BSTAT 3310 Chapter 18

define the term Security

debt or equity of publicly traded corporation

four elements of a security under the Howey test

An investment of money

In a common enterprise

With an expectation of profits

Generated by the efforts of persons other than the investors

purpose of the disclosure provisions in federal securities law

we want investors to have good, transparent and clear information

what must be included in the second part of an SEC registration statement

has general things like what we are doing with money and history of thing

what SEC can and cannot do when reviewing a registration statement

Can issue a deficiency letter

term for the entity that is hired to market new securities

Underwriter

definition of publicly held company

anyone large company that sells their securities on open stock exchange

definition of private company

Securities are not public, less than 500 shareholders

SEC Rule 10b-5

1934 act about manipulative or deceptive device used to create securities fraud

three things prohibited by Rule 10b-5

To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading

example of securities law misleading information from the text

overly optimistic statements by executives can cause expectations of higher profits, leading investors to bid up the price of the stock. When the statements are found not to be related to actual performance, the stock price falls, thereby imposing losses on those who bought the stock on the basis of the positive statements.

Smallen v. Western Union Co.

Plaintiff did not show scienter so there was no securities fraud

Securities Litigation Uniform Standards Act of 1998 requires

all securities litigation needs to be in federal court

what CEO’s and CFO’s of publicly traded companies are required to do under Sarbanes-Oxley

personally certify that financial reports made to the SEC comply with SEC rules and that the information in the reports is accurate.

what enabling legislation created the Public Company Accounting Oversight Board

Sarbanes-Oxley

what the Supreme Court said about non-corporate insiders who luck into inside information on securities

it not insider trading so its not fraud

U.S. v. Kosinski

defendant could be convicted for misappropriation of information

what is considered illegal practices for security professionals

Churning - which occurs when a broker who has control of a client's account buys and sells an excessive amount of stock to make money from the commissions earned on transactions.

Scalping - which is when a professional buys stock for personal benefit, then urges investors to buy the stock so that the price rises to the benefit of the professional.