Federal Securities Regulation 1 of 3 (30)

Question 1

Securities Act of 1933 (“Truth in Securities Act”)

Answer 1

An act passed by Congress requiring a company to register securities with the Securities & Exchange Commission (SEC) before they may be sold to the public by filing a registration statement, which includes a prospectus.

Question 2

Exempt Securities and Transactions under 1933 Federal Securities Act

Answer 2

Section 3 of the Securities Act of 1933 describes certain securities that are exempt, while Section 4 describes certain transactions that are exempt. (ACID-BRAINS)

• Regulation A– small offerings small public offerings (< $50M over 12 mo’s; 20-day notice/waiting period; offering circular; can advertise/resell)
• Commercial paper (notes, bonds) mature < 9 mo’s and used for Commercial (not investing) purposes. Also:
  
  • Casual sales by other than issuer, underwriter, dealer
  • Crowdfunding (< $1M over 12 mo’s sold through online intermediary)
• Intrastate offerings
  
  • At least 80% of co sales are exclusive to state of incorporation and principal place of business, but buyers cannot resell outside the state for 9 mo’s.
• Regulation D – Private placement offerings (Rule 504 < $5M, Rule 506 = unlimited)
• Brokerage transactions
• Regulated industries (Savings and loans – e.g., CDs)
• Agencies of the Gov. (Railroads, Municipal bonds)
• Insurance contracts/Policies
  
  • Stock issued by insurance companies is not exempt.
• Not for profit (charity/church)
• Stock dividends / Splits (i.e., exchanges with existing holders) as long as no commission is paid.

Question 3

Regulation D Summary – Private Placement (Rule 504)

Answer 3

Rule 504

• Notify SEC within 15 days of first sale (Form D)
• No general solicitation or advertising (generally)
• Resale generally restricted up to 1 year
• Offerings < $5,000,000
• Offerings must occur within a 12-month period
• Unlimited number of investors
• Financial Information Given = Nothing

Question 4

Regulation D Summary – Private Placement Rule 506

Answer 4

Rule 506

• General Solicitation and advertising allowed if purchasers are all accredited investors
• Investment purpose only - Cannot resell for 1 year
• Unlimited dollar amount
• Unlimited amount of time for issuance
• Unlimited accredited investors
• Non-accredited < 35 (0 if general solicitation)
• Accredited = Nothing
• Non-accredited = Audited B/S and represented by sophisticated investor