Federal Securities Acts

Question 1

What are the key points of the 1933 Securities Act?

Answer 1

Governs Initial Public Offerings (not subsequent sales). Covers registration statements and accompanying information filed with SEC. Information must include audited financial statements & a prospectus. Note: Even if a company is exempt from registering under the 1934 Act; they still must adhere to the anti-fraud provisions of the Act

Question 2

What entities are exempt from filing registration statements under the 1933 Securities Act?

Answer 2

Banks; Commercial Paper; Farmers; Co-ops; Charities; Governments

Also exempt: Securities sold in ONE state; where investors are residents; 80% of business done in one state; and resales can’t occur within 9 months to interstate parties.

Question 3

What are the key points of the 1933 Securities Act; Regulation A?

Answer 3

Issuer can issue $5M of securities per year and be exempt if they file a notice with the SEC

Non-issuers (AKA a private individual) can sell $1.5M per year and be exempt

Question 4

Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?

Answer 4

Rule 504- Max Amount per year: $1M; Max Investors: Unlimited

Rule 505 - Max Amount per year: $5M; Max Investors: 35 Unaccredited or Unlimited Accredited

Rule 506 - Max Amount per year: Unlimited; Same as 505; but Unaccredited investors must be sophisticated

Question 5

What are the registration form options under the 1933 Securities Act?

Answer 5

S-1 - Long Form or

S-2 and S-3 - Less Detailed and preferred by issuers

Question 6

Name the securities registered under the Securities Act of 1933.

Answer 6

Stocks
Stock Options
Stock Warrants
Limited Partnership Interests - General Partnerships not allowed
Bonds

Question 7

Who can sue under the Securities Act of 1933?

Answer 7

Purchasers of securities only

Question 8

Name the Requirements for Accountant to be liable under the Securities Act of 1933.

Answer 8

Damages & Material Misstatements Only

o Reliance on financial statements are not a requirement unless purchased more than a year after the security is registered

Proving negligence is not a requirement

Question 9

Name the Defenses of an Accountant under the Securities Act of 1933.

Answer 9

Accountant used Due Diligence

Accountant followed GAAP

Damages weren’t caused by accountant’s work

Plaintiff knew of the material misstatements

Question 10

What does the Securities Act of 1934 govern?

Answer 10

The trading/selling of securities after the IPO

Question 11

What reports must be filed under the Securities Act of 1934?

Answer 11

Form 10-K Annual Report - Must be audited

Form 10-Q Quarterly Report - Must be reviewed; but not audited

Form 8-K - A notice of a material event; Must be filed within 4 days of event

Question 12

Who can sue under the Securities Act of 1934?

Answer 12

Purchases and Sellers of Securities

Question 13

Name the Requirements for an Accountant to be liable for fraud under the Securities Act of 1934.

Answer 13

Damages

Material Misstatements

Reliance on financial statements

Scienter or reckless disregard for the truth

Question 14

What procedures must an Accountant have in place under the Securities Act of 1934?

Answer 14

Accountant must have procedures in place to:
Determine if Going Concern is an issue
Determine if any material related party transactions occurred

Determine if material illegal acts occurred

Question 15

Insider trading rules under the Securities Act of 1934 apply to which individuals?

Answer 15

Officers; Directors and 10% Owners

Question 16

What are the Proxy Solicitation Requirements under the Securities Act of 1934?

Answer 16

Proxy must give shareholders audited balance sheets from 2 most recent years

o Requirement holds true even if one class of stock

Question 17

What recourse does purchaser have if issuer fails to meet disclosure requirements?

Answer 17

Rescind sale

Question 18

What length of time must an issuer restrict a purchasers right to resale for?

Answer 18

2 years

Question 19

What does 1934 Act section 10(b) state?

Answer 19

Unlawful to use deceptive practices to purchase/sell securities used in interest ate commerce

Question 20

For what/when must an issuer notify the SEC?

Answer 20

Upon first sale of securities, within 15 days

Question 21

Under 1934 Act, what are insiders required to report?

Answer 21

Report changes of ownership of stock within 15 days to SEC

Question 22

What must be provided to unaccredited investors under Reg D

Answer 22

Audited F/S

Question 23

Who is outside the scope of the 1933 Act?

Answer 23

Securities offered by any person other than an issuer, underwriter or dealer

Question 24

Does corp need state approval of issuance if all necessary docs are filed with SEC?

Answer 24

Corp must file necessary docs in states which have laws governing such offering and obtain their approval

Question 25

Who is subject to SEC continuous disclosure system under section 12 of 1934 Act?

Answer 25

Companies with 10mil + in assets and 500+ shareholders

Question 26

What is the 1933 Act statute of limitations?

Answer 26

Civil- 1 year from discovery or three years from offer date

Question 27

What is a tombstone advertisement?

Answer 27

Makes known availability of prospectus

Question 28

When are securities for securities exempt?

Answer 28

If to existing shareholders and no commission paid

Question 29

What must be disclosed under 1934?

Answer 29

Bonus and profit sharing, financial structure, names of officers and directors

Question 30

What happens when proxy solicitations exist?

Answer 30

Proxy statement must be filed

Question 31

Must render offer and proxy solicitation be reported to SEC?

Answer 31

Yes

Question 32

A purchaser of _% of shares must file a report with the SEC?

Answer 32

5

Question 33

Dodd Frank requires which committee to be independent?

Answer 33

Compensation committee