Govt. Regulation of Bus: Fed. Securities Regulation Flashcards
(33 cards)
Affirmative defenses to actions under the bribery provisions of the Foreign Corrupt Practices Act include:
(1) the payments or gifts which were lawful under foreign laws
(2) the payments were a reasonable and bona fide expenditure, and was directly related to the promotion, demonstration, or explanation of products or services; or the execution or performance of a contract with a foreign government or agency thereof
Regulation FD (Full Disclosure)
- requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large.
- In the case of an unintentional disclosure of material non-public information to one person, the company must make a public disclosure (in the form of an 8-K filed w/SEC) “promptly.”
Section 401 of the Sarbanes-Oxley Act requires that:
- F/S published by issuers does not contain incorrect statements or omit material information.
- Each annual and quarterly financial report must disclose all material off-balance sheet transactions and “other relationships” with “unconsolidated entities” .
Section 302 of SOX requires that:
- A CEO or CFO must disclose internal audit deficiencies to the company’s auditors or audit committee;
- Mgmt. must evaluate any changes in internal control methods;
- AND the company’s attorneys must report securities laws violations and breaches of fiduciary duties to the CEO, not the SEC.
Whoever certifies any statement knowing that the periodic report accompanying the statement does not comport with all the requirements as set forth in Sarbanes-Oxley may be fined up to _________ or imprisoned up to _______ years, or both.
$1,000,000 or 10 years.
Willful violations of SOX may result in fines of up to __________ and imprisonment up to ____ years, or both.
- $5,000,000 or 20 years
- The CEO and CFO may also be required to return bonuses or share-based compensation received int he twelve-month period before any restatement due to material omissions in the financials takes place.
Does SOX Section 404 require that the auditor’s evaluation may not be the basis for increased charges or fees?
No.
Under SOX, each periodic report must be accompanied w/statement from…
- CFO or CEO, not of all officers, that the reports fairly represent the financial condition of the company.
- This is referred to as Section 906 certification.
Does SOX require the mailing of CEO/CFO report to shareholders?
No.
Can willful violations of SOX result in civil or criminal penalties?
Can result in both.
SOX Section 409- Real Time Information Disclosure- requires that…
- issuers disclose to the public, on an urgent basis, information on material changes in their financial condition or operations.
- These disclosures are to be presented in terms that are easy to understand, and may include graphic presentations if appropriate.
- Real time disclosures might also be supported by disclosures of trends and by qualitative information.
For liability to be incurred under the 1933 Securities Act three things must be established:
- misstatement or omission of a fact,
2. materiality of the fact, 3. and damages resulted.
The majority of securities regulations including both federal securities regulations and so-called State “blue sky” laws, are aimed at:
- the fair and full disclosure of all material information relating to the markets and to specific securities transactions,
- F/R by public companies.
Rule 10b-5, and Section 10b
anti-fraud provisions of the Securities Exchange Act of 1934.
Rules adopted pursuant to Section 10b of the ‘34 Act
insider trading and market manipulation rules.
Rule 506 of Regulation D
- Under this particular rule an unlimited amount of money can be raised by a company.
- The company may sell its securities to an unlimited number of “accredited investors” and up to 35 other purchasers.
- Considered a “safe harbor” for the private offering exemption of Section 4(2) of the Securities Act.
Rule 505 of Regulation D
all non-accredited investors, either alone or with a purchaser representative, must be sophisticated
sophisticated investors
have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.
insider
officer or director of an issuer, or an individual with at least 10% “beneficial” ownership of the issuers equity securities (so debt securities are not relevant here).
Beneficial ownership includes…
equity securities owned by an individual; the individual’s spouse, minor children, and in-residence relatives; and any trust that benefits the individual are included.
Asides from officers/directors, insiders can also include the following…
The anti-fraud provisions of the act expand the definition of an insider to include:
- lawyers,
- accountants,
- certain employees of an issuer,
- agents,
- or any other individuals or entities with a fiduciary duty to the issuer.
statute of limitations under the 1933 Act
- The statute of limitations under the 1933 Act is the earlier of two years after discovery of the fraud or five years after the initial violation occurred.
- The statute of limitations for securities fraud was established by
SOX.
Rule 504 of Regulation D
A sale of securities of up to $1,000,000 in a twelve-month period is eligible for exemption under Rule 504 of Regulation D if:
1) General offerings to an unlimited number of investors are permitted the investors are “accredited” (such as investment firms, financial institutions, and knowledgeable high net worth individuals)
2) AND, the issuer sends notice within the first fifteen days of the sale to the SEC. There are no specific disclosure requirements for such offerings, nor are there limitations on resale of the securities. Such offerings are also known as “seed capital”, and the exemption is called the seed capital exemption.
When can the SEC bar an individual from practice?
The SEC may bar an individual from practice before that body for any conviction that involves moral turpitude (conduct against society’s standards of conduct or morals).
