 month period - no limitation on the number or type of purchasers - does not require any specific disclosure to investors prior to sale - if registered under state law, general prohibition against general advertising does not apply |
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Requirements of Rule 505 |
- $5 million limit within 12 months period - any number of accredited investors and 35 or fewer unaccredited investors Accredited investors - at least $1 million in net worth or $200,000 in annual income IF only accredited investors purchase no disclosure required IF any unaccredited investors, ALL investors must be given at least an annual report containing audited financial statements |
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Requirements of Rule 506 |
Same as rule 505 but: Unlimited dollar amount and unaccredited investors also have to be sophisitcated and can also advertise sometimes |
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Liability under 1933 act 11,12,17 |
Section 11 imposes civil liability for misstatements Section 12 - Civil Antifraud Section 17 - Criminal Anti fraud - enforced by SEC and prosecuted by the Justice Department |
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Liability under 1933 Act Section 11 |
Elements - LAM - Acquired - Loss - Material Missrepresentation Must be made within one year after discovery and 3 years from the offering date Need not prove any intent to deceive or negligence or reliance on the part of the defendent Anyone who signs a registration statement can be liable Due diligence defense - not liable if can prove due diligence, defendant has reasonable grounds to believe the facts in the registration statement were true and no material facts were omitted
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Securities Exchange Act of 1934 |
Concerned with exchanges (sales, purchases, etc.) after they are issued Reporting provisions that apply to certain companies and Antifraud provisions that apply to all sellers, regardless of registration |
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(1934) Registration Requirements |
Only two types of companies must register their securities 1. Companies whose shares are traded on a national exchange or 2. Companies that have more than $10 million in assets AND at least 2,00 shares OR 500 shareholders who are not accredited National stock exchanges, brokers, and dealers must also register Exemptions: investment companies, savings and loans, and charitable organizations |
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1934 Act Companies Required to Report |
two categories of reporting companies All companies required to register under the 1934 Act Any issuer required to register under the 1933 Act |
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(1934) Period Business Reports |
10-K filled annually within 60 days of fisical year end for large corporations (small business 90 days) 10-Q filled quarterly within 40 days of first three quarters of each fiscal year 8-K within four days after major change in company |
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(1934) Other Reporting Requirtments - 5% TIP |
5% or more of owners must report - any person acquiring 5% or more must file with SEC including background information about the purchase and source of funds for the purchase |
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5% TIP |
Tender offers must be reported- offer to all shareholders to purchase stock for a specific price for a specified period of time- Any party making a tender offer to purchase 5% or more of the shares- Must include background information
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5% TIP |
Insiders must report - insiders are officers, directors, or more than 10% shareholders - must file report with SEC disclosing their holdings in the reporting company and make monthly updates - Limits insider trading by imposing absolute liability on any insider who makes a profit on the purchase or sale of a reporting company's stock within a six-month period (short sing profits) |
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5% TIP |
Proxy Solicitations and Proxy Statements Must be reported - Written request for permission to vote a shareholders shares at a shareholder meeting - If directs are to be voted on an annual report with audited f/s must be sent to all shareholders entitled to vote - Proxy statements must be sent to all shareholders disclosing all facts that are pertinent to the matter on which will be voted on |
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Antifraud provisions - Rule 10b-5 |
Applies Even if registration is not required - prohibits fraud in connection with the purchase or sale of any security - any who sells or buys securities can be liable and applies whether or not the securities of registered company - can result in civil damages, SEC injunction action, or criminal fines and penalties |
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10b-5 General elements of cause of actions |
Acquire securities Loss Material Misrepresentation Scienter Reliance Interstate commerce |
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Insider Trading Under Rule 10b-5 |
Fraud Illegal for a person to trade on the basis of inside information SEC can impose fines and seek criminal penalties but does not prosecute |
