The Law of Securities Regulation
Author:
Hazen, Thomas Lee
Edition:
7th
Copyright Date:
2017
30 chapters
have results for The Law of Securities Regulation
Chapter 8. State Securities Laws (“Blue Sky” Laws) 23 results (showing 5 best matches)
- This treatise is addressed primarily to the federal law of securities regulation. The emphasis on federal law should not be taken to indicate, however, that the states do not play a significant role in regulating securities transactions. In fact, state law represents the genesis of U.S. securities regulation. Securities regulation in this country began as a matter of state law, and it was not until twenty-two years after the first state securities law that Congress enacted federal securities regulation.
- Unlike the federal securities regulation, the state securities acts generally permit a merit analysis of the investment before certain securities can be offered for sale within that state’s borders. The states thus have what is known as a merit approach (at least with regard to some offerings of securities), which is in contrast to federal securities laws’ exclusive focus on full disclosure. State law merit regulation imposes a substantive scrutiny that goes further than the full disclosure approach of the federal laws. Under the registration by qualification, state securities administrators are empowered to look into the merits of the investment being offered. The state acts also generally provide for a short form registration for securities of more established issuers and for an even simpler registration by coordination where the issue is being registered at the federal level with the SEC.
- Most of this treatise focuses on federal law. However, the first securities regulation in the United States took place at the state level. Even after federal securities regulation was introduced, the states continued to play an important role. Even after Congress eventually preempted much of the states’ former authority to regulate securities offerings, the states retain a significant role in many aspects of securities regulation.
- Section 18(b) of the 1933 Act, as enacted by the 1996 legislation, provides that a number of securities offerings will be exempted from state law regulation in terms of registration and reporting requirements. Notwithstanding the curtailing of state law regulatory jurisdiction, state antifraud provisions are preserved. Section 18(b) precludes state regulation requiring registration or qualification of several categories of covered securities: securities listed on the New York Stock Exchange, and securities exempted from state registration and reporting requirements; parallel preemption exists with respect to securities traded on the American Stock Exchange or through the Nasdaq Although precluding substantive registration and reporting requirements by the states, the Act expressly preserves the states’ right to require filing of documents solely for notice purposes. ...of the states’ authority to require notice filings has the effect of preserving state registration by coordination...
- The state legislatures entered the arena of securities regulation more than twenty years before Congress. In 1911, Kansas enacted the first American legislation regulating the distribution and sale of securities. A number of states followed suit, and today every state has enacted a securities act. As noted above, the statutes, which vary widely in their terms and scope, are commonly referred to as “blue sky” laws, an appellation with several suggested origins. It has been said, for example, that the Kansas legislature was spurred by the fear of fast-talking eastern industrialists selling everything including the blue sky. As stated early on by a court, the these state securities laws were designed to prevent “speculative schemes which have no more basis than so many feet of blue sky.”
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Chapter 1. The Basic Coverage of the Securities Laws 615 results (showing 5 best matches)
- In addition to regulation of the securities markets, the federal securities laws regulate the companies issuing securities (“issuers” ) as well as purchasers and sellers of securities. Securities trading activities can be divided into two basic subgroups. Most of the day-to-day trading on both the securities exchanges and over-the-counter markets consists of “secondary” transactions between investors and involve securities that have previously been issued by the corporation or other issuer. All of the proceeds from these secondary sales, after applicable commissions to the securities brokers handling the transaction, go to the investors who are parting with their securities. None of these proceeds from secondary transactions in the securities markets flow back to the companies issuing the securities. This aspect of the secondary securities markets is frequently referred to as “trading” (as opposed to “distribution” of securities) and is regulated primarily by the provisions of the...
- The scope of state blue sky laws was significantly curtailed in 1996 with the enactment of the National Securities Markets Improvement Act of 1996. These 1996 amendments to the federal securities laws reversed the pattern established under the first sixty-three years of federal securities regulation of concurrent state and federal regulation. The former regime of concurrent state and federal regulation was narrowed since the 1996 amendments explicitly preempted state law in many areas of securities regulation.
- Although originating as a matter of state law, the vast majority of securities regulation in the United States is currently controlled by federal law. State law remains significant with respect to some transactions, but federal law clearly has the most significant impact on securities regulation. Finding the law when dealing with federal securities regulation often is a difficult task as there are several sources to consult. The discussion that follows is designed to give a brief overview of the sources of federal law that are discussed throughout this treatise.
- In 1996, Congress significantly limited the role of state law in securities regulation. The National Securities Markets Improvement Act of 1996 (NSMIA) explicitly preempts state law in many areas. An amended section 18 of the 1933 Act now provides that a number of securities offerings will be exempted from state law regulation. The 1996 amendments specifically preempt state regulation that would require registration or qualification of several categories of covered securities. Those covered securities include most publicly traded securities: securities listed on the New York Stock Exchange, the American Stock Exchange, or the NASD’s National Market System.
- Although the first laws in the United States aimed at securities regulation developed in the individual states, most securities regulation today is a matter of federal law even though the states retain influence in some selected areas.
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Preliminary Note on the Scope of the One Volume Hornbook 31 results (showing 5 best matches)
- Researching the law in the area of securities regulation is not an easy task since a vast body of law is contained in administrative rules, interpretations and no-action letters that are not officially reported. In addition to the database of Westlaw which contains all of the pertinent information, Thomson-West publishes a securities law library on cd-rom. The Federal Securities Law Reporter, a multiple volume looseleaf reporter published by Commerce Clearing House (CCH) is another comprehensive source; a companion CCH resource is the Blue Sky Law Reporter which addresses the various state securities regulation statutes and administrative law. The Bureau of National Affairs’ Securities Regulation and Law Reporter can be very helpful in keeping lawyers up-to-date with the rapidly changing law of securities regulation. Prentice-Hall also publishes a looseleaf service. Looseleaf services in related fields include the
- This Hornbook is not merely a broad overview. The hope is to provide a firm understanding of the basics of securities law and adequate guidance as to further sources for the more esoteric aspects of the law of securities regulation.
- Towards these ends, a large portion of the Hornbook is devoted to discussion of the federal Securities Act of 1933 and the Securities Exchange Act of 1934. Primary emphasis is placed upon the regulation of the securities markets as it applies to issuers of securities and to most investors. Lawyers who do not specialize in securities law are likely to come into contact with a number of areas covered by the Securities Act of 1933 and the Securities Exchange Act of 1934. These include the registration requirements for securities distributions and the various exemptions from registration. Both the 1933 and 1934 Acts provide a wide range of remedies for investors injured by fraudulent practices and material misstatements and omissions.
- This Hornbook, and the more comprehensive Practitioner’s Edition of this treatise, is designed both for students and attorneys needing an introduction to the securities laws as well as for specialists dealing with these issues on a daily basis who seek more in-depth analysis of the law and current developments. This Hornbook, which is now in its seventh edition, is designed to give an overview of the securities laws with the understanding that the space limitations do not permit an in-depth treatment of all aspects of federal and state law. The multi-volume Practitioner’s Edition has evolved and grown over the thirty years and seven editions that it has been in existence. Over the years various chapters have been expanded and added to reflect the changes in the dynamic field of securities regulation.
- Although regulation of the broker-dealer industry is a very important aspect of securities law, the treatment in both the Hornbook and Treatise is somewhat selective. Formerly, broker-dealer law was primarily a subspecialty of interest to a relatively small number of lawyers. However, that has changed. There has been rampant fraud in many sectors of the securities industry and this has resulted in increased widespread significance of broker-dealer law. Accordingly, in the Seventh Edition, there is a significantly expanded treatment of broker-dealer regulation both by the SEC and self regulatory organizations. The previous editions’ treatment of the markets generally has been revised to reflect dramatic changes that have taken place, not the least of which are due to technological developments.
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Chapter 21. Special Problems and Overview of Related Laws 56 results (showing 5 best matches)
- The SEC and the self regulatory organizations under its oversight authority provide pervasive regulation of broker-dealers and the securities markets generally. Over the years various questions have arisen concerning the effect of the SEC’s regulatory and self regulatory oversight authority on the impact of the antitrust laws. When the SEC directly, or the self regulatory organizations under the direct oversight and supervision of the SEC, regulate and thereby approve of the conduct in question, this regulation under the Securities Exchange Act will operate as an implied repeal of the antitrust laws.
- There are a number of related federal laws that affect securities law practitioners and their clients. There may be SEC involvement in some of these related areas. For certain regulated industries, the securities of regulated issuers are subject to other federal administrative agencies. For example, the Comptroller of the Currency has jurisdiction over the distribution of securities issued by national banks, although securities issued by bank holding companies are subject to SEC jurisdiction. A similar arrangement exists with regard to securities of savings and loan associations, that are subject to regulation by the Office of Thrift Supervision (formerly the Federal Home Loan Bank Board).
- For securities and issuers that are subject to SEC regulation, there are a number of other related federal statutes that may come into play in addition to the federal securities laws. The more important of these laws are taken up in the sections that follow. First, the Foreign Corrupt Practices Act of 1977 was enacted in response to widespread concern over the activities of domestic companies in their dealings abroad.
- As a general proposition, federal securities law is premised on a system of full disclosure rather than scrutiny of the merits of securities that are offered and sold. The SEC does not review the substance of the investment. Instead, the SEC is charged with ensuring that investors have sufficient information upon which to make an investment decision. As discussed in chapter 8 of this treatise, this is in contrast to the state securities laws that focus not only on disclosure, but may also regulate the merits or fairness of securities offered within the state. State securities laws are supplemented in many respects by state corporate laws. State corporate laws focus on corporate formation, operation, and corporate governance. Corporate governance includes defining the respective roles of shareholders, officers, and directors. Among other things, state corporate law provides the rules governing shareholder voting rights, although there are the federal disclosure requirements that are...
- One other major area of jurisdictional dispute involves the regulation of commodities futures and commodities options. Although the futures market is directly regulated by the Commodity Futures Trading Commission, over the years, the SEC has asserted jurisdiction over various aspects of the commodities markets. For example, although there are some conflicting decisions, a number of cases have held that managed commodities accounts constitute securities. Another major developing area of conflict between the securities and commodities markets resulted from the development of new investment products such as financial futures, that are traded in the commodities markets, and financial index options, that are traded in the securities markets. In 2000, Congress revamped regulation under the Commodity Exchange Act with the amendments brought in by the Commodity Futures Modernization Act of 2000.
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Chapter 4. Exemptions from 1933 Act Registration 685 results (showing 5 best matches)
- Formerly, the Regulation A dollar ceiling would be decreased by any other section 3(b) securities sold within the past year, as well as any securities sold in violation of section 5(a). This was of particular importance because any Regulation A offering that occurs within a year of an offering made in reliance upon another exemption is subject to being overturned if the exemption relied upon for the earlier offering is somehow destroyed or otherwise unavailable by the Regulation A offering. In such a case, all securities sold in reliance on Regulation A would also have been sold in violation of section 5(a), since the sales will not have been exempt from registration. Although this method of calculation continues under two other section 3(b) exemptions—Rules 504 and 505 —it is no longer the case under Regulation A. As of the 1992 amendments, Regulation A’s $5 million ceiling included other securities offered within the past twelve months under Regulation A, but there is no...
- By virtue of Rule 262, Regulation A is not available where there have been disclosure or other SEC related problems in the past. Specifically, the exemption presumptively is inapplicable where the issuer, its predecessors or affiliated issuers: (1) have filed a registration statement which is currently subject to examination pursuant to section 8 of the 1933 Act, (2) were subject to a refusal order or stop order within the past five years, or (3) were subject to any proceeding pursuant to Rule 258 (which empowers the SEC to issue sanctions similar to those under section 8 with regard to Regulation A) within five years prior to the filing of the Regulation A notification. The rule also disqualifies an issuer from using Regulation A where any of the issuer’s predecessors or affiliated issuers have been convicted within the previous five years of any felony or misdemeanor in connection with any security transaction. ...will be disqualified from using Regulation A if its predecessors or...
- An issuer not subject to any of the disqualifications listed in Rule 262 (unless the disqualifications are waived by the SEC), may take advantage of Regulation A, provided that the aggregate offering price of all securities so offered, including any other securities sold under Regulation A, does not exceed $20 million for Tier One offerings or $50 million for Tier Two offerings. In addition, there is a further limit with regard to secondary offerings. In a Tier One offering (up to $20 million), no more than six million dollars may be attributable to the offering price of securities offered by all selling shareholders. In a Tier Two offering (between $20 and $50 million), up to $15 million in securities may be in the form of a secondary offering by selling shareholders or affiliates. Rule 251(a)(3) further provides that “[t]he portion of the aggregate offering price attributable to the securities of selling security holders shall not exceed 30% of the aggregate offering price of a...
- The preemption of state securities law registration requirements extends to public offerings securities that are registered with the SEC and to many transactions that are exempt from SEC registration by virtue of section 3 or 4 of the 1933 Act. Most of the federal exemptions set forth in section 3 of the 1933 Act trigger the preemptive provisions. The primary federal exemptions that are not preempted by the 1996 legislation are offerings subject to the intrastate exemption and the section 3(b) exemptions (most notably, Regulation A and Rules 504 and 505 of Regulation D). Many transactions that are exempt under section 4 of the 1933 Act also qualify for the federally mandated exemption from state law registration requirements.
- There are a number of advantages to relying upon a Regulation offering rather than one of the other exemptions or alternatively going through a full-fledged 1933 Act registration. Even with the expansion of Regulation A, Regulation A offerings are simpler than registration, even with the scaled disclosure requirements for qualifying small businesses. Advantages of Regulation A over a 1933 Act registration include the following: (1) Unlike a registered public offering, securities issued in a Regulation A offering are not automatically subject to the periodic reporting requirements of the Securities Exchange Act of 1934. However, for Tier Two offerings (those in excess of $20 million), the issuer is subject to continuous reporting requirements. (2) General solicitations of purchasers are permitted in Regulation A offerings. (3) There are no required restrictions on resales of securities offered under Regulation A. (4) Unlike a 1933 Act registration, offerings under Tier One of...
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Chapter 14. Market Regulation and Broker-Dealer Regulation 670 results (showing 5 best matches)
- In 2000, there was a massive overhaul of commodities and derivatives regulation. The revolutionary legislation introduced three tiers of commodities markets and parallel tiers of regulation. This 2000 overhaul of commodities regulation also formally recognized the over-the-counter commodities markets and made these markets which, were virtually unregulated except for antifraud proscriptions open only to the largest institutional investors dealing in certain types of swap and other hybrid contracts. At the same time, both the securities and commodities laws were amended to provide that securities-based swap agreements are not securities, although they remain subject to the securities laws’ antifraud provisions. The degree of CFTC involvement in derivatives markets thus depends on the nature of the investors that are permitted to participate and the types of commodities based products being offered.
- Regulation of securities brokers is not new. Securities broker regulation can be traced back to the thirteenth century. This early regulation took the form of licensing securities brokers in London. Notwithstanding this regulatory structure, stock exchange dealings, with speculation subject to alternate booms and panics, became a part of the English markets in the latter part of the seventeenth century. There were periods of speculation and wild fluctuations in the market. This was followed by English legislation by the end of the seventeenth century, which was enacted to protect investors against unscrupulous manipulation by stock jobbers and stock brokers. Many of the states adopted similar stock jobber and stock broker regulation. For example, in 1829, in reaction to speculative fever, New York enacted a Stock Jobbing Act which was designed to control “the more shadowy forms of financial speculation.” ..., and there was no comprehensive regulation of securities brokers in this...
- While the Securities Act of 1933 regulates the distribution of securities, the Securities Exchange Act of 1934 charges the SEC with the authority to supervise daily market activity. In addition to imposing disclosure requirements upon issuers of publicly traded securities, the Exchange Act of 1934 regulates the market place. In 2007, the SEC changed the name of the division that handles market regulation changed from the Division of Market Regulation to the Division of Trading and Markets. Regulating the market place means regulating broker-dealers, securities exchanges, clearing organizations, and the over-the-counter markets. Although the SEC has direct authority, a great deal of market regulation is carried out through its oversight of national exchanges and self-regulatory organizations. The SEC oversight responsibilities include the review of rulemaking by self-regulatory organizations.
- The federal antitrust laws are designed to curb anticompetitive activities. From time to time, the anticompetitive consequences of various activities in the securities markets have been brought into question. For example, since the definition of securities manipulation depends upon artificially pegging or fixing the price of securities, manipulative conduct by definition has an anticompetitive effect on securities prices. The former practice of fixed brokerage commission rates imposed by the New York Stock Exchange is another example of anticompetitive activity challenged under the antitrust laws. Additionally, many of the rules of the SEC and of the self-regulatory organizations permit conduct that otherwise would violate the antitrust laws.
- In order to qualify for an extension of credit under Regulation T, the securities must either be traded on a national securities exchange or be actively traded in the over-the-counter market. Formerly, there was a list of margin equity securities established by the Federal Reserve Board. The Federal Reserve Board now provides for the automatic marginability of stocks that are part of the Nasdaq’s National Market. Additionally, foreign sovereign debt securities are marginable to the extent of their “good faith” loan value. The current level of the margin securities cannot exceed a fifty percent debit balance in connection with the purchase of any additional securities. ...The Federal Reserve Board is statutorily empowered to impose minimum levels for maintaining margin accounts under section 7(a), as well as initial levels, but it has never exercised this authority. Accordingly, a “margin call,” whereby the customer is required to come up with additional collateral lest the margined...
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Chapter 9. Securities Exchange Act of 1934—Registration and Reporting Requirements for Publicly Traded Companies 330 results (showing 5 best matches)
- The Securities Exchange Act of 1934 addresses virtually all aspects of securities transactions and the securities markets generally. This broad scope of the Securities Exchange Act of 1934 is in contrast to the Securities Act of 1933, which is focused on distributions of securities. The Securities Act deals with securities distributions and imposes registration and disclosure requirements for those transactions in addition to providing exemptions from the registration requirements. The Securities Exchange Act has a much broader focus both with regard to transactions in securities and also with respect to regulation of the markets and the securities industry.
- The Exchange Act is not limited to the regulation of issuers and their securities; the Act also focuses on the structure and operation of the securities markets. This market regulation encompasses regulation of the markets themselves, as well as of the broker-dealers who participate in those markets. With regard to the market system and the broker-dealer industry, the Exchange Act requires registration of all national exchanges, as well as all professional traders, dealers and brokerage firms that are members of these exchanges.
- The Securities Exchange Act’s registration and periodic reporting provisions with regard to securities and issuers, in turn, trigger other reporting and remedial provisions of the Act. For example, the Exchange Act regulates the solicitation of proxies with respect to reporting companies, tender offers for securities of reporting companies, manipulative practices regarding publicly traded securities, and prohibitions against fraud in connection with the purchase or sale of a security. In addition, the Act imposes annual and periodic reporting requirements upon securities required to be registered. In addition to the foregoing regulation of publicly traded securities, the Exchange Act, through SEC Rule 10b–5, prohibits fraud in connection with all securities transactions, regardless of whether the securities are publicly traded.
- Section 12(a) of the Exchange Act makes it unlawful for any broker or dealer to effect any transaction in a security on a national exchange unless a 1934 Act registration has been effected for the security. Accordingly, all securities traded on a national exchange must be registered with the Commission. Registration under the 1934 Act in turn triggers the Act’s periodic reporting requirements, proxy regulation, prohibitions, as well as the regulation of tender offers.
- Regulation S–K is divided into ten subparts (Subpart 1—Subpart 1000). Subpart 1 sets out the Commission’s procedures on two volitional disclosure issues—projections or forward looking statements and security ratings. Subpart 100 itemizes disclosures regarding the business of the registrant, while Subpart 200 sets forth disclosure requirements for the registrant’s securities. Subpart 300 provides guidance for disclosing information regarding the registrant’s financial information, and Subpart 400 deals with management and certain security holders. Subpart 500 requires disclosure concerning the issuer’s registration statement and prospectus, while Subpart 600 lists required exhibits to various filings. Subpart 700 provides for “miscellaneous” disclosures regarding unregistered securities and indemnification of directors and officers. Subpart 800 speaks to the industries guide for the 1933 Act and 1934 Act Filings, and Subpart 900 articulates disclosure responsibilities concerning roll...
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Chapter 20. Investment Advisers Act of 1940 129 results (showing 5 best matches)
- The decision does not mean that investment newsletters that are excluded from the Act escape all regulation under the securities laws. For example, it is clear that if a newsletter is used as part of a fraudulent or manipulative scheme, the securities laws will apply. In addition, section 17(b) of the 1933 Act prohibits recommending securities without disclosing any remuneration connected with the recommendation.
- Related to the hidden charges is the question of disclosing mark-ups in connection with securities transactions. Nondisclosure of potentially excessive mark-ups violates the antifraud provisions of the securities laws.
- The definition of investment adviser excludes banks, lawyers, accountants, engineers, or teachers rendering such advice incidental to their professions. Also excluded from the Investment Advisers Act are advisers who render advice solely with respect to government securities of the United States government. An exclusion from the definition of Investment Adviser means that there is no regulation under any of the provisions of the Investment Advisers Act. In contrast, an exemption provides only an exemption from the Act’s registration provisions.
- The SEC has the power to impose sanctions, ranging from censure to revocation of registration, for advisers who themselves have committed certain crimes or securities law violations, or have associated with persons having committed such crimes or violations of the securities laws. The disqualifying violations include false SEC filings, perjury, and crimes involving larceny, embezzlement, extortion, forgery, counterfeiting, fraud, mail fraud, and fraudulent misappropriation of funds or securities. These sanctions may be imposed only after notice and a hearing and in accordance with the public interest. The Commission can similarly censure, suspend, or bar persons subject to similar disqualification who seek to become associated with a registered investment adviser.
- Section 203(f) of the Investment Advisers Act gives the SEC the authority to hold hearings and impose sanctions against investment advisers and their associated persons who violate the securities laws. These sanctions range from censure to suspension. This power includes the ability to limit the adviser’s activities or to impose a bar order. The Court of Appeals for the District of Columbia Circuit held that this power extends to both registered and unregistered investment advisers.
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Chapter 17. Jurisdictional Aspects 64 results (showing 5 best matches)
- 2 Louis Loss, Securities Regulation at pp.973–1000 (2d ed.1961); Thomas L. Hazen, Allocation of Jurisdiction Between the State and Federal Courts for Remedies Under the Federal Securities Laws, 60 N.C.L. Rev. 707, 722–724 (1982).
- The federal securities laws provide a mosaic approach to jurisdiction. The Securities Act of 1933 and most of the other acts comprising the battery of securities laws provide for concurrent jurisdiction of federal and state courts, thus giving parties a choice of a federal or state forum in the context of private causes of action. In contrast, the Securities Exchange Act of 1934 provides that jurisdiction is exclusively federal, which means that all private suits must be brought in federal court. All criminal prosecutions under the securities laws and judicial enforcement actions by the Securities and Exchange Commission must be maintained only in federal court. When dealing with private remedies, however, the six securities acts present three different approaches to jurisdictional allocation.
- Most American case law dealing with the extraterritorial application of United States securities laws focuses on the antifraud provisions of the 1934 Exchange Act. The courts developed two tests for subject-matter jurisdiction in securities fraud cases. One test is based on the conduct of foreign persons within the United States; the other focuses on the effects within the United States of conduct occurring in foreign countries. As discussed below, these tests do not always lead to predictable results.
- State courts must dismiss any claim based on the Securities Exchange Act of 1934 in light of its grant of exclusive federal jurisdiction. As discussed below, there has been some disagreement as to whether this also extends to those instances in which the alleged federal violation of federal law is raised as a defense to a state law cause of action that was brought in a state court forum.
- The Commission addressed the applicability of Regulation D to transactions occurring outside the United States. As a general proposition, registration is not required for sales to nonresident purchasers where the sales are made outside of the United States and effected in a manner that should result in the securities coming to rest outside the United States. This rule may be relied upon even if Regulation D sales are contemporaneously being made in the United States. The Commission has made it clear in Regulation D that an issuer’s providing information to journalists outside of the United States will not be deemed to have violated the requirement that the issuer not be engaged in a general solicitation of purchasers. Issuers can take advantage of this provision so long as the materials or meetings offshore are in compliance with Rule 135e’s safe harbor.
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Chapter 18. Debt Securities and Protection of Bondholders—The Trust Indenture Act of 1939 96 results (showing 5 best matches)
- The Trust Indenture Act of 1939 focuses primarily upon the terms of the indenture as the means to its end of bondholder protection. In the absence of the Act’s coverage, rights and obligations under the indenture would be purely a matter of state law. The Trust Indenture Act applies to notes, bonds, debentures, and other evidences of indebtedness, whether or not secured, and to all certificates representing such an interest. Most of these securities, when issued, are also subject to registration under the Securities Act of 1933. Thus, there is an interrelationship between the disclosure provisions of the 1933 Act and the more substantive regulation of the Trust Indenture Act. For example, if there is noncompliance with the provisions of the Trust Indenture Act, the SEC may refuse to permit the issuer’s 1933 Act registration statement to become
- Unlike the Securities Act of 1933 and the Exchange Act of 1934 that are generally limited to disclosure issues, the Trust Indenture Act goes beyond disclosure and imposes regulation over the substance of corporate and other private debt securities. The Act lists six separate instances wherein a public offering of private debt securities could prove harmful to investor interests: (1) when the obligor fails to provide a trustee; (2) when the trustee is without adequate rights, powers, or duties to protect and enforce the rights of investors; (3) when the trustee is without adequate resources to fulfill its duties; (4) when the flow of information from obligor to trustee is inadequate; (5) when the indenture contains misleading provisions; and (6) when the obligor prepares the indenture without investor participation or understanding. The Act addresses these problems.
- expressly provides for the availability of cumulative remedies under the Securities Act of 1933, the Securities Exchange Act of 1934, the former Public Utility Holding Act of 1935, and any remedy at law or in equity. Section 323(b) of the Act has been held not to “preclude the imposition of While there are no trustee duties under federal law beyond those stipulated in the indenture, it has been held that state common law protections afforded indenture security holders should be limited by the Trust Indenture Act. language allowing the trustee’s liability to be limited to that which is specifically set out in the indenture.
- Also exempt from the Trust Indenture Act are certificates of interest or participation in more than one security where the pooled securities have “substantially different rights and privileges.” Debt securities that were issued prior to six months after the Act’s effective date are exempt, but the exemption does not apply to any new offering of such securities. Debt securities issued under a mortgage insured under the National Housing Act are exempt from the Trust Indenture Act. Debt securities issued by foreign governments or their agencies, departments, subdivisions, or instrumentalities are also exempt. The Act further provides an exemption for guarantees of any of the above securities exempted by section 304(a).
- Section 304 of the Trust Indenture Act exempts from its coverage a number of debt securities that would otherwise fall within the Act’s purview. Section 304(a)(9) of the Act exempts securities issued under an indenture where the aggregate amount of debt within a thirty-six month period does not exceed ten million dollars unless the Commission prescribes a lower dollar ceiling. The Commission has exercised this rulemaking authority, to lower the ceiling, in Rule 4a-2. Rule 4a-2 exempts securities issued pursuant to an indenture limiting the aggregate principal outstanding indebtedness to five million dollars and provided further that for thirty-six consecutive months the issuer has not had outstanding securities with more than five million dollars in aggregate principal indebtedness. Also exempted are most securities exempted from 1933 Act registration; these include securities issued or guaranteed by the federal government (or any state or foreign government), church plans,... ...the...
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Chapter 12. Manipulation and Fraud—Civil Liability 793 results (showing 5 best matches)
- Regulation FD applies only to “communications by the company’s senior management, its investor relations professionals, and others who regularly communicate with market professionals and security holders.” Further, Regulation FD applies only to a company’s “communications with market professionals, and holders of the issuer’s securities under circumstances in which it is reasonably foreseeable that the security holders will trade on the basis of the information.” Accordingly, Regulation FD does not apply when the company is communicating with the press, rating agencies, and ordinary-course business communications with customers and suppliers.
- It has been observed that “[f]or the securities lawyer ‘materiality’ is the name of the game.” Richard W. Jennings & Harold Marsh, Jr., Securities Regulation: Cases and Materials 1023 (5th ed. 1982). Yvonne Ching Ling Lee, the Elusive Concept of “Materiality” Under U.S. Federal Securities Laws, 40 Willamette L. Rev. 661 (2004).
- Thus, for example, the National Securities Markets Improvement Act of 1996, which preempted certain types of state substantive regulation, did not preempt state law fraud actions. Zuri-Invest AG v. Natwest Finance Inc., 177 F.Supp.2d 189 (S.D.N.Y.2001).
- Bar Association of the City of New York, Committee on Securities Regulation, A Study of Current Practices—Forward-Looking Statements and Cautionary Language After the 1995 Private Securities Litigation Reform Act, 53 Record 725, 743 (1998).
- Bar Association of the City of New York, Committee on Securities Regulation, A Study of Current Practices-Forward-Looking Statements and Cautionary Language After the 1995 Private Securities Litigation Reform Act, 53 Record 725 (1998); SEC Report to the President on the Private Securities Litigation Reform Act of 1995, Fed. Sec. L. Rep. (CCH) Bull. 1763 (April 23, 1997).
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Chapter 6. IPO Practices: Manipulation, Stabilization and Hot Issues 112 results (showing 5 best matches)
- The trading restrictions of Rule 101 cover securities which are either the subject of a distribution or reference securities. Rule 100 sets forth the definitions that apply throughout Regulation M. Under Rule 100’s definition, the term “reference security” is a security into which a subject security may be converted, exchanged, or exercised, or which, under the terms of the subject security, may in whole or in significant part determine the value of the subject security. The anti-manipulative restrictions are effective only during the specifically defined restrictive period. Depending on the average daily trading volume value of the offered security and the public float value
- Securities that are offered to the public are sometimes subject to manipulation. The Securities Act of 1933 contains registration, disclosure, and antifraud provisions. The 1933 Act does not address aftermarket activities of securities offered under a 1933 Act registration statement. Generally, market regulation is the province of the Securities Exchange Act of 1934. As such, the various provisions of the 1934 Act that address manipulative practices generally are the primary weapons against manipulative or deceptive IPO practices.
- Section 9(a)(6) of the Exchange Act specifically prohibits any transaction that is entered into for the purpose of “pegging, fixing, or stabilizing” the price of securities unless said transactions are in accordance with the procedures set out by applicable SEC rules. In 1940, the Commission issued a Securities Act release in which the Commission discussed possible approaches to the stabilization problem. The SEC recognized that it had three choices in approaching securities price stabilization: (1) the Commission could outlaw all stabilization activities by insiders; (2) it could take the other extreme and permit stabilizing transactions without any limitations; or (3) it could issue piecemeal regulation that would have the effect of prohibiting only detrimental stabilizing activity. The Commission opted for the third alternative and has continued to operate under a system of piecemeal regulation ever since.
- The Commission went on to point out a number of the legal consequences of such activities. In the first instance, any arrangements regarding workouts, special allotments of securities, or the creation of trading firms to be used as market makers must be disclosed in detail on the registration statement. Second, any trading firms would clearly fall within the category of “underwriter” within the meaning of section 2(a)(11). Third, there would also be violations of the Act’s antifraud provisions. Specifically, Rule 10–5 of the Exchange Act and section 17(a) of the 1933 Act would be violated in that the activities would be giving the public the impression that the entire offering has been subscribed to by the public when, in fact, a substantial portion has gone either to insiders or to trading firms. ...types of workout activities would also violate Regulation M’s (former Rule 10–6’s) prohibitions on manipulation, which expressly forbid an underwriter or participant in a distribution...
- Rule 105 does not apply to short sales of derivative securities in accordance with the general approach of Regulation M. The Commission may, either upon request or upon its own motion, grant an exemption from Rule 105’s prohibitions. Such an exemption from the short sale prohibition may be granted either unconditionally or pursuant to specified terms and conditions. In 2004, the SEC adopted comprehensive regulation of short sales in Regulation SHO. At the same time, the SEC issued interpretive guidance on the application of Regulation M’s Rule 105 to short sales. It also amended Rule 105 to eliminate the exemption for shelf offerings.
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Chapter 5. The Theory of Sale: Corporate Recapitalizations, Reorganizations and Mergers Under the 1933 Act 89 results (showing 5 best matches)
- Even beyond exchanges of securities and the exercise of options or conversion rights, other definitional issues arise with regard to what constitutes a “sale.” Ordinarily, a gift of securities will not constitute a sale under the securities laws. Gifts of securities have on occasion been scrutinized in order to determine whether they are in fact sales so as to trigger the application of the securities laws.
- of one class of securities for another will constitute a sale under the securities laws. In such a case, there is a disposition for value (the value being the receipt of the securities received in the exchange). In the case of non-exempt exchanges of securities, any change in the rights and obligations of the issuer or securities holders or amendment to the security constitutes both a sale and a new issue, regardless of whether such amendatory action is permissible under state corporation law. Thus, for example, the SEC staff has taken the position that registration will be required if a corporation that has issued tracking stock with respect to some of its operations decides to exchange common stock in a subsidiary with holders of the tracking stock.
- Section 2(a)(1)’s definition of security makes it clear that options, warrants, and conversion rights themselves constitute securities separate and distinct from the underlying common stock or other security. The question arises, however, whether an exercise of conversion rights is itself a sale of the convertible security and a purchase of the underlying security. Section 2(a)(3)’s definition of sale requires that there be a disposition for “value” in order for a sale to take place. when the owner of a convertible security exercises a conversion right, the holder of the convertible security is receiving something he or she had a right to all along—the underlying security. Hence, it would seem to follow that the conversion was not “for value” since the owner already had those rights prior to conversion. This view is supported both by the case law and by SEC rulemaking.
- A bona fide gift will not be a sale even though some intangible or even indirect tangible benefit (such as a consequential tax deduction) inures to the donor’s benefit. For example, when a charitable donor receives a tax deduction for his or her gift of securities, has there been a disposition for value? Presumably, there is ordinarily no sale in the case of a charitable contribution, even though the donor receives a tax benefit as a result of the gift. The receipt of such a tax benefit in exchange for the donation of a security is not sufficient to classify the gift as a disposition for value. There may nevertheless be securities law consequences that flow from a gift of securities. Thus, for example, after the gift has been made, if the donee sells the securities that he or she was given, that sale, as is the case with any sale of securities, will require either registration under the 1933 Act or an exemption from registration before the securities can fall into the hands of the...
- In the aftermath of , most pledges of securities will qualify as sales under the securities laws. However, this does not mean that someone collaterally affected by the transaction will be considered a party to it. Accordingly, courts have held that a pledge of stock by a major shareholder to secure the margin loans of other investors did not constitute an unregistered sale of the pledgor’s securities with respect to those investors.
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Chapter 10. Shareholder Suffrage—Proxy Regulation 233 results (showing 5 best matches)
- The SEC plays a significant role in voting related disclosure issues. Additionally, private remedies for proxy rule violations provide an important supplement to the SEC regulation. Even with the cutback in the reach of the private remedies under the federal securities laws, shareholder litigation under the proxy rules continues to have a substantial effect upon corporate governance.
- One of the most highly publicized aspects of proxy rules’ impact on corporate governance and shareholder input is found in the shareholder proposal rule, that is embodied in SEC Rule 14a–8. Over the years, there has been a continuing controversy as to the proper role for the federal securities laws in corporate governance. Shareholder access to the proxy process in general, and in particular to management’s proxy statement, has been a major focus of the struggle to define the appropriate line of demarcation between corporate governance issues that properly fall within the purview of state law and investor-protection concerns that more appropriately fit with the federal regulatory scheme for transactions in securities. The SEC and the courts have struggled with these issues, as has Congress. Thus, for example, as part of the National Securities Markets Improvement Act of 1996, Congress directed the Securities and Exchange Commission to study shareholder suffrage and the securities...
- 15 U.S.C.A. § 78k. Registered reporting companies are those issuers having a class of securities traded on a national securities exchange, as well as those issuers having assets of at least $10,000,000 and also having a class of equity securities with more than 2,000 shareholders. 15 U.S.C.A. § 78 (g). Note that the 2,000 shareholder threshold is based on record owners and this does not look through to the beneficial owners of shares held by brokerage firms in street name or other forms of nominee ownership. Until April 2012, by virtue of section 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 section 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...
- The D.C. Circuit Court of Appeals in Business Roundtable v. SEC ruled that the Commission lacked statutory authority to promulgate a rule regulating substantive voting rights. Accordingly, Rule 19c–4 was declared invalid. The court noted that shareholder voting rights traditionally have been a matter of state corporate law. They could be regulated by the Commission but only on the basis of an appropriate grant of statutory authority. The court reviewed the various statutory provisions put forth by the Commission as a basis for the regulation. Section 19(c) set forth three bases for regulation: (1) assurance of fair administration of self-regulatory organizations, (2) conformity to the requirements of the Exchange Act, and (3) promulgation of rules “otherwise in furtherance of the” Act’s purpose. The SEC relied on the third basis. Section 14 of the Act
- The applicable exchange and Nasdaq rules not only govern the dilution of voting rights but also mandate a shareholder vote under certain circumstances. Thus, for example, under the New York Stock Exchange’s so-called twenty percent rule, a shareholder vote is required for any action by an issuer that would result in the issuance of additional shares having a significant diluting effect. If the issuance of shares would increase the outstanding shares of a class of exchange listed securities by more than twenty percent, the issuer must seek formal shareholder approval even though no approval would otherwise be required under the law of the state of incorporation or any other state law. The American Stock Exchange has a similar rule as does the National Association of Securities Dealers for securities traded through its Nasdaq automated quotation system.
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Chapter 19. Federal Regulation of Investment Companies—The Investment Company Act of 1940 364 results (showing 5 best matches)
- Unlike the 1933 and 1934 securities acts, the Investment Company Act of 1940 imposes substantive rules upon an issuer’s internal governance structure. This represents a significant departure from the general thrust of most federal securities laws and regulations, which is to eschew direct involvement in the corporate chartering process. For example, the Securities Exchange Act of 1934 protects shareholder interests by requiring full disclosure and regulating proxy machinery in shareholder votes. These shareholder voting safeguards alone are considered inadequate methods of protecting investment company shareholders, due both to the nature of investment company activity and the fluctuations in the number of shares owned by any single shareholder as a result of dividend payments or daily cash needs.
- The Investment Company Act of 1940 was enacted to protect investors entrusting their savings to others for expert management and diversification of investments that would not be available to them as individuals. The most common type of investment company is the mutual fund. Investors wanting to invest in a mutual fund or investment company have relatively little protection under state law. State corporate law does not provide safeguards to the public, such as independent boards of directors and a separate investment advisor, that are among the requirements imposed by the Investment Company Act. Investment company assets most often consist of cash, securities that generally are liquid, mobile, and readily negotiable, and in some cases commodity futures and options. An entity such as a corporation that is formed to provide a pooling of investment funds to permit the entity to invest in securities (including securities options) ordinarily will be considered an investment company and,...
- The largest group of investment companies consists of management companies. The Act establishes two categories of management companies. Section 5 classifies management companies as either “open-end,” that is, those offering for sale already-issued redeemable securities, or “closed-end” that includes all other management companies. As discussed in subsequent sections, there are special regulations that apply to each of these categories. Most mutual funds are open-end investment companies. Trading in shares of these open-end companies is primarily through redemption and reissuance by the company at the per share net asset value. Closed-end management companies typically have a fixed number of shares outstanding that are traded as any other corporate stock might be, that is, on the exchanges or over-the-counter at a price established by the market. .... This option ordinarily is constantly open to closed-end company shareholders. In order to avoid unnecessary entanglement with the...
- The Investment Company Act supplements other securities law provisions. An investment company must also file such information and documents as are required under the 1933 Securities Act and the 1934 Securities Exchange Act. In registering under the 1933 Act, however, section 24(a) of the Investment Company Act of 1940 allows documents filed under the 1940 Act to suffice in lieu of some of the documents that would otherwise be required by the 1933 Act’s provisions.
- Investment company directors must ensure that the reports required by the various securities laws and SEC regulations are filed in a timely and accurate fashion. Directors of investment companies have a duty to fill board vacancies created by death or resignation prior to the expiration of a director’s term. However, at least two-thirds of the directors of an investment company must have been elected by the shareholders. Directors are also responsible for assuring that proper proxy solicitation materials are submitted to the shareholders and the SEC, although this obligation is often satisfied by the investment adviser. Directors must also ensure that dividends are paid correctly and that conditions for maintaining Subchapter M tax treatment are met. In sum, investment company directors are subjected to all common law directorial duties and a host of others by the Investment Company Act. As a means of implementing the additional duties imposed by the Act, a private cause of action...of
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Chapter 3. The 1933 Act Registration Process and Disclosure 347 results (showing 5 best matches)
- In order to facilitate understanding of the registration process, the SEC has divided the applicable disclosure rules into three categories. Regulation S–K spells out in detail with respect to the narrative portion of SEC filings what must be disclosed and the manner in which it is to be presented. Regulation C sets forth the relevant procedures. Regulation S–X provides accounting rules and requirements for the form and contents of financial statements. Regulation S–X applies to financial statements required by any of the securities acts.
- The sections that follow provide an overview of the disclosure process. The discussion is not intended to provide a step-by-step “how-to” guide. The most helpful source for framing disclosures are the Commission’s Regulation S–K for descriptive disclosure items and Regulation S–X for accounting matters. Violations of the disclosure requirements set forth in Regulation S–K are not actionable as securities fraud, but can be used to support a claim based on one of the express or implied liability provisions.
- As discussed in the preceding section, Schedule A provides a skeletal outline of the types of information to be made available in connection with a registered offering of securities. Each of the registration forms provided by the SEC go into slightly more detail in describing the types of disclosures that must be made. The applicable forms frequently refer to Regulation S–K, which sets forth in detail the ways in which the relevant information should be set forth. Regulation S–K addresses the presentation of disclosure items generally. A particularly important part of Regulation S–K is the Management’s Discussion and Analysis (MD&A) of financial condition and results of operations. The MD&A is not limited to discussion of the existing business; it also extends to a discussion and analysis of planned operations. Regulation S–X addresses accounting matters in significant detail. Thus, in preparing for a registered offering, it is necessary to consult not only the applicable...
- Registration of securities under the 1933 Act is an expensive and otherwise burdensome process. Accordingly, the securities laws present barriers to small business’s access to the U.S. capital markets. There is a widely recognized public policy to support small businesses as an important part of the U.S. economy. This public policy is furthered by encouraging small business to get started and to have the best possible chance for success. The policy of encouraging small business is reflected in a number of initiatives at both the federal and state levels. The existence of the Small Business Administration is but one example. The policy of encouraging small business formation and capitalization thus comes into conflict with the regulatory philosophy underlying the securities laws. Mindful of these two potentially conflicted policies-investor protection and easing the barriers faced by small businesses, the federal securities laws have provided some incentives to small businesses....
- This idea of an integrated disclosure system subsequently received the support of the American Law Institute (“ALI”), which constructed a model securities code “which would unify the disparate federal securities laws into a fully integrated disclosure system.” The proposed securities code containing a fully integrated system was completed and had garnered the approval of the Commission; however, Congress opted not to incorporate the proposed system after all and left the issue unresolved. Congress was not willing to replace the familiarity of the 1933 and 1934 Acts with a new and unproven system.
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Chapter 11. Tender Offer and Takeover Regulation 366 results (showing 5 best matches)
- Section 14(d)(8) of the Act exempts certain tender offers or request for tenders from the scope of section 14(d)’s requirements. When the acquisition of the securities sought together with all other acquisitions by the same person of securities of the same class within the preceding twelve months does not exceed two percent of the outstanding securities of the class, section 14(d) does not apply. Similarly, section 14(d) does not apply where the tender offeror is the issuer of the security. The Act also gives the SEC exemptive power by rule, regulation or order from transactions “not entered into for the purpose of, and not having the effect of, changing or influencing the control of the issuer or otherwise as not comprehended within the purposes of this subsection.”
- Following the Supreme Court’s ruling in Edgar v. MITE Corp., a number of states enacted “second generation” takeover statutes which were designed to overcome the constitutional infirmities of the Illinois statute that was struck down in . The basic thrust of these statutes is to regulate tender offers through state law rules relating to corporate governance rather than through state securities laws and administrative regulations. The basic approach of such statutes is substantive regulation of tender offers. Ohio was the first state to adopt second generation legislation.
- The Williams Act amendments to the Securities Exchange Act of 1934 introduced sections 13(d), 13(e), 14(d), 14(e), and 14(f) to the Exchange Act. As is the case with federal proxy regulation, the filing requirements of the Williams Act are limited to securities registered under section 12 of the Act. as is the case with sections 14(d) apply only to securities subject to the Exchange Act registration requirements and accompanying reporting requirements. Registered reporting companies are those issuers having a class of securities traded on a national securities exchange, as well as those issuers having assets of at least $10,000,000 and also having a class of equity securities with more than 2,000 shareholders of record. The filing and reporting provisions of the Williams Act do not apply to those issuers who, although not having to register under section 12 of the Exchange Act, nevertheless are required to file periodic reports under section 15(d).
- Regulation M–A item 1001, 17 C.F.R. § 229.1001. The summary term sheet must highlight the material terms of the transaction and “must provide securities holders with sufficient information to understand the essential features and significance of the proposed transaction.”
- In fact, it has been argued that Congress implicitly accepted the prospect of state regulation by adding the Williams Act to the 1934 Act without also amending section 28(a) of the Act, 15 U.S.C.A. § 78bb(a), which provides that “Nothing in this chapter shall affect the jurisdiction of the securities commission . . . of any state over any security or any person insofar as it does not conflict with provisions of this chapter or the rules and regulations thereunder.” But the applicability of this provision to state tender offer legislation is, at best, questionable.
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Chapter 7. Remedies for Violations of the Securities Act of 1933 (and Other Consequences of Deficient Registration Statements) 229 results (showing 5 best matches)
- Under section 15(b)(4) of the Exchange Act, 15 U.S.C.A. § 78 (b)(4), the Commission is empowered to limit broker-dealer registration based on willful aiding and abetting of the securities laws. Under section 21B of that Act, 15 U.S.C.A. § 78u–2, the Commission may issue civil penalties against broker-dealers who have aided and abetted a violation of the securities laws.
- In the 1990s, Congress enacted legislation to curtail suspected abuses in connection with securities class actions. In particular, the Private Securities Litigation Reform Act of 1995 imposed procedural requirements and additional protection for projections and other forward-looking statements. The Securities Litigation Uniform Standards Act of 1998 significantly preempted the role of the states in securities litigation by precluding most securities fraud class actions from being brought in state court or under state law.
- As part of the Private Securities Litigation Reform Act of 1995, Congress imposed some significant limitations on class actions brought under the securities laws. Section 27 of the 1933 Act establishes special procedures necessary for instituting private actions under the securities laws and, in the process, purports to discourage frivolous lawsuits. The 1995 legislation was designed to curtail suspected abuses including the use of class actions to bring strike suits for the purpose of coercing a settlement of baseless claims. The Congressional reforms contained in the 1995 Reform Act cover a number of areas, such as restrictions on the class representative, limits on attorney’s fees, pretrial discovery, and the burden of proof on some issues. A parallel provision was adopted for claims arising under the Securities Exchange Act of 1934.
- In the 1990s, there was increasing concern with the supposed abuses of class actions involving securities law violations. As a result, Congress responded with two sets of amendments to the securities laws which are designed to curb these abuses. First, Congress enacted the Private Securities Litigation Reform Act of 1995, which addresses many areas of private litigation, including procedural reforms, enhanced pleading standards, and increased protection for disclosures involving soft information and projections. These changes are discussed in this section and throughout this treatise as appropriate. Many of the Reform Act provisions could be avoided by bringing suit in state court. Congress responded with the Securities Litigation Uniform Standards Act of 1998, which prevents most securities fraud based class actions from being brought in state court. The Uniform Standards Act is also discussed in this section.
- Section 11 is limited to misstatements and omissions in the registration statement. It further restricts the private remedy to investors who purchased securities covered by the registration.
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Chapter 2. Registration Requirements of the Securities Act of 1933 307 results (showing 5 best matches)
- Rule 135 publicity can legitimately contain (1) the name of the issuer; (2) the title, amount, and basic terms of the offering; (3) in the case of a rights offering to existing security holders, the subscription ratio, record date and approximate date of the proposed rights offering, as well as the subscription price; (4) where securities are exchanged for securities of another issuer, the nature and “basis” of the exchange; (5) in the case of an offering to employees of the issuer or any affiliate, the class of employees and the amount proposed to be offered, including the offering price; and (6) any statement required by state law or administrative authority.
- Section 2(a)(3) of the Act defines offer to sell in terms of any activity that is reasonably calculated to solicit or generate a buying interest. The determination of whether there is an offer is not a matter of state contract law but rather is a question of federal law depending upon whether the challenged conduct has conditioned the offeree’s or public’s mind by generating a buying interest. The fact that negotiations fall short of an enforceable offer to sell under state contract law thus does not prevent the person negotiating to sell the securities in question from violating section 5 of the 1933 Act. A letter or other communication that solicits investor interest prior to the filing of the registration statement will ordinarily be an illegal offer to sell. The SEC has indicated that it is possible to generate a buying interest and therefore have an offer to sell in promotional material that does not even mention the upcoming offering, especially where the materials are used as...
- Delayed registered offerings (shelf registrations) are a relatively new development in the history of public offerings and are examples of practices that were generated by the investment banking industry. 1 Louis Loss & Joel Seligman, Securities Regulation 353–372 (1987).
- As discussed above, the underwriting agreement is the result of negotiations between the managing or lead underwriter and the company issuing the securities to be offered. Setting the underwriters’ compensation is an important part of the process. The Financial Industry Regulatory Authority (formerly the National Association of Securities Dealers (NASD)) is the self-regulatory organization that is intimately involved with broker-dealer regulation generally. FINRA requires that it receive a filed copy of most 1933 Act registration statements for public offerings so it can review the underwriters’ compensation.
- 1 Louis Loss & Joel Seligman, Securities Regulation 343–352 (1987). for a discussion of municipal securities dealers.
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Chapter 15. Arbitration of Broker-Dealer Disputes 45 results (showing 5 best matches)
- When dealing with the enforceability of pre-dispute arbitration agreements, there is an unusual mix of state and federal law. In the first instance, the policy favoring arbitration as embodied in the Federal Arbitration Act mitigates in favor of enforcing pre-dispute arbitration agreements. On the other hand, interpreting the terms of any agreement between customers and securities brokers generally will be a matter of state contract law rather than federal securities or arbitration law. Ordinarily, state contract law will control whether the parties have in fact agreed to submit the controversy to arbitration.
- Ex parte Jones, 628 So.2d 316 (Ala.1993) (a divided Alabama Supreme Court held that since predispute arbitration agreements are not enforceable under Alabama law, arbitration was not available in a securities transaction between Alabama residents involving the securities of an Alabama corporation).
- At one time, pre-dispute arbitration agreements were unenforceable with regard to claims arising under the federal securities laws. This meant that virtually all claims by customers against their securities brokers were resolved in court or by settlement. In subsequent years there was a major reversal of this earlier situation. As a result of this major shift of position by the Supreme Court, most brokerage firms routinely require customers to sign agreements diverting any customer claims to arbitration. Accordingly, most disputes between customers and their brokers now are decided in arbitral forums rather than in court. One consequence of this virtually universal use of arbitration for disputes between a broker-dealer and a customer has been that much of the law relating to litigation involving broker-dealers has been placed in a state of suspended animation as it existed in the era before customer/broker disputes were so readily submitted to arbitrators as they are today.
- Unless a different venue is selected in the agreement to arbitrate, arbitration decisions under the federal securities laws are reviewable by federal district courts. The Federal Arbitration Act does not by itself create subject matter jurisdiction and review may be had in state court if the arbitration agreement and arbitral forum so provide but in the absence of an agreement, the federal courts have jurisdiction. In addition to the statutory grounds of corruption, fraud, and evident partiality, arbitration decisions are subject to the judicially created standard of “manifest disregard of the law.” There is an extremely high burden of establishing a manifest disregard of the law which is a “severely limited” ground for overturning an arbitration award. However, this is not insurmountable in appropriate cases. In other words not withstanding the very narrow standard of review, “[a]n arbitration award, however, is not “utterly impregnable.”
- The Federal Arbitration Act The Uniform Arbitration Act, which has been adopted by many states, similarly favors arbitration. There are limits, however, to the Federal Arbitration Act’s impact. For example, the Federal Arbitration Act does not create an independent basis for federal jurisdiction outside of what would be available under the federal securities laws. Although the Federal Arbitration Act applies to claims involving interstate On the other hand, when the jurisdictional reach of the Federal Arbitration Act is implicated, that act may preempt the applicable state law.
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Chapter 16. Civil and Criminal Enforcement 111 results (showing 5 best matches)
- The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 empowers the Commission to impose civil penalties in administrative The power to impose civil penalties applies to proceedings against a broker-dealer, municipal securities dealer, government securities dealer, The SEC has similar authority over persons registered under the Investment Company or Investment Advisers Act of 1940. If, after notice and opportunity to be heard, the Commission finds: (1) a willful violation of the securities laws, (2) a willful violation of the rules of an applicable self regulatory organization, (3) that the respondent has willfully made material misstatements or omissions in required reports, or (4) that the respondent has willfully failed to adequately supervise persons, then it may impose a civil penalty according to a three tiered maximum, depending upon the degree of the respondent’s culpability and the impact of the violations.
- The self regulatory organizations for the securities industry—the exchanges and FINRA—are subject to SEC oversight. As part of this oversight responsibility, by virtue of section 19 of the Act, the Commission has oversight responsibility with respect to all rulemaking activity of national exchanges. Similar authority exists with regard to FINRA. One consequence of the SEC oversight authority is that when it provides a pervasive regulatory scheme, the regulation will operate as an implied repeal of the antitrust laws as an alternative way to scrutinize the activity in question.
- A major part of the 1990 enforcement legislation was the granting to the Commission of its cease and desist power. If the SEC finds, after notice and opportunity to be heard, that a regulated securities professional is violating, has violated, or is about to violate any rule or regulation, the SEC may issue a cease and desist order against that person for any current or future violations and against any other person who causes the violation due to an act or omission that the person knew or should have known would contribute to such violation. The authority to issue a cease and desist order may be invoked against any person who violates the Act. In addition, the Commission may order an asset freeze if the proceeding is against a respondent who acts, or during the alleged misconduct acted, as a broker, dealer, investment advisor, investment company, municipal securities dealer, government securities broker, government securities dealer, transfer agent, or associate of any of the...
- Securities and Exchange Commission investigations do not always culminate in enforcement actions, even when the Commission concludes that the securities laws have been violated. The SEC can publicize the results of its investigations. Section 21(a) of the 1934 Act expressly authorizes such public reports. The institution of civil litigation in a matter does not limit the Commission’s ability to continue with a section 21(a) investigation parallel to the law suit.
- Congress also gave the SEC the power to impose civil penalties in administrative proceedings. While those administrative proceedings are limited to market professionals registered with or otherwise regulated under the supervision of the SEC, the Commission can institute a civil action in federal court against anyone who is in violation of the securities laws or rules promulgated thereunder.
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Index 696 results (showing 5 best matches)
- See also Civil Liabilities; Filing Requirements; Prospectus; Proxy Regulation; Registration of Securities; Regulation S-K; Regulation S-X; Reporting Companies; Reporting Requirements; Tender Offers
- Regulation of securities issued by, § 14.28
- Regulation of securities issued by, § 14.28
- See also Exemptions from Registration of Securities; Regulation D
- Registration of securities under the Securities Act of 1933, role of, § 3.4
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Chapter 13. Insider Reporting and Short-Swing Trading—Securities Exchange Act Section 16 138 results (showing 5 best matches)
- One of the more significant changes implemented by the Commission with its revised section 16 rules is the applicability of the reporting requirements to derivative securities. The proliferation of put and call options has made it possible for investors to take a derivative position with regard to underlying equity securities. In many ways, investment positions in these derivative investment vehicles are functionally equivalent to positions in the underlying security in terms of the potential for trading profits. Accordingly, the Commission has reversed its long-standing policy by making the acquisition of a derivative security, rather than its exercise, the significant event for section 16 purposes. Derivative securities are covered not only by the section 16(a) reporting requirements, but also by the short-swing profit provisions of section 16(b). The revised rules view transactions in derivative securities as matchable not only ..., but also against transactions in the...
- What about convertible securities? The convertible securities do not themselves qualify as a separate class of equity securities, so that ownership of ten percent of the convertible securities will not classify the holder as a ten percent beneficial owner unless it can be said that he or she is a ten percent owner of the underlying security, assuming full dilution. The owner of convertible securities becomes a ten percent beneficial owner with regard to the underlying securities when his or her ownership of the underlying securities if his or her conversion rights were exercised would result in ten percent ownership of the underlying security. Once that threshold is crossed, if the owner converts and then sells the underlying shares within six months, it has been held that the conversion will count as a section 16(b) purchase that can be matched against a subsequent sale within six months for the purpose of finding a section 16(b) profit.
- convertible securities are not considered a separate class of equity security, but rather part of the class of the underlying security which would be acquired upon the exercise of the conversion rights. This computation of ten percent beneficial ownership applies to convertible securities conversion rights, and derivative securities that are currently exercisable without contingencies. However, when the conversion rights have material contingencies and therefore are not presently exercisable, the shares underlying convertible securities will not be aggregated with other direct holdings in the underlying securities.
- Difficult questions can arise concerning the computation of a profit when faced with transactions involving derivative securities. In 1991, the Commission addressed the computation of profits resulting from acquisitions and dispositions of derivative securities. If an acquisition of a derivative security is matched with the disposition of the same derivative security within a six-month period, the section 16(b) recovery is based on the profit received from the matching transactions. If an acquisition or disposition of a derivative security is matched with a transaction in the underlying security or different derivative security, the maximum section 16(b) profit is based on the difference in the market value of the underlying security on the transaction dates, but the court may award a lesser recovery in the event the insider can demonstrate that the amount of profit was less.
- The former rules required inclusion in the ten percent ownership computation of all equity securities which the holder had the right to acquire by exercising presently However, in light of the revised rules’ treatment of derivative instruments generally, the requirement that there be a present right has been deleted. Section 3(a)(11) and Rule 3a11-1 of the Act define “equity security” to include “any security convertible, with or without consideration” into an equity security; this definition also includes warrants and rights to subscribe to or purchase an equity security. The Second Circuit held that convertible debentures do not themselves constitute a separate class of equity security for purposes of section 16. The court explained that the ten percent beneficial ownership threshold for section 16 reporting is computed with regard to the underlying security assuming “full dilution” of the underlying security which would result from exercise of all conversion rights.
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Table of Contents 383 results (showing 5 best matches)
- § 1.2[1] The Antecedents of Securities Regulation in the United States
- § 12.22 Waiver of Claims; Voiding of Contracts in Violation of the Securities Laws
- § 4.26 Exemption for Certain Offshore Transactions in Securities of United States Issuers—Regulation S
- § 14.16 Regulation of Government Securities Dealers
- CHAPTER 1. THE BASIC COVERAGE OF THE SECURITIES LAWS
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Summary of Contents 19 results (showing 5 best matches)
- Chapter 1. The Basic Coverage of the Securities Laws
- Chapter 8. State Securities Laws (“Blue Sky” Laws)
- Chapter 7. Remedies for Violations of the Securities Act of 1933 (and Other Consequences of Deficient Registration Statements)
- Chapter 19. Federal Regulation of Investment Companies—The Investment Company Act of 1940
- Chapter 2. Registration Requirements of the Securities Act of 1933
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Table of Cases 351 results (showing 5 best matches)
- Commission Guidance on Application of Certain Provisions of Securities Act of 1933, Securities Act of 1934, Rules Thereunder to Trading in Security Futures Products, In re, 422, 423
- Securities Industry Association v. Board of Governors of the Federal Reserve System, 13
- Monroe Parker Securities, Inc., In the Matter of, 597
- Penn Central Securities Litigation, In the Matter of, 254
- Suntrust Securities, Inc., In the Matter of, 735
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Advisory Board 9 results (showing 5 best matches)
- Professor of Law, Chancellor and Dean Emeritus, University of California, Hastings College of the Law
- Distinguished University Professor, Frank R. Strong Chair in LawMichael E. Moritz College of Law, The Ohio State University
- Professor of Law Emeritus, University of San Diego Professor of Law Emeritus, University of Michigan
- Professor of Law, Pepperdine University Professor of Law Emeritus, University of California, Los Angeles
- Earle K. Shawe Professor of Law, University of Virginia School of Law
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- 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.
- Printed in the United States of America
- is a trademark registered in the U.S. Patent and Trademark Office.
- West, West Academic Publishing, and West Academic are trademarks of West Publishing Corporation, used under license.
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- Publication Date: October 26th, 2016
- ISBN: 9780314284549
- Subject: Securities Regulation
- Series: Hornbooks
- Type: Hornbook Treatises
- Description: Revised to reflect the SEC’s the Dodd-Frank and JOBS Acts as well as recent Supreme Court and other case law developments, this Hornbook is totally up to date. It is a comprehensive secondary source for the study of Securities Regulation. Coverage includes definition of “security,” registration and disclosure obligations under the Securities Act of 1933, exemptions from registration, reporting obligations under the Securities Exchange Act of 1934, the proxy rules, tender offer regulation, and civil liabilities. The book treats broker-dealer regulation, market regulation, and the administrative role of the SEC, as well as proxy rules, insider trading, the Investment Company Act and the Investment Advisers Act. The up-to-date discussion of market regulation includes discussion of the role of FINRA, the successor to the regulatory arms of the New York Stock Exchange and the National Association of Securities Dealers.
