Federal Securities Acts

Question 1

What are the key points of the 1933 Securities Act?

Answer 1

Governs = IPO’s

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

BRINGS

B = Banks 
R = Regulated common carriers (railroads)
I = Insurance policies 
N = Not for profits
G = Government paper (bonds) 
S = Short term commercial paper (notes, bonds)

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 is Regulation A in the 1933 Securities act?

Answer 3

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

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

Unaudited financial statements = okay

Question 4

What are Regulation D 504, 505, & 506 for 1933 Securities act?

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
Max investors = 35 or fewer Unaccredited investors must be sophisticated; unlimited accredited investors

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

Define:

Blue Sky Law

Red Herring Prospectus

Tombstone Ad

Answer 17

Blue Sky Law = state law governing stock sales

Red Herring Prospectus = preliminary prospectus

Tombstone Ad = ad identifying price and who will execute order

Question 18

What is a shelf registration?

Answer 18

One financial statement needed when there are multiple filings.

Question 19

What 3 things are needed to prove Section 11 Liability (1933 Securities Act)?

Answer 19

1. Plaintiff acquired stock
2. Plaintiff suffered loss
3. Registration contained material misstatements

Only monetary damages are available for Section 11.

Question 20

What are the 2 attributes require a company to register with the 1934 Securities Act?

Answer 20

1. Companies nationally traded

2. Companies with at least 500 shareholders and $10MM+ in assets

Question 21

What are the reporting requirements for 1934 Securities Act?

Answer 21

5% TIP

5% owners
T = Tender offers (person making it, not the corp itself)
I = Insiders
P = Proxies

Question 22

What is unique about Rule 10b-5 with 1934 Registrations?

Answer 22

Unlike section 11 liability, rule 10b-5 requires proof of scienter (intent) and reliance of material misstatement.

Question 23

Securities Regulation 1933:

What is Rule 147?

Answer 23

Rule requiring that the securities are intrastate sales only, issuer must do 80% of its business in that state, and purchaser cannot resale for 9 months.