Chapter 1 Session 1- Federal Securities Regulations 5 Questions Flashcards
Securities Act of 1933 (Paper Act, Truth in Securities Act, Prospectus Act)
Regulates corporate securities sold to the public in IPOs and Subsequent public offerings (SPOs)
Issuer information must be disclosed to the SEC in a registration statement and published in a prospectus
Provides for both civil and criminal penalties
Security Defined (Howey Case)
Investment Contract meeting 4 conditions:
- The investment of money
- In a Common Enterprise (pooling)
- Expectation of profits
- Solely from the efforts of others
Issuer / Underwriter
Issuer: Anyone who issues or proposes to issue any security. Applies to government as well
Underwriter: Purchased from an issuer with view of selling (not including a brokerage firm selling on commission)
Person defined under 1933 Act
Includes: Individuals, corporation, partnerships, associations, joint stock company, trust, unincorporated orgs, gov, political subdivision
Prospectus
Any notice, circular, letter or communication, written or broadcast by radio or tv, that offers any security for sale or confirms the sale of a security
Tombstone not included
Offer to sell
Any attempt or offer to dispose of a security or an interest in a security for value
Does not include preliminary agreements between an underwriter and issuer or a gift of securities
SEC Reviewed
Does not mean the SEC approved the issue
SEC attempts to make certain that all pertinent info is fully disclosed in the registration statement and prospectus by requiring:
Issuer file a registration statement with SEC
Prospectus be provided to prospective buyers
Penalties be imposed for violation
Exempt Securities Under 1933
Registration statement must be in effect if you are selling or delivering a security
Securities exempt from this requirement include:
- Any issue guaranteed by US, States, or Political Subdivision of a state
- Commercial Paper no more than 270 days with stipulation it is used for working capital
- Any security issued by a person exclusively for religious, educational, benevolent, fraternal or charitable purposes
- Any interest in a railroad equipment trust
- Federal or state banks, loan associations etc. excluding bank holding companies
Rule 147 Securities
Exempt from 1933 Act but not the Uniform Securities Act
Includes any security sold only in state, where the issuer is only doing business in state
Entire issue must be sold in-state to in-state citizens who hold primary residence
Resale can only be done in-state until a 9 month holding period expires
80% of gross revenue must be derived from in-state operations
80% of proceeds must be used for business purposes
80% of assets must be located in-state
Purchaser Waiver
No waivers may be granted to seller’s failure to comply with 1933 act
Exempt Transactions
Private placements and transactions by people outside of the issuer, underwriter or dealer
Requirements of the 1933 act
Protects investors who buy by requiring:
- Registration of new issues distributed interstate
- Full and fair disclosure
- All material information
- Regulating the distribution of primary and secondary shares
- Providing criminal penalties for fraud in issuance of new securities
Registration Statement
Filed with the SEC and must be signed by the principal executive officer (CEO), financial officer (CFO) and majority of board
All are subject to criminal punishment
Required info includes- Purpose of issue POP Underwriter commissions or discounts Promotion expenses Expected use of funds BS Earnings statements for past 3 yrs Info of officers, directors, underwriters and 10% owners Copy of underwriting agreement Copy of articles of incorporation
Cooling off period
20 day minimum after SEC received
Deficiency letter may be sent back to issuer if missing info is found
Stop order is issued if fraud is suspected
Red Herring
Must be made available to all prospective buyers until the effective date
Cannot be used as a confirmation of sale,
