Unit 11 Chapter 44 Securities Regulation Securities Act of 1933 Aka the Truth in Securities Act Registration Statement must be filed before any securities may be offered for sale to the public purpose is to disclose financial information about issuer so that potential investors may appraise the merits of the security Also must be furnished with a prospectus Document offering securities for sale o Definition of a Security Any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing Three part test For financial transaction that lacks the common elements of a security 1 must involve an investment in a common venture 2 must be premised on a reasonable expectation of profit 3 Must be derived from the entrepreneurial or managerial efforts of others Limited Partnership interests ARE securities as are LLP interests where one does not take part in management General partnerships are NOT o Registration of Securities Prohibits offer or sale of any security by means of mail or interstate commerce unless a registration statement is in effect or issuer secures a registration exemption Purpose is to adequately disclose information to investors Does not guarantee profit or accuracy of financial statements Disclosure Requirements Registration calls for disclosure of o Description of registrant s properties business competition o Description of significant provisions of security to be offered for sale o Information about management o Financial statements certified by independent CPAs Become public immediately upon filing with SEC Public can access with EDGAR Effective 20 days after filing Integrated Disclosure Nonreporting Issuer SEC implemented a new system with different levels of disclosure o Not required to file reports under 1934 Act Unseasoned Issuer o Has reported continuously for at least 3 years o May disclose less detailed information Seasoned Issuer o Issuer that has filed continuously under 1934 Act for at least one year and has a minimum market value of publicly held stock of 75 million o Permitted to use Form S 3 disclosing even less detail Well Known Seasoned Issuer o Issuer that has filed continuously under 1934 Act for at least one year and has either a a minimum worldwide market value of outstanding public stock of 700 million OR b 1 billion of nonconvertible debt or preferred stock that has been issued for cash in a registered offering within previous 3 years may use Form S 3 Permits seasoned and well known seasoned issuers to register unlimited amounts of securities that are to be offered and sold off the shelf on a delayed or continuous basis in the future Shelf Registrations Departure from requirement that issuer must register every new distribution of securities Allows issuers to respond more quickly to market conditions Communications SEC s 2005 revisions create new type of written communication free writing prospectus Free Writing Prospectus o Any written offer including electronic communication other than a statutory prospectus Well known Seasoned Issuers may engage in oral and written communications at any time All reporting issuers may at any time continue to publish regularly released factual business information forward looking information Nonreporting Issuers may at any time continue to publish factual business information that is regularly released and intended for use by persons other than in their capacity as potential investors Communications by issuers more than 30 days before registration are permitted so long as they don t refer to a security offer that is the subject of a registration statement Exempts any note draft or bankers acceptance issued for working capital that has a maturity of 9 months or less when issued Not available if proceeds are to be used for permanent purposes Other Exempt Securities Securities issued or guaranteed by domestic government organizations e g municipal bonds Securities of domestic banks and savings loan associations Securities of charitable non profit organizations Certain securities issued by federally regulated common carriers Insurance policies and annuity contracts issued by state regulated insurance companies o Exempt Securities Short Term Commercial Paper o Exempt Transactions for Issuers Limited Offers SEC exempts offers made involving small amounts or made in a limited manner Each of these exemptions must file Form D with the SEC within 15 days of the first sale SEC disqualifies offerings sales of securities under Regulation D when the person selling has convicted of any crime involving purchase sale of a security or any false filing with the SEC Restricted Securities o Securities sold pursuant to these exemptions o May be resold only be registration or in another transaction exempt from registration Issuer who uses exemptions must take reasonable care to prevent nonexempt unregistered resale of restricted securities Private Placements o Exempts transactions by an issuer not involving any public offering o Nonexclusive safe harbor for limited offers and sales without regard to the dollar amount of the offering o These are restricted securities o General advertising or solicitation is NOT permitted o May be purchased by unlimited number of accredited investors and by no more than 35 other purchasers Accredited investors include banks insurance investment companies officers of the issue savings loan associations employee benefit plans or registered broker dealers person whose net worth is over 1m person whose income over 200k for 2 years and current year o Before a sale to non accredited investors company must disclose specific info about business issuer securities being offered not mandatory for sale to accredited investors only o Required to believe that each non accredited investor has sufficient knowledge of sale and capacity to evaluate investment Limited Offers not Exceeding 5 million o SEC Rule 505 exempts from registration those offerings by non investment companies that do not exceed 5 million over 12 months o Are restricted securities o General advertising or solicitation is NOT permitted o May be purchased by unlimited number of accredited investors and by no more than 35 other purchasers o Same disclosure rules as above except under Rule 505 they re not required to believe that each non accredited investor has sufficient knowledge of