1. © 2004 West Legal Studies in Business, a Division of Thomson Learning 19.1 Chapter 19 Securities Regulation

2. 19.2 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. 19.3 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. 19.4 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. 19.5 Process of Registering Securities Registration statement Prospectus Prefiling period Waiting period Tombstone ad Red herring prospectus Posteffective period Shelf registration

6. 19.6 Exemptions from the Securities Act Two types Exempt securities Exempt transaction Exemption tradeoffs Costly to businesses Lower investor protection

7. 19.7 Exempt Transactions Under the Securities Act Secondary trading Private placement Intrastate offerings Regulation A Regulation D Rules 501 through 506 Section 4(6)

8. 19.8 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. 19.9 Civil Liability Under the 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. 19.10 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. 19.11 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. 19.12 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. 19.13 Short-Swing Profits Insiders (officers, directors, major stockholders) Section 16(b) Insider reports Exceptions Straw people

14. 19.14 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. 19.15 Insider Trading Sanctions Act Civil penalties Triple damages Criminal penalties Stock options Aiders and abettors Statute of limitations No definition

16. 19.16 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. 19.17 Foreign Corrupt Practices Act Internal reporting Section 102 Section 103 Section 104 Penalties Federal felonies for convictions

18. 19.18 State Securities Regulation Individual states have police power to regulate securities Blue-sky laws State regulation uneven Sarbanes-Oxley Act

19. 19.19 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