Chapter 12 - Federal Securities Regulatins

Question 1

Securities

Answer 1

• defined as an investment in an enterprise where the investory intends to make profit with effort of others.
  
  • common stock
  • preffered stock
  • treasuty stock
  • bonds
  • debentures
  • options
  • warrants
  • some notes,
  • limited but not general partnership interests
  • all investment contracts
  • collateral trust certificated (type of bond)
    
    • does not include certificates of deposits

Question 2

Prospectus - Part 1

Answer 2

• (written, tv or radio offering to sell securities) must be available to investors before or with every sale. summarized the info on part 2
  
  • historical info
  • risks of investment

Question 3

Registration statement - part 2

Answer 3

• Disclosure document
  
  • basic info
    
    • names and addresses and amount of securities held by directors, offcers, underwriters and shareholders with at least 10% of the stock
    • intended use of stock
    • company’s debt
    • company’s operating history and pending litigation
  • Financial info:
    
    • audited BS (not more than 90 days old)
    • audited IS (for previous 5 years)

Question 4

Shelf registration

Answer 4

• requires the company to periodically update the prospectus, but allows sales and resales to be continuous for an indefinite period of time.
  
  • not for first time issuers.

Question 5

When a registration statement and prospectus be made available (SPIN)

Answer 5

• Offer Securities
• Public Issue
  
  • transfering shares to outside people who dont have special understanding of the company
• Interstate commerce (between states)
• NO other exemption is available
  
  • 2 types of exemption is available
    
    • exempt securities
    • exempt transactions

Question 6

Exemptions (ACID- BRAINS)

Answer 6

• Regulation A - small offerings (= $5M/12 mo./15 day/ offering circular, can advertise/resell)
• Commercial paper (notes, bonds) mature = 9 mo. and used for commercial (not investing) purposes
  
  • casual sales
    
    • sales by other than issuer, underwriter, dealer
• instrastate offerings
  
  • at least 80% of co sales are exclusive to state of incorporation nad principal place of business, but buyers cannot resell outside the state for 9 months.
• Regualtion D - Private placement offerings (504,505,506)
• Brokerage transactions
• Regulated industries (savings and loans)
• Agencies of the gov.
• Insurance contracts/policies
• Not for profit
• Stock dividends, and splits (exchanges with existing holders) as long as no commission is paid.

Question 7

Regulation - small offering

Answer 7

• offerings by issuers that raise up to $5M over a time period not exceeding 12 months.
  
  • SEC must be notified with 15 days of the first sale
  • offering circular (mini registration statement)
  • allowed to sell $1.5M withing 12 months.

Question 8

Regulation D - Private placement (504, 505, 506)

Answer 8