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Flashcards in Federal Securities Act Deck (19):


officers, directors, and owners of more than 10% of any class of an issuer's equity securities



any notice, circular, advertisement, letter or communication offering any security for sale (or merger)

may be written, radio or television communication - "plain English" rule applies for important sections

written prosepectus takes precidene over oral



Proxy statement grants authority by a shareholder to someone else to vote the shareholder's shares at a meeting - sent with proxy solicitation, must (1) indicate on whose behalf solicitation is made and (2) identify clearly and impartially each matter to be acted on.

Solicitation for Proxy must disclose all material facts concerning matters to be voted on - misstatements or omissions of material facts are violiations of proxy rules 

Proxy statements must be filed with the SEC if solicitations for proxy exist


Registration statement

(Forms S-1, shorter S-2 and S-3, SB-1 and SB-2) statement required to be filed with the SEC before the initial sale of securities can occur - if done through or affects interstate commerce.

Issuer may offer securities upon filing statement, but must wait 20 days after filing to make sale. Registration is required for each issue distribution (unless shelf registration)


1. Financial Statements

2. Names of Issuers, directors, officers, general partners, underwriters, large stockholders, counsel etc

3. Associated Risks

4. Descripton of property, business and capitalization

5. Information about management

6. Descripton of security to be sold

7. Prospectus



any debt or equity interest in a company including a note, stock, bond, certificate of interest, debenture, investment contract, etc



any person who has purchased from an issuer with a view to the public distribution of any security, or a party who participates in such an undertaking



Interprets acts, conducts investigations, adjudicates violations, performs a rule-making function to implement the acts. Does not evaluate the merits or value of securities, but compels full and fair disclosure

a. Can subpoena witnesses

b. Can obtain injuction preventing sale of securities

c. Cannot assess monetary penalties without court proceedings

d. Cannot prosecute crimnal acts


Securities Act of 1933

provides potential investors with full and fair disclosure of all material information relating to issuance of securities

1. requires registration statement to be filed with SEC before a public sale or an offer to sell in interstate commerce

2. Antifraud provisions (negligence is sometimes sufficient rather than scienter)

3. Civil Liability - Statute of limitiations: 2 years after discovery of fraud or deceit involving contravention of laws; 5 years if involving violation of securities laws

4. Criminal liability - willful violation or reckless disregard, subject to fine and imprissonment

5. Whistle-blower protection


Exempt Securities

1933 Act

1. Commercial paper with maturity of 9 months or less (commercial purpose and not investment)

2. Intrastate Issues (resales must remain instate for 9 months)

3. Small issues (Regulation A) - issuances up to $5mill in 12 month period if (a) notice filed with SEC (b) offering circular is provided (c) $1.5 mill can be sold in 12-month period

4. Securities of governments, banks, quasi governmental authorities, savings and loan ass, farmers, co-ops

5. Securities exchanged exclusively between issuer and existing shareholders (a) no commission is paid (b) both sets of securites have been issued by the same person

6. Securites of nonprofit religious, educational or charitable organizations

7. Certificates issued by receiver or trustee in bankruptcy

8. Insurance and annuity contracts

9. Smaller reporting companies: market capitalization under $75 mill, revenues under $50 mill


Exempt Trasactions

1933 Act

1. Regulation A: issuances up to $5mill in 12 month period if (a) notice filed with SEC (b) offering circular is provided (c) $1.5 mill can be sold in 12-month period

2. Sale or offer to sell by any peson other than the issuer, underwriter or dealer

3. Regulation D: requires the issuer take reasonable care to see that purchasers of exempt offerings are investors and not underwriters.

a. (Rule 504) issuance of $1mill sold in 12-month period: offerings and solicitations restricted to accredited investors (banks, insurance companies, high-worth individuals), notice of offering sent to SEC with 15 days of sale, no specific disclosure is required

b (Rule 505) issuance of up to $5mill in 12-month period: permits sales to 35 unaccredited investors or unlimited number of accreddited investors, SEC notified with 15 days of sale, restricted right to resell securities (generally 2 years), audited finanical statements must be provided to nonaccredited investors

c. (Rule 506) allows private placement of unlimted amount of securities to accreddited and up to 35 nonaccredited-sophisticated investors.

d. Postregistration by dealer transactions: if made withing 40 days of first offering or 90 days if it's the issuer's first public issuer



Accredited Investors

Banks, savins and loan associations, credit unions, insurance companies, broker dealers, certain trusts, partnerships, and corporations, also natural persons having high net worth


Securities Exchange Act of 1934

Purposes: (for interstate transaction where the corporation has more than $10 mill in assets and 500 shareholders; securities traded on national securities exchanges)

1. to federally regulate securities exchanges (any purchaser of more than 5% of a class of equity security must report to SEC)

2. to require periodic disclosure by issuers: (officers, directors, nature of business, finantial structure, bonus and profit-sharing provisions)

3. to require adequate transaction reporting

4. to prevent unfair use of insider information: insiders must file with SEC, disclose amounts owned within 10 days of any changes.

5. to prevent fraud and deceptive practices: unlawful to (a) manipulate process and create appearance of active trading and (b) to use any manipulative or deceptive devices in purchase or sale of securities

Criminal Liability: 20 - 25 years in prison, up to $25 million in fines


Jumpstart Our Business Startups Act

1. Increases threshold for registration requirements for interstate securities exchanges to corporations with more than 500 unacredited shareholders or 2,000 total shareholders

2. reduces registration and reporting requirements for emerging growth companies


Tender Offers

invitation by buyer to shareholders of targeted company to tender shares they own for sale for price specified over a period of time. reporting and disclosure requirements apply to "Tendering Company"


Short-swing profits

a coproration is entitled to recover profits from any insider who sells stock within six months of its purchase (diff between highest sale price and lowest purchase price found within 6 months)


Foregin Corrupt Practices Act

Unlawful for any domestic company (or officers) to offer foreign officials or political parties/officials something of value to influence decisions (excluding routine governmental actions such as processing applications or permits)

Requires registered companies to maintain system of internal control and accurate accounting and to protect integrity of independent audits


Regulation Fair Disclosure (Reg FD)

Requires corporations to disseminate its data equally among investors and analysists to help avoid conflicts of interest by analysts.

If inside information is mistakenly given out, it must be disclosed to the public as sson as it is practicable (withing 24 hours)



Wall Street Reform and Consumer Protection Act

Dodd-Frank Act of 2010: promotes financial stability by improving accountability and transparency in the financial system

1. Established the Financial Stability Oversight Council - charged with identifying threats to US financial system, promoting market discipline and repsonding to emerging risk (regulates non-bank financial firms)

2. requires registration and regulation of advisors, insurance companies, consumer financial products (credit counseling), derivatives (swaps) markets,

3. prohibits banking entities from engaging in proprietary trading

4. regulates executive compensation policies (claw-back rules, independence requirements for compensation commitees, shareholder votes on executive compensation and "golden parachutes")

5. requires mortgage securitizers to retain economic interest in the securitized asset they create or sell

6. reduces disclosure requirements (1933 & 1934 Acts) for smaller reporting companies (market capitalization under $75 mill, revenues under $50 mill) 



Tombstone Advertisement

informs potential investors that a prospects is available (not an offer to sell)