Securities Regulations Flashcards
What are the two types of securities?
- New securities (IPO, new securities)
- buy/sell on stock exchange
Are securities governed by the federal or state law?
Regulated, but we only discuss the federal level (state law varies by state)
What is the definition of a security?
Includes any note, stock, bond, pre-organization subscription, or investment contract
What is the story of Howey and the pig/cow of real estate?
Howey sold you an orchard and leased it back, said he would only pay you if there was a good harvest. There was a bad harvest and he didn’t pay.
Howey made a pig look like a cow; he sold you a security, not real estate.
Since it’s a security, you get a recission.
What do you have to disclose when you register?
All accurate material information, describe company
What is integrated disclosure?
Permits simplified filings and shelf registration (gives opportunity to sell at different times)
When can you make sales of securities?
Before registration - can’t make offers or sales
After reg, before effective - advertise, no sales
After effective - Make sales
What are types of exempt securities and why?
- Short term commercial paper, municipal bonds, insurance policies, annuity contracts.
Why? Because they’re regulated in other ways
What is Rule 147?
If 80% business is in state and none outside, don’t need to register in other states
What defines an accredited investor?
Wealthy (re unregulated.
What are key factors for exempt transactions (issuers)?
- no general advertising
- amount of securities - the higher the more likely that registration is necessary
- number of investors - key numbers are 15 and 35
What is Country-wide?
A non-bank bank that sold mortgages and it was a scam
What are exempt transactions for non-issuers?
Resale by persons other than issuers that are exempt.
What is the liability for unregistered sales?
No defenses, but defendants OTHER than the issuer company can use the defense of due diligence “I did my best”
What is the Anti-fraud Provision for securities?
Any time a security is sold, seller must be honest to the buyer and disclose information independent of registration.
Do exempt securities have unrestricted resales?
YES, but only IN STATE
Do exempt transactions have unrestricted resales?
NO, THEY ARE RESTRICTED
What must registered securities do?
- They must register and periodically report
- Must comply with SOX
- Must comply with anti-fraud provisions (federal law)
What is insider trading?
Can’t buy/sellf securities when you have material, undisclosed information (doesn’t matter if you’re an “insider” or related party
What are short swing profits? How do you avoid them?
- Imposes liability on certain insiders owning more than 10% of stock for all profits made on sales and purchases within six months of each other, with any recovery going to the issuer.
- To avoid, must liquidate on a regular basis, independent of good/bad news.
- Imposes liabilities on owners who sell stock based on info they know
What is a proxy?
Authorizing someone to vote your stock, but you must tell why
What is a tender offer?
A general invitation to shareholders to purchase their shares at a specific price for a specific time. This is material information and must be disclosed
What is the Foreign Corrupt Practices Act?
prohibits making payments to foreign officials to obtain business.
