Federal Securities Acts

Question 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

Answer 1

Federal Securities Acts

Question 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.

Answer 2

Federal Securities Acts

Question 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

Answer 3

Federal Securities Acts

Question 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

Answer 4

Federal Securities Acts

Question 5

S-1 - Long Form or

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

Answer 5

Federal Securities Acts

Question 6

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

Answer 6

Federal Securities Acts

Question 7

Purchasers of securities only

Answer 7

Federal Securities Acts

Question 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

Answer 8

Federal Securities Acts

Question 9

Accountant used Due Diligence

Accountant followed GAAP

Damages weren’t caused by accountant’s work

Plaintiff knew of the material misstatements

Answer 9

Federal Securities Acts

Question 10

The trading/selling of securities after the IPO

Answer 10

Federal Securities Acts

Question 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

Answer 11

Federal Securities Acts

Question 12

Purchases and Sellers of Securities

Answer 12

Federal Securities Acts

Question 13

Damages

Material Misstatements

Reliance on financial statements

Scienter or reckless disregard for the truth

Answer 13

Federal Securities Acts

Question 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

Answer 14

Federal Securities Acts

Question 15

Officers; Directors and 10% Owners

Answer 15

Federal Securities Acts

Question 16

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

o Requirement holds true even if one class of stock

Answer 16

Federal Securities Acts