79 - Ch. 4
A biotechnology company based in Latin America has hired your investment banking firm to raise a large amount of capital in the U.S. Your firm is targeting wealthy investors who reside in the U.S. Which of the following offerings would allow the issuer to offer these securities without filing a registration statement with the SEC? ARegulation A Offering BRegulation S Offering CRule 144A Offering DRegulation D Offering
A private placement under Regulation D may be offered to an unlimited number of accredited investors. An accredited investor is defined as an institutional investor or a person with either a net worth of $1,000,000, or annual income of $200,000 (or $300,000 for a married couple). This would allow the issuer to raise capital from institutional investors and wealthy individuals. Rule 144A permits the sale of an unlimited dollar amount of restricted securities to qualified institutional buyers (QIBs). A QIB may not be a natural person and, therefore, would not allow high-net-worth investors in the U.S. to participate. Regulation A requires filing with the SEC and the offering size is limited to $5,000,000. Regulation S allows U.S., not foreign, issuers to raise capital outside the U.S. without filing a registration statement with the SEC.
Which of the following types of offerings would permit a U.S. public company to raise an unlimited amount of capital quickly from an unlimited number of retail and institutional investors, without filing any documentation with the SEC? AA Regulation S offering BA Regulation D offering CAn offering of securities under Rule 144A DA Regulation A offering
According to Regulation S, a U.S. company may (quickly) issue an unlimited amount of securities outside the country without filing any documentation with the SEC. There are no restrictions as to the type of non-U.S. investors who may purchase the security. To qualify for a Regulation S exemption, the transaction must be offshore, which means no U.S. person may purchase the offering. Regulation A limits the dollar amount of securities that may be raised by the issuer to $50,000,000. Regulation D limits the number of nonaccredited investors to 35. An offering under Rule 144A may be offered only to qualified institutional buyers.
All of the following statements are TRUE concerning an SEC Rule 4(5) offering, EXCEPT: AThe amount of the offering may not exceed $5,000,000 BThe offering may be sold to institutional investors CNo advertising or public solicitation may be used to offer the securities DThe offering may be sold to a limited number of nonaccredited investor
According to Section 4(5) [formerly 4(6)] of the Securities Act of 1933, an offering by an issuer may be considered an exempt transaction if certain conditions are met. The amount of the offering may not exceed $5,000,000. No advertising or public solicitation may be used to offer the securities, and the offering may be sold only to accredited investors. Institutional investors are considered accredited and may purchase this type of offering. This exemption is different from Regulation D, where a limited number (35) of nonaccredited investors may participate.
A media company based in Asia has hired your investment banking firm to raise capital in the U.S. Since many wealthy people in the U.S. have heard of this company, the issuer would like to target these investors as well as institutional investors. If the issuer does not want to file a registration statement with the SEC, you would recommend a: ARule 144A Offering BRegulation D Offering CRegulation S Offering DRule 144 exemption
All of these choices do not require filing with the SEC. However, a private placement under Regulation D may be offered to an unlimited number of accredited investors. An accredited investor is defined as an institutional investor or a person with either a net worth of $1,000,000, or annual income of $200,000 ($300,000 for a married couple). This would allow the issuer to raise capital from institutional investors and wealthy individuals. Rule 144 is an exemption that allows for the resale of restricted or control stock, and no proceeds would be raised by an issuer. Rule 144A permits the sale by selling stockholders of an unlimited dollar amount of restricted securities to qualified institutional buyers (QIBs). A QIB may not be a natural person and, therefore, would not allow the issuer to offer securities to high-net-worth investors in the U.S. Regulation S allows U.S., not foreign, issuers to raise capital outside the U.S. without filing a registration statement with the SEC.
Which of the following is considered an accredited investor? AA person who has a net worth of $1,200,000, which includes a principal residence that is worth $300,000 BA married couple who have a joint net worth of $1,400,000 CA trust that has assets of $4,000,000 DA charitable organization that has assets of $3,000,000
As defined under Regulation D of the Securities Act of 1933, an accredited investor is eligible to purchase a Regulation D (private placement) offering. Accredited investors include: Certain financial institutions regardless of their assets, such as banks, registered investment companies, and private business development companies Pension plans and ERISA accounts, which have total assets in excess of $5 million Any 501(c)(3) organizations (non-profits) or trusts which have total assets of $5 million AND were not formed for the specific purpose of acquiring the securities being offered Any executive officers, directors, or general partners of the issuer of the securities being offered Any natural persons whose net worth or joint net worth exceeds $1 million or have annual income of $200,000 ($300,000 joint income) Any entities in which all of the equity owners are accredited investors Choice (a) is not an accredited investor since the net worth requirement of $1 million may not include a person's primary or principal residence.
All of the following entities are required to maintain a minimum amount of assets to be considered an accredited investor, EXCEPT: AA trust that is established for the benefit of a family member BAn employee benefit plan CA charitable organization DA mutual fund
As defined under Regulation D of the Securities Act of 1933, an accredited investor is eligible to purchase a Regulation D (private placement) offering. Accredited investors include: Certain financial institutions regardless of their assets, such as banks, registered investment companies, and private business development companies Pension plans and ERISA accounts, which have total assets in excess of $5 million Any 501(c)(3) organizations (non-profits) or trusts which have total assets of $5 million AND were not formed for the specific purpose of acquiring the securities being offered Any executive officers, directors, or general partners of the issuer of the securities being offered Any natural persons whose net worth or joint net worth exceeds $1 million or have annual income of $200,000 ($300,000 joint income) Any entities in which all of the equity owners are accredited investors There is no minimum asset requirement for a financial institution (e.g., a mutual fund) to be considered an accredited investor.
Which of the following entities, is NOT an accredited investor? AA private business development company which has $4 million of assets BThe trust department of a bank which has $8 million of assets CA registered investment company which has $3.5 million of assets DA pension plan which has $4.5 million of assets
As defined under Regulation D of the Securities Act of 1933, an accredited investor is eligible to purchase a Regulation D (private placement) offering. Accredited investors include: Certain financial institutions regardless of their assets, such as banks, registered investment companies, and private business development companies Pension plans and ERISA accounts, which have total assets in excess of $5 million Any 501(c)(3) organizations (non-profits) or trusts which have total assets of $5 million AND were not formed for the specific purpose of acquiring the securities being offered Any executive officers, directors, or general partners of the issuer of the securities being offered Any natural persons whose net worth or joint net worth exceeds $1 million or have annual income of $200,000 ($300,000 joint income) Any entities in which all of the equity owners are accredited investors To be considered an accredited investor, a pension fund must have assets in excess of $5 million.
A broker-dealer owns 60% of the Sloan Corporation which, in turn, owns 70% of Pirelli Industries. If the broker-dealer arranges a private placement for Pirelli Industries, it is: AExempt from filing a disclosure document with the Corporate Finance Department, but is required to provide this document to investors BRequired to file a compensation disclosure document with the Corporate Finance Department, but is not required to provide this document to investors CRequired to file a disclosure document with the Corporate Finance Department, but is not required to provide this document to investors DExempt from filing a disclosure document with the Corporate Finance Department
FINRA Rule 5122 relates to a private placement of securities where a member firm issues the securities and conducts the placement on its own behalf. It is also referred to as a Member Private Offering (MPO). Due to potential conflicts of interest when a member firm attempts to raise capital for itself, or for a firm it controls, the member firm is required to provide a term sheet, or a private placement memorandum, or a disclosure document that contains certain disclosures. The member firm is also required to file this document with the Corporate Finance Department. Control is defined as ownership of more than 50% of the company. With multiple levels of ownership, the rule uses a flow-through concept to determine control. Since the broker-dealer owns 60% of 70%, it would have only a 42% interest in Pirelli Industries and would be exempt from the filing requirements of the rule.
Which of the following statements is TRUE concerning private placements? AAn investor who agrees to purchase the securities acknowledges that he understands the risks and may lose his entire investment BThe issuer agrees to allow investors to sell the securities in a public marketplace after a six-month period CAn investor agrees to purchase the securities and is permitted to share information in the offering document without restrictions DThe issuer agrees to register the securities with the SEC within a reasonable period after the offering is completed
In a private placement, both the issuer and investors have obligations and liabilities. The issuer agrees to provide all relevant material information concerning the company to permit an investor to decide whether to invest. Although it may not be a regulatory requirement, the issuer will usually provide a disclosure document (a private placement memorandum) to avoid violations of the antifraud provisions (as found in numerous securities laws). The issuer may, but is not obligated to, provide a public market for the securities. This is often accomplished by registration. The investor who agrees to purchase the securities must acknowledge that he understands the risks of investing and that he may lose his entire investment. The investor also agrees not to share information found in the offering document. He may violate securities regulations by releasing material, nonpublic information
Three months after purchasing stock in a new issue offering in California, an investor attempted to sell the stock to an investor who lives in Texas. The California investor was subsequently notified that she may not sell the stock for another three months. Which of the following types of offerings carry this type of restriction? ARegulation A BRule 145 CRule 147 DRegulation D
SEC Rule 147 and Rule 147A of the Securities Act of 1933 provides an exemption from registration for securities being sold on an intrastate basis. If securities are sold only to residents of a state by an issuer that is also a resident of the same state, the securities are exempt from both the registration and prospectus requirements of the Act. A resident of a state who acquires securities under Rule 147 is not allowed to sell the securities to a nonresident of the state for a period of six months following the last date of sale by the issuer. If an individual intends to sell the securities prior to six months, she may do so only to a resident of the same state.
Which of the following issuers could seek a registration exemption under Regulation A? AAn issuer that is offering an aggregate of $45 million of common stock which includes $12.5 million being sold on behalf of existing shareholders BAn issuer that is offering an aggregate of $16 million of common stock which includes $7.5 million being sold on behalf of existing shareholders CAn issuer that is offering an aggregate of $50 million of common stock which includes $16 million being sold on behalf of existing shareholders DAn issuer that is offering an aggregate of $19 million of common stock which includes $6.75 million being sold on behalf of existing shareholders
Under a Regulation A exemption, the maximum offering size is either an aggregate offering of $20 million, which includes no more than $6 million of the offering being sold on behalf of existing shareholders (Tier 1), or an aggregate offering of $50 million, which includes no more than $15 million of the offering being sold on behalf of existing shareholders (Tier 2). Another consideration is that no more than 30% of the aggregate offering may be sold by selling shareholders. Choices (a), (b), and (c) each exceed the 30% threshold.
Which of the following entities is NOT an accredited investor? AMercantile Savings and Loan BUtopia Bank CThe trust department of Concordia Bank DMilford Insurance Company
trust department is not mentioned in definition
