Regulations - Securities Act of 1933

Question 1

the 1933 Act covers ______

Answer 1

new issues

Question 2

the 1934 act covers ______

Answer 2

secondary market

Question 3

The Trust Indenture Act of 1939 safeguards investors in ______ by requiring a ______ to be appointed

Answer 3

investors in corporate bonds, appointing a trustee to oversee compliance with the trust indenture

Question 4

Investment Company Act of 1940 regulates ______

Answer 4

investment companies (open/close/etc.)

Question 5

Securities Investor Protection Act of 1970 was passed to protect investor funds when a ________

Answer 5

brokerage firm fails

Question 6

Securities Act Amendments of 1975 and 1988 were used to make the 1970 act ______ and in 1988, to protect against ______

Answer 6

to make it more current, in 1988 to protect against insider trading abuse

Question 7

Sarbanes Oxley Act of 2002 used to cover the wave of ________

Answer 7

corporate scandals

Question 8

The 1933 act applies to _______ securities

Answer 8

non-exempt

Question 9

If an issuer already has securities issued in the market, they must then deliver the prospectus to investors for _____ days instead of the usual 90 (applies to the OTCBB and Pink Sheets)

Answer 9

40 days

Question 10

If an issuer will be listed on an exchange or the NASDAQ, even if it is the first offering, then the prospectus delivery period is ______

Answer 10

25 days

Question 11

The quiet period is from the ______ to the time the prospectus window expires

Answer 11

registration with the SEC

Question 12

If a registration is found to have omissions or misstatements of material facts, then it is fraud and all parties are accountable, including the

Answer 12

• underwriters
• accountants
• lawyers
• issuer

Question 13

Regulation A is part of the EZ rules and streamlines registration rules for offerings up to _____

Answer 13

$50m

Question 14

Rule 415 is part of the EZ rules and is established to ease registration for _______

Answer 14

seasoned issuers who have previously registered securities with the SEC

Question 15

Regulation A has two tiers, Tier 1 is up to ______ within a _____ period, and Tier 2 is up to ______ within a _____ period; audited financials are required for ______

Answer 15

Tier 1: up to $20m, 12 months, no financials

Tier 2: up to $50m, 12 months, need audited financials

Question 16

The simplified registration form for Reg A issues is the ______

Answer 16

S1-A

Question 17

Reg A issues have a _____ cooling off period after which they become ______ (same as “effective”)

Answer 17

20 day period, then become qualified

Question 18

Instead of a prospectus for Reg A, the issues use an __________

Answer 18

Offering Circular

Question 19

During the cooling off period for Reg A issues, an prelim Offering Circular must be delivered within _____ to sale. After qualified, the Offering Circular must be delivered within _____ of sale.

Answer 19

48 hours, 48 hours

Question 20

Reg A has a “test the waters” provision where issuers can distribute _______ before filing the registration statement and all through the 20 day cooling off period.

Answer 20

promotional materials

Question 21

Non-accredited investors cannot invest more than ____ of their annual income or net worth in a Tier 2 offering.

Answer 21

10%

Question 22

To sell securities under Rule 415 (shelf registration), the issuer must give _____ notice to the SEC and there is no ______

Answer 22

2 days notice, no cooling off period

Question 23

The 1933 Act specifies 2 (tested) exempt transactions:

Answer 23

• Section 4(2) - general rule that exempts private placements by institutions and wealthy investors
• Section 4(6) - offers of no more than $5m made to accredited investors

Question 24

Securities that are exempt from the 1933 act are:

Answer 24

• gov’t and muni issues (gov’t debt, agencies - fannie mae, ginnie mae, federal home loan, munis, foreign gov’t debt - including canada)
• insurance company offerings (except for variable annuities)
• bank issues
• common carrier issues (railroads, trucking)
• non-profit issues
• bankers acceptances and commercial paper (under 270 days)
• issues of small business investment companies

Question 25

Exempt transactions are:

Answer 25

- intrastate offerings (Rule 147) - Private Placements (Reg D) - Rule 144 transactions (would otherwise need prospectus) - Rule 144A (tradable private placements)

Question 26

Rule 147 (intrastate exemption) states that:

Answer 26

- 100% of the issue must be offered and sold to residents of that state (cannot be sold to a non-resident) - Residency means = issuer's principal office is in state; 80% of issuer's revenue, assets, and proceeds from issue must be in/used in that state - 9 month restricted period where issue can only be resold within that state

Question 27

To use a Rule 147 offering, Form ____ must be filed with the SEC at least ____ prior to the proposed sale

Answer 27

Form 147 at least 10 days prior to proposed sale

Question 28

Rule 147 issues must still comply with ______ laws

Answer 28

blue sky - aka state

Question 29

Reg D private placements have the following requirements:

Answer 29

- max of 35 non-accredited investors; unlimited accredited investors - accredited investor = net worth of $1m (excluding residence); annual income $200k for past 2 years, join income $300k; officer or director of the issuer; financial institutions (banks, insurance cos, mutual funds) with assets over $5m; non profit institutional investors with over $5m in assets

Question 30

There is _____ limit on dollar amount sold or in what _____ the issue can be offered under Reg D

Answer 30

no dollar limit and no restriction on which states can be sold in

Question 31

If a Reg D offering has no non-accredited investors, it may be _______

Answer 31

advertised

Question 32

Reg D issues do not need a prospectus but do need a _______

Answer 32

offering circular (called the Private Placement Memorandum PPM)

Question 33

Tiers for Reg D are under rules 504, 505, and 506:

Answer 33

- 504: offerings do not exceed $1m (no specific information requirement for disclosure) - 505: offerings do not exceed $5m (specific information requirements, including certified financial statements) - 506: unlimited dollar amounts (specific information, certified financial statements, and more detailed financial disclosures)

Question 34

The issuer of a Reg D issue must determine that non-accredited investors are ______

Answer 34

sophisticated

Question 35

The ______ letter is sent to non-accredited investors to make sure they are ______; if they cannot sign, a ________ signs in their stead

Answer 35

investment letter to make sure they are sophisticated; a purchaser representative can sign instead (lawyer, accountant, etc.)

Question 36

Registered reps are _____ from acting as a purchase representative for Reg D

Answer 36

PROHIBITED, except if related by blood

Question 37

Reg D issues (unless covered under Rule 144) cannot be _______ in the secondary market

Answer 37

resold - they can only be sold in private transactions

Question 38

To claim a Reg D issue, a form ____ must be filed with the SEC ______ days after first sale of the securities

Answer 38

Form D 15 days AFTER first sale

Question 39

Rule 144 allows the holder of "restricted" securities (ie Reg D securities) to sell them publicly if:

Answer 39

- the issuer has registered shares outstanding with the SEC and is current on filings - seller files a form 144 prior to sale date - has held the securities for 6 months - seller files 144 forms no more than 4 times per year - max sale is greater of 1% of shares outstanding, or weekly average (over last 4 weeks) trading volume

Question 40

For control stock (owned by a director or office of the company) that is to be sold under Rule 144, there is no _____ holding period required

Answer 40

6 month holding period

Question 41

A 144 form is not required for sales up to _____ shares and not worth more than ____ every 90 days

Answer 41

up to 5,000 shares and worth no more than $50,000

Question 42

As a firm handling 144 sales, you are only allowed to act as the ______

Answer 42

agent - never the dealer

Question 43

You cannot _____ 144 transactions, however is someone approaches you, you can reach back out within _____ business days without it being prohibited

Answer 43

cannot solicit them, can reach out within 10 business days

Question 44

Exceptions to the volume limitation for Rule 144 sales are if the holder ____ or if they are no longer _____ with the company for ____ months and have held the shares for _____

Answer 44

if the holder dies, or if the person is no longer affiliated with the company for 3 months and has held the shares for at least 6 months

Question 45

The following documentation that must be kept after a 144 sale:

Answer 45

- copy of form 144 - issuer's representation letter - broker's representation letter

Question 46

Rule 144A allows ______ to purchase unregistered securities from BDs

Answer 46

QIBs

Question 47

QIBs must own and invest on a discretionary basis at least ________

Answer 47

$100m

Question 48

QIB transactions happen over the ______ and are usually traded in minimum block sizes of _____

Answer 48

PORTAL, typical block sizes of $500,000

Question 49

Rule 145 requires some corporate reorganizations to file a registration statement, those are:

Answer 49

- substitution of one security for another - merger or consolidation in which holders will exchange old securities for new ones - transfer of assets from one person to another in consideration for the issuance of new securities

Question 50

A ______ shareholder vote is required for Rule 145 reorganizations, and Rule 153 A requires that they get a copy of the ______

Answer 50

a majority vote, Rule 153 A requires they get a prospectus