Chapter 22 Investor Protection and Securities Regulation PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 4E, by Henry R. Cheeseman Chapter 22 Investor Protection and Securities Regulation Prentice Hall © 2005

Definition of a Security An interest or instrument that is common stock, preferred stock, a bond, a debenture, or a warrant An interest or instrument that is expressly mentioned in securities acts An investment contract Prentice Hall © 2005

Securities Act of 1933 A federal statute that primarily regulates the issuance of securities by corporations, partnerships, associations, and individuals Prentice Hall © 2005

Registration Statement Document that an issuer of securities files with the SEC that contains required information about the issuer, the securities to be issued, and other relevant information Prentice Hall © 2005

Securities Exempt from Registration Securities issued by any government in the US Short-term notes and drafts that have a maturity date that does not exceed nine months Securities issued by nonprofit issuers Securities of financial institutions Prentice Hall © 2005

Securities Exempt from Registration Securities issued by common carriers Insurance and annuity contracts issued by insurance companies Stock dividends and stock splits Securities issued in a corporate reorganization where one security is exchanged for another security Prentice Hall © 2005

Preventing Transfer of Restricted Securities To protect the nontransferability of restricted securities, the issuer must Require the investors to sign an affidavit stating that they are buying the securities for investment, acknowledging that they are purchasing restricted securities, and promising not to transfer the shares in violation of the restriction Place a legend on the stock certificate describing the restriction Notify the transfer agent not to record a transfer of the securities that would violate the restriction Prentice Hall © 2005

Securities Exchange Act of 1934 A federal statute that primarily regulates the trading in securities Securities Exchange Act of 1934 Prentice Hall © 2005

Tipper-Tippee Liability A person who discloses material, nonpublic information to another person Tippee The person who receives material, nonpublic information from a tipper Prentice Hall © 2005

Other Federal Securities Laws Securities Enforcement Remedies and Penny Stock Reform Act of 1990 Market Reform Act of 1990 Racketeer Influenced and Corrupt Organizations Act Private Securities Litigation Reform Act Prentice Hall © 2005