Chapter%2020 - Chapter 20: Government Regulation of...

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Chapter 20: Government Regulation of Chapter 20: Government Regulation of Securities and Online Trading Securities and Online Trading Legal Environment of Business in the Information Age Spring 2003, David Baumer
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Securities Regulation Securities Regulation Modern securities regulation began during the 1930s in the aftermath of the Great Stock Market Crash of 1929 Prior to that time the states enacted securities laws but they were limited by jurisdiction The Internet creates some of the same problems for nations It is difficult for countries, including the U.S., to regulate offshore securities offerings
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Securities Act of 1933 Securities Act of 1933 Securities are stocks and bonds that are traded in organized markets SEC only has authority to regulate what takes place in securities markets Does not have the power to regulate mortgages, insurance contracts, pension plans, commodities markets, or precious metals’ markets Legally a security is an investment of money in a common enterprise where there is a reasonable expectation of profits that are mainly due to the efforts of third parties
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Securities Act of 1933 Securities Act of 1933 A further clarification of the issue of what is a security has been provided by courts who have used the Family resemblance test This test focuses on motivation of buyer and seller, the plan of distribution and their expectations, and whether other laws regulate the transaction Basic philosophy of securities act is that investors should be informed
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Registration Statements Registration Statements In order to sell a security in the U.S., it must be registered with the SEC The registration statement discusses the kind of information that a reasonably prudent investor would consider material The 1933 Act requires that issuers make sure that potential investors have a prospectus before making their decision to invest Issuers are required to wait 20 days after submitting a registration statement before selling to the public
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Sales of Securities to the Public Sales of Securities to the Public During the 20-day waiting period issuers are allowed to distribute red herring prospectuses to inform them that a registration statement has been filed with the SEC After the waiting period issuers are limited to tomestone ads to inform potential investors of the name of the issuer and how to get a prospectus
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Section 11 of the 1933 Act Section 11 of the 1933 Act Liability is based on material misrepresentations or omissions in the registration statement or prospectus A misrepresentation or omission is material if it would affect the decision to invest of a reasonably prudent investor No need to show intent for liability Among the parties liable under Sect. 11 are: Issuer (business selling the securities), corp. promoters or Bd. of Dirs., corp. officers, underwriters, accts. and attys.,
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Damages under Section 11 Damages under Section 11 For a successful pl. under Sect. 11
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This note was uploaded on 09/26/2011 for the course BUSINESS 411 taught by Professor Staff during the Spring '11 term at Youngstown State University.

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Chapter%2020 - Chapter 20: Government Regulation of...

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