Federal Securities Regulation

Question 1

What does the 1933 Act covers?

Answer 1

Initial public offerings
Seasoned offerings
Secondary offerings

Question 2

What are the basic procedures under the 1933 Act

Answer 2

Issuers file registration statement with SEC
Issuers wait 20 days for SEC approval
Registration deemed effective and sales can begin

Question 3

What securities are exempt from registration?

Answer 3

Bank and government securities
Short -term notes
Charitable organization securities
Regulated savings and loans
Federally regulated common carriers
Receiver or trustee in bankruptcy
Insurance and annuity policies

Question 4

What are the 3 exemption rationale under the 1933 Act?

Answer 4

1) Small offering exemptions
2) Private placement exemptions (wealth)
3) Intrastate offering exemptions

Question 5

Which rules are used under the small offering exemptions?

Answer 5

Rule 504
Regulation A
Section 4(a)(6) crowdfunding

Question 6

Which issuers may use Rule 504?

Answer 6

1) 1934 Act reporting companies (2,000 shareholders,
single class stock, $10 mil in assets)
2) Investment companies
3) Blank check companies
4) Bad actors

Question 7

How much may an issuer raise under Rule 504?

Answer 7

$ 5 mil in any 12-month period

Question 8

What are the limitations of Rule 504?

Answer 8

General solicitation not allowed

Question 9

Under Rule 504 what must the issuer file with the SEC?

Answer 9

Form D withing 15 days of first sale of securities

Question 10

Which issuers may use Regulation A?

Answer 10

Start-up companies

Question 11

How much may an issuer raise under Regulation A?

Answer 11

1) $20 mil - no investor qualification

2) $ 50 mil - non accredited investor stock less than 10%

Question 12

What must a Reg A issuer file with the SEC?

Answer 12

Test the waters documents and short form registration form

Question 13

Which issuers may use crowdfunding?

Answer 13

All non-reporting domestic firms

Question 14

How much money may an issuer raise using crowdfunding exemption?

Answer 14

$1 million

Question 15

What are the limitations of crowdfunding?

Answer 15

Investor cannot invest directly with the issuer

Question 16

What are the restrictions on investors to resell crowdfunding securities?

Answer 16

Investors may not sell their securities for at least a year

Question 17

What rule is used for Private Placement Exemptions?

Answer 17

Rule 506

Question 18

Which issuers may use Rule 506?

Answer 18

All issuers except bad actors

Question 19

How much may an issuer raise under Rule 506?

Answer 19

Unlimited

Question 20

What are the purchasers qualifications under rule 506?

Answer 20

May sell an unlimited number of accredited investors but no more than 25 unaccredited investors all of whom must be either:

1) Sophisticated
2) Acting through a purchaser representative

Question 21

What rule is used for interstate offerings Exemptions?

Answer 21

Rule 147

Question 22

How much may an issuer raise under Rule 147

Answer 22

Unlimited

Question 23

What are the requirements for an Emerging Growth Company?

Answer 23

1) have less than $1 billion in revenues
2) publicly traded less than 5 years
3) public float less than $700 million
4) not issued $ 1 billion in non-convertible debt in 3 year period

Question 24

What are the 3 causes of violation under the 1933 Act Civil liability?

Answer 24

1) Sec 11 - remedies misleading statements and omissions contained in registration statement
2) Sec 12(a)(1) - remedies violations of SEC 5
3) Misstatements and omissions in initial sale securities

Question 25

What elements does a plaintiff have to prove under 1933 Act Civil Liability?

Answer 25

1) False statement and omission appeared in registration statement
2) Misstatement and omission material
3) Plaintiff bough securities issued under defective registration
4) Plaintiff suffered damages

Question 26

What are the defenses for 1933 Act Civil Liability?

Answer 26

1) Due diligence
2) Lack of reliance
3) Alternative causation
4) Statute of limitations

Question 27

What is the Section 10(b) and Rule 10b-5 of the 1934 Act apply to?

Answer 27

All securities

Question 28

What is the difference between a plaintiff suing under Section 11 of the 1933 Act and Section 10(b) under the 1934 Act, when erroneous financial statements are used?

Answer 28

1) Under Section 11 the plaintiff have to prove negligence and the burden of proof is on the defendant
2) Under Section 10(b) the plaintiff have to prove scienter (bad intent) and the burden of proof is upon the plaintiff

Question 29

What does the plaintiff have to prove to win 10b-5 claim?

Answer 29

1) False statement or omission of material fact
2) Scienter by defendant
3) Reliance by Plaintiff (omission don’t have to prove reliance)
4) Causation
5) Damages

Question 30

What are the statute of limitations for section 10 (b)?

Answer 30

Plaintiff must sue:

1) Within 2 years of when the fraud was or should been discovered
2) Within 5 years of the fraud

Question 31

What are the defenses under Section 10(b)?

Answer 31

Statute of Limitations

Fraudulent or Reckless conduct by Plaintiff

Question 32

What are the criminal Liability penalties for 1933 Securities Act and 1934 Securities Act?

Answer 32

1) 1933 Securities Act - up to $10,000 or 5 years in jail

2) 1934 Securities Act - up to $2,500,000 or 20 years in jail