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Flashcards in Federal Securities Acts Deck (34):

What are the key points of the 1933 Securities Act?

Governs Initial Public Offerings (not subsequent sales). Covers registration statements and accompanying information filed with SEC. Information must include audited financial statements & a prospectus. Note: Even if a company is exempt from registering under the 1934 Act; they still must adhere to the anti-fraud provisions of the Act


What entities are exempt from filing registration statements under the 1933 Securities Act?

Banks; Commercial Paper; Farmers; Co-ops; Charities; Governments

Also exempt: Securities sold in ONE state; where investors are residents; 80% of business done in one state; and resales can't occur within 9 months to interstate parties.


What are the key points of the 1933 Securities Act; Regulation A?

Issuer can issue $50M of securities per year and be exempt if they file a notice with the SEC

Non-issuers (AKA a private individual) can sell $1.5M per year and be exempt

The offerees have no restrictions on resale

The issuer must file an offering circular with the SEC


Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?

Rule 504- Max Amount per year: $1M; Max Investors: Unlimited

Rule 505 - Max Amount per year: $5M; Max Investors: 35 Unaccredited or Unlimited Accredited

Rule 506 - Max Amount per year: Unlimited; Same as 505; but Unaccredited investors must be sophisticated


What are the registration form options under the 1933 Securities Act?

S-1 - Long Form or

S-2 and S-3 - Less Detailed and preferred by issuers


Name the securities registered under the Securities Act of 1933.

Stock Options
Stock Warrants
Limited Partnership Interests - General Partnerships not allowed


Who can sue under the Securities Act of 1933?

Purchasers of securities only


Name the Requirements for Accountant to be liable under the Securities Act of 1933.

Damages & Material Misstatements Only

o Reliance on financial statements are not a requirement unless purchased more than a year after the security is registered

Proving negligence is not a requirement


Name the Defenses of an Accountant under the Securities Act of 1933.

Accountant used Due Diligence

Accountant followed GAAP

Damages weren't caused by accountant's work

Plaintiff knew of the material misstatements


What does the Securities Act of 1934 govern?

The trading/selling of securities after the IPO


What reports must be filed under the Securities Act of 1934?

Form 10-K Annual Report - Must be audited

Form 10-Q Quarterly Report - Must be reviewed; but not audited

Form 8-K - A notice of a material event; Must be filed within 4 days of event


Who can sue under the Securities Act of 1934?

Purchases and Sellers of Securities


Name the Requirements for an Accountant to be liable for fraud under the Securities Act of 1934.


Material Misstatements

Reliance on financial statements

Scienter or reckless disregard for the truth


What procedures must an Accountant have in place under the Securities Act of 1934?

Accountant must have procedures in place to:
Determine if Going Concern is an issue
Determine if any material related party transactions occurred

Determine if material illegal acts occurred


Insider trading rules under the Securities Act of 1934 apply to which individuals?

Officers; Directors and 10% Owners


What are the Proxy Solicitation Requirements under the Securities Act of 1934?

Proxy must give shareholders audited balance sheets from 2 most recent years

o Requirement holds true even if one class of stock


What is considered a security?

1. investments contracts
2. convertible debentures
3. nonconvertible debentures

NOT certificates of deposit


Short-Swing Profit

These are profit made by the purchase and sale of a security within a 6-mo period. Insiders cannot keep short-swing profits.


What is a Tender Offer?

An offer to buy (own) shares of a company. Usually, the tender offer is part of an effort to gain control of a company and is made to existing shareholders. The tender offer may contain conditions regarding the offer. A typical condition is that at least 50% of the shareholders must accept the offer before the shares will be purchased.


What is a Tippee?

It is a person to whom material public information, called a tip, is transmitted. if the tippee uses the information to buy or sell securities, the tippee is liable under SEC Rule 10b-5.


On what date may a company first make oral offers to sell the shares?

On the registration date with the SEC. Registration doesnt become effective until after 20 days (# of days the SEC has to review). Once effective, securities can be sold.


What is an offering circular?

It is a legal document describing and offering a security for sale. Compared to a prospectus, the offering circular is less detailed and unaudited. An offering circular is filed with the SEC before issuance of the securities and is used with low-dollar Reg A issues. The offering circular must be given to all offerees of the security.


SEC Rule 415 - Shelf Registration

The original registration must be kept updated with the SEC periodically.


What does Social Security (FICA) include as compensation?

- earnings from wages and salary
- vacation pay and dismissal pay
- bonuses, commissions, and prizes


What does Social Security (FICA) NOT include as compensation?

- expenses reimbursed
- fringe benefits paid by employers (hospitalization, group life insurance, pension payments)


What are the elements of an independent contractor relationship?

- control of the job by the employer
- amount of supervision by the employer
- who provides the tools
- term or length of employment
- payment method for the service
- skill level of the contractor


An employer is obligated to pay FUTA when:

1 - paid wages of $1,500 or more in any calendar quarter
2 - had 1 or more employees for any 20 calendar weeks (whether permanent or FT employees or not)


What does the workers compensation system state?

Because it is a strict liability (no fault) system, a worker injured on the job is entitled to recover compensation from the employer even if the injury cannot be attributed to any negligence on the part of the employer and even if the worker or a coworker was contributorily negligent.


What is the purpose of workers compensation laws?

a. to protect employees and family from the risks of financial loss as a result of accidental injury, death, disease, or disability resulting from employment
b. to correct the problems of the common law tort liability system
c. to provide an employee's exclusive remedy against the employer for covered injuries.


What authority does OSHA have?

It has statutory authority to establish standards of safety for exposure to health hazards. It may require training in safety techniques. OSHA can only inspect at the request of the employees. Employers can require a warrant.

It is NOT authorized to develop safety equipment - this is the function of private industry.


Discrimination against age is allowed only when?

individual has reached the age of 40


What is constituted a disability?

alcohol abuse

Using drugs is not a disability


What authority does the EPA have?

- to enforce compliance with its standards
- can order a party to clean up a site

Responsible of identifying US sites where hazardous waste has been disposed of, stored, abandoned or spilled.


Under the EPA, who, by definition, is responsible party in a spill?

1. present owner or operator of site
2. owner or operator at time of disposal
3. persons who arranged for disposal
4. any person who transported the substance