2.1 - Securities Act of 1933 Flashcards
What is an issuer?
- individual / business organization initially offering a security for sale to public
Define underwriter
any person who participates in the original offering of securities from the issuer with the intention of distributing them
Define dealer
any person who is engaged in the business of offering, selling, buying, dealing or trading securities issued by another
What are blue sky laws?
securities laws of each state
What brought about the Securities Act of 1933?
The Great Depression caused by the inadequate regulation of sale of securities and rampant fraud
What is the purpose of the Securities Act of 1933?
HINT: 3 purposes
- 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
Provide examples of securities
- Notes,
- bonds,
- common stock, & other financial instruments
What are the registration requirements for the Securities Act of 1933?
- Registration statement & prospectus
- Provide complete disclosure to SEC of all material information
- Registration statement
When does the filed registration statement go into effect?
20th day after filing
What does a prospectus provide?
provide facts to make informed investment decisions
What information is required in the registration statement documents required under the Securities Act of 1933?
HINT: (5) DPAAP
- 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
What other material information is required to be included in the registration statement documents?
- indication of whether Accountant has changed within 2 years
- Purpose for which proceeds will be used
When are securities made available for purchase?
Once the filed registration statement is in effect
What is shelf-registration under the Securities Act of 1933?
securities put on the shelf for up to 3 years before selling
What parties is shelf-registration available to?
- seasoned issuers and well known seasoned issuers
What are the types of exemptions under the Securities Act of 1933?
- Securities
- Never require registration
- Transactions
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
- 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
What types of transactions are exempt from regulation under the Securities Act of 1933?
Intrastate transactions
Identify the qualifications categorizing transactions as intrastate transactions?
- 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
Why are intrastate transactions exempt from regulations under the Securities Act of 1933?
- SEC is a federal agency & would violate the state’s right to regulate its own commerce
What is Regulation A status?
- Permits certain issuers to offer up to $5 million total in any 12-month period without full registration
Identify the individuals not eligible for Regulation A status
- issuers subject to 1934 Act
- investment companies
What documents must eligible issuers file to acquire and maintain Regulation A status?
- Must file an offering statement and offering circular
What is the maximum number of investors a Regulation A issuer can have?
- No limit on number & nature of investors
Is resale prohibited for issuers with Regulation A status?
No
Is general solicitation / advertisement allowed under Regulation D?
No
What does Regulation D establish?
- Establishes 3 separate exemptions related to small issues & small issuers
- 504, 505, 506
What form is an eligible issuer required to file to acquire Regulation D status?
- File form D within 15 days of 1st offering
Identify the tasks underwriters perform according to Regulation D
None
When are securities not restricted under Rule 504?
- Registered in a state that requires a publicly filed registration statement & disclosure documents delivered to investors
- Sold exclusively according to state law
What is Rule 504?
Permits accredited and non-accredited investors to sell up to $1 million of securities during a 12-month period to any number of purchasers
Is solicitation allowed under Rule 504?
Yes
Is registration required under Rule 504 and what type of financial information is provided?
- registration not required
- Issuer does not provide specific financial information
Identify the requirements for Rules 505 and 506?
- No solicitation or advertisement
- Notification of the SEC
- Filing form D within 15 days of offering
- No immediate resale of securities
- No underwriters
What does Rule 505 provide?
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
What is the maximum number of accredited investors that may purchase securities under Rule 505?
unlimited — no max
What is the maximum number of non-accredited investors that can purchase securities under Rule 505?
- No more than 35 purchasers that are non-accredited investors
Define accredited investors
- 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
Define non-accredited investors
small investors
What is the offering limit for Rule 506 investments?
- No offering limit
Is there a limit on the number of investors for investments subject to Rule 506?
- No more than 35 investors that are not accredited
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
True
What is the section 4(6) exemption?
- 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
Is advertising permitted for investments exempt under section 4(6)?
- No advertising is permitted
Is resale restricted under investments subject to section 4(6) exemption?
- Resale is restricted
Identify the 4 categories of issuers
- nonreporting issuer
- unseasoned issuer
- seasoned issuer
- well-known seasoned issuer
Define a nonreporting issuer
- one who need not report under the 1934 act
- must use detailed Form S-1
Define an unseasoned issuer
- reported for at least 3 consecutive years under 1934 Act
- Must use Form S-1
- Less detailed info
- Reference other 1934 reports
Define a well-known seasoned issuer
- 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
Define a seasoned issuer
- 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
Define an Emerging Growth Company (EGC)
- Issuer with annual gross revenues less than $1 billion
- Periodically adjusted for inflation
Identify 4 situations / circumstances that would change the status of an Emerging Growth Company (EGC)
- Annual gross revenues exceed $1 billion (adj.)
- 5 years after its IPO
- Issued more than $5 billion in non-convertible debt
- Large accelerated filer
How are the financial costs and reporting requirements impacted for an Emerging Growth Company (EGC)?
reduced for EGC
What is regulations S-X?
- 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
What is the JOBS Act of 2012?
HINT: 4 items
- 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
The amount of offerings sold in a 12-month period must not exceed what dollar amount for the JOBS Act of 2012?
50 million
What does crowdfunding do?
raises small amounts of money from many people on the Internet through brokers or funding portals
What are the restrictions or parameters of crowdfunding?
HINT: (4)
- $1 million max
- Amount limited by income and net worth
- No limit on number of investors
- Resale is restricted
Secondary Trading Exemptions under the 1933 Act generally exempts who or what?
- 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
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?
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
Are ordinary investors (a person who is not an issuer, underwriter or a dealer) required to register securities under the 1933 Act ?
No
