Federal Securities Regs- Section 12 Flashcards Preview

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Flashcards in Federal Securities Regs- Section 12 Deck (28):

1933 federal securities

Truth in securities act

Concerned with origins issuance of securities

To ensure sufficient info is available to potential investors

One can’t sell securities unless they are registered with the SEC

Need a prospectus and a purpose.


1934 act - SEC

Provide ongoing reporting requirements and focuses on secondary offerings of securities and regulates purchases and sales after initial issuance

S-1 Registration and reporting requirements apply:
Listed or traded on a national exchange
At least 10M in assets and 2k shareholders .500 if non accredited. Employee shares not included .

Required disclosures: names of officers and directors, nature of business, financial structure a firm, any bonuses and profit-sharing provisions.

2/3 require less details



Administering federal securities laws

Regulating brokers


De listing not in compliance with sox



Investment in an enterprise where the investor intends to make a profit through the managerial efforts of others rather than through his own efforts. Like common stock, perfect stock, treasury stock, bonds, Debentures, options, warrants, Some notes, limited but not general partnership interest.All investment contracts and collateral trust certificates does it include certificates of deposit



Who written offer must be available to investors before with every sale summarizes the info in part 2. historical company information is. Discusses the risks involved.

During waiting period a preliminary prospectus can be given. Red herring.


Registration statement

Basic info names addresses and amounts of securities held by directors, officers, underwriters and shareholders with at least 10% of the stock
Intended use of the proceeds. Companies debt. Companies operating history and pending litigation

Financial information: audited balance sheet, not more than 90 days old. Audit profit and loss statements, for previous five years.


Tombstone ads

After securities complete with sec on effective day these can be placed announcing how to acquire a prospectus

Announces availability of a prospectus on the potential investment, not itself considered an offer to sell


Shelf registration

For companies that issue securities to the public on a continuous basis, like mutual funds. Requires the company to periodically update the prospectus, but allows sales and resells to be continuous for an indefinite period of time. Not for first time users


Blue sky laws

Most states have adopted their own securities loss such as these. They contain anti-fraud and registration provisions.Compliance with the federal laws doesn’t automatically applied compliance with the state laws


Registration statement must be filed and a prospectus made available when...


offer securities (Stocks, bonds, debentures, options, Warren, limited but not general partnerships, all investment contract.)

Public issue – large number of people that are issued where’s of securities
Issuing company
Officer, director, major shareholder >10%

-Interstate commerce between states

No other exemption is available. Two types of exceptions: exempt securities, exempt transaction


Public offers

Attempts to transfer shares from the issuing company or other knowl dgeqble insiders to outsiders who May have no special understanding about the company

If it’s an issue or sells a security and Phils to meet disclosure requirements of the 1933 act, the purchaser may request rescission of the sale


Interstate commerce

Offers that involve people in more than a single state. Offers that stay within a single state are exempt from this act



Can relate to the security being offered – exempt securities

Or the way in which the security is being offered, and exempt transaction


Jobs act


Jumpstart our business startups

And acted as a means of stimulating the economy by making it easier for business, and particularly emerging growth companies, to access the public capital markets



Emerging growth companies

Business that had revenues of less than 1 billion at the end of this most recent fiscal year

Not ECG once :
Last day of the year in which the fifth anniversary of the IPO falls
Last day of the year which annual revenues are more than 1 billion or a equal
Date on which an entity has issued more than 1 billion and non-convertible debt in the previous three year period
Date on which entity is considered to be a large accelerated filer greater equal $700 million market value of securities outstanding
When the company has more than 2000 shareholders, 500 if not accredited

Exempt from certain rules that deter other companies when going public
-required to provide two years not five years of audited financial statements with its IPO registration statement
-not required to give earlier info before earliest audited financial statement
-Can solicit qualified institutional buyers and accredited investors before public and before filing registration statement to SEC

Stockholders don’t have a say on pay vote related to check it out compensation
Reduced executive compensation disclosure requirement

can use latter effective date applicable to non-public entities for new financial accounting standards
Auditor doesn’t need to attest to management assessment of internal control Over a financial reporting


1933 exemption


Sec 3 Certain Securities that are exempt
Sec 4-Certain transactions that are exempt

Regulation A- small public offerings less or equal 50M over 12m; 20 day notice/waiting period ; offering circular; can advertise/resell

Commercial paper- Notes and bonds that mature in less or equal nine months and used for commercial purposes not investing
– Casual sales by other than issuer underwriter dealer
– Crowdfunding less or equal 1,000,000 over12 months sold through online
– Intrastate offerings: 80% or exclusive to state of incorporation and principal place of business, buyers can’t resell outside the state for nine months
– Regulation D: private placement offerings rule 504 less or equal 5m; rule 506=unlimited
– Brokerage transactions
– Regulated industries: savings and loans
-agencies of the government: railroads, municipal bonds
- insurance contracts/policies:Stock issued by insurance companies isn’t exempt
-Not for profit
-Stock dividends/split: exchanges with existing holders, as long as no commission is paid


Offering circular

Mini registration statement that contains the information about the company less expensive than a prospectus


Tier 1 and tier 2

One Dash up to 20 million, unaudited financial statements required

2-Up to 50,000,000 audited statements required non-accredited investors limited to 10% of annual income or net worth, if greater


Regulation crowd funding

Limits on individual investors per 12 month. If nothing network is Lestina hundred thousand they can invest the greater of $2000 or 5% of annual income

If greater than 100,000 they can invest up to 10% of annual income.
Securities cannot be resold for one year
If invest up to 100,000 federal income tax return info and the financial statement certified by principal executive officer are required
If 100,000 to 500,000 financial statements need to be reviewed
If 500,000 to 1,000,000 financial statements need to be audited if it’s the first time under regulation crowdfunding then need to be reviewed


Other minor exemptions occasionally mentioned on exam

Sales of government securities, issues is by companies that are already being regulated by federal agency such as banks and railroad

Insurance policies, fundraising by nonprofit, short term loans repaid within nine months, exchanges of securities with existing shareholders at no charge like stocks quits and diffidence


Regulation D exemption private placement 504 506

To simplify the sale of securities too sophisticated and accredited investors. Accredited investors including banks, saving loans, credit unions, ET see. Wealthy individuals that were exceeding 1 million or net income of 200,000 single 300,000 married for the two most recent years


Raul 504

Offerings up to 5 million to be completed within 12 months. SEC notified within 15 days of for sale. No advertising or solicitation allowed. Restricted securities, resale permit it after one year. No special info for investors. Unlimited number of investors. Accredited or non-accredited. Companies can’t use exemption if already required to report under 1934 act


Rule 506

Unlimited asked to dollar value in time. SEC notified within 15 days of for sale. Solicitation and advertising allowed as long as sales are two accredited investors. No resell for one year. Unlimited number. 35 or a few non-accredited investors. Audited balance sheet. Can use if required to report under 1934


Periodic report

To be filed by the company with the SEC

Form 10 K – annual comparative audited financial statements certified by a CPA. 60 days after the end of the fiscal year for large accelerated filers, Market value of at least 700 million in equity held by non affiliates. 75 days – for accelerated filers at least 75 million in equity. 90 days covered by the report for all other registrants less than 75 million non-accelerated

10Q- quarterly an audited – review Dash info for each of the first 3/4 do within 45 days of each quarter. 40 days after the end of the fiscal quarter for accelerated and large accelerated filers

8k: Current reports due shortly after certain tea event like changing officers or directors change in control must be filed within four days of change

Proxy statement ID and objective discussion of matters to be voted on at the upcoming shareholder meeting


Tender offer

A takeover verify perspective acquire to all stockholders to tender their stock at a specified price. Person must file with a SEC. Target company doesn’t need to file


Schedule 13 D

First of 5% or more of securities must file showing source of funds used for purchase, amount of stock owned, price offered for the shares, future plans for the company – disclose to SEC, the company, and the stock exchange


Other reporting requirements

Insider trading – report every purchase on sale by directors, officers, and temper cent or greater shareholders. Profits resulting from a purchase and sale within six months – short swing profits – must be returned to the Corp.

Proxy solicitation – the right to vote someone else shares at a meeting, sent to each shareholder and notify the SEC 10 days prior to mailing

Regulation fair disclosure – if an issue were unintentionally disclose this material info to select persons. SEC requires info This closed through press release, for an 8K.If intentional Must disclose info simultaneously to general public

Liability could be suspended or revoked and civilly liable if company doesn’t meet or violates 1933 or 1934 reporting requirements.CPA can also be criminally liable for a violation

SOX Report must be a company with written statement of CEO or CFO that certifies reports comply and present the financial condition of the company. If doesn’t comply Fined 1 million and or imprisoned 10 years. Fine 5M or 20yrs for willful violation .

No personal loans to executives. Auditor and must inform of significant problems. Violation of PCAOB of the SOA treated as a violation of the securities exchange act of 1934 with its penalties


Audit report – five types of opinions

Unqualified – and modified – standard/clean report

Unqualified – unmodified with emphasis of a matter paragraph added: uncertainty, division of responsibility, emphasis of matter or other matter
Qualified opinion – except for
Disagreement – non-GAAP, in adequate disclosure, inconsistency – scope limitation
Adverse opinion – do not present fairly
Disclaimer of opinion – we do not express an opinion