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LEGL 2700 > chapter 17 > Flashcards

chapter 17 Flashcards

1
Q

what does the Securities Act of 1933 work with?

A

buying any stock or investment contract

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2
Q

what is the Howey Test ?

A
  • an investment of money
  • in a common enterprise
  • with a reasonable expectation of profit
  • based on the efforts of others
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3
Q

what does it mean if ALL four requirements of the Howey Test are met?

A

it is a security

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4
Q

what does the Securities Act of 1933 apply to?

A

applies to the initial sale of a security

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5
Q

what does the Securities Act of 1933 require?

A

requires the disclosure of information to the potential investors

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6
Q

Information cannot be what under the Securities Act of 1933?

A

false or misleading

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7
Q

what are the documents under the ‘33 Act?

A

Registration Statement and Prospectus

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8
Q

what form is the registration statement ?

A

Form S-1

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9
Q

what is a registration statement?

A

detailed disclosure of financial information about the issuer filed with the SEC

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10
Q

what are the periods for filing a registration statement?

A

pre-filing
waiting
post-effective

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11
Q

what is the pre- filing period?

A

issuer may only engage in preliminary negotiations and agreements with underwriters

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12
Q

what is the waiting period?

A

issuer may only solicit buyers or receive offers to buy (BUT CANNOT ACCEPT)

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13
Q

what is the post effective period?

A

issuer may sell securities (20 days after)

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14
Q

what is the prospectus?

A

contains key information in the company’s registration statement

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15
Q

what is provided to an interested investor?

A

the prospectus

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16
Q

what are the regulated parties?

A

issuer
underwriter
controlling person
seller

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17
Q

what is an issuer?

A

individual or business offering security for sale to the public

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18
Q

what is an underwriter?

A

anyone who participates in the original distribution of securities by selling securities or guaranteeing their sale

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19
Q

what is a controlling person?

A

is one who controls or is controlled by the issuer

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20
Q

what is a seller?

A

anyone who contracts with a purchaser or who is motivating influence that cause the purchase transaction to occur

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21
Q

what is Criminal Liability (Section 24)?

A

willful violation of the act or fraud in the initial sale of securities

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22
Q

what is Civil Liability Section 12(a)(1)?

A

liability for failure to file registration statement

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23
Q

what is Civil Liability Section 11?

A

liability for false or misleading registration statment

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24
Q

what is Civil Liability Section 12(a)(2)?

A

liability for false or misleading prospectus or other interstate communication (by mail, telephone, internet)

25
Q

what is Civil Liability Section 17?

A

imposes civil liability for using any device, scheme or artifice of fraud in the initial sale of security

26
Q

what section is a catchall for the fraud not picked up by the other sections?

A

Civil Liability Section 17

27
Q

what is the Securities Exchange Act of 1934?

A

regulates transfer of securities AFTER the initial sale

28
Q

what Act created the SEC?

A

Securities Exchange Act of 1934

29
Q

what important section is under the Securities Exchange Act of 1934?

A

Section 10(B) and Rule 10-B(5)

30
Q

what is the primary antifraud law and rule relating to the secondary distribution of securities ?

A

Section 10(B) and Rule 10-B(5)

31
Q

what law allows investors to sue?

A

Section 10(B) and Rule 10-B(5)

32
Q

who is liable when an investor sues?

A

parties directly connected to the sale of securities

33
Q

what must a plaintiff prove in a Section 10(B) and Rule 10-B(5) case?

A
  • material misrepresentation of omission by defendant
  • intent
  • connection between misrepresentation and the transaction
  • reliance on the misrepresentation
  • economic loss
  • loss causation
34
Q

what is materiality under Section 10B - Rule 10B-5 ?

A

depends on the significance a reasonable investor would place on the withheld or misrepresented information

35
Q

what is insider trading under Section 10B-5 considered?

A

FRAUD

36
Q

what is the theory for insider trading under Section 10B-5?

A

trading on insider information is deceptive because the insider abuses the relationship of trust

37
Q

what is insider trading under Section 10B-5?

A

the sale or purchase of securities by individuals privy to nonpublic, material information based upon her special relationship with the corporation

38
Q

who is an insider under Section 10B-5?

A

officers, directors, employees and professions in fiduciary relationships with the firm AND
tippees

39
Q

what is a tippee?

A

a person who learns nonpublic information from an insider

40
Q

who is an insider under Section 16?

A

person who owns more than 10% of any security AND is a director or officer of the issuer of security

41
Q

what does Section 16 prohibit?

A

short swing profits based on the assumption that insiders has material, nonpublic information during this period

42
Q

what is a short swing profit?

A

profits made within a 6 month time period

43
Q

what provides for criminal sanction of violations under Section 10B Rule 10B-5?

A

Section 17(a)(2)

44
Q

what are Blue Sky Laws?

A

state statues designed to protect the public from the sale of fraudulent stocks and bonds

45
Q

what do the State Blue Sky Laws protect potential investors from?

A

buying risky securities without other information

46
Q

what do State Blue Sky Laws apply to?

A

applies to securities subject to federal laws and securities exempt from federal statutes

47
Q

what was a model for Blue Sky Laws?

A

Uniform Securities Act of 1956

48
Q

what is the primary purpose of the Sarbanes-Oxley Act of 2002?

A

to ensure accuracy and integrity in the financial reporting of public companies

49
Q

who does the SOX Act apply to?

A

all public companies in the US and international companies registered with the SEC

50
Q

what Act created the Public Company Accounting Board? (PCAOB)

A

SOX Act

51
Q

how many members are in the PCAOB?

A

five members all appointed by SEC Commissioners

52
Q

what does the PCAOB do?

A

monitors accounting firms that audit public companies

53
Q

what is Section 302 of SOX?

A

requires CEOs and CFOs to certify the accuracy of the quarterly and annual financial statements

54
Q

what is section 404 of SOX?

A

mandates the certification of internal financial controls

55
Q

what shows how SOX has had a positive impact?

A

decline in restatements

56
Q

what are the whistleblower protections under SOX?

A
  • encourages individuals to report corruption
  • whistleblowers can recover civil damages
  • improperly terminated employees can be re-instated
57
Q

what act addressed many financial reform issues ?

A

Dodd Frank Act of 2010

58
Q

what did the Dodd Frank Act of 2010 require?

A

safety and soundness measures for large financial institutions

59
Q

what did Congress authorize to achieve the goals of Dodd Frank Act?

A

the creation of new administrative agencies

LEGL 2700 (18 decks)

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