Securities

securities exchange commision

-SEC is the agency charged with enforcing and administering federal securities laws

1934 act

-imposes disclosure requirements on securities that are publicly traded -a security registered under the 1933 Act must be registered with the SEC under the 1934 Act -even if a security was exempt under 33, it had to be registered under 34 if it is listed on a securities exchange such as the New York stock exchange or if it is traded over the counter

review by the SEC

-it does not give an opinion about the likelihood of success of a proposed business -it can require issuers to make high risk factors clear in the prospectus as to put buyers on notice

how does the SEC look at economic realities of an investment transaction to determine whether it is a security

-just because something is called a stock does not mean it is a security that falls within the jurisdiction of the federal security laws -also, other things with names not included in the list written by congress may be securities

material information

-material information is all relevant information that an investor would want to know about a company

securities fraud

-securities law helps ensure adequate and accurate disclosure of material facts concerning the securities of a publicly traded company -failure to follow the disclosure requirements may result in suit for securities fraud

securities exempt from regulation

-some new securities sold to the public are exempt from regulation -1933 Act provides an exemption for securities issued by banks, religious and charitable organizations, insurance policies, and annuity contracts -most of these securities are subject to control by other federal agencies, such as the federal reserve system

when offering securities to investors, the 1933 act requires

-that before a security is sold, sellers disclose to prospective investors all material information about the security

inder trading

-the buying and selling of stock by persons who have access to information affecting the value of the stick that has not yet been revealed to the public -it is illegal for an insider to trade on insider information until that information has been released to the public and the stock price has had time to adjust to the new information

the Howey test investigates...

-the investment of money - means an investor turns over money to someone else for an investment -in a common enterprise - means that the investment is not the property of an investor, such as a car would be, rather, an investors capital is pooled with other investors' money so that each investor owns an undivided interest in the investment -with an expectation of profits -generated by the efforts of persons other than the investors -the expectation that profits will be generated by the efforts of persons other than the investor, mean that investors do not have direct control over the work that makes the investment a success or failure, that is the board of directors control the future of the organization

elements of securities

Business operations, especially larger companies, rely on securities for financing operations and the main investment for pension funds, so the financial future of most people is ties to securities

regulation FD

SEC adopted Regulation Fair Disclosure to create a more level playing field -it required public companies to release material information to the public, rather than reveal such information selectively

prospectus

a document providing legal offering of the sale of the security, it condenses the longer registration stated and helps investors evaluate a security

purpose of securities regulation

aimed at reducing investment scams that offer impossibly high returns and tempt investors to beat the market

what is a security

any note, stock , treasury stock, bon, etc. of interest or participation in any profit sharing agreement (SEC looks at economic realities of an investment transaction to determine whether it is a security)

security is one of two things

debt or equity

rule 114A

exempts US and foreign security issuers from registration requirements for the sale of bonds and stocks to institutions with a portfolio of at least 100 million in securities

cost of registration

expensive, you have to hire an underwriter (an investment banker) to market the securities

red herring

first part of a security that can not yet be sold and it had red ink on the first page

safe harbor

gives greater immunity from suit for corporate forecasts that turned out not to be accurate after the fact, but were made with disclaimers

private company

has fewer than 500 shareholders and does not allow its securities to be openly traded

1933 Act

imposes disclosure requirements on corporations issuing new securities

Howey Test

in 1963 case SEC v Howey, the supreme court established a test to determine when an investment is a security for the purpose of federal regulation

accredited invoestors

individuals that have an income of at least 200000 dollars or a net worth of a million

why do securities have to be registered

it is intended to provide investors with sufficient information about important facts regarding the security interest that a company is proposing to sell

basis for fraud

misleading statements and material omission in securities registration material (33) and any person employing a manipulative device in connection with the purchase or sale of security registered on the exchange

debt

money borrowed by a corporation usually as a note or bond that can be traded, usually traded on the securities market (debt securities)

shelf registration

once a security is registered, they may be sold at any time over the next three years, this helps firms market securities when conditions are favorable and when the firm needs the cash, rather than sell the entire issue immediately

who is liable for securities law violations

parties connected with the preparations of disclosure documents (investors who lose money in the purchase or sale of securities because of omission of material information or misleading statements may sue them)

proxy

permission given by a shareholder to another party to vote his shares in the manner he instructs

regulation d

private placement offers only to accredited investors

two elements of registering a security

prospectus and detailed information required by the SEC

purpose of securities

provide capital for business operations (money needed to get a business started)

blue sky laws

purpose of state securities laws are to try to prevent speculative schemes that would have no more basis than so many feet of blue sky

equity

raising funds through sale of company stock, a purchases of shares of stock gains an ownership interest in the corporation, common stocks traded on stock exchanges

Securities Act of 1993

regulates public offerings of securities when they are first sold and requires that investors be given material information about new securities and prevents misrepresentation

Securities Exchange Act of 1934

regulates trading in existing securities and imposes disclosure requirements on corporations that have issues publicly held securities

securities litigation uniform standards act of 1998

required securities suits involving nationally traded securities to be brought exclusively in federal court under federal law

Sarbanes - Oxley act

requires that CEO and CFO of large companies that have publicly traded stock to certify that financial reports made to the SEC comply with SEC rules and that the information in the reports is accurate -forced firms to standardize accounting

WKSIs

securities issuers that have offered at least 1 billion dollars in debt securities previously or have a public equity market capitalization of at least 700 million

most common form of regulation d offerings

small corporate offering registration -companies issue stock directly to accredited investors, and company may raise up to 1 million dollars within 12 months

why was the securities litigation uniform standards act of 1998 passed

the Act was passed in an effort to reduce the huge number of securities suits brought claiming losses due to misrepresentation

SEC prosecution for insider trading

the SEC may prosecute insiders if they trade in the stock before the public has a chance to act on the information or they pass the information on to others so they can act

when did federal regulation of securities begin?

the great depresion

private placement

when money is raised through means other than public offerings

tender offer

when one company attempts to take over another and stockowners in the target company are offered stock in the acquiring company of cash in exchange for stock, if successful, the acquiring company obtains enough stock to control the target company

regulation S-K

where the SEC spells out detailed requirements needed for registration

is the initial sale of securities exempt from registration

yes