41: securities law and investor protection

Question 1

securities law

Answer 1

federal and state laws that regulate the issuance and trading of securities

Question 2

federal securities statues

Answer 2

federal statutes that regulate the issuance of and trading in securities

Question 3

whistleblo

Question 4

EDGAR

Answer 4

the electronic data and record system of the SEC

Question 5

reporting company

Answer 5

a company whose shares are traded on a national securities exchange, an issuer who has made a registered offering under the Securities Act of 1933, and a company with assets of at least $10 million that has at least 500 unaccredited shareholders or 2,000 total shareholders

Question 6

annual report / form 10-K

Answer 6

a report that must be filed on an annual basis with the SEC by reporting companies that sets forth their financial condition

Question 7

quarterly report / form 10-Q

Answer 7

a report that must be filed quarterly with the SEC by reporting companies that sets forth their financial condition

Question 8

monthly report / current report / form 8-K

Answer 8

a report that must be filed with the SEC by a reporting company within 10 days of the end of the month in which a material event such as a merger occurs

Question 9

new york stock exchange / NYSE

Answer 9

a primary stock exchange that lists the stocks and securities of approximately 3,000 of the world’s largest companies for trading

Question 10

NYSE euronext

Answer 10

the organization that operates the NYSE and euronext electronic stock exchange

Question 11

national association of securities dealers automated quotation system / NASDAQ

Answer 11

an electronic stock market where more than 3,000 companies’ stocks are traded

Question 12

electronic securities transactions / e-securities transactions

Answer 12

the issuing of securities, trading in securities, disseminating information to investors, managing securities accounts online, and other securities activities being conducted electronically

Question 13

security

Answer 13

(1) an interest or instrument that is common stock, preferred stock, a bond, a debenture, or a warrant; (2) an interest or instrument that is expressly mentioned in securities acts; and (3) an investment contract

Question 14

common securities

Answer 14

interests or instruments that are commonly known as securities, such as common stock, preferred stock, bonds, debentures, and warrants

Question 15

statutorily defined securities

Answer 15

interests or instruments that are expressly defined as securities, including interests in oil, gas, and mineral rights; preorganization subscription agreements; and deposit receipts for foreign securities

Question 16

investment contract

Answer 16

a flexible standard for defining a security. an arrangement where there is an investment of money by an investor in a common enterprise in which the investor expects to make profits based on the sole or substantial efforts of the promoter or others

Question 17

howey test

Answer 17

a test that states than an arrangement is an investment contract if there is an investment of money by an investor in a common enterprise and the investor expects to make profits based on the sole or substantial efforts of the promoter or others

Question 18

mutual fund

Answer 18

an investment fund that sells shares to the public and invests in stocks and bonds for the long term and is restricted from investing in risky investments

Question 19

securities act of 1933

Answer 19

a federal statute that primarily regulates the issuance of securities by corporations, limited partnerships, and associations

Question 20

section 5 of the securities act of 1933

Answer 20

a section of a federal statute that requires an issuer to register its securities with the SEC prior to selling them to the public

Question 21

initial public offering / IPO

Answer 21

a situation in which a company or other issuer sells securities to the public for the first time; going public

Question 22

investment bankers

Answer 22

independent securities companies that sell issuer’s securities to the public and perform other securities-related functions

Question 23

test the waters

Answer 23

the ability of companies to communicate with institutional accredited investors to determine if there is enough interest in company’s proposed IPO to go through with it

Question 24

registration statement

Answer 24

a document that an issuer of securities files with the SEC that contains required information about the issuer, the securities to be issued, and other relevant information

Question 25

form S-1

Answer 25

a registration statement that must be filed with the SEC by companies who intend to issue securities to the public in a public offering. it must include information about the company, its business, the company's financial statements, and other relevant information

Question 26

effective date

Answer 26

the date on which a registration of securities filed with the SEC becomes effective

Question 27

preliminary prospectus

Answer 27

a written disclosure document that must be submitted by an issuer of securities to the SEC with the registration statement and is provided to potential investors to enable them to evaluate the financial risk of an investment

Question 28

final prospectus

Answer 28

a document that must be made available either in writing or electronically by the issuer of securities before or at the time of the purchase of the securities

Question 29

electronic initial public offering / e-public offering / e-IPO

Answer 29

the process of an issuer selling shares of stock to the public over the internet

Question 30

direct public offering (DPO)

Answer 30

a security offering in which a company sells its securities directly to the public without using underwriters, investment banks, broker-dealers, or other intermediaries

Question 31

cross-border IPO

Answer 31

an initial public offering made in the united states by a company based in a foreign country

Question 32

unregistered securities

Answer 32

securities that under the law were required to be registered with the SEC before being issued but were not registered when they were sold to the public

Question 33

jumpstart our business startups act (JOBS act)

Answer 33

a federal statute that makes it easier for start-up companies to raise capital from the public through small initial public offerings of securities

Question 34

emerging growth company (EGC)

Answer 34

a class of public company used by entrepreneurs and high-tech companies that meet certain requirements who then can sell securities to the public without having to meet many of the issuer requirements of the SEC that would be applicable to larger companies

Question 35

IPO on-ramp

Answer 35

refers to the use by an emerging growth company (EGC) of an internet website crowdfunding portal to issue shares to the public in an IPO

Question 36

confidential draft registration statement

Answer 36

a confidential draft of a proposed registration statement that may be filed by an EGC for review by the staff of the SEC that the EGC may withdraw if it chooses to do so after such review

Question 37

SEC regulation A+

Answer 37

an exemption from full registration or EGC registration that allows entrepreneurs, mature startups, and midsize companies to raise equity or debt capital from the public and to publicly and electronically advertise their offerings

Question 38

limited public offering

Answer 38

a securities offering made by an issuer pursuant to SEC regulation A

Question 39

tier 1

Answer 39

an SEC regulation A+ offering exemption that permits an issuer to raise upto $20 million in a 12-month period

Question 40

tier 2

Answer 40

an SEC regulation A+ offering exemption that permits an issuer to raise upto $50 million in a 12-month period

Question 41

offering statement

Answer 41

a document that must be filed by an issuer with the SEC prior to selling most securities pursuant to regulation A of the securities act of 1933

Question 42

offering circular

Answer 42

a document that must be provided by an issuer of securities to investors who are purchasing securities to investors who are purcasing securities issued pursuant to regulation A of the securities act fo 1933

Question 43

small company offering registration / SCOR

Answer 43

a method for small companies to sell up to $1 million of securities to the public by using a q&a disclosure SCOR form U-7

Question 44

well-known seasoned investor / WKSI

Answer 44

an issuer whose size and presence in the market permits it to provide info in addition to that contained in a preliminary prospectus, such as forward-looking info, electronic communications, and other factual info, to investors prior to its securities being sold to the public issued $1 billion of securities in the previous three years or have at least $700 million of uoutstanding equity securities owned by nonaffiliate investors

Question 45

shelf registration

Answer 45

a securities registration that permits a WKSI to file a registration statement with the SEC and issue securities pursuant to the registration for a hree-year period

Question 46

exempt securities

Answer 46

-securities issued by any govt in the US -short term notes and drafts that have a maturity date less than 9 months -securities issued by nonprofits -securities of financial inst regulated by the appropriate banking authorities -insurance and anuity contracts from insurance companies -stock dividends and stock splits -securities issued in a corporate reorganization in which one security is exchanged for another

Question 47

commercial paper

Answer 47

short term notes issued by corporations that do not exceed nine months

Question 48

exempt transactions

Answer 48

transactions in which securities are issued but are exempt from registration with the SEC because they meet specified requirements -non-issuer exemption -intrastate offering exemption -private placement exemption -small offering exemption

Question 49

nonisser exemption

Answer 49

an exemption that says that securities transactions not performed by an issuer, an underwriter, or a dealer to not have to be registered with the SEC

Question 50

intrastate offering exemption

Answer 50

an exemption from registration that permits locall businesses to raise capital from local investors w/o the need to register with the SEC. two exemptions provided under SEC rule 147 and another under SEC rule 147A

Question 51

SEC rule 147

Answer 51

a rule of the SEC that permits an offeror to sel securities to purchasers who are residents of the state of which the issuer is a resident an in which the issuer has its principal place of business and is doing business. offers and sales may not be made to out-of-state residents

Question 52

SEC rule 147A

Answer 52

a rule of the SEC that permits an offeror to sel securities to purchasers who are residents of the state of which the issuer is a resident an in which the issuer has its principal place of business and is doing business. the offeror does not have to be a resident of the state and may use general solicitation and advertising including by electronic communications. sales may not be made to out-of-state residents

Question 53

private placement exemptions

Answer 53

exemptions from registration with the SEC of an issue of securities that do not involve a public offering. two provided under SEC rule 506(b) and SEC rule 506(c)

Question 54

SEC rule 506(b)

Answer 54

a rule of the SEC that permits issuers to raise any amount of capital from an unlimited number of accredited investors and no more than 35 nonaccredited investors w/o having to register the offering with the SEC. general solicitation of or advertising of the offering to the public is not permitted

Question 55

accredited investor

Answer 55

-natural person with indiv/joint net worth with spouse that exceeds $1 million -natural person w/ income exceeding $200,000 in each of the two most recent years or joint w/ spouse $300,000 and reasonable expectation of the same income level in the current yr -charitable org/corp/partnership/trust/employee benefit plan w/ assets exceeding $5 million -bank/nsurance company/registered investment co/business development co/small business investment co -insiders of th issuers (directors/execs/general partners) of entity selling securities -business in which all equity owners are accredited investors

Question 56

small offering exemption / SEC rule 504

Answer 56

an exemption from registration that permits the same of securities not exceeding $1 million during a 12-month period

Question 57

form D

Answer 57

a form that must be filed with the SEC by a company within 15 daysafter the sale of securities pursuant to the small offering exemption

Question 58

SEC regulation crowdfunding / regulation CF

Answer 58

a regulation of the SEC that permits securities of an issuer to be sold to the public exclusively using an intermediary's internet-based funding portal or web platform

Question 59

form C

Answer 59

a form that must be filed with the SEC before an offeror may raise funds pursuant to the SEC crowdfunding regulation

Question 60

section 11 of the securities act of 1933

Answer 60

a section of a federal statute that imposes civil liability on persons who intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement or who are negligent for not discovering the fraud

Question 61

due diligence defense

Answer 61

a defense that accountants, lawyers, directors, managers, and others can assert, which, if proven, avoids liability under section 11(a) of the securities act of 1933

Question 62

section 12 of the securities act of 1933

Answer 62

a section of a federal statute that imposes civil liability on any person who violates the provisions of section 5 of the act

Question 63

consent decree

Answer 63

a plea entered by a civil defendant who has been sued by the government whereby the accused agrees to the imposition of a penalty but does not admit liability

Question 64

section 24 of the securities act of 1933

Answer 64

a section of a federal statute that imposes criminal liability on any person who willfully violates the securities act or the rules or regulations adopted thereunder

Question 65

securities exchange act fo 1934

Answer 65

a federal statute that primarily regulates the trading in securitirs

Question 66

section 10(b) of the securities exchange act of 1934

Answer 66

a section of a federal statute that prohibits any manipulative or deceptive practice in connection with the purchase or sale of a security

Question 67

SEC rule 10b-5

Answer 67

a rule of the SEC that helps define the prohibitions of section 10(b) of the securities and exchange act against deceptive and fraudulent activities in the purchase and sale of securities

Question 68

scienter / guilty mind

Answer 68

knowledge that a representation is false or that it was made without sufficient knowledge of the truth. intent to deceive

Question 69

insider trading sanctions act

Answer 69

a federal statute that permits the SEC to obtain a civil penalty of up to three times (treble damages) the illegal benefits received from insider trading

Question 70

sction 32 of the securities exchange act of 1934

Answer 70

a section of a federal statute that imposes criminal liability on any person who willfully violates the securities exchange act or the rules/regulations adopted thereunder, or wo willfully and knowingly makes or causes to be made any false or misleading statement in any application/report/otherdocument required to be filed with the SEC

Question 71

matter of cady, robetrs & company

Answer 71

a decision wherein the SEC announced the duty of an insider who possesses material nonpublic information to abstain from trading in the securities of the company or disclosing the information to the person on the other side of the transaction

Question 72

section 10(b) insider

Answer 72

-officers, directors, and employees -lawyers, accountants, consultants, and agents and reps hired by the company -others who owe a fiduciary duty to the company

Question 73

tipper-tippee liability

Answer 73

when a tipper discloses material nonpublic info to a tippee that the tippee knows or has reason to know is inside info, and the tippee trades securities based on this info

Question 74

SEC rule10b5-1

Answer 74

a rule of the SEC that prohibits outsiders from trading in the security of any issuer on the basis of material nonpublic info that is obtained by a breach of duty of trust or confidence owed to the person who is the source of the info

Question 75

misappropriation theory

Answer 75

a rule that imposes liability under section 10(b) of the securities exchange act of 1934 and SEC rule 10b-5 on an outsider who misappropriates info about a company in violation of their fiduciary duty and then trades in the securities of that company

Question 76

aiders and abettors

Answer 76

individuals who knowingly provide assistance to parties who have committed securities fraud

Question 77

section 16(a) of the securities exchange act of 1934

Answer 77

a section of a federal statute that defines any person who is an executive officer, a director, or a 10 percent shareholder of an equity security of a reporting company as a statutory insider for section 16 purposes

Question 78

section 16 statutory insider

Answer 78

any person who is an executive officer, a director, or a 10 percent shareholder of an equity security of a reporting company

Question 79

section 16(b) of the securities exchange act of 1934

Answer 79

a section of a federal statute that requires that any profits made by a statutory insider on transactions involving short-swing profits being to the corporation

Question 80

short-swing profits

Answer 80

profits that are made by statutory insiders on trades involving equity securities of their corporation that occur within six months of each other

Question 81

state securities laws / blue-sky laws

Answer 81

state laws that regulate the issuance and trading of securities

Question 82

uniform securities act

Answer 82

an act that was drafted to coordinate state securities laws with federal securities laws; it has been adopted by many states