Regulations - Securities Act of 1933 Flashcards
the 1933 Act covers ______
new issues
the 1934 act covers ______
secondary market
The Trust Indenture Act of 1939 safeguards investors in ______ by requiring a ______ to be appointed
investors in corporate bonds, appointing a trustee to oversee compliance with the trust indenture
Investment Company Act of 1940 regulates ______
investment companies (open/close/etc.)
Securities Investor Protection Act of 1970 was passed to protect investor funds when a ________
brokerage firm fails
Securities Act Amendments of 1975 and 1988 were used to make the 1970 act ______ and in 1988, to protect against ______
to make it more current, in 1988 to protect against insider trading abuse
Sarbanes Oxley Act of 2002 used to cover the wave of ________
corporate scandals
The 1933 act applies to _______ securities
non-exempt
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)
40 days
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 ______
25 days
The quiet period is from the ______ to the time the prospectus window expires
registration with the SEC
If a registration is found to have omissions or misstatements of material facts, then it is fraud and all parties are accountable, including the
- underwriters
- accountants
- lawyers
- issuer
Regulation A is part of the EZ rules and streamlines registration rules for offerings up to _____
$50m
Rule 415 is part of the EZ rules and is established to ease registration for _______
seasoned issuers who have previously registered securities with the SEC
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 ______
Tier 1: up to $20m, 12 months, no financials
Tier 2: up to $50m, 12 months, need audited financials
The simplified registration form for Reg A issues is the ______
S1-A
Reg A issues have a _____ cooling off period after which they become ______ (same as “effective”)
20 day period, then become qualified
Instead of a prospectus for Reg A, the issues use an __________
Offering Circular
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.
48 hours, 48 hours
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.
promotional materials
Non-accredited investors cannot invest more than ____ of their annual income or net worth in a Tier 2 offering.
10%
To sell securities under Rule 415 (shelf registration), the issuer must give _____ notice to the SEC and there is no ______
2 days notice, no cooling off period
The 1933 Act specifies 2 (tested) exempt transactions:
- 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
Securities that are exempt from the 1933 act are:
- 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
Exempt transactions are:
- intrastate offerings (Rule 147)
- Private Placements (Reg D)
- Rule 144 transactions (would otherwise need prospectus)
- Rule 144A (tradable private placements)
Rule 147 (intrastate exemption) states that:
- 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
To use a Rule 147 offering, Form ____ must be filed with the SEC at least ____ prior to the proposed sale
Form 147 at least 10 days prior to proposed sale
Rule 147 issues must still comply with ______ laws
blue sky - aka state
Reg D private placements have the following requirements:
- 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
There is _____ limit on dollar amount sold or in what _____ the issue can be offered under Reg D
no dollar limit and no restriction on which states can be sold in
If a Reg D offering has no non-accredited investors, it may be _______
advertised
Reg D issues do not need a prospectus but do need a _______
offering circular (called the Private Placement Memorandum PPM)
Tiers for Reg D are under rules 504, 505, and 506:
- 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)
The issuer of a Reg D issue must determine that non-accredited investors are ______
sophisticated
The ______ letter is sent to non-accredited investors to make sure they are ______; if they cannot sign, a ________ signs in their stead
investment letter to make sure they are sophisticated; a purchaser representative can sign instead (lawyer, accountant, etc.)
Registered reps are _____ from acting as a purchase representative for Reg D
PROHIBITED, except if related by blood
Reg D issues (unless covered under Rule 144) cannot be _______ in the secondary market
resold - they can only be sold in private transactions
To claim a Reg D issue, a form ____ must be filed with the SEC ______ days after first sale of the securities
Form D 15 days AFTER first sale
Rule 144 allows the holder of “restricted” securities (ie Reg D securities) to sell them publicly if:
- 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
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
6 month holding period
A 144 form is not required for sales up to _____ shares and not worth more than ____ every 90 days
up to 5,000 shares and worth no more than $50,000
As a firm handling 144 sales, you are only allowed to act as the ______
agent - never the dealer
You cannot _____ 144 transactions, however is someone approaches you, you can reach back out within _____ business days without it being prohibited
cannot solicit them, can reach out within 10 business days
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 _____
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
The following documentation that must be kept after a 144 sale:
- copy of form 144
- issuer’s representation letter
- broker’s representation letter
Rule 144A allows ______ to purchase unregistered securities from BDs
QIBs
QIBs must own and invest on a discretionary basis at least ________
$100m
QIB transactions happen over the ______ and are usually traded in minimum block sizes of _____
PORTAL, typical block sizes of $500,000
Rule 145 requires some corporate reorganizations to file a registration statement, those are:
- 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
A ______ shareholder vote is required for Rule 145 reorganizations, and Rule 153 A requires that they get a copy of the ______
a majority vote, Rule 153 A requires they get a prospectus
