Chapter 27 - Securities Law - Initial Issuances of Securities

Question 1

SEC - Securities and Exchange Commission

Answer 1

• Agency governing federal securities law.

- Created by the securities act of 1934.

Question 2

Security Definition

Answer 2

• Very broad, not only issuing stock

- Note, stock, bond, debenture, trust, etc.

Question 3

SEC v. Edwards

Answer 3

• Edwards involved in a sale/leaseback transaction.
• He was selling payphones and then people would lease them back to Edwards and would pay rent payments (14% return) back to the people.
• Court decided it was a security and edwards didn’t comply with all securities law.
• Edwards lost.

Question 4

Registering a Security

Answer 4

• Prospectus and Registration Statement - PROSPECTUS = document that explains the nature of the company, financial statements, managers, etc.
• 20 day waiting period once registration statement is submitted. Issuer can’t issue securities until approved.

Question 5

IPO - Initial Public Offering

Answer 5

• First time a company is issuing securities to the public.

Question 6

EDGAR

Answer 6

• Electronic Data Gathering, Analysis, and Retrieval database.
• Public Access. Have financial reports and all disclosed information.

Question 7

Exempt Transactions

Answer 7

• Intrastate Offerings - Solely looking for investors in state doing business, exempt from fed regulations.

Question 8

Exemptions - Regulation A Offerings

Answer 8

• If I am seeking to raise $5 million or less, I am exempt from federal law

Question 9

Exemptions - Regulation D Offerings

Answer 9

-Issuances from non-investment companies for up to $1 million over a 12-month period if the issuance is only to accredited investors - exempt.
- Private placements - offerings that are made without advertising to or soliciting to the public but made to sophisticated investors = exempt.
- Number of non-accredited investors must not be more than 35.
Can be an unlimited number of accredited investors.
- I can issue to accredited investors up to $5 million instead of $1 million and still be exempt if to accredited investors.

Question 10

Violations (need intent and act)

Answer 10

1. If you violate securities law, they can fine you - civil penalties
2. Criminal penalties - need bad intent, go to jail

Question 11

State Securities Law

Answer 11

If I fall under exemptions to fed securities law, I go to the state securities law.

Question 12

State Laws = Blue Sky Laws

Answer 12

• To prevent people from trying to sell “pieces of the big blue sky”
• People trying to swindle other people
• Each state has different laws.

Question 13

Exempt Securities

Answer 13

• Short-term Notes (maturing in 9 months or less)
• Securities issued by the gov’t
• Securities issued by nonprofit organizations.