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Regulation of securities issuance

• Federal "turth in securities" regulation - Securities Act of 1933
  • response to Stock Market Crash of 1929 - disclsoure philosophy, not merit regulation
  • part of integrated disclsoure:  ongoing disclosure under Securities Exchange Act of 1934
• Registration of securities offerings
  • registration statement
    • prospectus disclsoure:  issuer, management, plans, financial history, purposes and nature of offering
    • signed by issuer and corporate insiders
    • respoonsible parties:  issuer, insiders, board of directors, underwriters, experts (accountants)
  • regulation of selling process
    • no marketing / sales effort before filing of registration statement
    • no sales until effectiveness
• Exemptions from registration
  • market trading
  • nonpublic offerings / private placements
  • small offerings (relief for small business issuers)
• Liability
  • damages against participants in registered offering
    • issuer:  strict liability for any materially false or misleading statement
    • other participants:  liability, subject to "due diligence" defense
  • rescission of nonexempt, unregistered sales
  • rescission of false/misleading statements outside registration statement
• Definition of "security"
  • boundary of securities regulation
  • financial transactions in which person -
    • invests money
    • in a collective enterprise
    • with expectation of profits
    • from the efforts primarily of otthers
  • "notes" on definitional list / but consider context

Daily Thoughts

College application to NYU

I am a dynamic figure, often seen scaling walls and crushing ice.  I have been known to remodel train stations on my lunch breaks, making them more efficient in the area of heat retention.  I translate ethnic slurs for Cuban refugees, I write award-winning operas, I manage time efficiently.

Occasionally, I tread water for three days in a row.

I woo women with my sensuous and godlike trombone playing, I can pilot bicycles up severe inclines with unflagging speed, and I cook Thirty-Minute Brownies in twenty minutes.  I am an expert in stucco, a veteran in love, and an outlaw in Peru.

Using only a hoe and a large glass of water, I once single-handedly defended a small village in the Amazon Basin from a horde of ferocious army ants.  I play bluegrass cello, I was scouted by the Mets, I am the subject of numerous documentaries.  When I'm bored, I build large suspension bridges in my yard.  I enjoy urban hang gliding.  On Wednesdays, after school, I repair electrical appliances free of charge.

I am an abstract artist, a concrete analyst, and a ruthless bookie.  Critics worldwide swoon over my original line of corduroy evening wear.

I don't perspire.  I am a private citizen, yet I receive fan mail.  I have been caller number nine and have won the weekend passes.  Last summer I toured New Jersey with a traveling centrifugal-force demonstration.  I bat .400.

My deft floral arrangements have earned me fame in international botany circles.  Children trust me.

I can hurl tennis rackets at small moving objects with deadly accuracy.

I once read Paradise Lost, Moby Dick, and David Copperfield in one day and still had time to refurbish an entire dining room that evening.  I know the exact location of every food item in the supermarket.  I have performed several covert operations with the CIA.  I sleep once a week; when I do sleep, I sleep in a chair.  While on vacation in Canada, I successfully negotiated with a group of terrorists who had seized a small bakery.  The laws of physics do not apply to me.

I balance, I weave, I dodge, I frolic, and my bills are all paid.  On weekends, to let off steam, I participate in full-contact origami.  Years ago I discovered the meaning of life but forgot to write it down.  I have made extraordinary four course meals using only a mouli and a toaster oven.

I breed prizewinning clams.  I have won bullfights in San Juan, cliff-diving competitions in Sri Lanka, and spelling bees at the Kremlin.

I have played Hamlet, I have performed open-heart surgery, and I have spoken with Elvis.

But I have not yet gone to college

Problems

 Michael and Jessica, each 40% shareholders of Precision Tools Corporation, plan to expand the company's product line.  Banks won't lend another $3 million, but maybe a venture capitalist would invest.  They figure they'd have toffer the VC convertible preferred - promising both current dividends and the possibility of wide-open participation if the company later goes public.  Think about the securities laws?

• Was a '33 Act resgistration statement requireed when PTC sold stock and notes in its orignal fiancing?
  • comomn stock - to Michael and Jessica?
  • common stock and notes - to Bernie?
  • notes - to Columbia Bank?
  • notes - to sellers of old PT?
• Will a '33 Act registration statement be required when they sell to a VC? 

Readings