1. Securities Law

Securities Law

Playlist: 58 videos; 127 Minutes


Topic Material

Securities Law (Intro)

Securities Laws Overview

Securities Act of 1933

Registration Exemptions from the Securities Act of 1933

Liability Under the Securities and Exchange Act of 1933

The Security Exchange Act of 1934

What is liability under the “Securities Enforcement Remedies Act”?

Blue Sky Laws – State Securities Laws


Topics: Learning Material

Introduction to Securities Law
Securities is a broad term that basically refers to any form of ownership or beneficial interest in a business entity. Securities law concerns the sale or transfer of these business interests. This chapter introduces the security and the catch-all provision for “investment contracts” as securities. It explains the primary statutory and regulatory framework making up the securities law. It introduces the Securities Exchange Commission and its objectives and functions in enforcing the securities laws. It explains the process of selling or transferring securities to the public, known as issuing securities, before moving on to the subsequent sale or exchange of securities in the public market, such as trading securities on public exchanges. Lastly, it reviews the the major laws and forms of civil and criminal liability associated with violation of the securities laws. For further written and video explanation, discussion and practice questions, see Securities Law (Intro)

What are Securities Laws?
  • Federal and state statutes and regulations
  • Control the sale or transfer of rights or ownership interests in a business entity (securities).
  • Protect the general public from deceptive practices
  • Securities Exchange Act of 1933
  • Securities Exchange Act of 1934.

For further written and video explanation, discussion and practice questions, see What are "securities laws"?

What is a “Security”?
  • Statutory Definition

⁃ Broad

⁃ Stocks, bonds, etc.

  • Investment Contract

⁃ Catch all

For further written and video explanation, discussion and practice questions, see What is a "security"?

What is an “Investment Contract”?
  • an investment of money,
  • in a common enterprise,
  • with the expectation of profits, and
  • derived solely from the efforts of others.

For further written and video explanation, discussion and practice questions, see What qualifies as an "investment contract"?

Major Federal Securities Laws
  • Securities Act of 1933 (33’ Act)
  • Securities Exchange Act of 1934 (34’ Act).

For further written and video explanation, discussion and practice questions, see What are the primary federal securities laws?

Regulatory Goals of Security Laws
  • preventing manipulation of the securities market
  • full disclosure of “material information” to stakeholders
  • preventing fraud
  • leveling playing field between insiders of a company and investors.

For further written and video explanation, discussion and practice questions, see What are the regulatory goals of security laws?

What is the “Securities and Exchange Commission” (SEC)?
  • Administrative agency created in 1934
  • Regulate the sale or exchange of securities.
  • Five main divisions
  • Executive, quasi-legislative and quasi-judicial powers.

For further written and video explanation, discussion and practice questions, see What is the "Securities and Exchange Commission"?

What is an “Initial Public Offering”?
  • Underwriting

⁃ “direct public offering”

⁃ “road show”

⁃ “firm commitment”

⁃ “best efforts commitment”.

  • Registration
  • Solicitation of Purchasers

⁃ “prospectus”

For further written and video explanation, discussion and practice questions, see What is an "initial public offering"?

What is a “Direct Public Offering”?
  • Company offers its shares for sale directly to the public
  • Without employing the services of an underwriter.
  • Enlist the services of a broker
  • Requirement to register securities still applies;

For further written and video explanation, discussion and practice questions, see What is a "direct public offering"?

Securities Act of 1933 (33 Act)
  • Covers the initial sale of securities to the public.
  • Must disclose financial information to potential investors.
  • File Registration statement

For further written and video explanation, discussion and practice questions, see Securities Act of 1933

What is an “Offer to Sell” Securities
  • Any attempt to solicit interest in buying shares.
  • Beyond actually attempting to sell securities.

For further written and video explanation, discussion and practice questions, see What is an "offer to sell" securities?

Who is Regulated in an Offer to Sell Securities?
  • Issuer,
  • Underwriter,
  • Controlling party, or
  • Sales representative.

For further written and video explanation, discussion and practice questions, see Who are the parties regulated in an offer to sell securities?

Disclosure Documents in an Offer to Sell Securities
  • Registration Statement
  • Prospectus

For further written and video explanation, discussion and practice questions, see What are the primary disclosure documents required in an offer to sell securities?

Issuer Ability throughout Registration Process
  • Pre-filing Period -

⁃ cannot make offers to sell or take offers to buy securities.

⁃ Engage underwriters - may make commitments

  • Waiting Period -

⁃ Limited efforts to market or sell the securities.

⁃ 20 days following filing - plus extension.

⁃ Solicit offers to purchase securities,

⁃ No sales until registration complete

  • Post-Effective Period

⁃ Free to sell securities.

For further written and video explanation, discussion and practice questions, see What is an issuer allowed to do at each stage of the registration process?

Classifying Issuers during Registration and Offering Process
  • Non-reporting Issuer
  • Unseasoned Issuer
  • Seasoned Issuer
  • Well-Known Seasoned Issuer (WKSI)

For further written and video explanation, discussion and practice questions, see How are issuers classified for purposes of the registration and offering process?

Issuer Ability during Pre-Filing Period
  • SEC Rule 135 - announcement of an upcoming offer.

⁃ Not “conditioning of the market”.

  • Emerging Market Company Exception
  • Section 5(b) Exception
  • Public Company Exception
  • Free-Writing Prospectus Exception

For further written and video explanation, discussion and practice questions, see What is an issuer allowed to do during the "Pre-filing Period"?

Limitation during the Post-Filing, Waiting Period
  • Oral discussions or offers to buy the securities are unregulated.
  • Investment banks may carry on a “road show”,
  • Written offers to sell (or other solicitations) must be accompanied by a prospectus
  • No actual sales can occur

For further written and video explanation, discussion and practice questions, see What are the limitations on the issuer during the "Post-filing, Waiting Period"?

Issuer Ability during Post-Effective Period
  • Begin selling
  • Deliver prospectus.
  • WKSIs - “shelf registration”.

For further written and video explanation, discussion and practice questions, see What is an issuer allowed to do during the "Post-Effective Period"?

What is an “Emerging Growth Company”?
  • the company has less that $1B or more of total gross revenue in a consecutive 12-month period;
  • is within 5 years of its original IPO;
  • the company cannot have issued more than $1 Billion in non-convertible bonds within the last 3 years, and
  • the company does not qualify as a “large accelerated filer”, meaning a public float of over $700 million.
  • Benefits

Confidentiality

Unregulated Communications

Audited Financial Statements

Security Analyst Reports

Accounting Standards

Auditor Exemptions

Executive Compensation Rights

For further written and video explanation, discussion and practice questions, see What is an "Emerging-Growth Company"?

Disclosure of Information in an Issuance
  • “material” information about venture
  • “total mix’”of information

For further written and video explanation, discussion and practice questions, see What type of information must an issuer disclose?

Laws Controlling Disclosure Process During Issuance
  • Regulation S-K
  • Information that an issuers must disclose to the public.
  • Registration statements (Form S-1 and S-3 for Securities Act (33 Act)).
  • Publicly traded companies - Schedule 14A, 10-K, 10-Q, 8-K for ’34 Act.

For further written and video explanation, discussion and practice questions, see What laws govern the mechanics of disclosure in a securities offering?

Exemptions from Registration Requirements
  • Statutory and rule-based exemptions
  • Statutory - Sections 3 and 4 of the ’33 Act.
  • Rule-Based - “Regulation A” and “Regulation D” of the ’33 Act.

For further written and video explanation, discussion and practice questions, see Exemptions from 1933 Act Registration

”Exempt Securities” vs “Exempt Transactions”
  • Exempt Security

⁃ Section 4 of the ’33 Act of “transactions by an issuer not involving any public offering.” - “private offering”.

  • Exempt Transaction

⁃ Limited amount of capital or sophisticated or accredited investors.

For further written and video explanation, discussion and practice questions, see What are "exempt securities" and "exempt transactions"?

What are “Restricted Securities”?
  • Rule 144 of the ’33 Act lays out the rules for restricted securities.
  • Holder Restrictions

⁃ 1) the average weekly trading volume for the shares during the prior 4 weeks of trading, or

⁃ 2) a quantity equal to 1% of total shares outstanding.

  • Transactional Restrictions

⁃ Prohibit resale for 12 months following the date of the issuance.

For further written and video explanation, discussion and practice questions, see What are "restricted securities"?

  • Section 3(a) Exemption

⁃ Section 3(a)(11) - “intrastate offering exemption”,

Exempt Security

Benefits

⁃ an unlimited number of investors,

⁃ an unlimited amount of raised capital, and

⁃ general solicitation of investors may be allowed under the applicable state law.

Coming to Rest

Integration Doctrine

For further written and video explanation, discussion and practice questions, see Section 3(a)?

Section 3(b) Exemption
  • Section 3(b) Exemption

Section 3(b)(1) Exemption - (“small issues” exemption).

⁃ Basis for an exemption under Rule 504 of Regulation D (discussed below).

Section 3(b)(2) Exemption - “small issues” class

⁃ Limit on the amount of funds raised of $50 million.

⁃ Unrestricted securities.

For further written and video explanation, discussion and practice questions, see Section 3(b)?

Rule 147 Exemption
  • Safe harbor for section 3(a)(11).

⁃ the issuer (company) must be incorporated in the state where the offering is made;

⁃ at least 80% of the issuer’s revenues must come from business within that state;

⁃ at least 80% of the issuer’s assets must be located in that state; and

⁃ at least 80% of the proceeds of the offering must be used in that state.

For further written and video explanation, discussion and practice questions, see What is a "Rule 147 Exemption"?

Section 4(a) Exemption
  • Private Offering Exemption - Section 4(a)(2)

⁃ “the provisions of section 5 shall not apply to transactions by an issuer not involving any public offering.”

Rule 506, discussed in a separate lesson, is a “safe harbor”

Benefits

Exempt Transactions

⁃ No geographical limitations

⁃ Unlimited number of offerees and investors, and

⁃ No limit upon the amount of money raised in the issuance.

Limitations

Disclosure -

Sophistication Requirement

Integration

General Solicitation

Restricted Securities

For further written and video explanation, discussion and practice questions, see What is a "Section 4(a) Exemption"?

Section 4(a)(5) Exemption
  • Statutory Exemption for Accredited Investors - Section 4(a)(5) -

⁃ Statutory exemption for securities

⁃ Compare Section 4(a)(5) and Regulation D also allows for sales to non-accredited investors.

⁃ Rarely used as a stand-alone exemption.

⁃ Limitations

Disclosure

Accredited Investors

General Solicitation

Dollar Value - Cannot exceed $5,000,000

Notice

Restricted Securities

State Registration

For further written and video explanation, discussion and practice questions, see Section 4(a)(5)?

Regulation A Exemption
  • “conditional small issues”
  • exemption of the actual securities - not restricted from later sale.
  • General Limitations

Private, Non-Reporting Company

US Company

Operating Company

 

  • Types of Regulation A Exemption

Tier 1 Issuance

Tier 2 Issuance

  • Regulation A Disclosures

⁃ Requires review by the SEC prior to sale

⁃ Must file an offering statement (non-financial and financial disclosures)

⁃ Corporate execs and shareholders must sign the offering statement certifying the information

  • Regulation A and General Solicitation

⁃ Allows the issuer of securities to “test the waters” for interested investors.

  • Regulation A and State Regulations

⁃ Securities are not exempt from state regulation.

For further written and video explanation, discussion and practice questions, see What is a "Regulation A Exemption"?

Regulation D Exemption
  • Rules 501-508 of the ’33 Act.

⁃ "safe harbors" for issuers of securities.

  • Regulation D, Rule-Based Exemptions

⁃ Rules 501, 502 and 503 provide definitions and conditions

⁃ Rules 504, 505 and 506, are the substantive exemptions.

⁃ Rules 507 and 508 lay out the consequences for failing to comply

  • Limitations of Regulation D
  • Issuer Protections

⁃ Only provide exemptions for the issuers

  • General Solicitation

⁃ Prohibits general solicitation - excepts 506(c)

  • Accredited & Sophisticated Investors

For further written and video explanation, discussion and practice questions, see What are "Regulation D Exemptions"?

Rule 504 Exemption
  • Issuer Protections
  • Dollar Limits - $1 million.
  • Number of Purchasers
  • Restricted Securities
  • General Solicitation -

⁃ the offering is registered in the state where securities are sold, or

⁃ the state permits general solicitation and sales are only made to accredited investors in that state, or

⁃ the state of issuance does not require registration, but the securities are registered in another state.

  • Private Placement Memorandum
  • State Regulation

For further written and video explanation, discussion and practice questions, see What is a Rule 504 Exemption?

Rule 505 Exemption
  • Issuer Protections
  • Dollar Limits - $5,000,000 within a 12-month period.
  • Purchaser Requirements
  • Restricted Securities
  • General Solicitation
  • Private Placement Memorandum
  • State Regulation - Rule 505 does not provide an exemption

For further written and video explanation, discussion and practice questions, see What is a Rule 505 Exemption?

Rule 506(b) Exemption
  • Rule 506(b) Safe Harbor Exemption

Issuer Protection

Dollar Limits

Purchaser Requirements

Restricted Securities

General Solicitation

Private Placement Memorandum

State Regulation - Section 18 of the ’33 Act exempts

For further written and video explanation, discussion and practice questions, see What is a Rule 506(b) Exemption?

Rule 506(c) Exemption
  • Rule 506(c) - Exemption Pursuant to JOBs Act of 2013

Issuer Protections -

Dollar Limits

Purchaser Requirements

Annual Income

Net Worth

Professional Certification

Written Verification

Restricted Securities

General Solicitation

Private Placement Memorandum

State Regulation - Exempt from state regulation.

For further written and video explanation, discussion and practice questions, see What is a Rule 506(c) Exemption?

Rule 502(d) and Rule 144 Safe Harbor
  • “safe harbor” for purchasers to resell their shares after one or two years,
  • reasonable inquiry to determine if each purchaser is buying the security for himself or for someone else,
  • written disclosure to each purchaser that the securities are restricted, and
  • a legend on the securities noting the resale restriction.

For further written and video explanation, discussion and practice questions, see What is Rule 502(d) and the "Rule 144" Safe Harbor?

Disclosures of Information for Exempted Issuances
  • “private placement memorandum” (PPM).
  • Types of Disclosure

⁃ both financial and non-financial information.

⁃ Comply with state and federal anti-fraud laws, such as section 11(a), 12(a) and (b), and 10(b) under the ’33 Act.

  • Non-Financial Information
  • Financial Information

For further written and video explanation, discussion and practice questions, see What are the disclosure requirements for companies employing an exemption?

Filing “Form D”
  • Required to file Form D with the SEC. Form
  • Within 15 days of the first sale

For further written and video explanation, discussion and practice questions, see What is the requirement to file "Form D"?

Effect of Failing to Register an Offering
  • Section 12(a)(1) allows any purchaser to bring a lawsuit

⁃ to rescind the purchase

⁃ to receive the damages suffered

⁃ “buying a put”

  • Safety provisions

⁃ Insignificant with regard to the overall offering;

⁃ The requirements were not specifically imposed to protect this type of purchaser’s interest; and

⁃ The issuer honestly (in good faith) attempted to comply with the exemption requirements.

For further written and video explanation, discussion and practice questions, see What is the effect of failing to register an offering under Section 5?

What is “Crowdfunding”?
  • Section 4(a)(6) to the ’33 Act
  • Mini-public offering
  • Authorized, private exchanges.
  • Section 5 registration exemption
  • Requirements:

⁃ Issuer

⁃ Portal/Broker

For further written and video explanation, discussion and practice questions, see What is "crowdfunding"?

Liability Under the the Securities Exchange Act of 1933
  • Criminal and civil liability
  • Fail to comply with the registration or applicable exemption requirements
  • Unintentional or intentional

For further written and video explanation, discussion and practice questions, see Liability Under the Securities and Exchange Act of 1933

Civil Liability under Section 11 of the 33 Act
  • Sections 11(a) and (b) - strict liability (tort liability) for issuers who make material misstatements or omissions in the issuance of securities.
  • Requirements for Liability

⁃ untrue statement of material fact;

⁃ omits material facts required by a statute or government regulation; or

⁃ omits information that makes the stated information materially misleading.

  • Who is Potentially Liable?

⁃ Issuer

⁃ Any person or entity that controls an issuer

⁃ Joint and several liability

⁃ Anyone who endorsed or signed their names (“signer”)

⁃ insider CEO and CFO

  • Section 11(e) - rescission of the transaction (along with interest) or damages suffered (losses sustained)

For further written and video explanation, discussion and practice questions, see What is civil liability under "Section 11" of the 33 Act?

Civil Liability Under Section 12 of the 33 Act
  • Section 12(a)(1) - against issuers who sell securities without registering the securities or perfecting an exemption.
  • Section 12(a)(2) - against issuers who makes a material misstatement or omission in a prospectus or other communication made as part of the sale of securities to the purchaser.

For further written and video explanation, discussion and practice questions, see What is civil liability under "Section 12" of the 33 Act?

Defenses to Section 11 and Section 12 Actions
  • Materiality Defense
  • Statute of Limitations
  • Due Diligence

⁃ “expertised” information versus “non-expertised” information.

  • Negative Causation Defense

For further written and video explanation, discussion and practice questions, see What are defenses available to charges under Sections 11 and 12?

Civil Liability Under Section 17 of the 33 Act
  • Section 17 of the ’33 Act is an anti-fraud provision
  • Government enforcement provision
  • No private cause of action by purchasers against the issuer under this provision.

For further written and video explanation, discussion and practice questions, see What is civil liability under "Section 17" of the 33 Act?

Criminal Liability Under 33 Act
  • Section 24 of the ’33 Act
  • criminal action against anyone who knowingly and willfully violates the ’33 Act.

For further written and video explanation, discussion and practice questions, see What is potential criminal liability under the 33 Act?

Securities Exchange Act of 1934
  • Regulation of securities exchanges, brokers, and dealers in securities.
  • Created the Securities and Exchange Commission.
  • National exchange tied to registration
  • Continued filing requirements

For further written and video explanation, discussion and practice questions, see The Security Exchange Act of 1934

Registering Under the 1934 Act (34 Act)
  • “reporting company”

⁃ it completes a public offering pursuant to the ’33 Act;

⁃ securities of the company are traded on a national exchange (such as the NYSE or CME); or

⁃ Has 2,000 +shareholders (500+ unaccredited shareholders) of unrestricted securities and a total asset value of more than $10 million.

For further written and video explanation, discussion and practice questions, see When must an issuer register pursuant to the 34 Act?

Disclosures from “Reporting Companies”
  • Reporting Company Initial Statement
  • Annual Reporting
  • Quarterly Reports
  • Special Reports

For further written and video explanation, discussion and practice questions, see What disclosures are required of reporting companies under the 34 Act?

Liability under Section 10(b) and Rule 10(b)(5)
  • Section 10(b) prohibits fraud in purchase/sale of security.
  • The SEC adopted Rule 10(b)(5) to implement section 10(b).

⁃ Using any device, scheme, or other artifice to defraud purchasers;

⁃ Making any untrue statement or failing to disclose any material fact that make the statement misleading;

⁃ Employing any practice that would deceive or defraud.

  • Elements

Deceit

Material Information

Purchase of Sale of a Security

Reliance on the Information

Cause Damages

For further written and video explanation, discussion and practice questions, see What is liability under "Section 10(b)" and "Rule 10(b)(5)"?

Insider Trading under Rule 10(b)(5)
  • Sale/trading by individuals privy to non-public, material information obtained via special relationship
  • Elements of a 10(b)(5) Action
  • Information
  • Fiduciary Duty

Insiders

Third Parties -

⁃ The third party receives information and promises to keep the information secret;

⁃ The insider has a reasonable expectation that the recipient will not tell; or

⁃ The recipient has obtained the information from her spouse, parent, child or sibling.

  • Trading and/or Misappropriation

Insiders (Tippers)

⁃ he knows the information was confidential, and

⁃ he expected some personal gain.

Third Parties (Tippees)

⁃ the information is confidential,

⁃ that it was transmitted in breach of a fiduciary duty, and

⁃ the insider expected a personal gain from transmitting the information.

For further written and video explanation, discussion and practice questions, see What is "insider trading" under Rule 10(b)(5)?

Damages under Section 10 and Rule 10(b)(5)
  • Private action for damages under Rule 10(b)(5).
  • Actual damages suffered
  • Specific damages due to the seller’s fraud.
  • Statute of limitation is 5 years from the wrongful transaction.

For further written and video explanation, discussion and practice questions, see What damages are available under Section 10 and Rule 10(b)(5)?

Insider Trading under Section 14 of the 34 Act
  • Applies specifically to corporate buyouts or takeovers.
  • No fiduciary duty is required as in 10(b)(5) actions.

For further written and video explanation, discussion and practice questions, see What is "insider trading" under Section 14 of the 34 Act?

Liability Under Section 16 of the 34 Act
  • Governs transactions by “insiders” of the corporation.
  • Insiders file ownership status.
  • Regulates trading of shares for a profit.

For further written and video explanation, discussion and practice questions, see What is liability under Section 16 of the 34 Act?

Liability Under Section 18 of the 34 Act
  • False and misleading statement of material fact in any application, report, or document filed under the act.
  • Applies only to the documents required to be filed under the 1934 Act.

⁃ knowingly made a false statement,

⁃ the relied on the false or misleading statement, and

⁃ Damages resulted from reliance.

For further written and video explanation, discussion and practice questions, see What is liability under Section 18 of the 34 Act?

Liability Under Securities Enforcement Remedies Act
  • Fines of up to $500,000 per institution and $100,000 per individual.
  • Prohibition on serving as executives or directors

For further written and video explanation, discussion and practice questions, see What is liability under the "Securities Enforcement Remedies Act"?

Criminal Liability Under the 34 Act
  • Willful violations of its statutes or corresponding regulations.
  • Liability for false, material misstatement in applications, reports, documents, and registration statements.
  • Up to a 25 year sentence, and up to $25 million.

For further written and video explanation, discussion and practice questions, see What is criminal liability under the 34 Act?

What are “Blue Sky” Laws?
  • State laws regulating the sale of securities within that state.

For further written and video explanation, discussion and practice questions, see What are blue sky law?

Complying with State Securities Law
  • National Securities Markets Improvement Act (NSMIA) - preempted any state regulation of certain “covered securities”.

⁃ Those traded on a national exchange (such as the NYSE or CME);

⁃ Securities of registered investment companies, and

⁃ Offers of securities exempt from Federal registration under Regulation D, Rule 506.

  • Other exemptions:

⁃ Isolated transactions involving the issuance of securities,

⁃ Offers or sales to a limited number of offerees or purchasers within a stated time period,

⁃ Issuances qualifying as private offerings under Rule 504, and

⁃ Issuances to a predefined, but limited, number of purchasers.

  • Uniform Limited Offering Exemption - Limited offerings under Regulation D, Rule 505.

For further written and video explanation, discussion and practice questions, see When is an issuer required to comply with state securities laws?

Registration Requirements under State Law
  • Disclosure objective
  • State Approaches:

Registration by Qualification

Registration by Notification

Registration by Coordination

For further written and video explanation, discussion and practice questions, see What are the registration requirements under state law?

“Coordinated Registration” under State Securities Law
  • Coordinated Review-Equity
  • Coordinated Review-Small Company Offering Registration

For further written and video explanation, discussion and practice questions, see What is "coordinated registration" under state law?


Flashcard - Study Practice

Q1
Securities laws are the federal and state statutes and regulations that control

A1
the sale or transfer of rights or ownership interests in a business entity (securities).

Resource Video: https://thebusinessprofessor.com/what-are-securities-laws/

Q2
Securities laws purport to protect the general public from __________.

A2
deceptive practices in the sale or trade of securities.

Resource Video: https://thebusinessprofessor.com/what-are-securities-laws/

Q3
The major federal securities laws include:

A3
the Securities Act of 1933, and the Securities Exchange Act of 1934.

Resource Video: https://thebusinessprofessor.com/what-are-securities-laws/

Q4
The primary method of protecting investors prescribed under these acts is thorough __________.

A4
disclosure of relevant or material information.

Resource Video: https://thebusinessprofessor.com/what-are-securities-laws/

Q5
The definition of a security includes:

A5
Note, stock, bond, debenture, certificate of interest, profit sharing agreement, investment contract, (an many other less-common forms of ownership interest).

Resource Video: https://thebusinessprofessor.com/what-is-a-security/

Q6
The broadest category of a business interest constituting a security is a(n) ___________.

Q7
The most influential test to determine what constitutes an investment contract is the __________.

Q8
The elements of the Howey Test include:

A8
an investment of money; in a common enterprise; with the expectation of profits, and derived solely from the efforts of others.

Resource Video: https://thebusinessprofessor.com/what-is-an-investment-contract-under-securities-law/

Q9
State securities laws are known as ____________.

Q10
The two primary federal laws governing the trade or sale of securities are the

A10
Securities Act of 1933 (’33 Act), and the Securities Exchange Act of 1934 (’34 Act).

Resource Video: https://thebusinessprofessor.com/major-federal-securities-laws/

Q11
The _________ provides the rules for the initial sale of securities to the public.

Q12
The _________ concerns the on-going disclosure requirements once company securities are traded publicly, such as on national exchanges.

Q13
The federal securities laws provide for the following:

A13
substantive content of the disclosure; the procedural disclosure requirements; and the repercussions (such as civil and criminal penalties) for failing to adhere to these laws.

Resource Video: https://thebusinessprofessor.com/major-federal-securities-laws/

Q14
The regulatory goals or purpose of the securities laws include:

A14
preventing manipulation of the securities market; full disclosure of “material information” to stakeholders; preventing fraud; and leveling the playing field between insiders of a company and investors.

Resource Video: https://thebusinessprofessor.com/regulatory-goals-of-the-security-laws/

Q15
_____________ is a semi-independent, administrative agency created in 1934 (as part of the ’34 Act) to regulate the sale or exchange of securities.

A15
The Securities and Exchange Commission (SEC)

Resource Video: https://thebusinessprofessor.com/what-is-the-securities-and-exchange-commission/

Q16
The commissioners are appointed by the President under the advisement of Congress and is divided into five main divisions regulating:

A16
Corporation Finance, Trading and Markets, Investment Management, Enforcement, and Economic and Risk Analysis.

Resource Video: https://thebusinessprofessor.com/what-is-the-securities-and-exchange-commission/

Q17
The SEC has the following types of regulatory power:

A17
quasi-legislative and quasi-executive powers.

Resource Video: https://thebusinessprofessor.com/what-is-the-securities-and-exchange-commission/

Q18
The SEC develops the regulations to carry out the statutory laws passed by Congress. True or False

Q19
The SEC has the quasi- executive power to:

A19
issue cease and desist orders, issue fines, and bring civil actions against issuers of securities who violate the law.

Resource Video: https://thebusinessprofessor.com/what-is-the-securities-and-exchange-commission/

Q20
A(n) _________ is the process by which a company first sells an equity interest in the company to the public at large.

Q21
The primary purpose of the IPO is to __________.

A21
generate operating capital for the company

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q22
Equity shares in a company constitute securities, so the IPO process is subject to securities law and is closely scrutinized by the

A22
Securities and Exchange Commission

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q23
The process for an IPO is substantially as follows:

A23
Underwriting, Registration, Solicitation of Purchasers

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q24
___________ involves hiring an investment bank (or group of investment banks) to market and sell company securities.

Q25
___________ Is when a company makes an offering directly to individual customers through a licensed broker.

Q26
Generally investment banks act as underwriters, and serve to _______________

A26
Create awareness of the issuance and sell the securities to large, institutional investors

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q27
The process for creating awareness for a public offering of securities by an underwriter is know as a __________.

Q28
A _______________ is when the underwriting bank directly purchases shares from the company and then resell them to investors in pre-arranged transactions on the open market.

Q29
In an underwriting where the bank make a firm commitment, it will often keep a percentage of the shares for itself as compensation for the underwriting process. True or False

Q30
____________ Is when an underwriter simply acts as a sales agent for the issuer. The bank may guarantee a limited number of sales, but generally it does not guarantee any specific number.

Q31
____________ is the process of filing extensive disclosures with the SEC about the companies finances and operations and characteristics of the issuance of securities.

Q32
The filings with the SEC are made public with the purpose of _________

A32
providing information to potential investors in the market.

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q33
The SEC reviews the disclosures for completeness, but it does not evaluate the quality of the securities being issued. True or False

Q34
The approval of the SEC is based upon whether ___________.

A34
sufficient information is disclosed to allow a potential investor to make an informed decision.

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q35
The issuer will solicit prospective purchasers and consummate the sale of securities only after ________.

A35
the registration process is complete

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q36
Before consummating a sale, the issuer or underwriter must provide all offerees or prospective purchasers with a __________.

A36
Prospectus - a disclosure document

Resource Video: https://thebusinessprofessor.com/what-is-an-initial-public-offering/

Q37
When companies seek to raise capital from private investors without going through the IPO process, his process is known as a ___________.

Q38
A ______________ is the process by which a company offers its shares for sale directly to the public without employing the services of an underwriter.

Q39
The ____________ is a federal disclosure law covering the initial sale of securities to the public.

A39
Securities Act of 1933

Resource Video: https://thebusinessprofessor.com/securities-act-of-1933/

Q40
Specifically, the ’33 Act makes it illegal to use the mail or any other means of interstate communication or transportation to sell securities without first _____________.

A40
disclosing certain financial information to potential investors

Resource Video: https://thebusinessprofessor.com/securities-act-of-1933/

Q41
The ’33 Act specifically regulates any offer to sell securities; where “offer” is defined very broadly as __________.

A41
any attempt to solicit interest in buying shares.

Resource Video: https://thebusinessprofessor.com/what-is-an-offer-to-sell-securities/

Q42
The ’33 Act regulates offers to sell securities by a number of individuals, including ____________.

A42
the issuer, underwriter, controlling party, or sales representative.

Resource Video: https://thebusinessprofessor.com/who-is-regulated-in-a-securities-issuance/

Q43
The _________ is the individual or business organization offering a security for sale to the public.

Q44
_________ are individuals participating in the original distribution of securities by selling such securities for the issue or by guaranteeing their sale.

Q45
A _________ is one who controls or is controlled by the issuer, such as a major stockholder of a corporation.

Q46
A ___________ is anyone who contracts with a purchaser or who is a motivating influence that causes the purchase transaction to occur.

Q47
Generally, it is illegal to sell securities to the public unless _________

A47
those securities are registered or there is an exemption from registration.

Resource Video: https://thebusinessprofessor.com/disclosure-documents-in-a-securities-issuance/

Q48
The ___________ is the primary document that the entrepreneur must file with the SEC before undertaking a securities offering.

Q49
The SEC requires that an issuer also prepare a ___________, which is summary document containing fundamental information about the issuer, the security issuance, and the terms that apply.

Q50
___________ refers to the period leading up to making the regulatory filings required by the SEC, where an issuer cannot make offers or sell securities.

Q51
___________ Is the post-SEC filing period during which an issuer can undertake limited efforts to market or sell the securities.

Q52
During the waiting period, there can be no sale of securities; but, the issuer may solicit offers to purchase securities by putting out advertisements, known as _________.

Q53
The period following registration, the point in which the registration and plan for issuing securities is officially approved, is known as the _____________.

Q54
___________ refers to a company that is not subject to any SEC reporting requirements at the time of the issuance. This includes non-public companies below a certain capitalization ($75 million).

Q55
________ is a company subject to SEC public reporting requirements, but it has either not been subject to the reporting requirements for 12 consecutive months or does not meet the $75 million public float requirement.

Q56
___________ is a reporting company that has greater than $75 million in public float, but less than $700 million and at least one year of timely reporting.

Q57
___________ is an issuer with worldwide stock float of $700M or outstanding debt of $1billion that has been issued within the past 3 years.

A57
Well-Known Seasoned Issuer (WKSI)

Resource Video: https://thebusinessprofessor.com/classification-of-issuance-of-securities/

Q58
During the pre-filing period, no offers to sell or offers to buy securities are permitted. Any communications or announcement of the upcoming offer cannot have the purpose or effect of __________.

A58
“conditioning of the market”

Resource Video: https://thebusinessprofessor.com/securities-issuance-prefiling-period/

Q59
Some notable exceptions to the general prohibition against offers to sell during the pre-filing period include:

A59
Emerging Market Company Exception; Section 5(b) Exception; Public Company Exception; Free-Writing Prospectus Exception

Resource Video: https://thebusinessprofessor.com/securities-issuance-prefiling-period/

Q60
During the post-registration, waiting period, generally, oral discussions or offers to buy the securities are unregulated. True or False

Q61
During the post-registration, waiting period, written offers to sell (or other solicitations) must be accompanied by a __________.

A61
prospectus that meets statutory standards for disclosure.

Resource Video: https://thebusinessprofessor.com/securities-issuance-post-filing-waiting-period/

Q62
During the Post-Effective Period, the issuer can begin selling securities. True or False

A62
True

Q63
_____________ is the pre-registration of securities that will not be issued until a later date.

A63
Shelf registration

Q64
An emerging growth company (EGC) is any company that meets the following requirements:

A64
less that $1billion or more of total gross revenue in a consecutive 12-month period; is within 5 years of its original IPO; cannot have issued more than $1 billion in non-convertible bonds within the last 3 years; and does not qualify as a “large accelerated filer”, meaning a public float of over $700 million.

Resource Video: https://thebusinessprofessor.com/what-is-an-emerging-growth-company/

Q65
Status as an emerging growth company provides a number of benefits to the company with regard to security laws and regulation, including:

A65
confidential submission to SEC; unregulated oral or written communications with qualified institutional buyers and accredited investors; only produce 2 years of audited financial statements with the registration statement; security analyst can publish reports in the issuance; exemption from new or revised accounting standards; exemption from mandatory rotation of auditing firms; exempt from disclosing executive compensation.

Resource Video: https://thebusinessprofessor.com/what-is-an-emerging-growth-company/

Q66
The SEC requires that anyone offering to sell securities disclose all _________ information about the venture to prospective purchasers.

Q67
Requirements for disclosure of all “material information” is defined as:

A67
“there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”

Resource Video: https://thebusinessprofessor.com/types-of-information-disclosed-in-securities-issuance/

Q68
_________ is an SEC promulgated regulation that provides the disclosure requirements applicable to new issuances under the ’33 Act and subsequent sale or transfer of securities under the ’34 Act.

Q69
Numerous statutory and rule-based exemptions to the securities registration process exist. The statutory exemptions fall under _______of the ’33 Act. The rule-based exemptions are based upon statutory exemptions and are found primarily in __________ of the ’33 Act.

A69
Sections 3 and 4; “Regulation A” and “Regulation D”

Resource Video: https://thebusinessprofessor.com/exempt-securities-and-exempt-transactions/

Q70
Common types of “exempt securities” are ____________.

A70
government securities, bank securities, high-quality debt instruments, non-profit securities, and insurance contracts.

Resource Video: https://thebusinessprofessor.com/exempt-securities-and-exempt-transactions/

Q71
A broad exemption under Section 4 of the ’33 Act includes ________

A71
“Private offerings” - “transactions by an issuer not involving any public offering.”

Resource Video: https://thebusinessprofessor.com/exempt-securities-and-exempt-transactions/

Q72
An ________ is a transaction that does not warrant full-blown registration, as they involve either a limited amount of capital or sophisticated or accredited investors.

Q73
Rule 144 covers __________, which are subject to restrictions on when they can be sold or transferred following their issuance.

Q74
Restricted securities in public companies are those held by __________.

A74
officers, directors, or major shareholders (10% of total shares).

Resource Video: https://thebusinessprofessor.com/what-are-restricted-securities/

Q75
Securities issued pursuant to a _____________, such as Regulation A or D exemptions, are also restricted from immediate resale.

A75

Q76
Section 3(a)(11) is an ___________ designed to allow businesses to seek local funding. The issuer may offer securities for sale to residents of the state in which the business primarily does business without registering the issuance or securities with the SEC.

Q77
Section 3(a)(11) offers an exemption for a class of securities, rather than an exemption for the particular issuance or transaction. The securities can be freely resold without worrying about registration. True or False

Q78
A Section 3(a)(11) exemption is attractive to issuers because it allows for:

A78
an unlimited number of investors; an unlimited amount of raised capital; and general solicitation of investors may be allowed under the applicable state law.

Resource Video: https://thebusinessprofessor.com/what-is-a-section-3a-securities-registration-exemption/

Q79
Purchasers cannot immediately resell the security, as that resale may involve out-of-state purchasers. True or False

Q80
The _________, applicable to Section 3 issuances, states that any offering of securities by the issuer within the last 12 months may be integrated into the current offering.

Q81
Section 3(b)(1) and 3(b)(2) of the ’33 Act, known as a ____________, is an exemption from registration of securities, where the value of securities issued does not exceed $5 million or $50 million, respectively.

Q82
__________ of the ’33 Act is a safe harbor for section 3(a)(11) hat lays out the strict requirements that the issuer must meet to remain within the confines of the statutory exemption.

Q83
To qualify for the intrastate offering exemption under SEC Rule 147:

A83
the issuer (company) must be incorporated in the state where the offering is made; at least 80% of the issuer’s revenues must come from business within that state; at least 80% of the issuer’s assets must be located in that state; and at least 80% of the proceeds of the offering must be used in that state.

Resource Video: https://thebusinessprofessor.com/rule-147-and-section-3-exemption/

Q84
Section 4(a)(2) allows for private offerings, which provides that ___________.

A84
“the provisions of section 5 shall not apply to transactions by an issuer not involving any public offering.”

Resource Video: https://thebusinessprofessor.com/what-is-a-section-4-securities-exemption/

Q85
In a “private offerings” securities fall outside of the scope of a public offering and, therefore, are exempt from the registration and reporting requirements of Section 5.

Q86
Advantages of a section 4(a)(2) offering are as follows:

A86
there is no geographical limitations on the issuance within the United States, an unlimited number of offerees and investors, and there is no limit upon the amount of money raised in the issuance.

Resource Video: https://thebusinessprofessor.com/what-is-a-section-4-securities-exemption/

Q87
Limitations of a section 4(a)(2) exemption are as follows:

A87
Requires a prospectus, Investors must be “sophisticated”, prior offerings can be “integrated”, No “General Solicitation; the Securities are Restricted.

Resource Video: https://thebusinessprofessor.com/what-is-a-section-4-securities-exemption/

Q88
Section 4(a)(5) of the ’33 Act provides a statutory exemption for securities sold in accordance with the following provisions:

A88
Must use prospectus, Only accredited investors, No General Solicitation, No more than $5 million raise, Provide notice of sale to SEC, Securities are restricted, Not an exemption from state registration.

Resource Video: https://thebusinessprofessor.com/what-is-a-section-4a5-securities-registration-exemption/

Q89
_________ is a “conditional small issues” exemption from registration available for issuances that meet certain characteristics.

Q90
What are the requirements of a company to quality for a Regulation A exemption?

A90
Private, Non-Reporting Company, US Company, Operating Company

Resource Video: https://thebusinessprofessor.com/regulation-a-exemption/

Q91
The limitations on a Tier 1, Regulation A Issuance include:

A91
Maximum amount of the issuance is $5 million in a 12-month period. There is no limit on the number of amount of securities purchased by any investors.

Resource Video: https://thebusinessprofessor.com/regulation-a-exemption/

Q92
The limitations on a Tier 2, Regulation A Issuance include:

A92
Maximum amount of the issuance is $50 million in a 12-month period. An investor may only purchase a number of securities valued at 10% of her annual income or 10% of her net worth, whichever is less.

Resource Video: https://thebusinessprofessor.com/regulation-a-exemption/

Q93
The disclosure requirements for a Regulation A offering include:

A93
SEC review prior to sale; Certified offering statement containing both non-financial and financial disclosures

Resource Video: https://thebusinessprofessor.com/regulation-a-exemption/

Q94
While general solicitation is prohibited, Regulation A allows the issuer of securities to ___________ for interested investors.

A94
“Test the waters” (I.e., seek feedback from investors)

Resource Video: https://thebusinessprofessor.com/regulation-a-exemption/

Q95
Regulation A securities are not exempt from state regulation. True or False

Q96
____________ is the most commonly used set of exemptions for private placement. It consists of Rules 501-508 of the ’33 Act.

Q97
Regulation D provided _________ for issuers of securities; as, unlike the statutory exemptions, failure to achieve or perfect an exemption is not completely detrimental to the validity of the securities offering.

Q98
Regulation D, rules _________ provide definitions and conditions for the applicable exemptions.

Q99
Rules __________ , are the substantive exemptions.

Q100
Rules _________ lay out the consequences for failing to comply with the requirements of an individual exemption.

Q101
Regulation D safe harbor provisions only provide exemptions for the issuers of the securities during the original issuance of the security. The rules do not exempt individuals who later sell those same securities to third parties. True or False

Q102
Some exemptions limit the ability to sell securities to ____________ investors.

A102
Accredited & Sophisticated Investors

Resource Video: https://thebusinessprofessor.com/regulation-d-securities-exemption/

Q103
_______________ is a transactional exemption from registration under Regulation D for small securities offerings pursuant to Section 3(b) of the 103. ’33 Act.

Q104
The general requirements and limitations on the exemption are as follows:

A104
The exemption is available to the original issuer; an aggregate annual value of up to $1 million; sales to an unlimited number of persons.; Securities are restricted; no general solicitation or general advertising”.

Resource Video: https://thebusinessprofessor.com/rule-504-securities-exemption/

Q105
Rule 504 does allow for general solicitation in the following circumstances:

A105
the offering is registered in the state where securities are sold; or the state permits general solicitation and sales are only made to accredited investors in that state; or the state of issuance does not require registration, but the securities are registered in another state.

Resource Video: https://thebusinessprofessor.com/rule-504-securities-exemption/

Q106
To qualify for this exception, the state law must require "the public filing and delivery to investors of a substantive disclosure document before sale,” known as __________.

A106
Private Placement Memorandum

Resource Video: https://thebusinessprofessor.com/rule-504-securities-exemption/

Q107
A Rule 504 exemption does not preempt state regulations of securities under such an issuance. True or False

Q108
Rule 505 of Regulation D is a transactional exemption from registration of a securities issuance with the following characteristics:

A108
Available for all types of issuers; up to $5 million in 12 months; an unlimited number of accredited investors and up to 35 non-accredited investors; Restricted securities; No general solicitation; Requires a Private Placement Memorandum; Not a state exemption.

Resource Video: https://thebusinessprofessor.com/rule-505-securities-exemption/

Q109
Rule 506(b) is a Safe Harbor Exemption with the following characteristics:

A109
Protects non-disqualified issuers; unlimited dollar amount in issuance; an unlimited number of accredited investors and up to 35 non-accredited investors; This is a transactional exemption; No general solicitation; Requires a Private Placement Memorandum; It is a state exemption.

Resource Video: https://thebusinessprofessor.com/rule-506b-securities-exemption/

Q110
Rule 506(c) exemption with the following characteristics:

A110
Allows issuer to raise an unlimited amount of funds; Must verify all investors are accredited; Securities are restricted; General Solicitation is allowed; Must provide Private Placement Memorandum; Exempt for state securities regulation

Resource Video: https://thebusinessprofessor.com/rule-506c-securities-exemption/

Q111
An accredited investor, includes:

A111
A net worth of more than $1million (excluding primary residence); annual income of over $250K.

Resource Video: https://thebusinessprofessor.com/rule-506c-securities-exemption/

Q112
Rule 502(d) requires that issuers employing Regulation D take the following three steps to make certain the shares are not resold during the restricted period:

A112
reasonable inquiry to determine if each purchaser is buying the security for himself or for someone else; written disclosure to each purchaser that the securities are restricted; and a legend on the securities noting the resale restriction.

Resource Video: https://thebusinessprofessor.com/restricted-securities-and-rule-144/

Q113
The SEC promulgated _________, which allows a “safe harbor” for purchasers to resell their shares after one or two years, depending on how much public information about the issuer is available.

Q114
The relevant disclosure provision governing issuances is Rule _________. It requires that issuers provide both financial and non-financial information.

Q115
Non-financial information required by Rule 502(b) includes:

A115
the management team; the industry; the type and characteristics of the securities offered; any third-party facilitators in the offering process; and the risks involved in the type of security being offered.

Resource Video: https://thebusinessprofessor.com/disclosure-requirements-of-regulation-d/

Q116
Financial information about the business must be disclosed via the financial statements of the business. True or False

Q117
To claim an exemption from registering a securities issuance, the issuer must provide notice to the SEC of the issuance and claimed exemption by filing _________ with the SEC.

Q118
____________ allows any purchaser to bring a lawsuit to rescind the purchase of the securities (along with interest on the purchase funds) or, if the securities have been sold, to receive the damages suffered from the purchase.

Q119
_________ provides some relief from liability if an anticipated exemption under Rules 504 - 506 fail because of an insignificant reason.

Q120
An issuer may be able to defend an action for rescission by demonstrating the following:

A120
the issuer’s deviation from the exemption requirement was insignificant with regard to the overall offering; the requirements were not specifically imposed to protect this type of purchaser’s interest; and the issuer honestly (in good faith) attempted to comply with the exemption requirements.

Resource Video: https://thebusinessprofessor.com/result-of-failure-to-comply-with-securities-registration/

Q121
___________ is a sort of mini-public offering that allows the general public to purchase securities directly from an issuer through authorized, private exchanges.

Q122
__________ provides for a Section 5 registration exemption for issuances conducted in accordance with specific crowdfunding methods.

Q123
To qualify for the exemption under Section 4(a)(6), crowdfunding transactions by an issuer (including all entities controlled by or under common control with the issuer) must meet the following requirements:

A123
No more than $1million in 12 months; no individual donations limits

Resource Video: https://thebusinessprofessor.com/crowdfunding-and-securities-laws/

Q124
To become registered as a crowdfunding broker or funding portal, the entity must comply with the following:

A124
implement procedures to protect purchasers of securities against fraud; refrain from providing investment advice or soliciting purchasers; provide disclosures substantially similar to those required in a registration or disclosure document; allow for questions and feedback on securities being issued; file an offering statement with the SEC disclosing the terms and details of all issuances (which is also available to investors); and make annual filings with the SEC and make those fillings available to the public on the crowdfunding site or portal.

Resource Video: https://thebusinessprofessor.com/crowdfunding-and-securities-laws/

Q125
The 1933 Act provides for both criminal and civil liability for individuals who violate its provisions in the issuance of securities. True or False

Q126
________ of the ’33 Act provide for strict liability (tort liability) for issuers who make material misstatements or omissions in the issuance of securities.

Q127
To be liable for a Section 11 violation, the issuer must make a ___________

A127
material misstatement or omission of information in the transaction.

Resource Video: https://thebusinessprofessor.com/civil-liability-under-section-11-of-the-1933-act/

Q128
An individual may be liable if the final registration statement contains any:

A128
Untrue statement of material fact; Omits material facts required by a statute or government regulation; or Omits information that makes the stated information materially misleading.

Resource Video: https://thebusinessprofessor.com/civil-liability-under-section-11-of-the-1933-act/

Q129
The following individuals are potentially liable under Section 11:

A129
The issuer, any person or entity that controls an issuer; those who endorse or sign their names (“signer”) to assert the veracity of the information.

Resource Video: https://thebusinessprofessor.com/civil-liability-under-section-11-of-the-1933-act/

Q130
This provision provides a civil cause of action for purchasers of securities against issuers who sell securities without registering the securities or perfecting an exemption.

Q131
This provision provides a cause of action for purchasers against issuers who makes a material misstatement or omission in a prospectus or other communication made as part of the sale of securities to the purchaser.

Q132
Section 12 causes of action are only available to purchasers in the original issuance of the securities. True or False

Q133
___________ Is a defense to a Section 11 or 12 claims where he defendant may argue that the false or misleading information is not material and thus should not have had an impact on the purchaser’s decision-making process.

Q134
__________ Requires a shareholder o bring an action against an issuer within one to three years.

Q135
___________ Is a defense to Section 11 or 12 liability if she conducted adequate due diligence and such effort failed to uncover the misleading or omitted material information.

Q136
An issuer is personally responsible for conducting a reasonable investigation of any information that is not reviewed or certified by a qualified expert. True or False

Q137
__________ is a defense claiming that something other than the material misstatement or omission in a disclosure statement caused the damages (i.e., the value of the equity to fall).

Q138
______________ of the ’33 Act makes it illegal to “employ any device, scheme, or artifice to defraud … obtain money or property … engage in any transaction, practice, or course of business which operates or would operated as a fraud or deceit upon the purchaser.”

Q139
____________ of the ’33 Act allows the Department of Justice (DOJ) to bring a criminal action against anyone who knowingly and willfully violates the ’33 Act.

Q140
______________ regulates transfers of securities after the initial sale. Basically, it picks up where the ’33 Act leaves off.

A140
Securities Exchange Act of 1934 (’34 Act)

Resource Video: https://thebusinessprofessor.com/securities-exchange-act-of-1934/

Q141
Registration under the ’34 Act requires __________ with the applicable stock exchange and the SEC.

A141
filing prescribed forms in a timely manner

Resource Video: https://thebusinessprofessor.com/securities-exchange-act-of-1934/

Q142
The company becomes known as a “reporting company”, and is required to register with the SEC if it meets any of the following characteristics:

A142
it completes a public offering pursuant to the ’33 Act; securities of the company are traded on a national exchange; or it has 2,000 or more total shareholders (or 500 or more unaccredited shareholders) of unrestricted securities and a total asset value of more than $10 million.

Resource Video: https://thebusinessprofessor.com/requirement-to-register-securities-under-1934-act/

Q143
A reporting company must make routine disclosures to the public by filing reports with the SEC. The information required to be disclosed is substantially as follows:

A143
Reporting Company Initial Statement; Annual Reporting; Quarterly Reports; Special Reports

Resource Video: https://thebusinessprofessor.com/reporting-and-disclosure-requirements-under-1934-act/

Q144
____________ and _________ make it unlawful to use most communication methods (such as the mail, internet, or wire) or any national securities exchange to defraud any person in connection with the purchase or sale of any security.

A144

Q145
Rule 10(b)(5) prohibits the following conduct in connection with the sale of a security:

A145
using any device, scheme, or other artifice to defraud purchasers; making any untrue statement or failing to disclose any material fact that make the statement misleading; or employing any practice that would deceive or defraud.

Resource Video: https://thebusinessprofessor.com/liability-under-section-10-and-rule-10b5/

Q146
To successfully bring a cause of action under Rule 10(b)(5), the plaintiffs must demonstrate the following elements:

A146
Deceit; Material Information; Purchase of Sale of a Security; Reliance on the Information; Actual Damages

Resource Video: https://thebusinessprofessor.com/liability-under-section-10-and-rule-10b5/

Q147
_____________ is the sale or purchase of securities by individuals privy to non-public, material information of a firm based upon her special relationship with the firm.

Q148
Section 10 of the ’34 Act has been broadly interpreted to prohibit the practice of trading securities based on material, non-public information received ___________ or __________ of a company.

A148

Q149
A _________is a person who learns of nonpublic information from an insider. Upon receipt, this person is considered to be a legal, temporary insider.

Q150
The elements of a 10(b)(5) action are the same for criminal and civil actions and are as follows:

A150
Material, non-public information; a fiduciary with regard to the material, non-public information; trading on (i.e., using the information to make stock trades) or misappropriating the information.

Resource Video: https://thebusinessprofessor.com/liability-for-insider-trading-under-rule-10b5/

Q151
The third party cannot trade on the information; but she has no duty to reveal the nonpublic information to the public, since she was not in a fiduciary position with respect to company. True or False

Q152
Who may enforce the antifraud provisions of Section 10 and Rule 10(b)(5)?

A152
both the SEC and a private plaintiff (purchasers or sellers of the securities)

Resource Video: https://thebusinessprofessor.com/damages-available-in-rule-10b5-action/

Q153
In an action by ___________ the damages are three times the profits gained. The statute of limitation is 5 years from the wrongful transaction.

A153
Action by the SEC. A defrauded seller or buyer’s damages is the difference between the fair value of all that the seller received and the fair value of what he or she would have received had there been no fraud.

Resource Video: https://thebusinessprofessor.com/damages-available-in-rule-10b5-action/

Q154
__________ is an insider tradition provision that applies specifically to corporate buyouts or takeovers.

Q155
__________ of the ’34 Act provide liability for the sale or transfer of securities by an officer, director, or large shareholder (holding 10% or more of outstanding securities), “insider”, of the corporation.

Q156
Section 16 prohibits insiders from making __________ profits by trading their shares within 6 months of the registration or acquiring the shares.

Q157
_________ of the ’34 imposes liability on any person “who shall make or cause to be made any false and misleading statement of material fact in any application, report, or document filed under the act”. This includes annual, quarterly, and special reports.

Q158
To bring a Section 18 action, a plaintiff must prove that:

A158
the defendant knowingly made a false statement; the plaintiff relied on the false or misleading statement; and the plaintiff suffered damages as a result of that reliance.

Resource Video: https://thebusinessprofessor.com/liability-under-section-18-of-1934-act/

Q159
The Securities Enforcement Remedies Act provides for additional civil liability for defendants found to have violated the securities laws. A judge may impose fines of up to _________ per institution and __________ per individual.

Q160
The ’34 Act provides for criminal sanctions where Individuals face __________ and business entities face _____________.

A160
up to a 25-year sentence; fines of up to $25 million

Resource Video: https://thebusinessprofessor.com/criminal-liability-securities-exchange-act-of-1934/

Q161
______________ are state laws regulating the sale of securities within that state.

A161
“Blue-sky laws”

Q162
The requirements of state blue-sky laws will differ among the states, but they are all based closely on the _____________ promulgated in 1956.

A162
Uniform Securities Act

Q163
________________ effectively limited the ability of states to regulate many securities and security offerings, such as those traded on a national exchange (such as the NYSE or CME); securities of registered investment companies, and offers of securities exempt from Federal registration under Regulation D, Rule 506.

A163
the National Securities Markets Improvement Act (NSMIA)

Resource Video: https://thebusinessprofessor.com/securities-issuances-regulated-by-state-law/

Q164
States generally recognize any number of exemptions for certain issuances of securities, such as:

A164
isolated transactions involving the issuance of securities; offers or sales to a limited number of offerees or purchasers within a stated time period; issuances qualifying as private offerings under Rule 504; and issuances to a predefined, but limited, number of purchasers.

Resource Video: https://thebusinessprofessor.com/securities-issuances-regulated-by-state-law/

Q165
___________ includes provisions excusing certain securities offerings, such as offerings issued pursuant to Regulation D, Rule 505.

A165
The Uniform Limited Offering Exemption

Resource Video: https://thebusinessprofessor.com/securities-issuances-regulated-by-state-law/

Q166
States adopt this approach, but also may impose a test to make certain the security being issued meets certain quality standards. This is known as a

Q167
Some states require issuers to undergo a full-blown registration, complete with a merit review. Issuers registering with the SEC must file duplicate documents with the state’s administrative agency regulating securities. This is known as __________.

A167

Q168
Some states permit issuers with an established track record to simply file a notice before offering their securities. This is known as __________.

Q169
Some states permit issuers that have registered with the SEC to file copies of the federal registration statement (and perhaps some additional documents) with the state. This process is known as ____________.

Q170
There are two primary options for registration by coordination that ease the process of complying with state securities requirements.

A170
Coordinated Review-Equity; Coordinate Review - Small Company Offering Registration

Resource Video: https://thebusinessprofessor.com/coordinated-registration-under-state-securities-law/

Q171
This type of review is designed for use during an IPO that is seeking registration (not seeking a statutory or rule-based exemption from registration). One state takes the lead on all disclosure concerns, while another assumes responsibility for any merit issues. The issuer may then register this disclosure and review in any other state where selling securities.

Q172
Under this program, registration only requires a simplified disclosure form. Rather than filing a SCOR disclosure in each state where securities will be sold, the issuer can file in a region to cover all the states in that region. Most states permit the use of this method for offerings under Rule 504 or Reg A, Tier 1.

A172
Coordinate Review - Small Company Offering Registration

Resource Video: https://thebusinessprofessor.com/coordinated-registration-under-state-securities-law/


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