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R5 Securities Regula
R5 Securities Regulation, 1933, 1934, Prospectus, TimeTable of sales Acitivties
| Question | Answer |
|---|---|
| What does the Securities Act of 1933 regulate? | 1933 regulated the issuance before the IPO |
| What does the Securities Act of 1934 regulate? | 1934 regulated the transactions after the initial issuance. |
| Due Dilligence | an affirmative defense -requires the CPA to prove that the CPA made a reasonable investigation and had reasonable grounds to believe f/s - no material facts were omitted. In essence, the CPA must prove that he or she followed GAAS. |
| Under Securities Act 1933 what are considered securities? | Generally any investment contract. -Is the investor passive? Relying on management of others to make money? - Stocks, Bonds, Debntures, Oil Well interests - Stock Options, Collateral Trust, Warrants - Limited Partnerships |
| True or False? Resales of the offering must be made under a registration or a different exemption provision of the 1933 Act. | True, under the 1933 Act, Resales of the IPO must be made under the registration statement or an exemption provision of the 1933 Act |
| Components of the Registration Statement | 1. Prospectus 2. Important Information -Audited B/S & PnL -Purpose of IPO fund-raising -names & addresses of directors/officers/etc owning 10% -Amount of Stock & Debt -Anything that might effect value |
| Red-Herring Prospectus? | |
| Tombstone Advertisment | |
| What is the goal of SA 1934? | 1. Sales & Purchases of securities after they are issued 2. Reporting Provisions 3. Anti-Fraud Provisions |
| What are securities? | Generally any investment contract. -Is the investor passive? Relying on management of others to make money? - Stocks, Bonds, Debntures, Oil Well interests - Stock Options, Collateral Trust, Warrants - Limited Partnerships |
| When filing a Regulation A what forums does the issuer need to file? | |
| 2 Types of Exemptions not covered by 1933 Act? | -Securities Exemptions -Transaction Exemptions |
| Securities Exemptions of registration under securities act of 1933 | B -Banks R -Railroads I -Insurance POLICES N -Non-Profits G -Governments(Bonds issued by municipalities) S -Short-Term Commercial Paper |
| *Regulation D 504 | - No general advertising - Notify SEC 15 days after the sale - Purchases must hold stock for 2 years - Less than $1M in 12 months - UNLIMITED # - UNLIMITED TYPE OF BUYERS - NO disclosure to shareholders prior to sale |
| *Regulation D 505 | - No advertising - Notify SEC 15 days after the sale - Purchases must hold stock for 2 years - Less than $5M 12 months - UNLIMITED ACCREDITED BUYERS* - MAX 35 UNACCREDITED buyers *If all ACRREDITED = NO disclosure ! but if even 1 unaccredited buy |
| *Regulation D 506 | - No advertising - Notify SEC 15 days after the sale - Purchases must hold stock for 2 years - No Dollar Limitation - UNLIMITED ACCREDITED INVESTORS - MAX 35 "Sophisticated Investors" Sophisticated: UNACCREDITED, but issuer believes they are educa |
| Purpose of Securities Act of 1933 | Ensure investors have sufficient information to make an informed investment decision Does so by.... - Requiring most issuers to register new issues with SEC - Issuers must provide prospectus *SEC does NOT ensure the ACCURACY of information* |
| Violation of Rule 10b-5 of the Securities Exchange Act of 1934 | can result in ..... -civil damages, -SEC injunctive action and -or criminal fines and penalties. |
| *Who must Register under 1934? | A company must register (is subject to continuous disclosure requirements) - listed on a national securities exchange or - at least 500 shareholders any class (UNACCREDITED) - more than $10 million in assets |
| Section 18 of 1934 | Section 18 Liability: All Persons liable for INTENTIONALLY misstating on Registration Statement |
| CPA is liable under 10b is acted..... | scienter |
| What are not considered securities? | - General Partnership Interests - Certificates of Deposit |
| Under 1933 who is required to register? | - Issuers - Underwriters - Dealers |
| What is the prospectus? | A written offer to sell securities A component of the Registration Statement -Unless issuance is exempt each shareholder must get a copy of prospectus/contemporaneous with every sale of security |
| What is some of the information about the securities that must be included in the Registration Statement? | -Audited Balance Sheet & PnL Statement - Material Facts to be disclosed include - name & addresses of officers, directors, and underwriters owning more than 10% - amount of stock & debt outstanding - purpose for raising funds through IPO - anythi |
| What is Self Registration? | One Registration Statement for all future securities issuances! -Allowed if followed 1934 for 1 year & -Information is CONTINUOUSLY UPDATED |
| What does the SEC do with the registration statement? | They Review it for completeness NOT ACCURACY! |
| When does the Registration Statement become effective? | After SEC reviews, Normally 20 days after filing! |
| Blue Sky Laws | State laws governing Stock Sales -mostly similar to Federal Laws |
| Timeline of Sales Activty | (Prefiling)- 30 Days Before Registration - No Sales (Waiting Period)- After Registration, but BEFORE Effectivness (Post-Effective Period) - After Effective Date ! Special Rules for Seasoned Issuers (WKSI) |
| Prefiling Period | 30 Days Before Registration - Can negotiate with Under writer! ! No SALES ACTIVTITY |
| Waiting Period | After Registration, but before effective date Typically 20 days it takes SEC to review -Oral Offers to Sell -Tombstone Ads -Red Herring Prospectus -Summary Prospectus |
| After Effective Date | Securities can be SOLD! -Investors must receive a Prospectus before the sale |
| Special Rules for Seasoned Issuers | Seasoned Issuer: issuers who have been reporting under 1934 for 12 months At least 700M in equity! Can make oral or written offers at ANYTIME! |
| Seasoned Issuer | issuers who have been reporting under 1934 for 12 months |
| Transaction Exemptions of registration under securities act of 1933 | - Casual Sales (not an issuer, underwriter, or dealer) - Exchanges with existing holders (Corporate reorganizations) - Intrastate Sales(Blue Sky Laws applies) - Regulation A (Partial Exemption) - Regulation D -Private Offering - Rules 504, 505, 506 |
| Accredited Buyer | Investor with at least.... -$1M Net Worth or -$200,000 annual income |
| Sections of Liability Under 1933 Act | 11 -Civil Liability for Misstatements (unintentional) 12 -Civil Anti-Fraud 17 -Criminal Anti-Frad |
| Section 11 of 1933 Act | Anyone who signs registration statement is liable caused by material misstatements... *Privity NOT required* Plaintiff must prove L -Loss A -Acquired the Stock M -Material Misstatement !NOT NEED TO Prove -reliance, scienter, or negligence |
| Best defense for a CPA under Section 11 Act 1933? | Best defense which you Have the Burden of Proof... - Due Diligence "Reasonable GAAP/GAAS Defense" Can also use as a defense.... -Misstatements didn't cause plaintiff damages |
| Reporting Companies | Co. Required to register under 1934 Issuers Required to register under 1933 |
| 1934 reporting requirements | - 8k - 10K - 10Q - 5% or more owners - Tender Offers - Insiders - Proxy Solicitation - Section 18 Liability: persons liable for INTENTIONALLY misstating on Registration Statement *5%TIP |
| *8k | Reports any major changes -Filed within 4 days of change |
| *10K | Annual Report Reviews of F/S by CPA -Filed within 60 days (large business) 10K -Filed within 90 days (small business) 10KSB |
| *10Q | Quarterly Report Reviews of interim F/S by CPA -Filed within 40 days (large business) 10Q -Filed within 45 days (small business) 10QSB |
| * 5% or More Owners | |
| Tender Offers | Tender offer to make purchase at certain time & price Tender offers must file a report to SEC -Who are you? -Background Info? |
| Insiders | Officers, Directors, more than 10% owner stockholders Insiders must disclose to SEC holdings Insiders must provide monthly updates *Cannot have "Short Swing Profits" Absolute Liabilty if you sell a stock after less than 6 months b/c we think yo |
| Proxy Solications | A written request for permission to vote a shareholder's shares at a shareholder meeting If directors are to be elected annual report sent to all voting shareholders before Proxy statement sent to stockholder with FACTS |
| *Action under Section 11 of 33 vs. Action under 10b | L -Loss A -Acquired Stock M -Misstatement (interstate commerce) *LAM are the components that are Section 11 & 10b S -Scienter R -Reliance *SR are the components that are unquie to 10b |
| Rule 10b | Prohibits Fraud even if registration is NOT required! -in connection with any purchase/sale of security |
| *What Plantiff must prove to recover damages under 10b | L -Loss A -Acquired Stock M -Misstatement (interstate commerce) *LAM are the components that are similar to Section 11 S -Scienter R -Reliance *SR are the components that are unquie to 10b |
| *Insider Trading under 10b | Illegal for anyone to trade on insider information -"Material" "Non-Public" information - SEC can impose fines & seek criminal penalties -Justice Department prosecutes! |
| Under Section 11, the plaintiff needs to prove only three elements to establish a prima facie case: | -The defendant's material misstatement and/or omission of a material fact, -Damages, and -The plaintiff acquired (not necessarily purchased) the security. |
Created by:
Ashley Price-Dyment