Series 7 Top Off- Unit 20 Lesson 20.4 SEC and FINRA Rules on New Issue

Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest, as long as their interest in the account does not exceed

10%.

What is the maximum number of non accredited investors that may participate in the purchase of securities offered under Reg D exempt offering?

35 Non accredited

Under Rule 144, an affiliate or inside holding unregistered shares can sell how often?

4 times a year

Under Rule 144, Form 144 need not be filed if

5,000 or fewer shares are sold and, the dollar amount is $50,000 or less. This de minimis rule applies to sales in any 90-day period.

One of your clients saw an investment for a new offering. The fine print stated that this was available solely to accredited investors. You would explain that this is a private placement being offered under the exemption provided in SEC Rule

506(c).

Under Rule 147, what percentage of an issuer's gross business revenues must be derived from sales within the company's home state?

80%

Rule 5130

FINRA rule dealing with restricted persons in a stock underwriting

Under Rule 147, an intrastate offering is exempt from what?

Federal registration/ SEC Registration

When a client calls and says they have some "lettered" stock, you know this stock is what?

Acquired in a private placement

Rule 72(t)

An IRS Rule dealing with the substantially equal periodic payment exception avoiding the 10% early withdrawal penalty

What is an intrastate offering (Rule 147 Exemption)?

An intrastate offering is limited to companies that do business in one state and limit stock or bond sales to that states residents. Not exempt from: State/Blue Sky registration

Sales made under the provisions of Rule 506(B) of Regulation D must be reported on what form?

Form D. Must be filed electronically with the SEC, no later than 15 days after the first sale of securities in an offering

Does owning over 10% of a companies debt make you an insider?

NO

Under what circumstance can a member firm sell a new equity issue to one of its non registered employees?

Never, under no circumstances. Both registered and non registered employees are prohibited from buying a new equity issue at the public offering price

A customer must present a signed representation letter stating that he is not a restricted purchaser before buying a new issue of what security?

Common Stock

When an officer or director acquires control stock when a company goes public and then wants to sell the securities to the retail investor, what is the mandatory holding period

Zero, because the securities were received in a public offering. The securities are registered not restricted, therefore there is no holding period.

Under the intrastate offering rule (Rule 147), when may a resident purchaser of a security resell them to non residents?

six months after purchase date

What securities are exempt from the registration provisions of Securities Act of 1933?

-Government Securities -Money Market Instruments -Intrastate offerings

Under Rule 501 of Reg D, what persons are considered accredited?

-Individual with at least $200k annual income for the last 2 consecutive years or worth $1 million or more(Not including net equity in their primary residence -Married couple making at least $300k annual income for the last 2 consecutive years or worth $1 million or more(Not including net equity in their primary residence -Institutions -Officers/ Directors of the issuer

What exemption provisions of Securities act of 1933 are used for an initial offering?

-Reg A -Reg D -Rule 147

Underwriters and selling group members violate rules regarding sales of new equity issues to restricted persons when they do what?

-Sell blocks of the new issue to accounts of partners or officers of the member firm -Sell to brokers and dealers outside the selling group who position the securities for later resale at higher prices

Under Rule 144, how is an affiliate defined

A person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the issuer. In addition, any relative or spouse of such person, or any relative of such spouse, any one of whom has the same home as such person is considered an affiliate of the issued

Under Reg D of Securities Act of 1933, when must the filing of Form D be turned in?

By the issuer no later than 15 calendar days after the date of first sale of securities in the offering

Reg S

Exemption for offers and sales made outside the United States by both US and foreign issuers

Rule 501

Defines an accredited investor

What happens if controlled stock is sold before the six month holding period?

If controlled stock is sold before the six month holding period, any profits are defined as short swing profits and the company receives the profits

Reg D

Private Placement Exemption

An offering of securities in compliance with Rule 144A is sold primarily to?

Qualified Institutional Buyers (QIBS)

Under the securities act of 1933, what regulations involve transaction exemptions?

Reg A+ Reg D Reg S

In regard to the purchase of New Equity issues, restricted persons may ?

Restricted persons may not purchase shares of new issues. They are prohibited

Can restricted shares under Rule 144 be used to cover calls?

Restricted shares under Rule 144 are considered illiquid until the restriction is lifted. They may never be used to cover short calls because the shares, due to the restriction, could not be sold if the owner of the calls were to exercise the right to buy the stock. There is a de minimis exemption from the filing of a Form 144, but that is limited to 5,000 shares.

The sale of nonexempt securities may take place without an SEC registration if done son in a manner that qualifies for a transactional exemption. An example of this would comply with what rule?

Rule 144

The sale of non exempt securities may take place without an SEC registration if done in a manner that qualifies for a transactional exemption. An example of this sale would be complying with what rule?

Rule 506 (B)

Rule 506(B)- Regulation D

Rule 506(B) requires that the securities never advertised to the general public and not be sold to more than 35 unaccredited investors.

Rule 506 (C)- Regulation D

Rule 506(C) states that as long as offerings are limited to accredited investors the offerings may be publicly advertised. If publically advertised, ALL investors must be accredited

Rules regarding restricted persons regard what immediate family as restricted?

Spouse Parents Brothers Sisters In Laws Children (Aunts/Uncles/Cousin's are excluded)

What does Rule 144 Regulate?

The Sale of restricted stock to institutional investors

Reg A +

The exemption for small and medium corporate offerings

Under Rule 144, an affiliate can sell what portion of their shares up to 4 times a year?

The greater of 1% of the outstanding shares or the average of the last 4 weeks trading volume with each Form 144 filing. Filing is good for 90 days

When a member firm receives an order from an investment advisor to purchase shares in a common stock IPO. Regarding a restricted person, what must the member firm do?

The member firm must obtain a representation from the investment adviser that the purchaser is not a restricted person

Under FINRA rules, if a member firm recieves an order to buy a new equity issue on behalf of an undisclosed principal from a bank, what must the member do?

The member must obtain a representation from the bank that the purchaser is not restricted

What does Rule 144 regulate?

The sale of control or restricted securities. Securities bought in a registered public offering are not restricted and therefor an employee of the company selling registered shares does not need to file form 144

What does the term Disgorged refer to?

When controlled stock is sold before six months and the profits from the sale are taken from the affiliate and given to the issuer.