Business Law - Ch 19

requirements under state securities laws

- apply mainly to intrastate transactions - typically include disclosure requirements and antifraud provisions

securities act of 1933

- governs initial sale of stock by business - prohibits various forms of fraud and requires disclosure

concurrent regulations

- issuers must comply with federal and state law - exemptions from fed law are not exemp from state law

defenses to SA 1933

- not material, person knew at time of purchase, exercised due diligence

private securities litigation reform act

- protected for liability of forward-looking statement as long as made w caution

remedies of 1934

SCIENTER REQUIRED FOR SECTION 10b can be fined up to 5 mil, imprisoned for up to 20 years or both partnership or cop may be fined up to 25 mil

investment contract

any transaction in which a persons invests, in a common enterprise, reasonably expecting profits, derived primarily or substantially from others' managerial or entrepreneurial effort - known as the howey test, is a security

freewriting prospectus

any type of written, electronic, or graphic offer that describes the issuer to its securities. can be presented durin waiting period but final prospectus must be provided for post effective period.

remedies of the securities act of 1933

anywhere between $10,000 and $2 mil. up to 5 years in prison. civil sanctions, injunction, grant relief.

sarbanes-oxley act

came out of 2002 corporate scandals, increases corp accountability and requires cheif corporate executives to take responsibility for the accuracy of statements and reports filed with the SEC

violations of the securities act of 1933

defrauding investors w misrepresented or undisclosed facts, negligence, selling before effective date

"blue sky laws"

each state has its own securities laws that regulate the offer and sale of securities within its borders

securities

includes any instruments representing corporate ownership (stock) or debts (bonds)

misappropriation theory

liable when someone wrongfully obtains inside info and trades on it for personal gain

registration process

prefiling period (cannot sell or offer to sell securities), waiting period (securities can be offered for sale but not legally be sold), post effective period (issuer can offer and sell securities)

SEC Rule 10b-5

prohibits commission of fraud in connection with the purchase or sale of any security basic elements - material misrep or omission, scienter (wrongful state of mind), reliance by plaintiff on misrep, economic loss, causation between misrep and loss

section 10b of 1934

prohibits use of any manipulative or deceptive mechanisms in violation of SEC rules and regulations

section 16b of 1934

provides for the recapture of all profits realized by an insider on a purchase and sale, or sale and purchase of the corp's stock within any 6 month period (short-swing profits)

section 14a 1934

regulates authorization to vote shares from shareholders

securities act of 1934

regulation and registration of securities exchanges, brokers, dealers, and national securities associations continuous periodic disclosures

corporate governance

relationship between a corporation and its shareholders Effective CG standards are designed to address problems and motivate officers to make decisions that promote the financial interest of the company's shareholders

SEC vs Scoville

scoville returns from purhcases of adpacks were from future sales, said was violating securities laws but scoville argued not a investment contract but howey test confirmed it was

registration statement

securities being offered for sale, corporations properties and business, management of corp, how corp intends to use proceeds, any pending lawsuits/risks

section 5 of the securities act

security must be registered before being offered to the public unless it qualifies for an exemption must file registration statement with SEC and all investors with Prospectus

tipper/tippee theory

tippee is somebody who recieves tips from insiders tippee is only liable if they know there is a breach of duty not to disclose inside information, disclosure is made in exchange for a personal benefit, tippee knows or should know of the breach and the benefits of it

insider trading

when ppl buy or sell securities on the basis of information that is not available to the public section 10b prevents this

prospectus

written disclosure that describes the security being sold, financial operations of corp, and investment risks