Securities Regulation

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1933 Act

Cases

  • Howrey - an investment contract is a transaction or scheme whereby a person (1)invests his money (2)in a common enterprise and (3)is led to expect profits (4)solely from the efforts of the promoter or a third party."
  1. Money can mean fungible money or services (but labor in an employment contract is not considered investment into a pension plan because employee compensation has a lot more than just the pension plan.)
  2. Three approaches:
    1. horizontal commonality approach
    2. fortunes of investors dependent upon promoter's techniques
    3. "Fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties."
  3. See Forman - the income has to be substantial and not speculative
  4. The lower courts have taken a flexible approach to this.

Section 2

  • Underwriter - person who has purchased from an issuer who offers or sells for an issuer in connection with distributing of any security
  • Exempt from section 5 prohibitions: preliminary negotiations or agreements between an issuer and any underwriter who are in privity of contract with the issuer.
  • prospectus (2(a)(10)) - offer made in writing

Section 5

Applies to

  1. any transaction
  2. by an issuer or underwriter
  3. in connection with a public offering by the issuer OR
  4. a secondary distribution by a person in control relationship with the issuer OR
  5. a transaction by a dealer within 40 days after a distribution is started OR
  6. as long as one is personally engaged in a distribution.

Disallows the use of interstate facilities or the mail to:

Before a registration statement filed

  1. 5(a)(1): "sell security through the use or medium of any prospectus."
  2. 5(a)(2): carry any security for the purpose of sale or for delivery after sale.
  3. 5(c): "offer to sell or offer to buy."

During the waiting period

Note: as per the definition of prospectus above, oral offers are legal during this period.

  1. 5(a)(1): "sell security through the use or medium of any prospectus."
  2. 5(a)(2): carry any security for the purpose of sale or for delivery after sale.
  3. 5(b)(1): send a prospectus related to a security that doesn't meet the requirements of section 10 (can include summary prospectus)

After the effective date

  1. 5(b)(1): send a prospectus related to a security that doesn't meet the requirements of section 10
  2. 5(b)(2): carry a security for the purpose of sale unless accompanied by a prospectus that meets the requirements of section 10. (this must be a complete prospectus)

Section 10

  1. 10(a): this lays out what has to be in the full statutory prospectus
  2. 10(b): this lays out what can be in a summary prospectus

Rule 134

Allows tombstone ads during the waiting period, and gives the specifications of that ad.

Rule 135

This rule determines how an issuer can make a notice of a public offering.

Rule 137

This rule allows brokers and dealers to distribution of information in the regular course of business as long as they are not participating in the distribution of a security.

Rule 138

Allows broker dealers offering nonconvertible senior securities to publish opinions about the common stock of the issuer.

Rule 139

This rule allows the broker-dealer to distribute information even if the broker-dealer is participating in the distribution of the security if one of two conditions are met.

Rule 430

This allows offers during the waiting period that was filed part of the registration statement and meets certain requirements.