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 info 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

(1) Banks; (2) Commercial Paper; (3) Farmers; (4) Co-ops; (5) Charities; (6) Governments
(7) 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 $50M 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 is $1M; Max Investors: Unlimited

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

Rule 506: - Max Amount per year: Unlimited; Same as 505;

However, **35 Unaccredited investors must be sophisticated **or Unlimited Accredited

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

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: **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

Requirement holds true even if one class of stock