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Regulation > 2.1 - Securities Act of 1933 > Flashcards

2.1 - Securities Act of 1933 Flashcards

1
Q

What is an issuer?

A
  • individual / business organization initially offering a security for sale to public
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2
Q

Define underwriter

A

any person who participates in the original offering of securities from the issuer with the intention of distributing them

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3
Q

Define dealer

A

any person who is engaged in the business of offering, selling, buying, dealing or trading securities issued by another

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4
Q

What are blue sky laws?

A

securities laws of each state

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5
Q

What brought about the Securities Act of 1933?

A

The Great Depression caused by the inadequate regulation of sale of securities and rampant fraud

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6
Q

What is the purpose of the Securities Act of 1933?

HINT: 3 purposes

A
  • regulate initial offering securities by requiring registration statement with SEC prior to sale or an offer to sell a security
  • provide investors with adequate information so they can make informed investment decisions
  • Boost investor confidence and prevent fraud
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7
Q

Provide examples of securities

A
  • Notes,
  • bonds,
  • common stock, & other financial instruments
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8
Q

What are the registration requirements for the Securities Act of 1933?

A
  • Registration statement & prospectus
  • Provide complete disclosure to SEC of all material information
    • Registration statement
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9
Q

When does the filed registration statement go into effect?

A

20th day after filing

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10
Q

What does a prospectus provide?

A

provide facts to make informed investment decisions

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11
Q

What information is required in the registration statement documents required under the Securities Act of 1933?

HINT: (5) DPAAP

A
  • Description of business, property, competition
  • Provisions of the offered security
  • Audited financial statements & MD&A (management discussion & analysis)
  • Appropriate signatures
  • Purpose for which proceeds will be used
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12
Q

What other material information is required to be included in the registration statement documents?

A
  • indication of whether Accountant has changed within 2 years
  • Purpose for which proceeds will be used
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13
Q

When are securities made available for purchase?

A

Once the filed registration statement is in effect

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14
Q

What is shelf-registration under the Securities Act of 1933?

A

securities put on the shelf for up to 3 years before selling

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15
Q

What parties is shelf-registration available to?

A
  • seasoned issuers and well known seasoned issuers
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16
Q

What are the types of exemptions under the Securities Act of 1933?

A
  • Securities
    • Never require registration
  • Transactions
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17
Q

Identify the 9 types of securities that are exempt from regulation under the Securities Act of 1933

HINT: Girls should never discuss internal fights regarding certain circumstances

A
  • Governmental entities
  • Stock splits
  • Not for profits
  • Domestic banks & Savings and Loans Associations
  • Insurers (only insurance products) policy & annuity contracts
  • Federally regulated common carriers
  • Receiver / trustee in bankruptcy with court approval
  • Corporations in reorganization
  • Commercial paper
    • Maturity of not more than 9 months when issued
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18
Q

What types of transactions are exempt from regulation under the Securities Act of 1933?

A

Intrastate transactions

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19
Q

Identify the qualifications categorizing transactions as intrastate transactions?

A
  • Sales exclusively to state residents
  • No resales for 9 months
  • 80% of proceeds are used in that state (rule 147)
  • 80% of assets are allocated there and 80% of business conducted there
  • Stock splits
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20
Q

Why are intrastate transactions exempt from regulations under the Securities Act of 1933?

A
  • SEC is a federal agency & would violate the state’s right to regulate its own commerce
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21
Q

What is Regulation A status?

A
  • Permits certain issuers to offer up to $5 million total in any 12-month period without full registration
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22
Q

Identify the individuals not eligible for Regulation A status

A
  • issuers subject to 1934 Act
  • investment companies
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23
Q

What documents must eligible issuers file to acquire and maintain Regulation A status?

A
  • Must file an offering statement and offering circular
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24
Q

What is the maximum number of investors a Regulation A issuer can have?

A
  • No limit on number & nature of investors
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25
Q

Is resale prohibited for issuers with Regulation A status?

A

No

26
Q

Is general solicitation / advertisement allowed under Regulation D?

A

No

27
Q

What does Regulation D establish?

A
  • Establishes 3 separate exemptions related to small issues & small issuers
    • 504, 505, 506
28
Q

What form is an eligible issuer required to file to acquire Regulation D status?

A
  • File form D within 15 days of 1st offering
29
Q

Identify the tasks underwriters perform according to Regulation D

A

None

30
Q

When are securities not restricted under Rule 504?

A
  • Registered in a state that requires a publicly filed registration statement & disclosure documents delivered to investors
  • Sold exclusively according to state law
31
Q

What is Rule 504?

A

Permits accredited and non-accredited investors to sell up to $1 million of securities during a 12-month period to any number of purchasers

32
Q

Is solicitation allowed under Rule 504?

A

Yes

33
Q

Is registration required under Rule 504 and what type of financial information is provided?

A
  • registration not required
  • Issuer does not provide specific financial information
34
Q

Identify the requirements for Rules 505 and 506?

A
  • No solicitation or advertisement
  • Notification of the SEC
    • Filing form D within 15 days of offering
  • No immediate resale of securities
  • No underwriters
35
Q

What does Rule 505 provide?

A

provides exemption from registration to all issuers other than investment companies for a limited offering of securities up to $5 million in any 12-month period

36
Q

What is the maximum number of accredited investors that may purchase securities under Rule 505?

A

unlimited — no max

37
Q

What is the maximum number of non-accredited investors that can purchase securities under Rule 505?

A
  • No more than 35 purchasers that are non-accredited investors
38
Q

Define accredited investors

A
  • high income high net worth investors
  • Most institutional investors & individuals that meet income / net worth thresholds
    • Excluding the value of a person’s primary residence
39
Q

Define non-accredited investors

A

small investors

40
Q

What is the offering limit for Rule 506 investments?

A
  • No offering limit
41
Q

Is there a limit on the number of investors for investments subject to Rule 506?

A
  • No more than 35 investors that are not accredited
42
Q

True or False

The issuer must confirm accredited investor status because non-accredited investors must have the knowledge and expertise to allow them to evaluate the risks and merits of the investment

A

True

43
Q

What is the section 4(6) exemption?

A
  • Exempts up to $5 million of offers and sales to an unlimited number of accredited investors
  • Precautions must be taken to prevent nonexempt or unregistered resales
  • SEC must be notified
44
Q

Is advertising permitted for investments exempt under section 4(6)?

A
  • No advertising is permitted
45
Q

Is resale restricted under investments subject to section 4(6) exemption?

A
  • Resale is restricted
46
Q

Identify the 4 categories of issuers

A
  • nonreporting issuer
  • unseasoned issuer
  • seasoned issuer
  • well-known seasoned issuer
47
Q

Define a nonreporting issuer

A
  • one who need not report under the 1934 act
  • must use detailed Form S-1
48
Q

Define an unseasoned issuer

A
  • reported for at least 3 consecutive years under 1934 Act
    • Must use Form S-1
    • Less detailed info
    • Reference other 1934 reports
49
Q

Define a well-known seasoned issuer

A
  • filed for at least 1 year
    • World-wide market capitalization of at least $700 million
    • Issued for cash at least $1 billion debt / preferred stock in the past 3 years
    • may use Form S-3
50
Q

Define a seasoned issuer

A
  • has filed for at least 1 year
  • market capitalization of at least $75 million
  • may use Form S-3 to report even less detail & may include even more information by reference
51
Q

Define an Emerging Growth Company (EGC)

A
  • Issuer with annual gross revenues less than $1 billion
    • Periodically adjusted for inflation
52
Q

Identify 4 situations / circumstances that would change the status of an Emerging Growth Company (EGC)

A
  • Annual gross revenues exceed $1 billion (adj.)
  • 5 years after its IPO
  • Issued more than $5 billion in non-convertible debt
  • Large accelerated filer
53
Q

How are the financial costs and reporting requirements impacted for an Emerging Growth Company (EGC)?

A

reduced for EGC

54
Q

What is regulations S-X?

A
  • Sets forth the form and content of & requirements for the financial statements required to be filed under the Securities Act of 1933 and other registration statements and reports under the SEC Act of 1934
55
Q

What is the JOBS Act of 2012?

HINT: 4 items

A
  • 2nd tier of Regulation A offerings
  • Offered & sold publicly
  • Issuer must file audited financial statements annually & other disclosures required by SEC
  • Less detail, time consuming & costly than full registration statements
56
Q

The amount of offerings sold in a 12-month period must not exceed what dollar amount for the JOBS Act of 2012?

A

50 million

57
Q

What does crowdfunding do?

A

raises small amounts of money from many people on the Internet through brokers or funding portals

58
Q

What are the restrictions or parameters of crowdfunding?

HINT: (4)

A
  • $1 million max
  • Amount limited by income and net worth
  • No limit on number of investors
  • Resale is restricted
59
Q

Secondary Trading Exemptions under the 1933 Act generally exempts who or what?

A
  • Transactions by any person other than an issuer, underwriter or a dealer
  • Unsolicited brokers’ transactions that execute customer orders on an exchange or OTC
  • Transactions by dealers that do not involve original distributions / resales within a limited period after the effective date of a registration
60
Q

When would an ordinary investor / individual selling investments or stock on their own account not qualify for an exemption under the Securities Act of 1933 and would be subject to SEC registration?

A

When the investor / individual is a controlling person (one who owns more than 10% of the company’s stock & has the direct or indirect ability to control the company) they are considered an issuer and must register

61
Q

Are ordinary investors (a person who is not an issuer, underwriter or a dealer) required to register securities under the 1933 Act ?

A

No

Regulation (67 decks)

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