Regulation of Securities and Issuers

Question 1

What are the Categories of Federal Covered Securities

Answer 1

Securities offered by:
1. Open/closed investment company. Unit Investment Company. Face amount certificate.

2. Securities on U.S. exchanges. Securities equal in seniority (rights and warrants) or senior to these (bonds and preferred stock)
3. Securities offered under 506 (b) and 506 (c) of Regulation D (qualifying under a private placement transaction)

Question 2

What security is exempt from Federal or State registration.

Answer 2

Municipal bonds (unless they are offered within the state they were issued)

Question 3

Exempt Securities from State Registration

Answer 3

1. U.S. and Canadian government and municipal securities (and their subdivisions).
2. Foreign government securities. That maintains diplomatic relations. (not their subdivisions)
3. Depository institutions: interest or debt guaranteed by any bank, savings institution or trust company,
   For the loan association, federal credit union (must be authorized to business in the state)
4. Insurance company securities, authorized to do business in the state (not variable life policies and variable annuities)
5. Public Utility and Common carrier securities (public utility, public utility holding company, equipment trust certificate issued by a railroad by state, the governmental authority of U.S or Canada.
6. Federal covered securities
7. Securities by nonprofit
8. Securities of employee benefits plan. (ie. employee stock purchase, savings, pension, or profit-sharing plan)
9. Certain money market instruments (Commercial paper)

Question 4

Exempt State Transactions

Answer 4

1. Isolated nonissuer transactions. (secondary transactions that occur infrequently. Don’t involve securities professionals)
2. Unsolicited brokerage transactions. Transactions initiated by the client, not the agent. (most common exempt transaction)
3. Underwriter transactions. Transactions between issuer and broker-dealer performing in the capacity of an underwriter. And between underwriters themselves.
4. Bankruptcy, guardian or conservator transactions.- Transactions by an executor, administrator, sheriff, marshal, receiver, guardian, or trustee in bankruptcy are exempt transactions.
5. Institutional investor transactions.- Primarily transactions with financial institutions such as banks, insurance companies, and investment companies, no minimum order size
6. Limited offering transactions. - These include any offering called a private placement. Directed to not more than 10 persons (called offerees, not purchasers other than institutional investors during the previous 12 consecutive months provided that:
   - Seller reasonably believes that all of the non-instituional buyers are purchasing for investment purposes only.
   - no commissions or other remuneration is paid for soliciting non-instituional investors, and
   - no general solicitation or advertising is used.
7. Preorganization certificates. -An offer or sale of a preorganization certificate or subscription is exempt if:
   - no commission or other remuneration is paid or given directly or indirectly for soliciting any subscriber
   - the number of subscribers does not exceed 10
   - no payment is made by any subscriber
8. Transactions with existing security holders. -Transaction made under an offer to existing security holders of the issuer. (holders of convertible securities, rights or warrants)
   - as long as no commission is paid directly or indirectly for solicitation
9. Nonissuer transactions by pledgees.- A nonissuer transaction executed by a bona fide pledgee (ie. the wone who received the security as collateral for a loan) as long it was not for the purpose of evading the act.

Question 5

The Administrator may, by rule or order, deny or revoke the securities registration exemption of:

Answer 5

1. Any security issued nonprofit
2. Any investment Contract issued in connection with an employees stock purchase, savings pension, profit-sharing, or similar benefit plan

Question 6

The Administrator may, by rule or order, deny or revoke the transaction registration of:

Answer 6

Any transactions that don’t involve a federal covered security.

Question 7

Exempted Securities under the securities act of 1933

Answer 7

1. Any issued or guaranteed by the U.S, any state, or political subdivision of a state. (Note that Canadian securities are not included in this exemption.)
2. Commercial paper that has a maturity at the time of the issuance of no more than 9 months (270 days) with the stipulation that proceeds are to be used by issuer to increase working capital, not for the purchase of fixed assets.
3. Any security issued by a non-profit
4. Any interest in a railroad equipment trust
5. Security issued by a federal or state bank, savings, and loan association, building and loan association.

Question 8

What is Rule 147 Exemption

Answer 8

Exemption registering a security under federal law where its exempt security under federal law but not exempt under USA and will have to register with the state. If the issue is offered and sold exclusively to residents of a single state of the principal place of business.

Question 9

Exempt Transactions under the Securities Act of 1933

Answer 9

1. Transactions by any person other than an issuer, underwriter, or dealer (private transactions between individuals)
2. Transactions by an issuer that do not involve a public offering (private placement under Regulation D)

Question 10

Requirements for raising capital through a private placement under Rule 506(b)

Answer 10

Sell offering to unlimited number of accredited investors and up to 35 non-accredited investors.
-No advertising may be done

Question 11

Requirements for raising capital through a private placement under Rule 506(c)

Answer 11

• All purchasers are accredited investors, or believes them to be.
• The issuer takes reasonable steps to verify all purchasers are accredited, investors.
• Offering may be advertised.

Question 12

What is an accredited investor under Regulation D?

Answer 12

1. Bank, insurance company, or registered ivnestment company.
2. An employee benefit plan if a bank, insurance company or reigstered investment adviser makes the investment decisions or if plan has total assets in excess of 5million
3. Charitable organization, corporation with assets over 5 million
4. Directors, executive officers and general partners of the issuer
5. Any natural person whose individual net worth or joint net worth not including residency exceeds 1 million at the time of purchase.
6. Any natural person who has an individual income in excess of 200,000 or joint income of 300,000
7. entities made up of accredited investors

Question 13

Does a prospectus include oral communications and tombstone advertisement

Answer 13

No.

Question 14

Registration of Securities under Federal Law must file what and be signed by who

Answer 14

Issuer must file a Registration statement disclosing material information about issue. Signed by CEO, CFO, and majority of the board of directors.

Question 15

Information Required in registration statement

Answer 15

1. purpose of issue
2. public offering price
3. underwriter’s commissions or discounts
4. Promotion expenses
5. Expected use of the net proceeds of the issue to the company
6. balance sheet
7. earnings statements for the last three years
8. Names, addresses, and bios of officers, directors, stockholders owning more than 10% of outstanding stock and underwriters of the issue.
9. copy of underwriting agreements
10. copies of articles of incorporation

Question 16

What is the cooling-off period

Answer 16

After an issuer files a registration statement with the SEC. 20 day cooling-off period begins. Red herring prospectus may be solicited.

Underwriters may not:

• take orders
• distribute sales literature or advertising material

They may:

• take indications of interest
• distribute preliminary prospectuses
• publish tombstone advertisements to provide information about the potential availability of the scurities

Question 17

What can and can’t a Preliminary Red Herring Prospectus be used for

Answer 17

• Used as a solicit indication of buyer interest. Includes an estimate of price range per share and the expected amount of shares to be sold.
• It cannot be used as a confirmation of sale, in place of a registration statement, or declare the final public offering price.
• Doesn’t include an effective date.

Question 18

State Seucriites Registration Procedure and whats in the registration statement

Answer 18

File registration application with state securities administrator known as the registrant.

In the registration statement:
1. amount of securities to be issued in the state.

2. satates in which the security is to be offered, but no the amounts offered in those other states
3. Any adverse order or judgement concerning the offering by regulatory authorities, court, or the SEC
4. Anticipated effective date
5. Anticipated use of the proceeds

Question 19

Who might the state securities registration statement processes be filed by?

Answer 19

Issuer, but also a selling stockholder (like one making a large block sale)

Question 20

How often may the administrator require the person who filed the state securities registration statement to file reports to keep registration current and the progress of the offering?

Answer 20

No more than Quarterly

Question 21

What is the process in a federal covered security filing a notice filing with the state and what does it include?

Answer 21

Administrator has the authority to require notice filings by a federal covered security.
Includes:
-Documents filed along with their registration statements filed with the SEC
- Documents filed as amendments to the initial federal registration statement
-A report as to the value of such securities offered in the state.
-Consent to service of process.

Question 22

What items are included in Registration by Coordination

Answer 22

1. Copies of latest form of prospectus filed under Securities Act of 1933 if the admin requires it.
2. Copy of articles of incorporation and bylaws, a copy of the underwriting agreement, or a specimen copy of the certificate
3. If the Administrator requests, copies of any other information filed by the issuer under the Securities Act of 1933
4. Each amendment to the federal prospectus propmptly after it is filed with the SEC.

Question 23

Stipulations of Effective Date of coordination

Answer 23

Registration becomes effective at the same time the federal registration becomes effective provided:

1. No stop orders have been issued
2. registration has been on file for a least 10-20 days
3. Statement of maximum and minimum offering prices and underwriting discounts have been on file for two business days.

Question 24

What items are included in Registration by Qualification

Answer 24

Supply a consent of service of process and:
1. name, address, form of organization, description fo property, and nature of business.

2. name and address of any person owning 10% or more of outstanding shares
3. estimated proceeds and use of proceeds
4. Type and amount of securities offered, offering price and selling and underwriting costs.
5. Copy of any prospectus, pamphlet, circular, or sales literature to be used in the offering
6. a specimen copy of the security’s certificate.