Government Regulation of Business Flashcards
What does the Securities Act of 1933 apply to?
sales of securities, including stocks, bonds, notes that are issued for periods over 9 months.
What is a security
When a person invests in an enterprise that is primarily managed by another, the investment will probably qualify as a security
what is a warrant
the right to purchase corporate stock for a limited time at a fixed price
WKSI
Well known seasoned issuers - they can offer their shares without regard to the rules mentioned before bc the market is always well informed about them.
FWPs
Few writing prospectus - WKSI’s can file them if they file them with the SEC.
What must be contained in a non-WKSI issuer’s securities-registration statement filed under the Securities Act of 1933?
A description of the security
How the corp will use of proceeds of the sale
Description of the registrants biz and mgmt
FS
What is included in the prospectus
Describes the issuing corp
risks
type of security being sold
What kinds of places are exempt from registering under the 1933 act?
Charities, railroad companies, farmers cooperatives, bank
When may Rule 504 be used?
when a companys total offerings for a year are under $1M and the company is not an investment co. Also, the SEC must be notified within 15 days of the first sale to qualify for this exemption.
What types of securities are exempt from registration under 1933?
Governmental securities (municipal bonds)
Under Rule 505 and 506,
can make an unlimited number of offers, but can sell to no more than 35 non-accredited investors (and an unlimited number of accredited investors). The 35 must be either sophisticated or acting thru a purchaser representative.
How many non accredited investors may one have under Rule 504?
unlimited
is resale restricted under 504?
yes, unless either (a) the securities are registered under a state law requiring public filing and delivery of a substantive disclosure document to investors, or (b) the securities are issued under a state-law exemption that permits general solicitation, so long as sales are made only to accredited investors.
what does rule 506 require?
merely requires that the securities not be advertised to the general public and not be sold to more than 35 non-accredited investors. Any type of security may qualify for this exemption, including stocks and debentures. There is no limit on the dollar value of the issue, so long as the other restrictions are complied with.
1933
The 1933 Act gives many exemptions to registration. One of them (in Rule 147) involves intrastate issues. If an offering is made by an issuer who resides in the state, and the offering is made entirely to residents of that state, then registration is unnecessary. There are important requirements contained in Rule 147 that must be met, including that 80% of the funds raised must be used in the state.
what does the JOBS act allow
allows firms to engage in general solicitation in a Reg D Rule 506 private placement so long as they sell only to accredited investors.
what is the maximum amount a firm can raise in a given year through crowdfunding
$1M
what benefits does an EGC receive?
Need not comply with SOX 404(b) requirement of audit for internal controls.
Need not comply with the new PCAOB rules.
Reduced disclosure regarding executive compensation
General solicitation will be allowed under 506 and 505 Reg D offerings only
if the issuer takes reasonable steps to insure that it sells only to accredited investors
what is the maximum amount a person can invest in crowdfunded ventures during the course of a single year
$100,000
under the JOBS act, can foreign companies use the crowdfunding exemption?
nada
what benefits does an EGC receive during its IPO?
reduced requirement for audited financial statements
confidential review of its registration statements by the SEC
In what circumstance brought against a CPA who issues an audit report containing an unqualified opinion on materially misstated financial statements, may a plaintiff prevail without proving reliance on the audit report?
With minor exceptions, a plaintiff in a Section 11 suit need not provide reliance in order to prevail.
Do plaintiffs need to establish reliance or negligence to win a section 11 case?
Nope
what is a necessary element for a plaintiff to recover damages if there has been a material misstatement in a registration statement?
that the plaintiff suffered a loss.
a purchaser may recover under section 11 of the 1933 act only if the purchaser….
brings a civil action within 1 year of the discovery of the omission and within 3 years of the offering date
what does section 10(b) require
an intent to defraud
which securities act created the SEC?
1934
under the periodic disclosures system reporting companies include firms that are
exchange-listed
have 500 shareholders and $10M in assets
What is Section 10(b)
the most significant securities law provision in the world. it punishes fraudulent statements and omissions in the purchase and sale of securities
what must a plaintiff prove in order to win a section 10b case?
False statement or omission Materiality Reliance Causation Purchase or Sale Damages A CPA must have (1) intentionally or recklessly (2) made a misstatement of material fact or omitted a material fact (3) that was relied upon by the defendant. Does NOT have to show that plaintiff was an intended user.
What is a defense to 10b
statute of limitations
Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acts
without good faith
What are victims of fraudulent misstatement entitled to?
entitled to rescind the transaction or recover losses caused by their reliance on the false statments
What does Dodd Frank attempt to do?
Limit risk
Limit proprietary trading
Increase transparency in the OTC market
Increase disclosure by hedge funds
what did the Dodd Frank create?
the financial stability oversight council FSOC
consumer financial protection bureau CFPB
How does the Dodd Frank impact accoutnants?
It authorizes the PCAOB to regulate accountants who audit non-public broker-dealers.
what are some aspects of Dodd frank
- Increased the regulation of insurance companies
- prohibits banks from engaging in proprietary trading
- requires mortgage originators to retain an economic interest in a portion of the credit risk of any securitized asset that they create and sell.
who does the dodd frank require independence for
All members of the compensation committee of the board of directors
