Chapter 2 Continued Flashcards
Three methods of registering in state
- Notice Filing
- Coordination
- Qualification
Notice Filing
Federal Covered Securities
Still must be licensed to sell as broker-dealer or agent (unless otherwise exempt)
Mostly done for Investment Companies
Lower fees than other two methods
Administrator may require:
- Documents filed with SEC
- Documents filed as amendments to initial registration statement
- report of value of securities offered
- consent to service of process
Administrator cannot deny sale of security if there is no presence of fraud
Registration by coordination
Most common Non covered securities registration (usually OTC)
May be done if a registration statement has been filed under 1933 act
Must supply-
Latest prospectus
Copy of articles of incorp, underwriting agreement
Any other information required under 1933 if requested
Amendment to prospectus
Becomes effective at same time as federal as long as:
No stop orders or proceedings pending
On file for 10-20 days depending on state
Max/Min offering prices and underwriting discounts on file for 2 business days
Most frequently used method and most sensible form of underwriting
Registration by qualification
Supply any information required by administrator
Intrastate securities are registered this way
Must supply:
Advertising of offering
Copy of security and opinion of counsel
Audited balance sheet current as of 4 months
Becomes effective whenever administrator says so
Effective Date
Effective for 1 year for all forms of registration, not renewed on December 31st like agents and BDs
May stay in effect longer if some issues remain unsold if still being offered at original public offering price
Amount of shares sold can change after effective date, but POP and underwriter discount/commission cannot (pay an additional late fee and filing fee)
Exemptions for securities
Exemption for transactions must be established before each trade
Retain exemption in subsequent trading unless revoked by administrator (may be taken summarily or without notice)
Exempt transaction based on manner in which it is sold or because of person sale is made to
Exempt Securities
Us/Canadian gov and municipal securities
Foreign Gov securities with which US has diplomatic relations (does not include political subdivisions like US/Canada)
Depository institutions including: Bank debt Federal saving/loan associations debt Credit union debt (Must be authorized if not federally chartered)
Insurance company’s stocks and bonds (not variable contracts)
Public Utilities/Equipment trust certs by railroads
Federal covered securities
Securities issued by non profits
Cooperatives
Employee benefit plans
Certain money market instruments
Exempt securities are not exempt from anti fraud provisions of USA, while Exceptions (think fixed annuities) are
Exempt securities under USA that are not exempt federally
Foreign government securities
Insurance company securities
Federal Covered Securities
Bank holding companies listed on exchanges
Bank holding companies
Not exempt from State and Federal Law
Regulated banks securities however are
Exempt transactions
Isolated nonissuer transactions- One-on-one transaction
Unsolicited brokerage transactions- Administrator may ask client to verify
Underwriter transactions
Transaction by an executor, administrator, sheriff, marshal, receiver, trustee in Bankruptcy, guardian, or conservator transactions- does not include UGMA/UTMA’s
Institutional investor transactions
Limited offering transactions- Private placement to institutional investors and a max 10 non institutional OFFERS in a 12 month period
No commission can be paid for non institutional and no adds
(Fed restricts investors)
Exempt transactions continued
Preorganization certificates (postpones registration, required for corporate charter) is exempt if:
- no commission paid
- number of subscribers under 10
- no payment made by subscriber
Transactions with existing security holders
Nonissuer transactions by pledgees- Bank selling a pledged security
Control Transactions
Accredited investor vs institutional investors
Accredited- under rule 501 of reg d is someone with $1mm excluding net equity in primary residence
May also qualify with 200k in salary in previous 2 years and reasonable expectation in next (300k with spouse)
Only applies to federal law!!!!
Institutional- manages large amounts of money
Administrator’s power over exemptions
The administrator may deny or revoke the registration exemption of:
- Non for Profits
- Any investment contract issued in connection with an employees’ stock purchase, savings, pension, profit share or similar benefit placw.
Only 2 security exemptions may be revoked
ALL exempt transactions may be revoked
Selling to individuals
Selling to retail clients in a different state always requires registration though the security and/or transaction may be exempt
Registration Statement Info required
Amount of securities to be issued
States in which the security is to be offered (not amounts)
Adverse order or judgement concerning the offering
Anticipate effective date
Anticipated use of the proceeds
Could also be filed by a selling stockholder such as an insider making a large block sale
Registration statement
- Filing fee
- Ongoing reports
- Escrow
- Special subscription form
- Withdrawal of registration statement
- Usually a % of total offering price. Administrator may keep a portion of fee if registration is withdrawn or a stop order is issued
- Up to Quarterly information update of registration statement
- Applies to Coordination or Qualification. Occurs if:
-issued in past 3 years
-issued at a substantially different offering price
-to any person for a consideration other than cash
Issuer would have to raise a specified figure to receive the amount - Administrator may require that the issue be sold through a form specified by Administrator, and that a copy be kept for 3 years
- May only occur a year after effective date and approved by Administrator
Anti fraud provisions under the USA
Only apply to securities, but applies to all securities (exempt or nonexempt)
Fraud= criminal offense you can go to jail for
Prohibited or unethical- typically a fine
Acts considered fraud:
- employing a device or scheme
- untrue statement or omission of a material fact
- Any act, practice or course of business that operates as fraud
Prevention of fraud is state’s authority
