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87 Cards in this Set
- Front
- Back
1933 Act Regulates |
Original Issuances of Securities |
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1934 Act Regulates |
Purchases and Sales after Initial Issuance |
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If the Investor is Passive |
i.e. Relies solely on the management of others to make money, the investment is most likely a security. |
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Limited Partnership Interests |
are deemed securities. |
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General partnership interests are |
NOT deemed to be investments. |
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1933 Act is to Assure |
Investors have sufficient information to make informed investment decision. |
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1933 Act Requires most Issuers |
to Register new issues of securities with the SEC and to provide Prospectus containing material information regarding the securities to prospective investors. |
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The SEC does not |
Guarantee accuracy of prospectus, evaluate offering's financial merits or give assurances against loss. |
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1933 Act Registration Requirements only apply to |
Issuers, Underwriters, Dealers |
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An Underwriter is an |
Intermediary who sells an issuer's securities to the general public or to dealers. |
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Most Securities cannot be sold unless |
they are first registered with the SEC. |
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Registration Statement Consists of 2 parts |
Prospectus. Detailed Info regarding securities. |
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The Prospectus is a |
Written offer to Sell Securities. |
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The Prospectus Summarizes |
important information contained in the Detailed Information regarding securities. |
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Each Investor must receive a copy of the |
Prospectus before or Contemporaneous with every sale of the security. |
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Information about Securities Issued must include |
Audited balance sheet Dated not more than 90 days before filing and Profit and Loss for the past 5 years. Financials must be certified by a public accounting firm registered with the PCAOB. |
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The Registration Statement must also include a description of the business and the following |
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Shelf Registrations |
For Issuers constantly issuing new securities, issuers can prepare just one registration statement for all securities that they will offer in the future. |
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Shelf Registration is permitted if the issuer has |
continuously filed under the 1934 Act for one year and the information is continuously updated. |
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SEC Reviews the Registration Statement to ensure |
Both Parts are complete. |
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The Registration Statement becomes effective on |
the 20th day after its filingwith the SEC unless issues a refusal or stop order. |
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Blue sky laws |
State laws governing stock sales |
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No sales is allowed within |
30 Days before Registration unless issuance is exempt. |
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After Registration but before Effectiveness (Waiting Period), there is a |
20 day waiting period between registration and filing date. |
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Some sales are allowed during after registration but before Effectiveness: |
Oral offers to sell but no written offers. Tombstone ads. Preliminary prospectus (red herring) can be made. Summary prospectus are allowed. |
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Seasoned issuers are issuers that have been |
continuously reporting under the 1934 act for at least 12 months, have not failed to pay a dividend or required payment on preferred stock and have not defaulted on material debt or a long term rent obligation. |
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Well-known Seasoned issuers |
are issuers with at least $700M in equity outstanding worldwide in the hands of persons not affiliated with the issuer or most issuers that have issued at least $1B in non convertible securities in the last 3 years. |
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A Well-known Seasoned issuer |
may make Oral or Written offers at any time. |
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WKSIs also have a special form of |
Shelf Registration that is effective immediately. |
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Exemptions from 1933 Registration Act |
Securities Exemptions. Transaction Exemptions. |
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The Following Securities never have to be Registered: |
BRNGS Securities issued by: Banks and S&Ls. Not for Profits. Governmental. Regulated Common Carriers (railroads). Short Term Commercial Paper with 9months or less Maturity Date. Insurance Policies. Charitable Organizations. |
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Transaction Exemptions |
Casual Sales - Not by issuer, underwriter or dealer. Exchanges with Existing Holders and Corporate Reorganizations. Government approved exchanges that occur as a result of corporate reorganization. |
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Intrastate Sales |
Section 3(a)(11) of the 1933 Act provides an exemption for securities offered and sold only to persons who are residents of the issuer's state. |
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Under rule 147, which implements Section 3(a)(11), |
the entire issue must be offered and sold only to residents of that state, the issuer must do at least 80 % of its business in that state, and purchasers cannot resell the securities for 9 months to nonresidents of that state. |
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Private Offering Exemption - Regulation D |
Regulation D Exempts "private" offerings and the SEC has 3 private offering exemptions under Regulation D: 504, 505 and 506. |
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Purchasers of Regulation D Securities may not |
Immediately re offer Securities to the public. Must hold for 2 years or more. "Restricted" stock. |
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SEC must be notified of Regulation D stock within |
15 days of sale |
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Rule 504 - $1M limit |
To be exempt under the 504, the issuance of securities may not exceed $1M within 12 months. |
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Rule 504 has no limitations on |
Number or type of purchasers |
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Rule 504 generally does not require any specific |
Disclosure to investors prior to sale. |
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If Rule 504 is registered under state law, the general prohibition against |
General advertising does not apply |
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To be exempt under Rule 505 |
The issuance of securities may not exceed $5M within 12 months |
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Securities issued under Rule 505 may be sold to any number of |
Accredited investors and 35 or fewer unaccredited investors |
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An accredited investor is |
A bank. Person with $1M net worth or $200K annual income. Officers or directors of the issuer |
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If only accredited investors purchase Rule 505 stock |
No disclosure is required. If any unaccredited investors, all investors must be given annual audited financials. |
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Under Rule 506 there is |
No limit to the amount of stock to be sold |
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Rule 506 stock may be sold to any number of |
Accredited investors and 35 unaccredited but sophisticated investors |
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Summary |
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Regulation A Simplified filing |
Not a registration exemption but a simplified form of registration to allow small companies to make public offerings quickly and less cost. |
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Companies using Regulation A file an |
Offering statement which consist of a Notification and an Offering Circular |
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Companies may test the waters first before filing if |
Offers are preceded or accompanied by a Preliminary Offering Circular. |
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Which companies may not use Regulation A: |
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Tiers |
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Section 11 imposes |
Civil liability for misstatements, intentional or not. |
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Section 12 imposes |
Civil liability if required registration not made, if prospectus was not given, if materially false statements were made or omitted in connection with sales or offers to sell. |
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Section 17 imposes |
Criminal penalties against fraud. Enforced by SEC and prosecuted by justice department |
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Plaintiff suing under Section 11 need only show |
Plaintiff acquired stock.
Plaintiff suffered loss.
Registration statement contained material misrepresentation or material omission . Need not prove intent to deceive or negligence or reliance on part of defendant. Only damages are remedy. Rescission not available |
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Anyone who signs registration statement may |
Be liable under Section 11 |
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Defendants are not liable if they can prove |
Due diligence |
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Due diligence means defendant had |
Reasonable grounds to believe the facts in the registration statement were true and no material facts were omitted |
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1934 Act is concerned with |
Exchanges e.g. sales, purchases of securities after issuance |
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1934 Act has registration and reporting provisions that apply only |
To certain companies and anti fraud provisions that apply to all purchasers and sellers regardless of registration |
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The SEC can seek suspension or revocation of company's |
Registered securities for violating 1934 act |
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The 1934 act registration requirements |
Companies traded on national exchange.
Companies with more than $10M in assets and at least 2000 shareholders or 500 unaccredited shareholders. National stock exchanges, brokers and dealers must also register |
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Form 10K |
Annual report filed within 60 days for large corporations (90days for small ) of the end of the year. Must contain Certified financials. |
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Form 10Q |
Quarterly report filed within 40 days for large corporations (45 days for small) at end of each quarter. Must contain reviews of interim financials. |
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Form 8K |
Must be filed within 4 days after major change in company |
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5% or more owners must report to |
SEC, the issuer and the exchange on which stock is traded. The report must include background information about the purchaser, source of funds and purpose kn buying. |
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Any party making 5% or more tender offer |
Must file SEC report |
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Insiders must file a |
Report with the SEC disclosing their holdings in the reporting company and make monthly updates. |
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Insiders are |
Officers, directors, more than 10% shareholders, accountants or attorneys of a company registered under 1934 act. |
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1934 act limits insider trading by imposing |
Absolute liability on any insider profiting from purchase or sale in 6 month period |
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Proxy solicitation |
Written request for permission to vote a shareholders shares at a shareholder meeting |
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Anti fraud Rule 10B-5 applies even if |
Registration not required |
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Rule Rule 10B-5 prohibits fraud in connection with |
Purchase or sale of any stock |
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Violation of Rule 10B-5 can result in |
Civil damages, SEC injunction or criminal penalties. |
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To recover damages for violating Rule Rule 10B-5 , plaintiff must prove |
Plaintiff bought and sold Securities. Suffered loss. Material misrepresentation or omission. |
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Pass key |
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Reselling restricted Securities under Regulation D |
Can be done as exempt from registration |
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Original issue of exempt Securities sold to the public containing intentional omissions would be liable to |
Anti fraud provisions of both 1933 and 1934 Acts. |
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Tombstone ad includes |
Nature of security. Price. Availability of prospectus. |
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Under Regulation D, SEC must be notified within |
15 days of first sale |
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Company stock listed on National exchange can make a |
Private placement offering |
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Maximum time period exempt offering under Regulation D |
12 months |
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CPA must use this defense against civil liability under Section 18 of 1934 Act |
Good faith |
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If issuer sells security and fails disclosure requirements |
Purchaser may sell back security and get refund |
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If only accredited investors invest |
No prospectus need be given |