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3308Chap14outline - 14 Sarbanes-Oxley and Securities...

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Unformatted text preview: 14 Sarbanes-Oxley and Securities Regulations U.S. Financial Markets Introduction 0. Securities Regulation Began Due To Great Depression Of 1930's 1. Designed To Give Potential Investors Factual Information To Make Informed Decision 2. Federal & State Laws Security Investment p.423 3. Exists When "Security" includes: Stocks, Bonds, Investment Contracts (as further defined below) 4. Questions to determine if it is a security: 2. Common Business Activity? 3. Reasonable Expectation Of Profit? 4. Profits Earned Through Efforts Of Someone Else? 0. Person Invests 1. Others Manage It For Profit Securities & Exchange Commission Responsible for administering federal securities laws 5. Created In 1934 - 35 Commissioners 6. Quasi-Legislative & Quasi-Judicial = right to conduct investigations 7. Regulates 5. Stock Exchanges 6. Utility Holding Companies 7. Investment Trusts 8. Investment Advisors Securities Act (1933) 0. Disclosure Law - Going Public 1. Sanctions Of Violations- Intentional 0. Criminal Punishment Criminal and Civil Sanctions require proof of intentional violations 2. Parties That Must Comply 3. Issuers 5. 6. 1. Civil Liability For Injured Parties 2. Injunction- Equitable Remedy 4. Underwriters (Participants in original distribution of securities by selling for the issuer or by guaranteeing the sale Controlling Persons Sellers SEC Filings Documents For Securities Sale 8. Registration Statement 9. Disclosure Of Financial Info. 10. Prefiling Period Negotiations & agreements with underwriters can be carried out during 11. Waiting Period- 20 Days, Tombstone Ad 12. Posteffective Period 9. Prospectus- Final Financials Exchange Act: Initial Registrations Registration Statement Liability 10. Untrue Statements Of Material Fact 1934 Securities & Exchange Act created liability for false SEC filings. 11. Omits Material Facts 12. Omits Information Resulting In Misleading Potential Investor Fraudulent Transactions 13. Attempt To Defraud 14. Attempt To Obtain Money/Property By Untrue/Misleading Statements 15. Attempt To Engage In Transaction/Practice To Defraud/Deceive Purchaser Security Transaction Defenses 0. Materiality- Prudent Investor Would Use 1. Statute Of Limitations- 1 Year After Discovery, No More Than 3 Years 2. Due Diligence- Reasonable Review Of Financials Securities Exchange Act (1934) to regulate the secondary transfer of secuties 3. Being Public- File Forms With: reports and disclosures subject to $100/day forfeiture 0. Stock Exchange 1. SEC - Periodic Reports failure to file required 2. Businessperson 3. Accountant 4. Lawyer 5. Investor 4. Affects SEC Enforcement & Litigation 3. Section 10(b) & Rule 10b.5 - Materiality can recover both actual and consequential damages violation includes failing to correct a misleading impression, silence when there is a duty to speak, or failure to state material facts prison - (business org. up to $50,000,000) 4. Persons Liable subject to fines of up to $5,000,000+up to 20 years in 0. 1. 2. 3. Insiders Broker-Dealers Corporations Who's Stock Purchased/Sold Those Who Aid/Abet/Conspire To Defraud Insider Transactions 0. 0. 1. Insider Owns More Than 10% Director/Officer Insider Trading & Securities Fraud Enforcement Act (1988) 2. allows suits alleging illegal use of nonpublic info may be filed up to 5 years after wrongful transaction 1. 2. Short-Swing Profits (any profit made within a 6 month period. Enforced by Issuers of the Security and by Persons who own a security of the issuer Non-Public Information any insider provides information to someone, they become an insider 3. Civil & Criminal Liability Sarbanes-Oxley Act (2002) 5. Increase In SEC Budget 6. Created Public Company Accounting Oversight Board a new agency that oversees public accounting activites 7. Members Of Corporate Audit Committee Must Be Independent 8. CEOs Certify Financial Statements 9. Increases Criminal Penalties State Blue Sky Laws 16. 17. 13. Notification 14. Qualification 15. Coordination Registration By 16. Isolated Transaction 17. Limited Offer Within Stated Time 18. Private Offering 19. Number Of Holder Not Greater Than Specified Exemptions Business Decision: Going Public All of the liability 0. What Concerns Should You Have Regarding These Conversations? 1. Is There Anything About Your Expectations Of The Company's Future Performance You Must Or Must Not Share? 14 End of Chapter 14 ...
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