Business Law: Federal Securities Regulation Flashcards
In which type of action, brought against a CPA who issues an audit report containing an unqualified opinion on materially misstated financial statements, may a plaintiff prevail without proving reliance on the audit report?
A plaintiff need only prove three elements to recover under section 11: (i) the plaintiff acquired (not necessarily bought) the stock, (ii) the registration statement was signed by the CPA and contains either a misrepresentation of a material fact or an omission of a material fact, and (iii) damages. An action brought under Rule 10b-5 of the Securities Exchange Act of 1934, an action for common law breach of contract and an action for common law fraud require proof of reliance.
What are some rules under Regulation D of the Securities Act of 1933?
Under Regulation D, the SEC must be notified within 15 days after the first sale of the offering. General solicitation generally is prohibited under Regulation D.
What are some rules under Rule 506 under Regulation D of the Securities Act of 1933?
Under Rule 506, a balance sheet is required if there are unaccredited investors, but a prospectus is not required.
Rule 506 offerings can be sold to an unlimited number of accredited investors, but there can be no more than 35 unaccredited investors. Rule 506 permits an unlimited amount of stock to be issued. 506 is often referred to as a private placement because that rule exempts transactions not involved in a public offering.
What are some rules under Regulation A of the Securities Act of 1933?
Regulation A is a short form registration that only requires an offering statement (which consists of a “notification” and an “offering circular”). A prospectus is not required under a Regulation A registration.
What is a proxy?
A proxy is a type of agency that allows one person to vote another person’s stock at a corporate meeting.
What is a shelf registration?
A shelf registration is a type of constant registration available to certain issuers.
Who is required to report under the 1934 Act?
The reporting requirements of the 1934 Act apply to any company:
- Whose shares are traded on a national exchange, or
- Which has at least 500 shareholders in any one class who are not accredited and more than $10 million in assets.
What are some rules under Rule 504 under Regulation D of the Securities Act of 1933?
Under Rule 504 the issuance of securities may not exceed $5 million dollars in a 12-month period.
What are the anti-fraud provisions of the Securities Act of 1933?
Securities of not-for-profit corporations need not be registered. While the securities of a not-for-profit corporation are indeed exempt from registration, where a prospectus is issue and contains material misrepresentations, liability can be imposed under the 1933 Act.
What are some rules under Section 12 of the Securities Act of 1934?
Under Section 12, a company must register (is subject to continuous disclosure requirements) if it is listed on a national securities exchange or if it has at least 500 shareholders in any outstanding class and has more than $10 million in assets.
Persons who own more than XX% of a corporation’s stock must file an annual report with the SEC
Persons who own more than 10% of a corporation’s stock must file an annual report with the SEC
What are some characteristics of Rule 506 of Regulation D?
Rule 506 of Regulation D applies to sales of securities in excess of $5 million. Securities are very broadly interpreted and specifically include debentures and limited partnership interests. Thus, the securities may be debentures.
Under Rule 506 the issuer may sell to 35 or fewer unaccredited but sophisticated investors.
General solicitation typically is not permitted under Rule 506 (although there are exceptions to this rule).
The definition of securities specifically includes the sale of limited partnership interests. Thus, does not have to be a corporation.
What is not likely considered a security?
Under the Securities Acts of ‘33 and ‘34, securities are broadly interpreted. Generally, any investment in which the investor is passive and expects to make money from the management of others is a security. However, certificates of deposit are specifically excluded. And, a general partnership interest is not included because partners are expected to actively take part in a general partnership. Investment contracts would be considered securities.
Under Rule 504 of Regulation D of the Securities Act of 1933, how many accredited and unaccredited investors can the stock be sold to?
Under Rule 504 of Regulation D, any offering can be made to any type or number of investors. Thus, the offering can be sold to an unlimited number of accredited and non-accredited investors.
When is registration required under the Securities Exchange Act of 1934?
Registration is required under the Securities Exchange Act of 1934 in two cases: (1) if the securities are sold on a national exchange; or (2) if the issuer has at least 500 shareholders who are not accredited in any outstanding class and more than $10 million in assets.
