Law Chapter 18: Securities Regulations

private company

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

tender offer

A public offer to buy a block of stock directly from shareholders

exemption from registration

Advisers who have no place of business in the state, but are registered in another state, and whose only clients in the state are: 1) Registered B/Ds, 2) Investment advisers, 3) Institutional investors, 4) Existing clients temporarily in the state, 5) Five or less clients resident in the state during the previous 12 months, 6) Anyone else the Admin exempts by rule or order

material information

All relevant information that an investor would want to know about a company, its background, its executives, and its plan of operation

mutual fund

An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

equity

Common stocks traded on stock exchanges

disclosure requirements

Filing a registration statement with the SEC

investment company

Invests and trades in securities

shelf registration

Securities that may be sold at any time over the next tree years

over the counter

Securities traded illegally

publicly-held company

Any company that issued traded securities

insider trading

The buying or selling of stock by persons who have access to information affecting the value of the stock that has not yet been revealed to the public

red herring

The first version of the prospectus not yet approved by the SEC

scalping

When a professional buys stock for personal benefit, then urges investors to buy the stock so that the price rises to the benefit of the professional

prospectus

A document providing the legal offering of the sale of the security

security

A financial asset—such as a stock or a bond—that can be bought and sold in a financial market

private placement

A primary market issue that is negotiated between the issuing corporation and a small group of accredited investors

underwriter

An investment banker to market the securities

Howey test

An investment is classified as a security for the purpose of federal regulation if it contains four basic elements: investment of money, common enterprise, expectation of profits, generated by the efforts of persons other than the investors

debt securities

Bonds that are usually traded on the securities market

securities fraud

Failure to follow the disclosure requirements

accredited investor

Investors that are presumed to be sophisticated and wealthy enough to evaluate investment opportunities without an SEC-approved prospectus

well-known seasoned issuers

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

misstatements

Misleading statements and material omissions in securities registration material

debt

Money borrowed by a corporation usually as note or bond that can be traded

registration statement

New security offering that has a prospectus and detailed information required by the SEC

conflicts of interest

Occur when an individual's self interest conflicts with acting in the best interest of another, when the individual has an obligation to do so

qualified institutional buyers

One that owns and invests at least $100 million in securities and is allowed by the SEC to trade in unregistered securities. They may buy life insurance policies in these transactions

proxy

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

investment adviser

Person who, for compensation, engages in the business of advising others

safe harbor

Provision in a law or regulation that provides some measure of protection from liablity if certain conditions are met

equity financing

Raising funds through the sale of company stock where a shareholder gains an equitable interest

blue sky laws

State laws that regulate the offering and sale of securities for the protection of the public

churning

When a broker who has control of a client's account buys and sells an excessive amount of stock to make money from the commissions earned on transactions

securities exchange

an agency created in 1934 that monitors the stock market and enforces laws regulating the sale of stocks and bonds