All buyers of the stock are given material

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sale, notifies the Securities and Exchange Commission (SEC). All buyers of the stock are given material information about the company, its business, and the stock. Before the end of the year, the offering is completely sold out. The buyers include forty unaccredited investors and fifty accredited investors. National does not register the offering. The SEC files a suit against National, seeking civil sanctions on the ground that this offering was not exempt from registration. National argues that the applicable exemption is Rule 505 of Regulation D of the Securities Act of 1933 and that because of this exemption, any resale of the stock is also exempt. Who is correct? Explain your answer thoroughly. The SEC is correct.
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Rule 505 of Regulation D of the Securities Act of 1933 provides exemption for private, noninvestment company offerings up to $5 million in any twelve-month period. The offer may be made to an unlimited number of accredited investors and up to thirty-five unaccredited investors. The SEC must be notified of the sales, and precautions must be taken, because these restricted securities may be resold only by registration or in an exempt transaction. No general solicitation or advertising is allowed. The issuer must provide any unaccredited investors with disclosure documents, which generally are the same as those used in registered offerings (BUSINESS LAW - TEXT AND CASE, 14 th Edition, Chapter 42 Investor Protection, Insider Trading, and Corporate Governance, Rule 505, page 802). In this scenario, National advertise its offerings which violate Rule 505 which states that no general solicitation or advertising is allowed. It also violates Rule 505 by having more than thirty-five unaccredited investors (it has forty unaccredited investors). It didn’t notify the SEC of the sale until ten days after its first sale. All of these make National unqualified for the exemption under Rule 505 of Regulation D of the Securities Act of 1933. In addition, even if National’s stocks are exempt, any resale of the stock is not exempt (restricted securities may be resold only by registration or in an exempt transaction).
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  • Spring '15
  • darrellford
  • Corporation

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