Federal Security Regulation Flashcards
What is the SEC responsible for
- administering federal security law
- regulating brokers
- issuing rules on details of retaining work papers
- delisting issuers
What is a security
MY goal is to make money through the managerial efforts of others
common stock preferred stock options debentures ( unsecured) warrants Limited partnership NO - general partnership
Can a general partnership be a security
No
Can a limited liability company be a security
Yes - passive you make money through the efforts of others
Is a CD a security
NO
What are the federal security regulation?
the 1933 act and the 1934 Act
if you exempt on one can you be exempt on another
no - they are separate
What did 1934 create
SEC
1933 act does what
it make sure that there is enough information for you to make decision - NOT whether it is a good buy or not
How much stock do you have to own to be considered an issuer
greater than 10%
What is a states own security law called
blue sky law
If you are a public company and an owner has more than 10% What do they have to do
THEy must register with the SEC AN d report every purchase and sale to the SEC
WHEN must a company file a registration statement
Under the 1933 any company that offers a future offering of common stock must file a registration IF Is does NOT meet one the the exemptions
ACID BRAIN
Who must report a tender offer
The party making the tender offer must report it to the SEC -
WHAT is a tender offer
This is an offer to purchase some or all of shareholder’s shares of a corporation - usually at a premium
Wha are short wing trades and who is required to report them to the SEC
This requires a company insider ( owns more than 10%) to return any profits o to the company from sales /purchase if they occur in a 6 month window
The inside is supposed to report this - not the company
Are securities of a a bank exempt from 1944 registration
Yes because they are regulated b someone else - the federal reserve system
Do promissory notes maturing in 12 months have to resister with SEC - 1933
Yes because longer than 9 months - if shorter than 9 month then do not have to register
What is a shelf registration and when can you use it
No available for first time registers
- allows various sales of securities over a long period of time
- must be kept updated for changes in the company
IS an attorney considered an insider subject to 1934 registration
yes they are
do you have to register is you sell muni bonds across state line
no - they are exempt even across state lines
Under 1934 - what are the requirements
- if you are listed on a national stock exchange
assets of 10M or more - have 500 or mom non accredited stockholders
- or over 2000 stockholders of any type
When can you start selling securities
You can so it once the registration statement become effective
This is normally 20 days after it is filed with the SEC
IS A CPA considered an insider
a c- level officer is ]
a controller is not necessarily unless that are made to be an insider through their responsibility and connect with CEO etc.
What is a tipped
someone who is tipped off about a co from an insider
What is 506
- unlimited $
- Unlimited time
- yes general solicitation
- but must have less that 35 non accredited
What is the limit with crowdfunding exemption
1M
What is the limit with Regulation D 504
5M
What is the limitation under regulation A
50M
IS the prospectus include din the registration statement
Yes
Who can make a private placement exemption
any corporation that can meet the conditions
What is an investment contract and does it qualify as a security
yes a security - it provides a return based on the results of investment
What is a collateral trust certificate and is it a security
yes a security
- issued by a trustee in bankruptcy
gives the buyer the ability to earn a return based on the proceeds from asset disposal;
WHAt happens when you register for a sale of common stock
you must also provide a prospective
can make sales starting 20 days after filing
What happens if you are exempt and then want to have a later resale
A resale must also qualify under one of the available exemptions
When are the SEC’s continuous disclosure required
when a company has 10M in assets
500 or more non accredited
or 2000 shareholders or more
Does having more than 1 class of stock make you subject to 1934
No
What must you do if you acquire 5% or more of any class of shares under 1934
must report to the SEC under the tender offer rules
What should be contained in the prospectus and registration statement
the intended use of the proceeds of the offering
What happened if you fail to disclose all of the information in the prospectus - fail to meet the requirements
Under 1933 - you have a duty to disclose info to investors
if you fail to meet them then the purchaser can return the security an request a refund
DO all securities need to register with SEC
NO - if you are small or meet one of the exceptions:
- small offering commercial paper intrastate offering private placement offerings brokerage transactions already regulated industry agencies of the government insurance contracts not for profit stock dividends and splits
What are the rules with regards to advertising your security
They vary depending on the offering - can range from none to prospectus distribution
Under 504 - D when must you notify the SEC
within 15 days of the offering up to 5M
you can sell to an unlimited number of investors
sell to accredited or non accredited
No financial info is required
Gen advertising is prohibited
Under 1934 - what events must you report to the SEC
- Tender offers of over 5% ( this is an offer to buy a lot of all of a company’s stock )
- sales by insiders must be reported
- any attempts to solicit the proxies of shareholders in connection with an upcoming shareholder meeting
If you buy securities that where exempt because of regulation D what are the rules about subsequent trading
These are unregistered securities
If you have purchased them you can resell them later, but only if you follow the same restrictions and limitation as were used in the initial offering
If you are a security that qualifies for exemption - what must you still follow from the 1934 Act
All of the antifraud provisions still apply
What is included in the prospectus
info about controlling interests - large stock holders
SEC verifies to completeness - NOT Accuracy
Not guarantee it is free of risks - but just ensures that investors are aware of the risks
It a CD a security
Nope - they are considered commercial paper - not a security
If you are exempt do you need to fie a registration statement
Nope not if you are exempt
What is a red herring prospectus and when do you issue one
- this is a preliminary prospectus that is issued during the 20-day registration waiting period
what are the advertising rules under Rule 605
General solicitation and advertising are prohibited UNLESS all purchasers are accredited investors
If you are filling as an exemption under Regulation A - what are the requirements
- Must file an offering circular
- offer up to 50M
- inside of 12 months
- wait 20 day after you file
if 0-20M - must provide unaudited F/S
-if 20 - 40 - audited F/S
CAN you offer debentures is a private placement under Reg D
Yes you can along with other types of securities
Are these specifically exempt for the 1933:
one year notes issued to raise working capital
securities sold by a discount broker
pre incorporation stock subscriptions
NO - one year notes issued to raise working capital - this is longer than 9 months and therefore are not exempt even though they are commercial paper
NO - securities sold by a discount broker - not specifically exempt
No - pre incorporation stock subscriptions - not specifically exempt
When does a registration statement become effective
20 days after it is filed if it is complete
That are the rules with prospectus delivery
a prospectus must be delivered to each spectate investor without exception
When can you begin selling your security
you can’t begin selling until the registration statement has been filed with the SEC
Actual sales can’t take place until the effective date
What is the point of the securities act of 1933
It is to ensure that the truth - that adequate and accurate disclosure of material information to prospective investors
- does not detect managerial fraud
Does the SEC prosecute criminal cases
NO that is the job of the department of justice
IS the SEC charged with Requiring disclosure of facts concerning offerings of securities listed on national securities exchanges.
Yes
IS the SEC charged with Investigating securities fraud.
YEs
Is the SEC charged with Regulating the activities of securities brokers.
Yes
CAN someone who is not a n issuer, underwriter or dealer be exempt
YEs - - securities offered by otters partied are exempt
WHAt does a tombstone advertisement tell you
tombstone advertisement is used to inform potential investors of the availability of a prospectus.
WHEn can you offer to sell your securities
ANY time after you file your registration
But you can’t actually sell them until the effective date
Can a company that is traded on a public stock exchange still offer a private placement offering
Yes
It does not prevent them from issuing securities
as long as they follow the rules
True False
Shares sold under a Regulation D, Rule 506, exempt offering may be purchased by any number of investors provided there are no more than 35 non-accredited investors.
True
True False
Shares sold under a Regulation D, Rule 506, exempt offering may only be purchased by accredited investors.
False
no more than 35 non accredited
True false
An exempt offering under Regulation D, Rule 506, must not be for more than $10,000,000.
False
true false
An exempt offering under Regulation D, Rule 506, has no dollar limit.
true
Shares sold under Rule 506 may be sold to an unlimited number of accredited investors and up to 35 unaccredited investors.
An exempt offering under Regulation D, Rule 506, must not be for more than $10,000,000.
False
Have no dollar limit
An exempt offering under Regulation D, Rule 506, has no dollar limit.
true
A private placement that meets the requirements of Rule 506 of Regulation D has no dollar limit.
True False
Regulation D, Rule 506, requires that all investors in the exempt offering be notified that for nine months after the last sale no resale may be made to a nonresident.
False
There is no specific requirement that indicates that investors must be notified that no resale may be made to a nonresident for nine months after the last sale.
True False
Regulation D, Rule 506, requires that the issuer exercise reasonable care to assure that purchasers of the exempt offering are buying for investment and are not underwriters.
True
under 506 the issuer must use reasonable care to make certain that buyer are acquiring the securities for investment purposes and are not underwriters
true false
The SEC must be notified by Coffee Corp. within 5 days of the first sale of the exempt offering securities.
False
15 days
true false
Coffee Corp. must include an SEC notification of the first sale of the exempt offering securities in Coffee’s next filed Quarterly Report (Form 10-Q).
FAlse
10Q is NOT required to include notification of the first sale of the exempt securities
June 20X2—Butler made a $450,000 unregistered offering of Class B nonvoting common stock under Rule 504 of Regulation D of the Securities Act of 1933. This offering was sold over one year to 20 accredited investors with no general solicitation. The SEC was notified eight days after the first sale of this offering.
Did the offering comply with the dollar limitation of Rule 504?
Did the offering comply with the method of sale restrictions?
Was the offering sold during the applicable time limit?
Was the SEC notified timely of the first sale of the securities?
Was the SEC correct in claiming that this offering was not exempt from registration?
Yes
YEs
yes
yes
no
November 20X2—Butler made a $6,000,000 unregistered offering of preferred stock under Rule 504 of Regulation D of the Securities Act of 1933. This offering was sold during a one-year period to 40 non-accredited investors by private placement. The SEC was notified 18 days after the first sale of this offering.
Did the offering comply with the dollar limitation of Rule 504?
Was the offering sold during the applicable time limit?
Was the offering sold to the correct number of investors?
Was the SEC notified timely of the first sale of the securities?
Was the SEC correct in claiming that this offering was not exempt from registration?
No
Yes
YEs
No
Yes
September 20X2—Butler made a $10,000,000 unregistered offering of Class A voting common stock under Rule 506 of Regulation D of the Securities Act of 1933. This offering was sold over one year to 200 accredited investors and 30 non-accredited investors through a private placement. The SEC was notified 14 days after the first sale of this offering.
Did the offering comply with the dollar limitation of Rule 506?
Did the offering comply with the method of sale restrictions?
Was the offering sold to the correct number of investors?
Was the SEC notified timely of the first sale of the securities?
Was the SEC correct in claiming that this offering was not exempt from registration?
Yes
Yes
Yes
Yes
NO
