Chapter 42: Securities regulations

Question 1

Securities act of 1933

Answer 1

All securities transactions must be registered with the SEC by filing a registration statement and providing a prospectus. Regulates both public and private companies.

Question 2

Prospectus

Answer 2

A written document that describes the security, the risks, and the finances of the corporation

Question 3

Registration statement requirements

Answer 3

1. issuing corps properties and businesses
2. Management of issuing corporation and compensation
3. intended use of the security proceeds
4. pending lawsuits
5. Audited financial statement

Question 4

Registration statement periods

Answer 4

1. Pre-filing period
2. waiting period
3. post effective period

Question 5

Pre filing period

Answer 5

Before registration is filed with SEC, during this time the corp cannot sell or offer to sell securities that are subject to the registration statement

Question 6

Waiting period

Answer 6

Waiting for SEC approval of registration statement. Can offer to sell during this period.

Question 7

Post effective period

Answer 7

SEC approved, can sell without restrictions

Question 8

Violations of 1933 act

Answer 8

Omission of material or misrepresentation. Charged by the Dept. of Justice.

Question 9

Defenses of violation of 1933 act

Answer 9

1. Omission wasn’t material
2. plaintiff knew of the misrepresentation at the time the stock was purchased.
3. Defendant reasonably believed statements were true

Question 10

Securities exchange act of 1934

Answer 10

Requires periodic disclosures by public companies; 10-K, 10-Q, 8-K

Question 11

10-Q

Answer 11

a 10-K but quarterly instead of annually

Question 12

8-K

Answer 12

A report of unscheduled events or changes that the company thinks the SEC would find important.
ex: merger, bankruptcy, resignation of officers/directors.

Question 13

Rule 10b-5

Answer 13

prohibits insider trading

Question 14

Liability of insider trading extends to

Answer 14

Tippees and remote tippees (tippee of a tippee)

Question 15

Tippee is only liable if

Answer 15

1. There is a breach of duty to NOT disclose inside info
2. The disclosure is to their personal benefit (even applies to family and friends that don’t give consideration for the info)

Question 16

Private securities litigation reform act

Answer 16

Provides a safe way for companies to make forward looking statements, without fear of a lawsuit for promising/forecasting something that doesn’t come true.

Question 17

violations of the 1934 act

Answer 17

Criminal/civil sanctions. In order for them to be imposed, scienter must exist. (violator had intent/knowledge of their misconduct)

Question 18

Blue sky laws

Answer 18

State laws regulating sale of securities. Mainly apply to intrastate transactions