Federal Securities Acts

Question 2

What are the key points of the 1933 Securities Act?

Answer 2

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 3

What entities are exempt from filing registration statements under the 1933 Securities Act?

Answer 3

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 4

What are the key points of the 1933 Securities Act; Regulation A?

Answer 4

Issuer can issue $5M 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 5

Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?

Answer 5

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 6

What are the registration form options under the 1933 Securities Act?

Answer 6

S-1 – Long Form or

S-2 and S-3 – Less Detailed and preferred by issuers

Question 7

Name the securities registered under the Securities Act of 1933.

Answer 7

Stocks
Stock Options
Stock Warrants
Limited Partnership Interests - General Partnerships not allowed
Bonds

Question 8

Who can sue under the Securities Act of 1933?

Answer 8

Purchasers of securities only

Question 9

Name the Requirements for Accountant to be liable under the Securities Act of 1933.

Answer 9

• 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 10

Name the Defenses of an Accountant under the Securities Act of 1933.

Answer 10

• Accountant used Due Diligence
• Accountant followed GAAP
• Damages weren’t caused by accountant’s work
• Plaintiff knew of the material misstatements

Question 11

What does the Securities Act of 1934 govern?

Answer 11

The trading/selling of securities after the IPO

Question 12

What reports must be filed under the Securities Act of 1934?

Answer 12

• 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 13

Who can sue under the Securities Act of 1934?

Answer 13

Purchases and Sellers of Securities

Question 14

Name the Requirements for an Accountant to be liable for fraud under the Securities Act of 1934.

Answer 14

Damages

Material Misstatements

Reliance on financial statements

Scienter or reckless disregard for the truth

Question 15

What procedures must an Accountant have in place under the Securities Act of 1934?

Answer 15

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 16

Insider trading rules under the Securities Act of 1934 apply to which individuals?

Answer 16

Officers; Directors and 10% Owners

Question 17

What are the Proxy Solicitation Requirements under the Securities Act of 1934?

Answer 17

• Proxy must give shareholders audited balance sheets from 2 most recent years
• Requirement holds true even if one class of stock