Chapter 19 - Chapter 19: Securities Regulation 1)...

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Chapter 19: Securities Regulation 1) Introduction a) In 1933, following the Great Depression and Stock Market crash, Congress passed the Securities Act of 1933 (1933 Act) to regulate the issuance of new securities. The next year, it passed the Securities Exchange Act of 1934 (1934 Act) to regulate companies with publicly traded securities. The 1934 Act also established the SEC, the regulatory agency that oversee the securities industry b) The Securities and Exchange Commission i) The SEC creates law in 3 different ways (1) Rules : The securities statutes are often little more than general guides. Through its rules, the SEC fills in the crucial details (2) Releases : These are informal pronouncements from the SEC on current issues. Releases often operate as two-way communication. When the SEC issues a release to announce a proposed change in the rules, it also asks for comments on the proposal (3) No-Action Letters : Anyone who is in doubt about whether a particular transaction complies with securities law can ask the SEC directly. The response is called a no-action letter because it states that “the staff will recommend that the Commission take no action” if the transaction is done in a specified manner. ii) In addition to creating laws, the SEC has to power to enforce them. It can bring cease and desist orders against those who violate the securities laws, and it can also levy fines or confiscate profits from illegal transactions. Those accused of wrongdoing can appeal these sanctions to the courts. The SEC cant bring criminal action, but refers criminal cases to the Justice Department c) What is a Security? i) The official definition of a security includes a note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, and 17 other equivalents. Courts have interpreted this definition to mean that a security is any transaction in which the buyer 1) invests money in a common enterprise and 2) expects to earn a profit predominantly from the efforts of others 2) Securities Act of 1933 a) The 1933 Act requires that, before offering or selling securities, the issuer must register the securities with the SEC, unless the securities qualify for an exemption b) An Issuer is the company that issues the stock c) When an issuer registers securities, the SEC does not investigate the quality of the offering d) The 1933 Act prohibits fraud in any securities transaction e) General Exemption i) Before offering securities for sale, the issuer must determine whether they are exempt from registration under the 1933 Act. Typically, exemptions are based on two factors: The type of security and the type of transaction. However, the National Securities Markets Improvement Act of 1996 gave the SEC new authority under both the 1933 and 1934 Acts to grant exemptions that are “in the public interest” and “consistent with the protection of investors”.
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f) Exempt Securities i) The 1933 Act exempts some types of securities from registration because they 1) are
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This note was uploaded on 05/07/2008 for the course MGT 401 taught by Professor Dalton during the Spring '08 term at SUNY Buffalo.

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Chapter 19 - Chapter 19: Securities Regulation 1)...

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