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104 Cards in this Set
- Front
- Back
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§ 5(a) (’33) Act
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• Unlawful to sell securities w/o registration statement
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§ 5(b)(1) (’33) Act
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• Unlawful to transmit any prospectus . . . that doesn’t meets requirements of § 10
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§ 5(b)(2) (’33) Act
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• Unlawful to deliver any security unless accompanied or preceded by a § 10(a) prospectus
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§ 5(c) (’33) Act
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• Unlawful to offer to sell or buy any security, unless a registration statement has been filed as to such security
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§ 6 (’33 Act)
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• Registration effective only as to securities specified therein
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§ 3 (’33 Act)
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• Securities exempt from registration: ex: US Treasuries, Municipal bonds
• (no securities exempt from anti-fraud provisions) |
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§ 12(a)(1) (’33 Act)
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• Civil penalties for anyone who offers or sells a security in violation of § 5
• “Registration Put” (1 year for purchasers of unregistered securities) |
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§ 2(a)(3) (’33 Act)
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• “Sale” – Definition: Every disposition of a security or interest in a security, for value
• “Offer” – Includes attempts to offer o Well beyond common law concept of “offer” o Any activity that might “condition” the market or “arouse” investor interest. o Designed to prevent “gun jumping” o Doesn’t include underwriter negotiations |
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§ 2(a)(4) (’33 Act)
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• Definition of “issuer”
• Every person who issues or proposes to issue any security |
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§ 2(a)(10) (’33 Act)
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• Definition of “prospectus” – any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security
• Excluding: (after effective date of registration statement) all communications that are accompanied or preceded by a final § 10(a) prospectus. o Thus, can use post-effective “free writing prospectus” under this • Also excludes Tombstones, as shall be defined by SEC regulations. |
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§ 2(a)(11) (’33 Act)
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• Issuer:
o Defines “issuer” as the § 2(4) issuer plus any “control person” (aka “affiliate”) • Underwriter: o Any person who has • (1) purchased from an issuer with a view to . . . the distribution of any security, or • (2) participates in such a distribution, or • (3) participates in the direct or indirect underwriting of any such undertaking • But shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission. |
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§ 3(b) (’33 Act)
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• Allows SEC to exempt from regulations offerings not exceeding $5 million, if in the public interest
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§ 3(a)(11)
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• Intrastate exemption to registration requirements
• Like § 3(b), is a security based exemption, not a transaction exemption • See Rule 147 for requirements |
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§ 4(1) (’33 Act)
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• The provisions of § 5 shall not apply to: transactions by any person other than an issuer, underwriter, or dealer
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§ 4(2) (’33 Act)
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• The provisions of § 5 shall not apply to: transactions by an issuer not involving any public offering (which = “distribution” as used in § 2(11))
• Available to §2(4) issuers only |
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§ 6(a) (’33 Act)
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• A registration statement shall be deemed effective only as to the securities specified therein as proposed to be offered.
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§ 8(a) (’33 Act)
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• Effective date of a registration statement shall be the 20th day after the filing thereof or such earlier date as the SEC may determine . . .
• If any amendment to any such statement is filed prior to the effective date of such statement, the registration statement shall be deemed to have been filed when such amendment was filed. |
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§ 10(a)(4) (’33 Act)
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• SEC may authorize omission of info from requirements of § 10(a) prospectus
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§ 10(b) (’33 Act)
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§ 10(b) (’33 Act)
• Information required in prospectus • SEC can authorize “omitting prospectus” (aka “red herring” “preliminary prospectus”) • . . . be filed as part of the registration statement but shall not be deemed a part of such registration statement for the purposes of § 11. |
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§ 11 (’33 Act)
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• Attaches only to registration statement as declared effective
• Issuer is strictly liable (no state of mind defense) • Issuers, directors, officers, accountants, underwriters, and named experts have a due diligence defense. o Sliding scale due diligence – function of individual’s expertise o Standard of Reasonableness: RPP in the management of his own property • Liability = Difference b/w amount paid and value security would have had if the truth had been told • Only persons who acquired the securities covered by the registration statement can bring suit under § 11 |
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§ 14 (’33 Act)
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• Contrary Stipulations Void
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§ 17(a),(c) (’33 Act)
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• Fraudulent Interstate Transactions
• Exemptions in § 3 shall not apply to the provisions of this section |
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§ 19 (’33 Act)
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• SEC can make, amend, rescind rules, regulations, and forms for compliance w/ Act
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§ 28 (’33 Act)
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• General Exemptive Authority for SEC
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Periodic Disclosures
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• Imposed through EA §§ 15(d), 12, 13
• Annual Reports on Form 10-K • Quarterly reports on Form 10-Q • New, really big developments on Form 8-K |
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Registration Disclosures
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• Originally, separate disclosure regimes under ’33 & ’34. In 1977, SEC created “integrated disclosure system”
• Schedule S-K: defines a set of “disclosure items” that are consistently used in ’33 and ’34 Act disclosures • S-X defines accounting disclosures • Incorporation by Reference – steps toward synthesizing a partial company registration regime |
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Form S-1
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• Used for IPOs and offerings not qualified on Form S-3
• Part 1: Prospectus • Part 2: Information not in prospectus |
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Form S-3
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• Incorporation by reference from other disclosures (10-K, 10-Q- etc.)
o Backward & Forward Incorporation • Allows Shelf-Registration (Rule 415) o WKSIs can file “automatic shelf registration statements” o WKSIs qualify for more liberal Free Writing Prospecti • Requirements: o Must have class of securities registered o Timely filings for preceding 12 months o Public float of $75 million (Measured with reference to voting and non-voting equity held by non-affiliates only) • Alternative Means of Qualifying: o Public float of less than $75 million o Satisfies all other conditions for use of Form S-3 o Class of common equity listed on a national securities exchange o Not a shell company and has not been a shell for at least 12 months o Does not sell more than 1/3 of its public float in reliance on this provision over previous 12 months |
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Rule 415
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• Shelf Registration
• Mainly just for S-3 filers • Registrant commits to file a post-effective amendment disclosing any “fundamental” change in the information set forth in the original registration statement. • WKSI can “check-the-box” automatic shelf-registration on S-3s – thus seamlessly sell any class of securities, “off the shelf” |
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Well-Known Seasoned Issuer (WKSI)
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• Rule 405
• S-3 eligible • Public worldwide equity float of $700million unaffiliated, voting or non-voting equity securities • OR - $1 billion SEC-registered non-convertible securities issued over last three years |
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Seasoned Issuer
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• Not defined in statute or rules, term of practice
• S-3 Eligible but not large enough to be WKSI |
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Unseasoned Issuer
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• Not defined in statute or rules, term of practice
• Required to file periodic ’34 Act reports, but not qualified to file on S-3 |
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Non-Reporting Issuer
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• Not defined in statute or rules, term of practice
• Not required to file reports pursuant to § 13 or § 15(d) of Exchange Act |
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Large Accelerated Filers
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• Defined in Rule 12b-2
• At least $700 million market cap • 10-K Deadline: 60 days after end of fiscal year • 10-Q Deadline: 40 Days after water end |
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Accelerated Filers
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• Defined in Rule 12b-2
• Between $75 and $700 million market cap • 10-K Deadline: 75 days after fiscal year end • 10-Q Deadline: 40 days after quarter end |
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Non-Accelerated Filers
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• Defined in Rule 12b-2
• Less than $75 million market cap • 10-K Deadline: 90 days after fiscal year end • 10-Q Deadline: 45 days after quarter end |
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§ 10(b) (’34 Act)
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• Unlawful to use devices that are manipulative & deceptive (or violate SEC rules) with purchase or sale of any security,
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§ 12(g) (’34 Act)
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• 500 Holder rule –
• register within 120 days from end of fiscal year |
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§ 12(h) (’34 Act)
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• Grants Broad, exemptive authority to SEC (from § 12(g) requirements)
• Rule 12g-1 – raises $1 million limit to $10 million • Rule 12g5-1(a)(3): trustees count as a single holder • Rule 12g5-1(b)(3): anti-evasion rule (“primarily designed to evade . . .”) |
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§ 13(a) (’34 Act)
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• Every issuer of registered securities shall file with SEC periodical and other reports
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§ 13(b)(1),(2) (’34 Act)
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• SEC may prescribe books and records requirements (for keeping & for filing)
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§ 15(d) (’34 Act)
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• Registrants Under the ’33 Act are Subject to § 13 (’34 Act) (reporting requirements) as though they were registered under § 12 (’34 Act)
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Rule 10b-5
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• Unlawful to defraud,
• to make any untrue statement of a material fact • or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading • . . . in connection with the purchase or sale of any security. |
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Rule 12b-2
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• Definitions: Accelerated Filer and Large Accelerated Filer
• Accelerated Filer: o Aggregate worldwide market value of voting and non-voting common equity held by its non-affiliates of $75 million or more, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter o Subject to requirements of § 13(a) or 15(d) for at least twelve calendar months o Filed at least one annual report pursuant to 13(a) or 15(d) • Large Accelerated Filer: o Aggregate worldwide market value of voting and nonvoting common equity held by its non affiliates of $700 million or more o Subject to requirements of § 13(a) or 15(d) for at least twelve calendar months o Filed at least one annual report pursuant to 13(a) or 15(d) |
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Rule 12g-1
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• Exemption from § 12(g)(1) registration requirements if issuer had total assets not exceeding $10 million on last day of most recent fiscal year.
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Rule 12g5-1(a)(2),(3)
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• Definitions of Securities “Held of Record”
o Each person who holds securities o Securities held by a corporation, partnership, trust o Securities held by one or more persons as trustees, executors, guardians, custodians, or in other fiduciary capacities with respect to a single trust |
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Rule 12g5-1(b)(3)
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• Anti-Evasion Rule
• If the issuer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of § 12(g) or 15(d) of the Act, the beneficial owners of such securities shall be deemed to be the record owners thereof |
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Rule 15c2-8 (a)(b)(c)
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• Delivery of Prospectus
• Deceptive practice for broker or dealer (including underwriters) to participate in a distribution unless: o (1) Deliver a copy of the preliminary prospectus to any person who is expected to receive a confirmation of sale at least 48 hours prior to the sending of such confirmation. (must also give others prospectus on request). |
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Legal Responses to 500 Holder Rule:
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• Facebook’s no-action letter:
o Issued RSU to employees (NOT options!). These convert to common stock 180 days after IPO. Cannot be sold/transferred. SEC said these don’t count towards 500 limit b/c they’re not transferable and thus can’t lead to trading. • When issuing stocks, companies reserve repurchase rights / right of first refusal o Might not be best use of company $ • High transaction fees (ex: Zynga charges $6,000 per stock transfer) • Reverse Stock split (again, potentially sub-optimal use of cash) |
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Goals of Underwriting:
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• Identifying demand curve
• Optimize price |
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Pre-Filing Period
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• 30 day safe harbor
• No offers or sales without registration statement on file • No Sales or deliveries unless a registration statement is in effect • Ends with Filing Date |
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Waiting Period
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• Free writing prospectus (FWP)
• Road Shows • Oral Offers • Tombstones • Preliminary prospectus o Must be distributed prior to sale (required by SEC rule, not statute) • Underwriters “build the book” • SEC Comments & Filer responses. Possible “stickering” and recirculation of prospectus. • Ends with Effective Date |
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Waiting Period – Why are Oral Offers Possible?
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• § 5(c) no longer applies
• § 5(a) and 5(b)(2) don’t prohibit offers • § 5(b)(1) prohibits only the use of a § 2(a)(10) prospectus, does not use the phrase “or otherwise.” • § 2(a)(10) does not cover oral statements |
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Post-Effective Period:
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• Sales permitted
• Prospectus delivery prior to or contemporaneous to delivery of securities to purchaser o Now, Access = Delivery • Documents accompanying such a § 10(a) Prospectus are deemed not to be a Prospectus • Transactions become final, $ exchanged, T+3 o Transactions can be canceled if a material disclosure issue arises within T+3 (ex: CEO dies) |
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Five Definitions of “Prospectus”
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• § 2(a)(10) Prospectus and the “interactive communication” theory
• § 10(b) Prospectus = Omitting Prospectus = Preliminary Prospectus = Rule 430 Prospectus = Red Herring o Used during waiting period as primary selling document – o Must be delivered to anticipated purchasers prior to effectiveness • § 10(a) Prospectus = Statutory Prospectus. o Cannot exist prior to effectiveness o Must be used after effectiveness • Free Writing Prospectus – innovation, expanded on by 2005 Amendments • Rule 431 Summary Prospectus – not available for IPO |
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Preliminary Prospectus
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• § 10(b) authorizes “omitting prospectus” to meet requirements of § 5(b)(1) during waiting period (Rule 430 gives details)
• Statute doesn’t mandate distribution, but SEC regulations do require o Rule 15c2-8 & Rule 460 • Must be substantially equivalent “friggin identical” to 10(a) prospectus. Only omit info contingent on pricing and distribution • Item 501(b)(3) of Reg. S-K requires that this must contain bona-fide estimate of the price range and offering size o $2.00 / share when max price is $20.00 / share or less o 10% of low end of price range if above $20.00 / share |
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Rule 430
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• Prospectus for Use Prior to Effective Date (= “red herring” etc.)
• contains substantially the information required by the Act and the rules and regulations thereunder . . . |
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Rule 430 A
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• Converts the omitting prospectus into a final form prospectus by inserting the omitted information within two business days
• “relates back” for purposes of § 11 liability |
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Rule 431(a)(2)
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• Summary Prospectus
• A summary prospectus prepared and filed . . . as part of a registration statement in accordance with this section shall be deemed to be a prospectus permitted under § 10(b) of the Act for the purposes of § 5(b)(1) of the Act if the form used for registration of the securities to be offered provides for the use of a summary prospectus and the following conditions are met: o Registrant has a class of securities registered pursuant to section 12(b) of the (’34 Act) or is required to file reports pursuant to § 15(d) of that Act o Reporting for at least thirty-six calendar months o Neither the registrant nor any of its consolidated or unconsolidated subsidiaries has: • Failed to pay any dividend or sinking fund installment on preferred stock • Defaulted on any installment or installments on indebtedness for borrowed money • Shall not include any information the substance of which is not contained in the registration statement • May be expressed in condensed or summarized form • Set forth conspicuously that “copies of a more complete prospectus may be obtained from” |
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Rule 424(b)(1)
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• Provides for submission of omitted information (from Red Herring) within two business days of pricing
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Waiting Period FWP
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• Allows updated information without re-circulating a revised preliminary prospectus
• Cannot contradict filed prospectus • Cannot be materially misleading • Must contain Legend: “offering by prospectus only” and must be retained for 3-years or filed with SEC • Subject to anti-fraud liability, but not § 11 • Problem to be Solved: w/o this, any new document could need to be included in a revised Registration, causing delays and Google-Playboy type problems. • Rule 164: FWP that satisfies these conditions is deemed a “prospectus” under § 10(b), thus permitting its use during waiting period (see § 5(b)(1)) • Non-Reporting / IPO FWP: Must be accompanied / preceded by prelim prospectus w/ pricing info (can be hyper linked) (Rule 433) • WKSI FWP: Seasoned issuers & WKSIs don’t need accompany prospectus (Rule 433) |
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Post-Effective FWP
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• § 2(a)(10)(a) (’33 Act) – Excludes from definition of “offer”:
o writings / advertisements / offers, provided they are accompanied or preceded by a final prospectus |
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Rule 134
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• Waiting Period Tombstone:
• pursuant to definition of §2(a)(10) prospectus • Mention of underwriter now permitted – this is way to direct ppl to Red Herring • Notice must be provided as to where & how to obtain a prospectus • Deems communication not to be a prospectus (why?) |
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Rule 135
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• Pre-Filing Tombstone
• No creativity allowed • Allows mention of offer and is thereby distinguished from Rules 163A & 169 • No mention of underwriter. • Deems communication not to be an offer (why?) |
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“Tandy” Language:
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• As a condition of effectiveness, the company must affirm that:
• SEC is not foreclosed from taking action w/ respect to the S-1 • Company remains responsible for accuracy of the S-1 • SEC’s comments and grant of effectiveness may not be asserted as a defense in any proceeding |
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Roadshows:
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• Distribute preliminary prospectus
• FWPs can also be distributed • Don’t distribute any other literature o It either needs to be filed with SEC as FWP o OR is a violation b/c it contains info not in Red Herring • Presentations can create liability for fraud, but not under § 11 (why?) • Can amplify / explain prospectus – no new info! |
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Green Shoe Option:
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• Gives underwriters right to buy up to an additional 15% of offering at offering price for 30 days
• Related to “stabilization activity” by underwriter • In today’s markets, most well-managed IPOs trade above IPO price, so effectively becomes mechanism for increasing offering size by up to 15% |
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Penalties for Violation of Gun-Jumping Rules:
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• Delay in registration or effectiveness
• Incorporation of material in registration statement to generate liability under § 11 • Drop underwriter, if underwriter was responsible • Injunction or stop order |
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Quiet Period:
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• All company-related communication subject to SEC scrutiny/regulation
• No set beginning. In practice, at latest starts @ organizational meeting, and possibly as early as the date on which the “mandate” is given to a lead managing underwriter • Ends 25 days after later of effectiveness or first date on which securities are offered • “Quiet rules” differ during pre-filing, waiting, and post-effective periods |
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Pre-Filing Safe Harbors:
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• Rule 163A: All issuers have “30 day pre-filing” safe harbor subject to conditions
• Rule 169: All issuers have a safe harbor for factual disclosures unrelated to the offering or to offering terms and conditions • Rule 168: (only for reporting issuers) – safe harbor for release of forward-looking info, subject to conditions • Rule 163: (only for WKSIs). Conditional but very broad exemption from § 5(c) • Safe Harbors non-exclusive |
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Rule 163A
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• Pre-filing safe harbor
• Communications must be more than 30 days prior to filing o If you violate this, prudent to allow “cooling off period” • Communication must be by or on behalf of company, not the underwriter or other IPO participants (Underwriter has no incentive to communicate except impermissible market conditioning) • No Reference to IPO • Company takes reasonable steps to prevent re-transmission during period from 30 days prior to filing through to end of quiet period (effectiveness + 25 days) |
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Rule 169
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• Pre-filing safe harbor
• Companies can continue to distribute ordinary course business info during quiet period • Info must be: o Factual about company, products, services o Intended for use of customers or suppliers, not investors o Not related to forward looking statements o Type regularly released & in ordinary course / channels (no sudden moves) o No released in connection with or related to IPO |
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Rule 168
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• Pre-filing safe harbor – Communication of Factual Business Information
• Applies only to issuers “required to file reports pursuant to § 13 or § 15(d) • Broader def of factual information o Permits forward-looking info • Says this info won’t be considered an “offer” under § 2(a)(10) or § 5(c) • Underwriter communications prohibited |
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Rule 163
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• Pre-filing safe harbor - WKSI 5(c) Exemption
• Can make oral offers and written offers that: o (1) contain a legend directing people the prospectus and o (2) are filed with SEC • Defines such communication as a FWP (under Rule 405) and a prospectus (under 2(a)(10)) • Immaterial, unintentional failure + good faith corrective measures – OK • Underwriter statements excluded |
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Rule 460
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• As a condition of acceleration, issuer must make available to underwriters as many copies of the preliminary prospectus as reasonable to assure adequate distribution
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Rule 461
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• Acceleration of Effective Date
• English requirements of Rule 421(d). • Insurance is not a bar to acceleration (but indemnification is!) |
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Rule 473
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• Provides language to include in prospectus that says that it will continually be considered to be an amendment for purpose of § 8 twenty-day delay, until registration shall become effective on such date as the Commission . . . may determine.
• Stop orders to deal with wise-guys |
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Reg S-K, Item 512(h)
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• Request for Acceleration
o Must disclose indemnification agreements o SEC advises that such are against the public interest and will fight them in court |
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Reg S-K Item 512(h)(1)
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• Request for Acceleration
• Incorporation into Registration Statement as of Date of Effectiveness (of any information omitted from prospectus @ this time) |
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Rule 15(c) 2-8
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• It is a deceptive act for an underwriter to participate in a distribution of an IPO unless a current preliminary prospectus is sent at least two days prior to sending a confirmation, to any person expected to receive a confirmation
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Final Prospectus Delivery Requirement:
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• § 5(b)(1) + § 10(b) permits use of the preliminary prospectus during waiting period, but this can’t be used post-effectiveness
• Rule 10b-10 requires that broker-dealers transmit written confirmations after effectiveness, but a confirmation is a prospectus under § 2(a)(10). (Why?) • Does Rule 10b-10 require violation of §5(b)? • Solution: § 2(a)(10)(a) excludes from definition of “prospectus” all communications that are accompanied or preceded by a final § 10(a) prospectus. A confirm must therefore be accompanied or preceded by a final prospectus. |
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Rule 10b-10
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• Requires that broker-dealers transmit written confirmations after effectiveness
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Rule 172
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• Allows delivery of confirmation, without violating § 5(b)(1),(2) prospectus requirements
• Post-effective period only. • For confirmations & deliveries, access = prospectus delivery • Confirmation must include information required by Rule 10b-10 • Confirmation may include Rule 173 notice and incidental information about offering • Provided no pending SEC proceeding |
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Rule 173
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• Requires that the dealer provide a notice that the sale was pursuant to a registration statement or provide a copy of the final prospectus
• Significant of this provision is primarily in follow-on offerings. Why? o Answer: Because this tells people whether they bought shares directly from the issuer (and thus can make § 11 claims) or whether they bought them from another party. |
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Rule 147
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• Series of 80% tests for § 3(a)(11) intrastate exemption, requiring that offering, investors, HQ, profits(?), must be in same state
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Ralston Purina
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• Interpreting § 4(2)
• Test: is offering to people who can “fend for themselves?” o Burden to show this on party claiming the exemption • Rejects SEC position that there is a numerical maximum # of offerees, beyond which an offering must be public o Information access is necessary but not sufficient condition o Courts unclear about additional necessary conditions o No direct reference to bucks (just brains). But, practically, good to use bucks test anyway. |
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Why Reg. D?
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• Provides very clear rules for establishing safe harbor for potential § 5 violations
• Can be useful for failed effort to comply with vague language of § 4(2) as interpreted in Ralston Purina |
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Reg D – Basics:
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• No antifraud exemption
• No exclusive election (i.e. can blow this and shoot for other exemption) • Issuers only! |
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Rule 502(a)
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• Integration
• Within 6 months (forward / backward) o Apply 5-factor balancing test to determine whether offers or sales during this period should be integrated. • Beyond 6 months (forward / backward) o Safe harbor – offers & sales will not be integrated |
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Rule 502(b)
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• Information requirements (about company)
• Triggered only if there are sales to non-accredited investors • If information is provided to them, should be provided to all • For non-reporting companies - amount of info varies w/ size of company |
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Rule 502(c)
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• No solicitation or advertising
• Thus, must generally rely on pre-existing client relationships • Note: doesn’t apply for Rule 504 |
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502(d)
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• Resale Restrictions
• Reasonable care to assure no distribution o Legends on certificates o Contracts promising not to re-sell o Reasonable inquiry as to intentions • Doesn’t apply for Rule 504 |
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Rule 504
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• Based on § 3(b) – Thus, Ralston Purina doesn’t apply
• Offers up to $1 million o Net of all §3(b) offerings (12-month lookback), plus botched other offerings • Unlimited number of investors • No general solicitation unless o (i) registered under state law requiring public filing and delivery of a disclosure document before sale) –OR– o (ii) securities are offered and sold exclusively under a state law exemption that permits solicitations, so long as sales are made only to accredited investors • No Rule 502(b) information requirement |
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Rule 505
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• Based on § 3(b) – Thus, Ralston Purina doesn’t apply
• Offers up to $5 million o Net of all §3(b) offerings (12-month lookback), plus botched other offerings • Unlimited # of accredited investors o But remember § 12(g) • Up to 35 purchasers who can fend for themselves only w/ aid of representative o But, disclosures need to be made to these ppl, and if made to them, then should be made to all participants. • No general solicitation • Restricted Resale |
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Rule 506
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• Based on § 4(2)
• Unlimited $ amount • Unlimited # of accredited investors • Up to 35 purchasers who can fend for themselves only w/ aid of representative o But, disclosures need to be made to these ppl, and if made to them, then should be made to all participants. • No general solicitation • Restricted resale |
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Rule 501(e)
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• Calculation of # of investors (doesn’t count “accredited investors”)
• What provision defines accredited investor? |
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Rule 501(a)
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• Definition of an accredited investor:
o Any director, executive officer, or general partner of the issuer o Any person with net worth in excess of $1 million (but Dodd-Frank proposes to remove counting of house worth) o Two-married associates rule o Any entity in which all of the equity owners are accredited. |
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Rule 501(h)
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• Definition of purchaser-representative (“rent-a-brain”)
• Can’t be affiliate of the issuer, unless representative is also a relative of the investor “not more remote than a first cousin” of the purchaser. • Sufficiently knowledgeable to be able to evaluate the investment • Purchaser must acknowledge representative’s status in writing • Representative must disclose in writing any compensation to be received for participating in the placement |
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Form D
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• Required for issuers relying on Reg. D
• Minimal disclosure requirements – names & addresses of execs and stock promoters • Some issuers don’t file a Form D in order to preserve confidentiality |
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Rule 508
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• Insignificant deviations
• If failure to comply: o (1) Failure to comply did not pertain to a term, condition, or requirement directly intended to protect that particular individual or entity o (2) Is insignificant to the offering as a whole o (3) Occurs notwithstanding a good faith & reasonable attempt at compliance o (4) does not relate to: • General solicitation • $ cap • # Investors Cap • Exemption only from private liability – SEC can still bring enforcement action. |
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Rule 701
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• Available only to non-filers
• Only for grants to employees, directors, officers, consultants and advisors • Aggregate sales during any 12-month period ≤ Max: o $1 million o 15% assets o 15% class of securities sold • 701 (e) Information Disclosure: balance sheet, income statements of businesses acquired or to be acquired. • 701(f) – no integration with other 504-506 offerings • 701(g) – resale restrictions apply |
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Distribution
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• The entire process by which in the course of a public offering the block of securities is dispersed and ultimately comes to rest in the hands of the investing public – Ira Haupt
• An offering to those who are shown to be able to fend for themselves is a transaction “not involving any public offering” – Ralston Purina |
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§ 4(1½) - Generally
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• If restricted or control securities are resold in a sufficiently careful § 4(2)-style transaction, then there is no public offering, or distribution, and the participants are not underwriters
• (absent a distribution, there can be no underwriter status) • Strongly supported by SEC no-action letters. No formal rules though. • Generally used by firms without registered securities |
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§ 4 (1½) - Practicalities
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• Because no formal statute/rules, good to be conservative
• Purchasers should have both brains & bucks • Minimize # of purchasers • Good to have investment letters & resale restrictions (even though these may not be mandatory as a technical matter – why?) |
