unit 2 ch 11
Which of the following is a security?
Shares of stock in a corporation
Registration of Securities - Exemptions
Some exemptions from the registration requirements include: private offerings to a specific type or limited number of persons or institutions; offerings of limited size; intrastate offerings; and securities of municipal, state, and federal governments.
Which component of the investment contract is missing in a general partnership that is not a security?
Success dependent solely on efforts of others
What is a Security?
A simple definition of a security is any proof of ownership or debt that has been assigned a value and may be sold. (Today, evidence of ownership is likely to be a computer file, while once it was a written piece of paper.) For the holder, a security represents an investment as an owner, creditor, or rights to ownership on which the person hopes to gain profit. Examples are stocks, bonds and options.
The organization that represents professionals focused on real estate, oil and gas, BDCs, and other direct/alternative investments typically sold through the Broker-Dealer or Registered Investment Advisor network is known as
ADISA
What is TICA currently known as?
ADISA
There are three components to the investment contract:
Expectation of profits A common enterprise Its success is dependent solely on the efforts of others.
What are the three components of an investment contract?
Expectation of profitsA common enterpriseSuccess is solely dependent on the efforts of others
Explain Regulation S.
It is a safe harbor that defines when an offering of securities is deemed to be executed in another country and, therefore, not subject to registration requirements under the 1933 Act.
If Mr. Mitchell registers a sale of securities to Mr. Thomas, and then Mr. Thomas seeks to resell those securities, what must Mr. Thomas do?
Mr. Thomas must either file a registration statement or find an available exemption.
What does Rule 144 permit?
under limited circumstances, the public resale of restricted and controlled securities without registration
Securities do not include
land.
List four exemptions from the securities registration requirements.
private offerings to a specific type or limited number of persons or institutions;offerings of limited size;intrastate offerings; andsecurities of municipal, state, and federal governments.
The requirements for exemptions for both the state securities laws and the federal securities laws must be met with what exception?
A Federal Rule 506 offering
Not a security
A deed
Define an REIT and list the three types of REITs
An REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.Equity REITs, Mortgage REITs, Hybrid REITs
Securities Exchange Act of 1934
An act that regulates the trading of securities such as stocks and bonds in the secondary market
What is a simple definition of a security?
Any proof of ownership or debt that has been assigned a value and may be sold
What are the licensing requirements for anyone attempting to sell securities?
Anyone selling securities must be licensed as a broker in the state in which he/she is selling the securities. If the broker is selling in more than one state, he/she must be licensed with the SEC in addition to the state licensing.
Rule 505 - Regulation D
Can sell $5 M in 12 month period Can sell to an unlimited number of accredited investors but can sell to a maximum of 35 unaccredited investors No general solicitation allowed Securities cannot be resold by investor for 12 months after initial purchase
What regulation was issued by the Securities and Exchange Commission to require publicly traded companies to disclose material information to all investors at the same time?
FD
Are general partnership interests and limited partnership interests securities?
General partnership interests are not securities; limited partnership interests are presumed to be securities.
What is not included in the Investment Advisers Act's definition of a security?
Hard assets - collectiblesFuture contracts relating to commoditiesReal estate - but not shares in real estate companies
Rule 506 - Regulation D
No limit on dollar amount that can be sold Sale can be to unlimited number of accredited investors but no more than 35 unaccredited investors and they must be sophisticated investors. No general solicitation allowed If sale is to accredited investors only need to give information they request; if sale is to unaccredited investor info. that must be given similar to that in full registration statement Investor cannot resell for 1 yr. after purchase
Equity REITs
Real estate investment trusts that invest in and operate income-producing properties
Hybrid REITs
Real estate investment trusts that invest in both properties and mortgages.
Mortgage REITs
Real estate investment trusts that purchase mortgage obligations and effectively become real estate lenders.
Registration of Securities - Rule 144
Rule 144, promulgated by the SEC under the 1933 Act, permits, under limited circumstances, the public resale of restricted and controlled securities without registration. In addition to restrictions on the minimum length of time for which such securities must be held and the maximum volume permitted to be sold, the issuer must agree to the sale. If certain requirements are met, Form 144 must be filed with the SEC. Often, the issuer requires that a legal opinion be given indicating that the resale complies with the rule. The amount of securities sold during any subsequent 3-month period generally does not exceed any of the following limitations: 1% of the stock outstanding the average weekly reported volume of trading in the securities on all national securities exchanges for the preceding 4 weeks the average weekly volume of trading of the securities reported through the consolidated transactions reporting system (NASDAQ)
What does the Securities Act of 1933 prescribe?
Rules for the interstate sales of securities and made it illegal to sell securities into a state without complying with that state's laws
Rule 504 - Regulation D
Sale of $1 M by noninvestment company in a 12 month period No limit on number of accredited and unaccredited investors that can be buyers Can generally solicit so long as security is registered under state law or sold only to accredited investors
The federal securities laws were largely created as part of the New Deal in the 1930s. There are five major federal securities laws:
Securities Act of 1933 - regulating distribution of new securities Securities Exchange Act of 1934 - regulating trading securities, brokers, and exchanges Trust Indenture Act of 1939 - regulating debt securities Investment Company Act of 1940 - regulating mutual funds Investment Advisers Act of 1940 - regulating investment advisers
What are the five major federal securities laws and what do they each regulate?
Securities Act of 1933 - regulating distribution of new securitiesSecurities Exchange Act of 1934 - regulating trading securities, brokers, and exchangesTrust Indenture Act of 1939 - regulating debt securitiesInvestment Company Act of 1940 - regulating mutual fundsInvestment Advisers Act of 1940 - regulating investment advisers
On the federal level, who is the primary securities regulator?
Securities and Exchange Commission (SEC)
A ______________ represents an investment as an owner, creditor, or rights to ownership on which the person hopes to gain profit.
Security
ADISA
The Alternative and Direct Investment Securities Association (formerly known as REISA) or ADISA is a US-based, registered 501c6, not-for-profit trade association for professionals in the alternative and direct investment industry. The association has about 4,000 members involved in the development, sales, and servicing of non-traded alternative investments (i.e., not traditional stocks, bonds, and cash, but instead investments non-correlated to those markets).
Securities Act of 1933
The first major law regarding the sale of securities. It required that companies register their securities sold to the public with the SEC and that investment bankers must provide full and accurate information related to new securities issues to potential investors.
What determines what securities laws apply?
The location of the investors
When it comes to real estate joint ventures, what is and what is not a security?
The managing interest is not a security; the non-managing interest is a security.
What does the Securities Exchange Act of 1934 regulate?
The secondary market trading of securities
General partnership interests
are not considered securities, on the theory that general partners each have the authority to exercise meaningful control over the partnership.
Securities regulation in the United States
is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal- and state-level regulation by purely governmental regulatory agencies, but it sometimes may also encompass listing requirements of exchanges like the New York Stock Exchange and rules of self-regulatory organizations like the Financial Industry Regulatory Authority (FINRA). Generally the location of the investors (and not the state where the entity was formed) determine what securities laws apply. For example, if you sell securities just in Indiana, then you only need to deal with Indiana securities laws. If you sell in other states as well, you generally must also comply with federal securities laws and the laws of each state where you sell.
Exemptions from the registration requirements include
securities of municipal, state, and federal governments
List 3 methods for people to invest in real estate without having to buy land and/or buildings.
tenancy in common investmentsinvestment in equity-REITsreal estate syndication
Tenant-In-Common Association (TICA)
was formed in 2003 specifically to provide a central organization of industry related companies focused exclusively on the fractional ownership industry. It was founded as a cooperative effort between TIC professionals to advance the TIC industry. Its mission was to promote the ethical standards for its members, while providing education and information to the entire TIC community. In 2009, as the industry changed and TICA members began selling additional products, the organization adapted to the changing marketplace by expanding the products it represented and changed its name to the Real Estate Investment Securities Association (REISA). In September 2014, the REISA Board of Directors, reacting to the expansion of investment products handled by the members, voted unanimously to change the name to ADISA.
