Federal Securities Acts Flashcards
1933 Federal Securities Act requirements
- Registration of securities intended for sale to the public
- Sufficient information is available to potential investors
What is a security?
An investment in an enterprise, where the investor intends to make a profit through the managerial efforts of others, rather than through his own efforts
Examples: Cmn Stk/Pref Stk, T/S, Bonds, Investment contracts
(Does not include Certificates of Deposits)
What are the 2 required items that must be filed with registering a security?
- Prospectus - describes the securities, the company, and the risk
- Registration Statement - describes the use of proceeds and audited financial statements
When and What is considered the “effective date” of registration statements for securities?
20 days from the day SEC considers the registrations complete
Securities may now be sold
Public Offers refers to what?
Attempts to transfer shares from the issuing company or other knowledgeable insiders to outsiders who may have no special understanding about the company
Interstate commerce refers to what?
Offers that involve people in more than a single state.
Regulation A
- Small Offerings (up to $5M in 12 mo or less)
- Exempt from Registration
- Can be freely advertised, no restrictions on resale or type of investors
- SEC must be notified w/in 15 days
- Offering circular must be prepared and provided to all prospectus investors
Regulation D: Rule 504
- Offerings up to $1M w/in 12 mo.
- Exempt from Registration
- SEC must be notified w/in 15 days
- No advertising to “non-accredited investors”
- Resale to non-accredited investors is allowed
- Unlimited # of investors
- Cannot use if required to report under 1934 Act
Regulation D: Rule 505
- Offerings up to $5M w/in 12 mo.
- Exempt from Registration
- SEC must be notified w/in 15 days
- No advertising at all
- No resale for 2 years
- Limited to 35 or fewer non-accredited investors (unlimited accredited investors)
- Can use if required to report under 1934 Act
Regulation D: Rule 506
- Unlimited $ value and time
- Exempt from Registration
- All requirements of Rule 505 apply!
- SEC must be notified w/in 15 days
- No advertising at all
- Limited to 35 or fewer non-accredited investors
- Non-accredited investors must be ‘sophisticated investors’
- Can use if required to report under 1934 Act
- Under JOBS Act, now allowed for general solicitation provided all purchasers are accredited investors
Exception to Regulation D
A purchaser of restricted securities in a private offering (REG D), who purchased them for investment purposes rather than resale, may resell the securities subject to certain restrictions:
- must have been held for 2 years
- SEC must be notified of the intention to sell
Tender Offer
A takeover bid by a prospective acquirer to all stockholders to tender their stock at a specified price (attempts to buy 5% or more of a class of stock) The purchaser must file with SEC
Insider Trading
Directors, Officers, and 10%+ shareholders must report every purchase and sale
Once a registration for sale of security is filed what can a company then do?
- Oral offers to sell shares
- Issue a preliminary prospectus called a “red herring”
- After the 20 day waiting period, registration is considered “effective” and a “tombstone ad” can be placed to inform investors about obtaining prospectus
A registrations statement must be filed and a prospectus made available when applicable offerings are based on:
“SPIN”
- Securities (stocks, bonds,options, etc)
- Public Issue (transfer of shares from issuing co to outsiders with no special understanding of co)
- Interstate Commerce (between states)
- No other exemption is available
