Federal Securities Acts Flashcards
What are the key points of the 1933 Securities Act?
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
What entities are exempt from filing registration statements under the 1933 Securities Act?
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.
What are the key points of the 1933 Securities Act; Regulation A?
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
Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?
Rule 504- Max Amount per year: $1M; Max Investors: Unlimited; must notify SEC within 15 days after the first sale of the securities
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; the SEC must be notified 14 days after the sale of securities
When there are non-credited investors who are purchasing securities, at least an audited balance sheet must be provided.
Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?
Rule 504- Max Amount per year: $1M; Max Investors: Unlimited; must notify SEC within 15 days after the first sale of the securities
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
When there are non-credited investors who are purchasing securities, at least an audited balance sheet must be provided.
Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?
Rule 504- Max Amount per year: $1M; Max Investors: Unlimited; must notify SEC within 15 days after the first sale of the securities
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
What are the registration form options under the 1933 Securities Act?
S-1 - Long Form or
S-2 and S-3 - Less Detailed and preferred by issuers
Name the securities registered under the Securities Act of 1933.
Stocks Stock Options Stock Warrants Limited Partnership Interests - General Partnerships not allowed Bonds
Who can sue under the Securities Act of 1933?
Purchasers of securities only
Name the Requirements for Accountant to be liable under the Securities Act of 1933.
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
Name the Defenses of an Accountant under the Securities Act of 1933.
Accountant used Due Diligence
Accountant followed GAAS
Damages weren’t caused by accountant’s work
Plaintiff knew of the material misstatements
What does the Securities Act of 1934 govern?
The trading/selling of securities after the IPO
What reports must be filed under the Securities Act of 1934?
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
Who can sue under the Securities Act of 1934?
Purchases and Sellers of Securities
Name the Requirements for an Accountant to be liable for fraud under the Securities Act of 1934.
Damages
Material Misstatements
Reliance on financial statements
Scienter or reckless disregard for the truth
What procedures must an Accountant have in place under the Securities Act of 1934?
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
Insider trading rules under the Securities Act of 1934 apply to which individuals?
Officers; Directors and 10% Owners
What are the Proxy Solicitation Requirements under the Securities Act of 1934?
Proxy must give shareholders audited balance sheets from 2 most recent years
o Requirement holds true even if one class of stock
Under Regulation D of the Securities Act of 1933, what is the maximum time period during which an exempt offering may be made?
12 months
Under the Securities Act of 1933, subject to some exceptions and limitations, it is unlawful to use mails or instruments of interstate commerce to sell or offer to sell a security to the public unless what?
A registration statement has been properly filed with the Securities and Exchange Commission, has been found to be acceptable and is in effect
True or False:
According to the Securities Act of 1933: If an issuer sells a security and fails to meet certain disclosure requirements, the purchaser may sell it back to the issuer and recover price paid
True
Under Section 12 of the Securities Exchange Act of 1934, in addition to companies whose securities are traded on a national exchange, what class of companies is subject to the SEC’s continuous disclosure system?
Companies with assets in excess of $10 million and 500 or more shareholders
True or False:
The provisions of the Securities Exchange Act of 1934 requires the distribution of financial statements prior to or concurrent with a proxy solicitation
True
Under the Securities Act of 1933, what is the purpose of registration?
To adequately and accurately disclose financial and other information upon which investors may determine the merits of securities
A preliminary prospectus permitted under SEC regulation is known as what?
Redherring prospectus
What is a tombstone advertisement?
Makes known the availability of a prospectus