Ch.12

A former affiliate of an issuer may sell their shares under Rule 144 after meeting which of the following conditions?

-individual has not been an affiliate of the issuer for 3 months -individual has held the restricted securities for at least 12 mths -corporate insiders are limited in amnt of securities they can sell over any 90 day period

Rule 147

-intrastate exemption -principal place of business must be in the state. -at least 80% of the assets, revenues, or proceeds from the sale of securities must be used in the state. -carry out a significant amount of business in the state(ex. majority employees work in state) -offer and sell securities only to residents of the state

annual limit that this investor can invest in all crowdfunding offerings

-limit is the greater of $2,200 or 5% of the lesser of annual income or net worth.

Banker's acceptance

-money market security issued by a bank or bank holding company -If by federal bank = automatically exempt -If by a bank holding company, maturity of 270 days or less to be exempt.

Reg D Rule 506(b)(maximum amount of capital the firm can raise from unaccredited)

-no dollar limit -main limit is that not more than 35 unaccredited investors may participate.

private placements under Section 4(a)2 of the Securities Act of 1933

-no limit to the amount that can be raised in a private placement.

A small company wants to issue a private placement under Rule 504 of Regulation D. To avoid public registration, the offering must

-not exceed $5mm/12mths in size -Be "restricted" and not re-sellable without registration -may be advertised to the general public -offerings are registered some time after capital is raised, so that holders can resell them into the public market.

Equity crowdfunding

-only available to U.S. private companies -must not have bad actors / previous violations o -enables small private businesses to raise capital -marketed to small investors, including employees and customers of the issuer

Reg D private offering has 18 accredited investors and 12 non-accredited investors. How many investors must be given a copy of the private placement memorandum

-private placement memorandum not required for accredited investors. -required for all non-accredited investors. -if a PPM is prepared, a copy must be made available to all investors. Thus, having even one non-accredited investor triggers the requirement to deliver a PPM to all investors - both accredited and non-accredited.

Which entities have a responsibility to identify any bad actors associated with a crowdfunding issuer, before offering the investment to the public?

-responsibility of the issuer and both types of intermediary (funding portal, BD) to investigate backgrounds and identify such situations before the offering is made -Bad actors include convicted felons, subjects of a finance-related injunction or restraining order, or cease-and-desist orders.

An affiliate must file notice with the SEC on Form 144

-sell 5,000 shares or $50,000 in aggregate in 3 month pd -must take place within three months of filing the Form.

Regulation A+

-simplified issue process for small offerings. -<=$50 million per issuer for any 12 month period -offering circular of condensed highlights instead of a full prospectus -file Form 1-A with the SEC.

brokered CD

-sold by investment firms, -not securities. -deposit accounts issued by commercial banks. - not subject to SEC registration.

public notice sent to prospective investors(crowdfunding)

-very basic information -no advertising -Intermediary give Risk factors, economic projections and other similar information ( Form C )

Accredited retail client

1) net worth >= $1 million, 2)$200,000 personal income 3) $300,000 joint income -If a client qualifies by virtue of net worth, income isn't necessary. -ex.Tom and Betty are a married couple with combined net worth $1.2 million in and $200,000 in steady annual income= They qualify as accredited investors on the basis of their net worth

exempt securities

-U.S. government - nonprofit organizations - municipal bonds, -short-term debt up to 270 days maturity, -bank securities, and -Eurodollars. NOT: -municipal funds and -municipal unit trusts,

Private placement likely investor

-accredited investors. -employee who isn't an officer of the company is not accredited unless their income is $200,000 ($300,000 married), or if their net worth is $1,000,000.

Regulation A

-allows small public companies to make securities offerings of up to $50 million in a 12-month period without a full SEC registration process or audited financials. -Any shares acquired through Regulation A can be resold immediately in the secondary market.

Regulation A+ Tier 2 offering

-audited financials and file ongoing reports with the SEC -not have to meet state blue sky registration requirements

Affiliate

-corporate insider -defined as officers, directors, or 10% shareholders of an issuer -spouse of a corporate insider is also considered a corporate insider.

Rule 144

-corporate insider can seller greater of 1% of the outstanding shares or the average weekly trading volume over the previous 4weeks -safe harbor permitting the sale of restricted and affiliate securities, in limited amounts without requiring registration of the securities sold -6-month holding period -Shares acquired from the spouse of an affiliate would be considered restricted

intermediary

-crowdfunding -2 types: 1) registered broker-dealers; and 2) a FINRA-registered funding portal.

Reg S

-does not allow sales of securities by foreign issuers in the US -can be resold immediately to foreign (non-U.S.) investors -required holding periods before resold to U.S. investors - 40 days (debt securities), 6 months equities of reporting issuers, and 12 months for equities of non-reporting issuers. -offerings must occur overseas. The buyer must be a resident of a foreign country. The citizenry of the buyer is not the relevant factor - instead it is where the buyer resides. -do not have a size cap. -buyer of a Regulation S offering can freely sell their shares on a foreign exchange. However, these shares cannot be sold in the United States until a six-month seasoning period has passed.

Regulation Crowdfunding

-dollar limit is $1,070,000 for any 12-month period.

Regulation A and Regulation A+ Tier 1,

-federal disclosure standards are lower, state blue sky registration and disclosure is required.

Carlton is a US citizen who participates in a Reg S follow-on stock offering while living in Germany. The securities are issued by a US public company and SEC filer. Right after buying the securities, Carlton moves back to the US. Can he resell the securities while living in the US?

yes, after holding them six months

Private placement trasactions

-To avoid multiple private placements being treated as one transaction, at least 6 months must elapse without any offering -does not matter if the transactions are of different types

Form C (crowdfunding)

-Any changes in the Form C information must be updated within five business days after reaching 50% of the target raise -then again five business days after reaching 100% of the target raise.

Due diligence

-BDs -funding portals:(intermediary) optional, conduct background checks

Rule 144A, Qualified Institutional Buyers (QIBs)

-Insurance Companies -Investment Companies -Business Development Companies -Investment Advisers -Broker dealers >$10 M -institution >$100M -allows the sale of unregistered securities to Qualified Institutional Buyers (QIBs) with no holding period.

directed selling effort under Regulation S

-NOT tombstone -no more info than issuer's name, amount and title of the securities being sold, issuer's business, price/yield of the securities, name and address of the person placing the advertisement, whether such person is participating in the distribution, names of the managing underwriters, dates upon which the sales commenced and concluded, whether securities are part of a rights offering, and any legend required by a foreign or U.S. regulatory body.

Accredited investor

-Officers and director of the issuer are always accredited regardless of their income and net worth

Any company seeking to target accredited investors in the U.S. would issue via a Regulation D private placement

-Reg D allows the issuer to solicit an unlimited under of accredited investors. -Rule 144A involves Qualified Institutional Buyers (QIBs), not accredited investors. -Regulation S is for companies issuing securities only to non-U.S. residents.

piggyback registration rights

-Shares that were bought in a private placement and have never been registered are candidates for piggyback registration rights. Since these shares will be part of the IPO they will be considered Secondary Shares. -The issuer will be responsible for paying all of the expenses related to the registration of these shares.

ABC Corp. offered a Reg. D private placement in February, followed by another private placement offering in June. The February offering had 20 non-accredited investors. The June offering had 25 non-accredited investors. Which statement is the most accurate assessment of the above fact pattern and whether the Reg. D safe-harbor is met?

-This would not qualify under Reg. D. because private placements offered within 6 months of one another must be treated as one integrated offering -these two offerings have a total of 45 non-accredited investors, higher than the maximum 35 allowed. -Had the spacing been February and November then each offering would have qualified, falling under the maximum cap of 35 non-accredited investors.

Affiliates must file Form 144 with the SEC if a proposed sale of control stock

>5,000 shares or an aggregate dollar amount of $50,000 in any 3-month period.

drawback to raising capital through an exempt private placement, compared to a public offering

PP pros: -they can be brought to market faster with less regulatory red tape and legal cost -do not require registration statements or prospectuses Con: -increased cost of capital. With vast numbers of prospective investors in the public market, issuers can price their securities more competitively.

exempt from the requirement to distribute a prospectus to all investors

US government securities and US government agency securities

money market instruments issued by corporations are exempt from SEC registration

commercial paper and other short-term debt instruments with a maturity of 270 days or less are exempt from federal registration, regardless how sold.