series 66
Prospectus
'33 Act requires the preparation of a shorter document from the registration statement. Purpose is to provide the investor with adequate info to analyze the investment merits of the security.
SEC rule 482
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Rule 144 (Sale of Restricted and Control Securities)
1) An employee benefit plan with assets in excess of $2 million---($5 MILLION) 2)Purchases of securities by accredited investors do not count toward the 35-investor limitation found in Rule 506 of REG D (yup) 3)An officer, director or greater than 10% shareholder of ANY company listed on the NYSE would be considered an accredited investor for purposes of acquiring a private placement your firm is selling. (Not ANY company but the issuer's security being offered)
Purpose of 1933
1. Full disclosure of all material information 2. to prohibit fradulent activities inrelation to sales, underwriting and distribution of securities. 3. the act provide both civil and criminal penalties for violations of its provisions.
The federal legislation includes
1. Securities Act of 1933 2. Securities Exchange Act of 1934 3. Investment Company Act of 1940 4. Insider trading and securities fraud enforcement act of 1988
red herring prospectus can not use
1. as a confirmation of sale 2.in place of a registration 3. to declare the final public offering price
1933
1933 provides penalties for false and misleading statement contained in the registration statements or prospectus are both criminal prosecution or civil . The statue of limitations for bringing action is the earlier of 1 year after discovery of the violation or 3 years after the date of action
Control Person, Insider or Affiliate
A corp director, officer, or owner of more than 10% voting stock of the company OR the immediate family (SPOUSE) of any of these persons. Loosely referred to as INSIDERS or AFFLIATES.
Red Herring prospectus
A preliminary prospectus that can be distributed to potential investors during the minimum 20 day waiting period (cooling period) after the registration statement (for a securities offering) has been filed with the Securities and Exchange Commission. The name derives from the red legend printed across the prospectus stating that the registration has been filed but has not become effective.
red herring prospectus
A preliminary prospectus that can be distributed to potential investors during the minimum 20 day waiting period between the . The name derives from the red legend printed across the prospectus stating that the registration has been filed but has not become effective
PERSON .
ANY LEGAL ENTITY, E.G. AN INDIVIDUAL, PARTNERSHIP, CORPORATION, GOVERNMENTAL BODY, a joint stock company, a trust, any unincorporated organization ETC
Underwriter
Any person who has purchased from an issuer with a view to selling. It does not include brokerage firm earning a commission on a retail sale to the public
Power of SEC
Can issue a STOP ORDER (Cease and desist order) if reg statement is inadequate or not complete in a material way -make, amend and resecind rules -administer oaths -subpoena witness' and other records for evidence -seek injunctions or restraining orders -turn over evidence to the attorney general of US for possible criminal prosecution.
If a person found guilty in the court
Civil penalties: fine, barred from serving as an officer or director of a public corporation for a number of years In criminal prosecution: fine, a prison term or both
Securities Act of 1933
Covers the sale of new issues to the public and sending deficiency letters
securites Not Exempted under 1933
Foreign gov't securities Federal covered securities listed on a national exchange or Nasdaq -Securities issued by insurance companies
Three Exemptions under Uniformed Securities Act vs Securities Act of '33-
Foreign gov't securities are not exempt under '33 Act ----but are exempt under the Uniform Securities Act -Federal covered securities listed on a national exchange or Nasdaq are not exempt under the '33 Act---- but are exempt under the US Act (blue-chip exemption) -Securities issued by insurance companies are not exempt under the '33 Act ----but are exempt under the US Act
Security -
Fundamental definition set by the Howey CaseDefined an investment contract as a security if it met these four conditions -The investment of money; -in a common enterprise (pooling); -with an exception of profits; and -that results solely from the efforts of others.
REG D/SEC Rule 501 Accridited Investor only in private placement.
Institutional investors: banks, insurance companies, investment companies, B/D purchaing for their own accounts, employee benefit plans managed by banks, insurance companies or investment advisers or employee benefit plans with assests in excess of $5 million directors, executive officers and general partners of the issuers Individuals with $1million of net worth, or $1 million of net worth for the investor and the onvestor's spouse individuals who hace an incomein excess of $200,000 in each of the last 2 years and current years (300,000 if spouse included) Entities made up of accredited investors
cooling off period
Interval (usually 20 days) between the filing of a registration statement with the SEC and the offer of the securities to the public.
cooling off period
Interval (usually 20 days) between the filing of a registration statement with the SEC and the offer of the securities to the public. Purpose: it allow the SEC sufficient time to study the information in the registration statement and peopectus
Prospectus
Is any notice, circular, advertisement, letter or communication, written or broadcast by radio or television that offers a security for sale or confirms the sale of a security
Sale or Sell .
It includes a contract for sale or the disposition of a security for value.
Registrations of securities
Must be filed in TRIPLICATE -must be signed by Prinicpal Financial Officer, Principal Executive Officer and Majority of BOD The information required: (IPU PN BEN CC) -Purpose of issue -POP (anticipated range) -U/W commission or discounts -Promotion exepense -Use of proceeds -Balance Sheet -Earning Statements for the last THREE years -Names and addresses of officers, directorsunderwriters and stockholders owning 10% ofoutstanding stock (control persons) -Copy of U/W agreements -Copies of articles of incorporation
Form D
Must be filed no later than 15 days after the first sale of securities in the offering. The SEC form requires to be filed when engaging in a Reg D private placement. Requires: -total size of the offering -amount sold to date, -the use of proceeds, -and the names of any persons paid commisions Under Act of '33 securities issued in reliance on REG D are FEDERAL COVERED securities.
REG D (Private Placements)/SEC rule 506
SEC adopted REG D aimed at capital formation needs of small businesses. RULE 506 provides an exemption for offers and sales to no more than 35 purchasers, (accredited investors do not count towards that limit) Remember to remain exempt...the law prohibits any general solicitation or general advertising
Example of Sale
Your client exercises his conversion privilege by converting 10 IBM BONDS into 100 shares of IBM common stock. OR A brokerage firm runs a special promotion this month giving 100 shares of HOT SHOT Growth Fund to any client who purchases at least $5000 worth of stock. (EXERCISE OF A RIGHT, WARRANT OR OTHER CONVERTIBLE PRIVILEGE IS CONSIDERED TO BE A SALE AT THAT TIME, AS IS ANY SECURITY GIVEN AS A BONUS FOR THE PURCHASE OF ANOTHER SECURITY.
The Sec Act 1933
also called Prospectus Act, Paper act and Truth in securities Act. It regulates issuing corporate securites to the public (IPO) and through subsequent offerings.
offer to sale
any attempt or offer to dispose of a security or an interest for value or a colicitation of an offer to buy a cecurity for value.
securites Not Exempted under USA
any insurance (variable life insurance or variable annuity contracts require registration), endowment or fixed annuity contract stock split or stock dividend any security offered to the public are 5 million or less during any 12 months period Issues of Small Business Investment Companies
Transfer Agent
any person who engages on behalf of an issuer of securities in: -Countersigning the certificates -Registering the transfer's of the issuer's securities -Exchanging or converting the issuer's securities -transferring record ownership by bookkeeping entry w/o physical issuance of securities certificates
Issuer
any person who issues or proposes to issue any security are: business person government entity
Exempted securites under USA
any security issued or guaranteed by the United States, any state, or any political subdivision of a state all federal government issres and municipal securities are exempted securities any commercial paper with maturity of no more than 9 months and the proceeds will be used by the current transactions security issied by a religious , educational, charitable, non profit institution any securities issued by federal or state bank, savings and loan association, any interest in a railroad equipment trust
Civil liabilities allows a purchaser to sue PD AAA UP
every person who signed the registration form all directors of the issuer attorneys accountants appraisers underwriters parent companies
Conditions of omitting prospectus/rule 482
information for AD must be taken from original prospectus AD must tell from whom a prospectus may be obtained AD must urge investors to read the prospectus carefully before investing all data must be accompained by appropriate disclaimers and disclosures of load The AD can not be used to purchase the shares. Purchase can be made via an application found in the prospectus
Tombstone
is an advertisement that one simply identifies the security, the price and the underwriters
escrow
money deposited with a third person pending fulfillment of a condition
The sale of security does not includes
preliminary negotiations or agreements between the issuer and underwriter a gift of securities
Security Includes
stock, bond , debenture, right or warrant, note, put call and other options, limited partnership interests, certificate of interests in a profit sharing arrangements.
Qualification for federal exemption for intrastate offering for the issuers
the securities must be offered or sold exclusively to persons resident in one state and persons must have principal residence within the state. for 9 months from the date of the last sale by the issuer of any part of the issue, resale of any part of must be made only to persons who have resident within the same state or territory at least 80% of the issuer's graoss revenue must be derived from operations within the state at least 80% of the profit must be used within the state. at least 80% of the issuers assests must be located within the state.
The sale of security does not includes
to Any security given or delivered with, or as a bonus on account of, any purchase of securities is presumed constitute a part of that purchase and to have been offered and sold for value
Securities Act of 1933 makes it unlawful...
to sell or deliver a security through any instrument of INTERSTATE commerce unless a registration statement is in effect
Exempted transaction under 1933
transaction by any person, underwriter, dealer transactions by issuer that do not invove a pubic offering
Rule 144
was created so that certain resales fo already existing securities could be made w/o having to file a complete registration statement with the SEC
The sale of security does not includes
when a bond is offered with warrants attached , the warrants are not considered to be a sale because they are considered to be part of bond sale. However, when the warrant is exercised, that exercise is considered to be a sale of the security being purchased.
Exempted securites under 1933 act
any security issued or guaranteed by the United States, any state, or any political subdivision of a state all federal government issres and municipal securities are exempted securities any commercial paper with maturity of no more than 9 months and the proceeds will be used by the current transactions security issied by a religious , educational, charitable, non profit institution any securities issued by federal or state bank, savings and loan association, any interest in a railroad equipment trust any insurance (variable life insurance or variable annuity contracts require registration), endowment or fixed annuity contract stock split or stock dividend any security offered to the public are 5 million or less during any 12 months period (Regulation A) Issues of Small Business Investment Companies any security offered and sold only to persons resident within a single state or territory, person's resident and the person doing business within such state or territory ( rule 147)
Rule 147
any security offered and sold only to persons resident within a single state or territory, person's resident and the person doing business within such state or territory.Rule 147 exemption is available only if the entire issue is a person resident and doing business within such state or territory.
Regulation A
any security offered to the public are 5 million or less during any 12 months period (Regulation A)
Accredited investors
applies only to PRIVATE PLACEMENTS!!! -Institutional investors (employee benefit plans with excess of $5 million////banks, insurance companies//broker dealers purchasing for their own accounts -directors, executive officers and general partners of the issuer -any natural person whose individual net worth or joint net worth with that person's spouse exceeds $1 million -individual with income excess of $200,000 in each of last two years and expect an income in excess of $200,0000 in the current year ($300,000 if spousal income included) -entities made up of accredited investors
Restricted Securities
are unregistered securities purchased by an investor in a private placement. (aka letter/legend securities). Refers to the fact that purchasers must sign an investment letter attesting to their understanding of the restriction upon resale and to the legend placed on the certificates indicating restriction upon resale.
Red Herring prospectus can not be used
as a confirmation of sale in place of a registration statement to declare the final public offering price
80-80-80 rule
at least 80% of the issuer's graoss revenue must be derived from operations within the state at least 80% of the profit must be used within the state. at least 80% of the issuers assests must be located within the state.