Securities Regulation in a Nutshell
Author:
Hazen, Thomas Lee
Edition:
11th
Copyright Date:
2016
21 chapters
have results for Securities Regulation in a Nutshell
Chapter I. Introduction 118 results (showing 5 best matches)
- The distinctive features of securities give a unique coloration to regulation of transactions in securities, in contrast to the regulation of transactions in other types of goods. Most goods are produced, distributed, and used or consumed; governmental regulation focuses on protecting the ultimate consumer against dangerous articles, misleading advertising, and unfair or non-competitive pricing practices. Securities are different.
- The statutory definitions in both the 1933 and 1934 Acts make it clear that securities include not only stocks and bonds but also “any put, call, straddle, option, or privilege on any security.” Thus, an investment that is derivative of a security is itself a security. Derivative investments—both those based on securities and those based on commodities or other underlying values—have become a significant segment of the investment markets. Regulation of derivative investments is more fragmented than securities regulation generally. The discussion that follows addresses the applicability of the securities laws to derivative investment.
- Additionally, Dodd-Frank created two new categories of professionals that must be registered under the Securities Exchange Act. Those two new categories are (1) security-based swap dealers and (2) major security-based swap participants. A “security-based swap dealer” is defined as a person who (i) holds itself out as a dealer in security-based swaps, or (ii) makes a market in security-based swaps, or (iii) regularly enters into swaps with counterparties as an ordinary course of business for its own account, or (iv) engages in activity commonly known in the trade as a dealer or market maker in security-based swaps. 1934 Act, § 3(a)(71). A “major security-based swap participant” is a person other than a security-based swap dealer that maintains a substantial non-hedging position in security-based swaps giving rise to substantial counterparty exposure that could impact the economy systemically. 1934 Act, § 3(a)(67). Security-based swap dealers and major swap participants that are...
- Fourth, since a large industry has grown up to buy and sell securities for investors and traders, securities laws are concerned with the regulation of people and firms engaged in that business, such as broker-dealers, investment banks, and investment advisers. This regulation assures that they do not take advantage of their superior experience and access to overreach their non-professional customers.
- “Self-Regulation.”
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Chapter II. Regulation of Public Offerings 170 results (showing 5 best matches)
- The exemption provided in Regulation A is dependent upon the securities being offered through the use of an offering circular, in a manner similar to the use of a prospectus in a registered offering. In order to use the Regulation A exemption, an issuer may not offer securities that exceed an aggregate amount of $50 million in any one year. As has been the case with section 3(b), the dollar ceiling for a Regulation A offering has increased over time. Because of the disclosure burdens imposed and the former $5 million ceiling on offerings, Regulation A had been used relatively infrequently when compared to the exemptions from registration available under Regulation D. However, Regulation A is likely to get renewed vitality since, as noted above, the JOBS Act raised the ceiling to $50 million. In March 2015, the SEC amended its Regulation A by dividing the exemption into two tiers—Tier One provides an exemption for offerings up to $20 million per year and Tier Two exempts offerings up...
- Regulation A thus bears many similarities to a registered offering. However, it must be remembered that Regulation A provides an from registration and is not a different form of registration. As a result of not qualifying as a registration of securities, any misstatements in the Regulation A notification form and offering circular violate the 1933 Act’s antifraud provisions, but there is no liability under § 11, which concerns only material misstatements and omissions in a
- (2) If the person acquired the securities from the issuer in a non-public transaction, he must have held them for at least one year before reselling them, or six months with respect to securities of 1934 Act reporting company. Securities are not considered fungible for this purpose; securities held for more than one year may be sold, even if the seller has recently acquired additional securities of the same class from the issuer. The one-year (or six-month) holding period runs from the time the securities were purchased from the issuer or an affiliate of the issuer. Accordingly, a non-affiliate who purchased restricted securities from another non-affiliate can tack his or her holding period on to that of the previous holder. Rule 144’s definition of restricted securities include securities issued in a non-public offering under 1933 Act § 4(a)(2) or Rules 505 (offerings of up to $5 million) or 506 (safe harbor for non-public offerings) (see § 10(c) above). In 1999, the SEC expanded...
- The process by which a corporation or other issuer offers and sells its securities to the public has been a principal focus of regulatory activity in the securities field. A major portion of the work of the SEC (and of lawyers engaged in securities practice) is devoted to determining if registration of these offerings is required under the Securities Act of 1933 and, if so, to registering the offering. While some people feel that there has been undue emphasis on this activity—to the detriment of other problem areas, such as—the registration practices under the 1933 Act have created a distinctive approach and tone to American securities regulation.
- In recognition of the fact that publicly-held companies may have an obligation to make prompt disclosure of important developments, 1933 Act Rule 135 permits an issuer to put out a press release or other written notice of an offering that sets forth no more than the name of the issuer and the purpose and basic terms of the offering (without naming the underwriters). In 1995, the SEC proposed a new rule, under which a company making an initial public offering would have been able to solicit indications of interest from prospective purchasers prior to the filing of a registration statement, by means of a written or broadcast statement. The statement must contain certain specified information and be submitted to the SEC prior to its first use. Sec. Act Rel. 33–7188 (1995). Although adopted for the Regulation A exemption (see § 10(e) below), this “testing the waters” process was not adopted for public offerings. The 1933 Act Rules 137–139, adopted in 1970, and amended in 2005, also...
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Chapter IX. State Regulation 28 results (showing 5 best matches)
- In 1995, the SEC expressed its concern about abuses of Regulation S, in which securities supposedly offered abroad quickly found their way back into the U.S. market. Accordingly, in 1997, the Commission proposed amendments pursuant to which securities sold under Regulation S would be deemed to be “restricted securities,” which could be resold in the U.S. only in accordance with the provisions of 1933 Act Rule 144 (see § 10(i) above). Sec. Act Rel. 33–7392 (1997). In 1998, the Commission adopted this proposal. Accordingly, securities sold pursuant to Regulation S are subject to resale restrictions for one year. See 1933 Act Rule 903(b)(3). Regulation S securities are now classified as “restricted securities.” See 1933 Act Rule 905. Additionally, as a result of the 1998 amendments, purchasers of Regulation S securities must certify that they are neither U.S. residents nor purchasing on behalf of U.S. residents.
- In 1991, in a major step toward internationalization of securities regulation, the SEC adopted a “multijurisdictional disclosure system” under which Canadian issuers that meet certain tests can register their securities for sale in the U.S. using disclosure documents prepared according to the requirements of Canadian regulatory authorities. See Sec. Act Rel. 33–6902 (1991); 1933 Act Forms F–7 through F–10. Simultaneously, the securities commissions of three Canadian provinces adopted comparable rules permitting U.S. issuers to register securities for sale in Canada using disclosure documents complying with SEC requirements.
- A foreign investor who purchases securities in an offering registered under the 1933 Act has the same right of action as a U.S. purchaser in the event there is a material misstatement or omission in the registration statement. However, the SEC has taken the position that, since the principal purpose of the 1933 Act is to protect U.S. investors, it will not make any objection to a U.S. corporation making a public offering of its securities abroad, solely to foreign investors, without registration under the Act, provided that the offering is made under circumstances reasonably designed to preclude redistribution of the securities within the U.S. or to U.S. investors. Sec. Act Rel. 33–4708 (1964). In 1990, the Commission codified this position when it adopted Regulation S, consisting of 1933 Act Rules 901–904. See Sec. Act Rel. 33–6863 (1990). Under these rules, an offering is exempt from the 1933 Act if no offers are made to persons in the U.S., no “directed selling efforts” are made in
- Under 1934 Act § 7, the Federal Reserve Board has issued “margin regulations” limiting the amount of credit that can be extended for the purchase of U.S. securities (see § 24(a) above). It is unclear whether these rules can be applied to foreign lenders who extend credit to U.S. purchasers of U.S. securities. See Metro-Goldwyn-Mayer v. Transamerica, 303 F.Supp. 1354 (S.D.N.Y.1969). However, in 1970, Congress amended 1934 Act § 7 to prohibit any “United States person” from obtaining credit from a foreign lender in a transaction which would have been prohibited if it had taken place in the U.S. Since that time, foreign banks have been held subject to the margin regulations if they engage in transactions that can be found to constitute doing business as a broker or dealer in the U.S. United States v. Weisscredit, 325 F.Supp. 1384 (S.D.N.Y.1971); UFITEC v. Carter, CCH ¶ 94,841 (Cal.Super.1974), affirmed 20 Cal.3d 238, 142 Cal.Rptr. 279, 571 P.2d 990 (1977).
- Foreign issuers are also entitled to the same exemptions as domestic issuers (except for Regulation A, which under 1933 Act Rule 252(a)(1) is available only to U.S. and Canadian issuers). However, the entire offering must meet the terms of the exemption; a foreign issuer cannot claim the “private offering” exemption under 1933 Act § 4(a)(2) for a single sale to a U.S. purchaser in conjunction with a general public offering in another country. 1933 Act Rule 144A (see § 10(i) above), which permits unlimited resales of unregistered securities by and to qualified institutional buyers, was adopted in large part to facilitate offerings by foreign issuers to institutions in the U.S.
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Chapter V. Regulation of the Securities Business 100 results (showing 5 best matches)
- A substantial portion of the SEC’s activity is devoted to regulation of firms engaged in the securities business. The three principal capacities in which firms act in that business are as broker, dealer, and investment adviser. The 1934 Act defines a “broker” as a “person engaged in the business of effecting transactions in securities for the account of others,” 1934 Act § 3(a)(4), while a “dealer” is a “person engaged in the business of buying and selling securities for his own account,” 1934 Act § 3(a)(5). An “investment adviser” is defined in § 202(a)(11) of the Investment Advisers Act of 1940 (IAA) as a “person who, for compensation, engages in the business of advising others * * * as to the advisability of investing in, purchasing, or selling securities * * * .”
- Supplementing its proceedings against individual broker-dealers, the SEC in 1971 adopted 1934 Act Rule 15c2–11, which prohibits a broker-dealer from making a market in any security unless (a) the issuer has recently made a public offering under the 1933 Act or Regulation A, or (b) the issuer is currently filing reports under the 1934 Act, or (c) the broker-dealer has in its files specified current financial and other information about the issuer and its securities. The purpose, and effect, of this rule is to prevent the creation of public trading markets in securities which have not been registered under either the 1933 Act (including Regulation A) or the 1934 Act. In 1991, the Commission strengthened Rule 15c2–11 by requiring broker-dealers to review the information specified in the rule before initiating or resuming quotations for any security, and to have a reasonable basis to believe that the information is true and accurate and obtained from reliable sources.
- As discussed more fully in § 25, below, the securities industry operates under a system of self-regulation. This means that in addition to regulation by the SEC, securities brokers and the securities markets are regulated by self-regulatory organizations organized under the auspices of the SEC and the 1934 Act. The primary regulator of broker dealers is the Financial Industry Regulatory Authority (FINRA) that resulted from the merger of the regulatory arms of the NASD and the NYSE.
- While 1934 Act § 7 authorizes the Federal Reserve Board to regulate both the initial extension and the subsequent maintenance of credit, the Federal Reserve Board rules, or “margin regulations,” as they are generally known, in fact regulate only the initial extension of credit on a new purchase. See 12 C.F.R. § 220.7(b). This is done by specification of a “maximum loan value” of securities, expressed as a percentage of current value, which the Federal Reserve Board changes from time to time in response to increases and decreases in the amount of speculative activity and the availability of credit. For example, if the current “maximum loan value” is 50%, a customer who wants to buy securities with a current market value of $4,000 must put up $2,000 in cash and may borrow the remaining $2,000 from the broker “on margin.” If the securities subsequently decline in value to $2,500, the Federal Reserve Board margin regulations would not require the customer to pay an additional $750 to...
- In addition to its provisions for the regulation of individual broker-dealers, the Securities Exchange Act regulates the overall operations of the markets in which securities are traded. The principal regulatory provisions included in the original act in 1934 were 1934 Act §§ 7 and 8, governing the extension of credit on listed securities, and 1934 Act § 11, regulating trading by exchange members for their own account. These provisions have been substantially modified over the years. In the Securities Acts Amendments of 1975, Congress also added 1934 Act §§ 11A and 17A, directing the SEC to facilitate the establishment of a “national market system” and a national system for clearing and settlement of transactions.
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Chapter IV. Antifraud Provisions 115 results (showing 5 best matches)
- Rule 103 of Regulation M permits a NASDAQ market maker participating in a distribution to continue “passive” market making during the distribution, with limitations on the volume of its purchases and the prices at which it may bid for the security. Rule 104 of Regulation M prescribes the conditions under which underwriters may enter bids or make purchases for the purpose of “stabilizing” the price of the security being distributed, and Rule 105 prohibits any person from purchasing securities from any underwriter or distribution participant to cover a “short sale” made less than five days before the commencement of the distribution.
- Precise guidelines as to when, and at what price, underwriters may enter stabilizing bids were finally laid down in 1955 with the adoption of 1934 Act Rules 10b–6, b–7, and b–8. In 1997, those rules were replaced by Regulation M, with its Rules 100–105. Regulation M makes it unlawful for the issuer, any selling stockholder, or any underwriter or other person participating in a “distribution” to bid for or purchase any units of the security being distributed, with certain specified exceptions. The term “distribution” is defined in Rule 100 as “an offering of securities, whether or not subject to registration under the Securities Act, that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods.”
- Rule 101 of Regulation M prohibits an underwriter or other “distribution participant” from bidding for or purchasing any units of the security being distributed during the “restricted period,” which begins one day (or five days in the case of thinly-traded securities) before the beginning of such person’s participation and ends on completion of such participation. These restrictions do not apply to distributions of high-grade debt securities or equity securities that have an average trading volume of at least $1 million and a public float of at least $150 million. Rule 102 imposes comparable restrictions on issuers and selling security holders.
- “To use or employ, in connection with the purchase or sale of any security * * * any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
- The most important extension of the “in connection with” language came in SEC v. Texas Gulf Sulphur, 401 F.2d 833 (2d Cir.1968). In that case, the court held that misstatements in a press release issued by a publicly-held corporation, which was not at the time engaged in buying or selling any of its own shares, violated 1934 Act Rule 10b–5 because they were made “in connection with” the purchases and sales being made by shareholders in the open market. This holding has formed the basis for a large number of shareholder class actions (discussed in § 20(b) below), alleging damages suffered because of misstatements in a company’s reports or press releases. The Second Circuit has continued to give an expansive reading, for example by holding that an advertisement for a drug that appeared in a medical journal could be found to have been made “in connection with the purchase or sale” of a security. In re Carter-Wallace, Inc. Securities Litigation, 150 ...of the security. See Comerchero...
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Copyright Page 4 results
- Nutshell Series, In a Nutshell
- The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
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Chapter III. Introduction to the Regulation of Publicly-Held Companies 75 results (showing 5 best matches)
- In addition to the above-mentioned registration, reporting, and other disclosure requirements for exchange-listed securities, the Securities Exchange Act of 1934 also imposes registration requirements on certain over-the-counter securities. Until April 2012, by virtue of § 12(g)(1) of the Exchange Act and former Rule 12g–1, 1934 Act registration was required for issuers having both a class of equity securities with 500 or more shareholders of record and having more than ten million dollars in total assets. In 2012, the JOBS Act amended § 12(g) to increase the threshold from 500 to 2,000 shareholders of record, but it retains the lower 500 record holder threshold with respect to investors who are not accredited investors. The record holder calculation excludes shareholders who receive shares as part of an employee compensation plan that is exempt from 1933 Act registration. Section 12(g) was also amended to exclude from the shareholder calculation holders of shares issued pursuant to an
- 1934 Act § 12(j) empowers the SEC to revoke or suspend the registration of a security, after notice and opportunity for hearing, if it finds that the issuer has violated any provision of the 1934 Act or the rules and regulations under it. Under 1934 Act § 12(k), the SEC can (a) summarily suspend trading in any security for a period of not more than 10 days, (b) with the approval of the President, suspend all trading in all securities for a period of not more than 90 days, or (c), in the event of a “major market disturbance,” take whatever action respecting the markets as it determines to be in the public interest and for the protection of investors. Prior to 1975, the SEC often imposed successive 10-day suspensions that prohibited trading in a particular security for months or even years at a time, when the Commission felt there was inadequate public information to enable investors to make an intelligent judgment as to the value of the stock. However, in SEC v. Sloan, 436 U.S. 103 (...
- Under this authority, the Commission has promulgated detailed regulations prescribing the form of proxy and the information to be furnished to shareholders. Prior to every meeting of its security holders, a registered company must furnish each of them with a “proxy statement” containing the information specified in 1934 Act Schedule 14A, together with a form of proxy on which the security holder can indicate his approval or disapproval of each proposal expected to be presented at the meeting. 1934 Act Rules 14a–3, 14a–4. Where securities are registered in the names of brokers, banks, or nominees, the company must inquire as to the beneficial ownership of the securities, furnish sufficient copies of the proxy statement for distribution to all of the beneficial owners, and pay the reasonable expenses of such distribution. 1934 Act Rule 14a–3(d).
- There are some publicly held companies that, even though they are not required to register under § 12 of the 1934 Act, nevertheless are subject to the periodic reporting requirements mentioned above. Section 15(d) of the 1934 Act provides that issuers having issued securities under a 1933 Act registration statement with more than 300 record holders of such securities are subject to 1934 Act requirements. Section 15(d) reporting companies are subject to a lower level of regulation than companies registered under the 1934 Act. For example, unlike companies registered under § 12 of the 1934 Act, § 15(d) reporting companies are not subject to the proxy regulations under 1934 Act § 14, the takeover and tender offer provisions of the Williams Act, nor the insider trading and reporting provisions found in 1934 Act § 16.
- Where the takeover bid involves a public offer of securities of the aggressor corporation in exchange for shares of the target corporation, the securities must of course be registered under the Securities Act of 1933 and a prospectus delivered to the shareholders being solicited. In the case of a cash tender offer, however, there was, prior to 1968, no requirement for any filing with the SEC.
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Preface 4 results
- The growth and elaboration of federal securities law in recent years has been phenomenal. In this ‘‘nutshell,’’ I have tried to summarize the essential background and current status of each major area, while keeping details and citations to a minimum. I have, of course, included references to the relevant statutes, SEC rules and releases, and other governmental materials, as well as to ‘‘leading cases,’’ where they exist, and to illustrative cases in other areas. I have not cited any secondary materials; there are simply too many of them.
- Readers desiring more detailed analysis and sources for research should consult Thomas Lee Hazen, Treatise on the Law of Securities Regulation (7th ed. 2016) (seven volume Practitioner’s Edition), Thomas Lee Hazen, Hornbook on the Law of Securities Regulation (7th ed. 2016) (one volume edition) or Thomas Lee Hazen, Principles of Securities Regulation (4th ed. 2016).
- This book is designed for lawyers, law students and others who are seeking an understanding of the basic content and organization of federal (and state) securities law.
- This book will not answer all of your questions about securities law. It should, however, answer most of your basic ones and help you to find the answers to the others.
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Chapter X. State Regulation 40 results (showing 5 best matches)
- Prior to 1996, the various federal securities laws specifically preserved the power of the states to regulate securities activities. However, in that year, Congress passed the National Securities Markets Improvement Act, preempting significant areas of state regulation, as more specifically noted below.
- Most state securities laws apply to any offer or sale of securities in the state, but contain no explicit provisions defining when an offer or sale is made “in the state.” Since many securities transactions involve a buyer in one state and a seller in another, difficult problems arise in determining (a) to which transactions the law of a particular state applies, and (b) which state law governs the validity of a transaction which has contacts with more than one state. For example, is an advertisement in a newspaper published in State A but also circulated in State B an “offer” in State B? If a broker in State A makes an offer by telephone to a customer in State B, who accepts the offer by mailing a check to the broker in State A, is the transaction voidable if the broker and the security were registered in State A but not in State B?
- Nevertheless, the promulgation and adoption of the Uniform Securities Act has produced a much more rational and consistent pattern of regulation than previously existed. This development has also been assisted by the North American Securities Administrators Association (NASAA), an association of state and provincial securities administrators, which from time to time issues “statements of policy” on various substantive and procedural questions and indicates to what extent those policies are followed by each of its members.
- Traditionally, most state statutes did not contain exemptions comparable to the 1933 Act exemption for “transactions by an issuer not involving any public offering,” although many had exemptions for “isolated transactions” or “pre-organization subscriptions.” The 1985 Uniform Act exempts offerings that involve no general solicitation and result in sales to no more than 25 purchasers in the state who are purchasing for investment and not for resale. USA § 402(11). The “accredited investor” concept in Regulation D (see § 10(c) above), finds a counterpart in state provisions, which commonly exempt sales to broker-dealers or other financial or institutional investors. See USA § 402(10). The North American Securities Administrators Association in 1983 promulgated a “Uniform Limited Offering Exemption,” which has been adopted by more than 20 states, under which any offering which meets the tests of the SEC’s Regulation D is also exempt from the state’s registration requirements.
- State securities laws do not embrace the “underwriter” concept of 1933 Act § 2(a)(11), which has given rise to so much difficulty in determining when a person other than the issuer must register securities for sale under federal law (see § 10(e) above). Most state laws have an exemption for “isolated non-issuer transactions” and for other non-issuer sales of securities registered under 1934 Act § 12 or listed in “standard manuals” (such as Moody’s and Standard & Poor’s). See USA § 402(2), (3). Under the Uniform Act, a registration of securities remains in effect for one year (unless suspended or revoked), and “all outstanding securities of the same class * * * are considered to be registered for the purpose of any non-issuer transaction” during that period. USA § 305(i).
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Chapter VI. Regulation of Investment Companies and Investment Advisers 98 results (showing 5 best matches)
- Under ICA § 3(a), an investment company is an entity which (a) “is * * * engaged * * * in the business of investing, reinvesting, or trading in securities” (emphasis added), or (b) is “engaged” in that business and more than 40% of its assets consist of “investment securities” (i.e., all securities other than government securities and securities of majority-owned subsidiaries).
- Common trust funds, and collective funds maintained by banks for investment of pension fund assets, are specifically excluded from the definition of “investment company.” ICA §§ 3(c)(3), (11). In 1962, the Comptroller of the Currency authorized national banks to establish commingled funds for “managing agency accounts,” in effect permitting them to offer their customers interests in a bank-managed “mutual fund.” However, the Supreme Court held that a bank’s operation of such a fund involved “underwriting” of securities in violation of the Glass-Steagall Act. Investment Co. Inst. v. Camp, 401 U.S. 617 (1971). Ten years later, the Supreme Court upheld a regulation of the Federal Reserve Board permitting bank holding companies to manage closed-end investment companies. Federal Reserve Board v. Investment Co. Inst., 450 U.S. 46 (1981). Since that time, lower courts have permitted banks to engage in a wide range of investment company-related activities. See, e.g., Investment Co. Inst. v....
- In 2006, the D.C. Circuit Court of Appeals struck down the SEC’s Investment Adviser Act hedge fund rule. Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006). The SEC’s eventual response to was to abandon attempts to require registration under the Investment Advisers Act. Instead, in December 2006, the Commission proposed an antifraud rule aimed at hedge funds and also heightened sophistication and wealth requirements for investors qualifying for Investment Company Act and Securities Act exemptions. The proposed new antifraud rule under ICA § 206(4), which has since been adopted, prohibits an investment adviser from defrauding investors in a hedge fund or certain other pooled investments. The SEC also proposed two new 1933 Act rules to require individuals investing in hedge funds and other private funds relying on an exemption under ICA § 3(c)(1) to have a minimum of $2.5 million in certain types of investments at the time of their investment in the fund. The SEC adopted the proposed rule
- An open-end company (mutual fund) may not issue any “senior security” (debt or preferred stock) other than notes to evidence bank borrowings. ICA § 18(f). A closed-end company may issue not more than one class of debt securities and not more than one class of preferred stock, provided that it has an asset coverage of at least 300%, in the case of debt, or 200%, in the case of preferred stock. ICA §§ 18(a), (c). No registered management company may issue any rights or warrants to purchase any of its securities. ICA § 18(d). An investment company may not make any public offering of its securities until it has a net worth of at least $100,000. ICA § 14(a).
- An investment company may not purchase securities on margin, sell short, or participate in joint trading accounts. ICA § 12(a). It may not incur underwriting commitments aggregating more than 25% of the value of its total assets. ICA § 12(c). Unless authorized by the vote of a majority of the holders of its voting securities, it may not borrow money, issue senior securities, underwrite any securities, purchase or sell real estate or commodities, make loans, change its investment policy with respect to concentration or diversification, change its subclassification, or change the nature of its business so as to cease to be an investment company. ICA § 13(a).
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Chapter VII. Sanctions for Violations 35 results (showing 5 best matches)
- Conviction of a violation of the securities laws carries with it automatic disqualification from certain benefits or positions, such as the use of the Regulation A exemption, 1933 Act Rule 252(c)(3), (d)(1), or association with a registered investment company, ICA § 9(a)(1).
- In an SEC administrative proceeding against a broker-dealer, one of the sanctions available to the Commission is the suspension or revocation of the respondent’s membership in a self-regulatory organization (SRO), such as a national securities exchange or national securities association. In addition, the SROs themselves are specifically authorized, and indeed required, to impose sanctions on their members for violations of the securities laws or the SROs’ own rules. 1934 Act §§ 6(b)(6), 15A(b)(7), 19(g)(1).
- In addition to giving rise to a possible contempt citation if the defendant commits another violation of the securities laws, the issuance of an injunction has certain direct consequences. A person who has been enjoined from future violations is disqualified from utilizing the exemption from 1933 Act registration provided by Regulation A and by 1933 Act Rule 505, and from being associated with a registered investment company, see ICA § 9(a)(2). More significantly, the Supreme Court has held that a defendant who is found to have violated the law in an SEC injunction action is barred by the doctrine of collateral estoppel from relitigating that issue in a subsequent private damage action based on the same course of conduct. The Court rejected arguments that this holding violated the defendant’s constitutional right to a jury trial in the damage action. Parklane v. Shore, 439 U.S. 322 (1979).
- If an SEC investigation uncovers evidence of a violation of the securities laws, the Commission may order an administrative hearing to determine responsibility for the violation and to impose sanctions. An administrative proceeding can only be brought against a person or firm registered with the Commission (such as a broker-dealer, investment adviser, investment company, or other regulated entity) or with respect to a security registered with the Commission. Sanctions available in an administrative proceeding include censure,
- In 1990, Congress expanded the power of the courts in actions brought by the SEC by authorizing them (a) to prohibit any person who is found to have violated 1934 Act § 10(b) from serving as a director or officer of a company registered under the 1934 Act, and (b) to impose civil penalties of up to $500,000 on securities law violators. 1934 Act §§ 21(d)(2), (3).
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Chapter VIII. Civil Liabilities 100 results (showing 5 best matches)
- The Securities Act specifically contemplates rescission as the appropriate remedy where the defendant has sold securities without registration, or by means of misleading statements, and plaintiff still retains the securities. 1933 Act § 12. In actions under the Securities Exchange Act, plaintiffs may seek rescission pursuant to 1934 Act § 29(b), which provides that all contracts made in violation of the Act shall be void as against the violators. In Transamerica Mortg. Advisors v. Lewis, 444 U.S. 11 (1979), the Supreme Court specifically upheld the right of a plaintiff to obtain rescission of a contract, or an injunction against its continued operation, under a similar provision in IAA § 215. However, rescission is often an impracticable or inappropriate remedy.
- The first type is a provision creating an explicit private right of action. Four of these provisions are of the most importance. First, 1933 Act § 11 gives a right of action to purchasers of securities sold under a registration statement that contains material misstatements or omissions. Second, 1933 Act § 12 gives a right of action to purchasers of securities sold in violation of the registration requirements or by means of misleading statements. Third, 1934 Act § 16(b) gives a right of action to an issuer (or a shareholder suing on its behalf) against officers, directors, and major shareholders who profit from “short-swing” trading in the issuer’s stock. And fourth, 1934 Act § 18 gives a right of action to a person who purchases or sells a security in reliance on misleading statements in a report filed under that Act.
- The generous venue and service of process provisions of the federal securities laws are an important incentive to plaintiffs to frame their complaints so as to state a claim under those laws. Actions can be brought in any district in which the defendant is found or is an inhabitant or transacts business, and process can be served on any defendant in that district or in any other district in which he or she can be found. 1933 Act § 22; 1934 Act § 27; ICA § 44. However, special venue provisions applicable to certain kinds of defendants may limit the choice available under the securities laws. For example, the Supreme Court has held that a national bank can be sued under the federal securities laws only in a district in which a suit against that bank is permitted by the National Bank Act. Radzanower v. Touche Ross, 426 U.S. 148 (1976).
- Three years after the Litigation Reform Act, Congress significantly preempted the role of state law and state courts with respect to securities class actions. The Securities Litigation Uniform Standards Act of 1998 (SLUSA) mandates that most class actions involving publicly traded securities be brought in federal court. Class actions involving state securities law and common law with regard to “covered securities” are preempted. Covered securities are defined in such a way as to include most publicly traded securities. 1933 Act § 16(f)(3), 1934 Act § 28(f)(5)(E), 1933 Act § 18(b). SLUSA applies only to class actions and thus not to individual or derivative suits. There also is an exclusion for actions brought in the state of incorporation involving certain corporate transactions. SLUSA preemption applies to fraud related claims and thus does not preclude state law claims on other theories such as conversion or breach of contract or breach of fiduciary duty.
- Supplementing the governmental and quasi-governmental sanctions for violations of federal securities law is the possibility of private actions for damages and other relief against alleged violators. The amount of private litigation under federal securities law has grown rapidly in recent years and currently accounts for a substantially greater expenditure of effort and expense than does direct government enforcement. The growth in private litigation was not slowed by the Private Securities Litigation Reform Act of 1995 (PSLRA) nor the Securities Litigation Uniform Standards Act of 1998 (SLUSA).
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Outline 49 results (showing 5 best matches)
Abbreviations 11 results (showing 5 best matches)
- The following abbreviations are used throughout this Nutshell.
- SIPA—Securities Investor Protection Act of 1970 (15 U.S.C.A. §§ 78aaa et seq.)
- 1933 Act—Securities Act of 1933 (15 U.S.C. §§ 77a et seq.)
- 1934 Act—Securities Exchange Act of 1934 (15 U.S.C. §§ 78a et seq.)
- CCH—Commerce Clearing House Federal Securities Law Reports
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Table of Cases 22 results (showing 5 best matches)
- Carter-Wallace, Inc. Securities Litigation, In re, 180
- Merck & Co., Inc. Securities, Derivative & ERISA Litigation, In re, 358
- Silicon Graphics, Inc. Securities Litigation, In re, 178
- Washington Public Power Supply System Securities Litigation, In re, 333
- WorldCom, Inc. Securities Litigation, In re, 116
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Index 57 results (showing 5 best matches)
Table of Statutes 108 results (showing 5 best matches)
- Unif. Securities Act § 306(a)(5) ...................................... 393
- Unif. Securities Act § 401(a)(7) ...................................... 394
- Unif. Securities Act § 401(a)(8) ...................................... 394
- Unif. Securities Act § 101(2) ........................................... 396
- Unif. Securities Act § 212 ............................................... 396
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Advisory Board 3 results
Table of Rules 4 results
- 17 C.F.R. § 240.10b–5(a) ................................. 358, 359, 360
- 17 C.F.R. § 240.16a–1(a)(1) ............................................ 161
- 17 C.F.R. § 240.16a–1(a)(2) ............................................ 161
- 17 C.F.R. § 240.16a–1(a)(2)(ii)(F) ................................... 161
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- Publication Date: August 2nd, 2016
- ISBN: 9781683283188
- Subject: Securities Regulation
- Series: Nutshells
- Type: Overviews
- Description: This title will help you acquire an understanding of the basic content and organization of federal and state securities law. It provides a summary of an intricate regulatory system. An authoritative summary, it covers the essential background and current status of each major area, while keeping details and citations to a minimum. It discusses the regulations governing public offerings, public companies, exemptions from SEC disclosure requirements, securities broker-dealers, as well as investment companies and investment advisers. It also explores sanctions, civil liabilities, and extraterritorial application. This edition includes recent developments including the Dodd-Frank Act as well as the JOBS Act, including the new crowdfunding and expanded Regulation A exemptions.