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 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

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.

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: $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

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 GAAS

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 - purchases and sales after initial issuance.

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 years0

o Requirement holds true even if one class of stock

Question 17

The 1933 Act regulates

Answer 17

Original issuances of securities. Goal is to make sure investors have sufficient info in order to make an informed decision. SEC check for the completeness of the info and not the accuracy.

Question 18

Registration Statement of 1933 Act

Answer 18

Must include a property’s and info about the security - BS & PL Statements - no more than 90 days of filing for BS and 5 yrs for P&L. Becomes effective on the 20th day after filing with SEC. SHELF Registration - registration for future issuance - so the company does not have 5o keep on filing.

Question 19

Regulation A

Answer 19

Partial exemption, simplified form of registration that cost less to prepare than full registration. May not exceed $5 mil in a 12 mth period.

Question 20

Regulation D - Private Offering Exemption

Answer 20

3 private offerings - rules 504, 505, 506 - no advertising allowed, immediate resale to public not allowed, inform SEC within 15 days after first sale.

Question 21

Rule 504

Answer 21

$1 mil limit, no limit on number or type of purchasers,

Question 22

Rule 505

Answer 22

$5mil limit, any number of accredited purchasers and 35 or less unaccredited.

Question 23

Rule 506

Answer 23

No dollar limit, any number of accredited investors, 35 or less unaccredited but sophisticated investors.

Question 24

1933 Act Liability

Answer 24

Sect 11- civil liability on misstatements, sect 12- no required statement made or false statements, sect 17 - fraud acts

Question 25

1934 Filing Requirements

Answer 25

Companies with shares on the exchange or with assets of $10 mil, at least 200 shareholders.

Question 26

Periodic Business Report

Answer 26

10- K : annual report; 10- Q: quarterly report;8- K : major change in company