Chapter 42: Securities regulations Flashcards
Securities act of 1933
All securities transactions must be registered with the SEC by filing a registration statement and providing a prospectus. Regulates both public and private companies.
Prospectus
A written document that describes the security, the risks, and the finances of the corporation
Registration statement requirements
- issuing corps properties and businesses
- Management of issuing corporation and compensation
- intended use of the security proceeds
- pending lawsuits
- Audited financial statement
Registration statement periods
- Pre-filing period
- waiting period
- post effective period
Pre filing period
Before registration is filed with SEC, during this time the corp cannot sell or offer to sell securities that are subject to the registration statement
Waiting period
Waiting for SEC approval of registration statement. Can offer to sell during this period.
Post effective period
SEC approved, can sell without restrictions
Violations of 1933 act
Omission of material or misrepresentation. Charged by the Dept. of Justice.
Defenses of violation of 1933 act
- Omission wasn’t material
- plaintiff knew of the misrepresentation at the time the stock was purchased.
- Defendant reasonably believed statements were true
Securities exchange act of 1934
Requires periodic disclosures by public companies; 10-K, 10-Q, 8-K
10-Q
a 10-K but quarterly instead of annually
8-K
A report of unscheduled events or changes that the company thinks the SEC would find important.
ex: merger, bankruptcy, resignation of officers/directors.
Rule 10b-5
prohibits insider trading
Liability of insider trading extends to
Tippees and remote tippees (tippee of a tippee)
Tippee is only liable if
- There is a breach of duty to NOT disclose inside info
- The disclosure is to their personal benefit (even applies to family and friends that don’t give consideration for the info)
