Ch. 28 Investor Protection, Insider Trading, and Corporate Governance

Accredited investor

in the context of securities offerings, sophisticated investors, such as banks, insurance companies, investment companies, the issuer's executive officers and directors, and persons whose income or net worth exceeds certain limits

Blue sky laws

state laws that regulate the offer and sale of securities

Corporate governance

a set of policies specifying the rights and responsibilities of the various participants in a corporation and spelling out the rules and procedures for making corporate decisions

Direct public offering (DPO)

the sale of a private company's shares directly to the public without going through an investment banking firm. In other words, no new shares of stock are created. Also called a direct listing

Free writing prospectus

a written, electronic, or graphic communication associated with the offer to sell a security and used during the waiting period to supplement other information about the security

Insider trading

the purchase or sale of securities on the basis of information that has not been made available to the public

Investment company

a company that acts on the behalf of many smaller shareholders-owners by buying a large portfolio of securities and professionally managing that portfolio

Investment contract

insecurities law, a transaction in which a person invests in a common enterprise reasonably expecting profits that are derived primarily from the efforts of others

Mutual fund

a specific type of investment company that continually buys or sells to investors shares of ownership in a portfolio

Prospectus

a written document required by securities laws when a security is being sold. The prospectus describes the security, the financial operations of the issuing corporation, and the risk attaching to the security

SEC Rule 10b-5

a rule of the SEC that prohibits the commission of fraud in connection with the purchase or sale of any security

Short-swing profits

profits earned by a purchase and sale, or sale and purchase, of the same security within a six month period

Special purpose acquisition companies (SPACs)

blank check investment vehicles that raise capital through initial public offerings for as yet unspecified investments in private firms at a later date

Stock options

a right to buy a given number of shares of stock at a set price, usually within a specified time period

Tippees

a person who receives inside information