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Chapter 19

Chapter 19. Securities Regulation. Federal Securities Laws. The Securities Act of 1933 The Securities Exchange Act of 1934 The Public Utility Holding Company Act of 1935 The Trust Indenture Act of 1939 The Investment Company Act of 1940 The Investment Advisers Act of 1940.

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Chapter 19

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  1. Chapter 19 Securities Regulation

  2. Federal Securities Laws • The Securities Act of 1933 • The Securities Exchange Act of 1934 • The Public Utility Holding Company Act of 1935 • The Trust Indenture Act of 1939 • The Investment Company Act of 1940 • The Investment Advisers Act of 1940

  3. Federal Securities Laws • Williams Act of 1968 • Securities Investor Protection Act of 1970 • Foreign Corrupt Practices Act of 1977 • Insider Trading Sanctions Act of 1984 • The Private Securities Litigation Reform Act of 1995 • Sarbanes-0xley Act of 2002

  4. Definition of a Security • Definition set forth in the Securities Act of 1933 • Substance, not form • Howey Case definition • Changing philosophy regarding securities protection

  5. Process of Registering Securities • Registration statement • Prospectus • Prefiling period • Waiting period • Tombstone ad • Red herring prospectus • Posteffective period • Shelf registration

  6. Exemptions from the Securities Act • Two types • Exempt securities • Exempt transaction • Exemption tradeoffs • Costly to businesses • Lower investor protection

  7. Exempt Transactions Under the Securities Act • Secondary trading • Private placement • Intrastate offerings • Regulation A • Regulation D • Rules 501 through 506 • Section 4(6)

  8. Exempt Securities Under the Securities Act • Those issued/guaranteed by federal, state, or municipal governments • Commercial paper • Bank, religious/charitable organizations, savings and loan securities • Bankruptcy certificates • Annuity contracts • Insurance policies

  9. Civil Liability Underthe Securities Act • Section 11 claims • Section 11 defendants • Extent of liability and recent changes • Defenses to Section 11 • Due diligence, immateriality, purchaser knowledge, no reliance, statute of limitation, and other causes of damage

  10. Purposes of the SEA of 1934 • Regulate securities markets • Regulate securities traded in those markets • Register and regulate those who trade in securities markets • Regulate publicly held companies • Require public disclosure

  11. Main Provisions of the SEA of 1934 • Creation of the SEC • Registration requirements • Reporting requirements • Proxy solicitation rules • Regulation of credit in markets • Antifraud provisions • Insider trading info • Tender offer limits

  12. SEA Registration Requirements • Securities registration • Reporting requirements • 10-K: annual report of operations, must be audited by independent auditors • 10-Q: quarterly, unaudited report of operations • 8-K: current report

  13. Short-Swing Profits • Insiders (officers, directors, major stockholders) • Section 16(b) • Insider reports • Exceptions • Straw people

  14. Section 10(b) and Rule 10b-5 • Aimed at preventing fraud in securities trading • Can stop profit taking by insiders who have inside information • Rule 10b-5 • Applies to all securities • Makes illegal any act or untrue statement to defraud

  15. Insider TradingSanctions Act • Civil penalties • Triple damages • Criminal penalties • Stock options • Aiders and abettors • Statute of limitations • No definition

  16. Takeover Bids (Tender Offers) • Definitions • When someone offers to buy stock at a set price • Federal regulation • Purpose of regulating tender offers • To prevent golden parachutes • To help target shareholders get facts from both sides • Misstatements

  17. Foreign CorruptPractices Act • Internal reporting • Section 102 • Section 103 • Section 104 • Penalties • Federal felonies for convictions

  18. State Securities Regulation • Individual states have police power to regulate securities • Blue-sky laws • State regulation uneven • Sarbanes-Oxley Act

  19. Recap – Terms to Know • Securities Act of 1933 • Securities Exchange Act of 1934 • Registration statement • Prospectus • Prefilling, waiting, and posteffective periods • Exemptions and exempt transactions • Securities and Exchange Commission • Short-swing profits

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