Chapters 10-17 Final Flashcards
Blue sky laws
state regulations regarding securities laws
controlling person
the one who controls or is controlled by the issuer (eg major stockholder)
issuer
individual/business organization offering a security to the public for sale
underwriter
anyone who participates in the original distribution of securities (eg selling or guarantying their sale)
seller
anyone who contracts with a purchaser or a motivating influence to cause the transaction to occur
due diligence defense
defense against civil liability in securities violations that claims a proper investigation of the financial statements and controlling persons that gave no indication of the presence of false or misleading information in the registration statement
defenses recognized in the Securities Act of 1933
materiality, statute of limitations due diligence
statute of limitations defense
defense against civil and criminal liability in securities violations regarding the time frame of one year (up to 3 max) that begins at the discovery of the untrue statement/omission or at the time a reasonable person would have discovered it
materiality defense; material def.; material fact
defense against civil and criminal liability in securities violations that claims the untrue or misleading statement was not material to the purchasers decision making process; material is defined as the average information a prudent investor would need to make a knowledgeable decision; material fact is a fact that if disclosed would deter or tend to deter the average prudent investor from purchasing
insider
owns more than 10% of the security; is a director or an officer of the issuer of the security
misappropriation theory
individuals can be held liable if they misappropriate nonpublic information from a source they have a fiduciary duty to or use that information to trade securities for personal gain/tip others to trade on said information
prefiling period
period before filing the registration statement where negotiations may be made but securities may NOT be sold
waiting period
period after filing the registration statement where the SEC confirms the information filed and whether to permit sales; still illegal to sell; typically 20 days
post effective period
after the waiting period at which the registration becomes effective and securities can be sold and bought
registration statement
statement containing a detailed disclosure of financial information about the issuer and controlling individuals involved
SEC
securities exchange commission; administrative agency created in 1934 responsible for administering federal securities law
purpose of Securities Act of 1933 and sanctions
requires disclosure of all relevant information to potential investors/buyers; criminal punishment, civil liability, equitable remedy of an injunction
security
a interest/instrument that offer the right to subscribe to or purchase stock, bond, or any certificate of interest; any investment of money to be managed by another with the prospect of profit
prospectus
a document given to any potential investor containing financial information related to the issuer and controlling persons
Section 11 Liability
liable if the registration statement contains untrue statements of material facts, omits material facts required by the statute or regulation, omits information that make the content misleading
Section 12 Liability
liable if offering securities not registered with the SEC or hosting untrue or misleading statements within the prospectus
Section 17 Liability
liable for the offer or sale of any securities with the result of defrauding, obtain money/property through an untrue/misleading statement, or engaging in business that may defraud/deceive a purchaser; required to prove intent
scienter
intent to deceive or mislead regarding securities transactions
SEC Act (1934)
applies to the exchanges after the initial sale, prohibiting sale of unregistered securities and requires registration with the stock exchange and the SEC
short-swing profits
profits made from the sale/purchase of security within six months considered illegal under Section 16
tippee
person who learns of nonpublic information from an insider
Section 10 (b)
Liability for the use of mail or any instrument of interstate commerce to defraud anyone in connection with the sale/purchase of a security
Section 16(b)
liability for any insider making profit from the purchase/sale of security within a six month period
Section 18
liability for fraudulent filing of false or misleading documents with the SEC or exchange
Sherman Act, Section 1
prohibits contracts, combinations, and conspiracies that unreasonable restrain trade or commerce
Sherman Act, Section 2
prohibits monopolization or attempts to monopolize a market
Federal Trade Commission Act
created the Federal Trade Commission responsible for keeping competition free and fair
agencies that enforce antitrust laws
FTC & DOJ (Department of Justice
goal of the Sherman Act
competition
price fixing
competitors agreeing to charge the same price for a product/service
horizontal restraints
agreements between direct competitors
vertical restraints
agreements between firms in a production or distribution chain
categories of antitrust analysis
rule of reason & per se illegality
rule of reason
only undue/unreasonable restraints of trade are illegal
test of reasonableness
based on (1) the nature/character of the contracts and (2) the surrounding circumstances giving rise to the interference or the presumption that the intent was to restraint trade/enhance prices
per se illegality
agreements that have such an extreme effect on competition that deciding the exact harm done is unnecessary
horizontal price fixing
competitors agreeing to set the same price in a fashion that threatens free competition
defense against price fixing
two competitions entering a joint venture and setting a price
vertical price fixing
manufacturers attempting to control the ultimate retail price of their products
horizontal territorial agreement
competing businesses agreeing to delegate a certain geographic territory to each other
vertical territorial agreement
agreement between a manufacturer and dealer/distributor that the manufacturer will not sell to other dealers as long as the dealer does not operate outside of the given territory
concerted activities
conduct between competitors that are anti-competitive
burden of proof for monopolization
(1) proof of monopoly power and (2) willfully acquired and maintained that power
burden of proof for attempt to monopolize
(1) proof of intent to destroy competition or achieve monopoly power and (2) a dangerously likelihood that monopolization would occur
burden of proof for conspiracy to monopolize
(1) proof of specific intent to monopolize and (2) at least one overt act to try an acquire monopoly power
predatory pricing
when a business makes prices below cost in order to drive out competition
Sherman Act Sanctions
- criminal fines and imprisonment
- enjoined by the courts
- injured parties may receive up to triple damages
- any property owned in violation of Sherman Act Section 1 being moved from one state to another is subject to seizure and forfeiture to the US
state action exemption
the Sherman Act does not apply to the state government
Noerr-Pennington Doctrine
lobbying government officials is exempt
Clayton Act Section 2
unlawful for a seller to discriminate in the price that is charged to different purchasers when the effect may be to lessen competition substantially or tend to create a monopoly
Robinson-Patman amendment
attempts to ensure quality of price to all buyers; illegal to willingly give or accept benefits of this discrimination; applies to interstate commerce and the sale of goods only
Clayton Act defenses
changing condition defense (prices are in response to changing conditions such as perishable goods), cost justification defense (prices are in response to the differences in the manufacture, cost, or delivery), good-faith meeting-of-competition defense (prices are in response to meeting the equally low prices of a competitor in good faith)
tying contract
when one product can only be bought or leased through to purchase/lease of another product; requirement of using power in one market to extend to the other
full-line forcing
seller compelling a buyer to buy a full line of products by not allowing purchase of a singular item
reciprocal dealing
when two parties make an agreement to only buy the other’s goods if they buy theirs
exclusive dealing
contract that contains a provision that one party will only deal with the other
requirements contract
a buyer agrees to purchase all of its needs of a given contract from a seller during a certain period of time
Clayton Act Section 7
makes certain acquisitions and mergers illegal
mergers
classified as horizontal, market extension, vertical, or conglomerate
market extension merger
acquisition in which the acquiring company extends its markets
horizontal merger
combines two companies within the same field or industry
product extension
expanding to a new product
geographical extension
expanding to a new area
vertical merger
combines one company that is the customer of another in the lines of commerce in which the other is a supplier
conglomerate merger
when the combining companies are not competitors nor are related as customer and supplier in any line of commerce
Herfindahl-Hirschman Index (HHI)
measurement of market concentration by adding the market share of each firm
Concentrated HHI
HHI over 2,500 or that increases by 200 points
Other merger considerations
evidence from existing mergers, whether the merging firms substantially competed, and if there was a positive disruption for consumers that will now be quieted
premerger notification
the FTC and DOJ must be notified and given 30 days to conduct a review
Federal Trade Commission Act Section 5
“unfair methods of competition” and “unfair or deceptive acts or practices in commerce” are unlawful
Three questions to determine unfair methods of competition
- Does it injure consumers significantly?
- Does the conduct offend already standing public policy?
- Is the conduct oppressive, unscrupulous, immoral, or unethical?
Purpose of FTC Act Section 5
To criminalize conduct that falls short of a Sherman Act or Clayton Act violation
International Antitrust Enforcement
any foreign business practices that have a substantial effect on US commerce must comply with US antitrust laws
