Source: https://www.studyblue.com/notes/note/n/sec-reg/deck/6481917
Timestamp: 2020-04-03 21:34:33
Document Index: 15530913

Matched Legal Cases: ['§ 2', '§ 2', '§ 5', '§ 10', '§ 10', '§ 5', '§ 13', '§ 15', '§ 13', '§ 15', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 5', '§ 5', '§ 5', '§ 5', '§ 2', '§ 5', '§ 5', '§ 2', '§ 2', '§ 5', '§ 2', '§ 5', '§ 10', '§ 5', '§ 10', '§ 5', '§ 10', '§ 12', '§ 2', '§ 10', '§ 10', '§ 5', '§ 2', '§ 5', '§ 2', '§ 2', '§ 5', '§ 2', '§ 5', '§ 10', '§ 5', '§ 10', '§ 10', '§ 5', '§ 10', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8', '§ 2', '§ 4', '§ 4', '§ 2', '§ 10', '§ 10', '§ 2', '§ 10', '§ 10', '§ 2', '§ 5', '§ 10', '§ 2', '§ 10', '§ 2', '§ 5', '§ 4', '§ 5', '§ 4', '§ 4', '§ 4', '§ 4', '§ 5', '§ 13', '§ 15', '§ 4', '§ 5', '§ 5', '§ 5', '§ 10', '§ 5', '§ 10', '§ 10', '§ 4', '§ 11', '§ 5', '§ 5', '§ 10', '§ 10', '§ 12', '§ 12', '§ 12', '§ 11', '§ 10', '§ 2', '§ 12', '§ 5', '§ 5', '§ 5', '§ 12', '§ 11', '§ 11', '§ 11', '§ 11', '§ 15', '§ 11', '§ 12', '§ 6', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 12', '§ 5', '§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 10', '§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 4', '§ 4', '§ 4', '§ 3', '§ 5', '§ 5', '§ 5', '§ 4', '§ 2', '§ 2', '§ 2', '§ 4', '§ 4', '§ 4', '§ 2', '§ 2', '§ 2', '§ 4', '§ 2', '§ 4', '§ 4', '§ 4', '§ 4', '§ 2', '§ 4', '§ 2', '§ 4', '§ 11', '§11', '§ 12', '§ 4', '§ 4']

Sec Reg at University Of Michigan Law School - StudyBlue
"Sale" or "Sell" - § 2(a)(3)
Term "sale" or "sell" shall include every K of sale or disposition of a security of interest in a security, for value.
"Offer to sell," "offer for sale," "Offer" - § 2(a)(3)
Shall include every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.
Unless a registration statement is in effect as to a security, it shall be UNLAWFUL for any person, directly or indirectly (1) to use interstate commerce sell a security through the use or medium of any prospectus or otherwise; OR (2) to cary in interstate commerce any security for the purpose of sale or for delivery after sale.
CANNOT MAKE ANY OFFERS TO SELL BEFORE FILING THE REGISTRATION STATEMENT
APPLIES TO PRE=FILING AND WAITING PERIOD
§ 5(b)
Unlawful (1) to transmit any prospectus unless the prospectus meets § 10 requirement (2) to deliver security for sale unless accompanied by a final § 10(a) prospectus.
APPLIES TO WAITING AND POST EFFECTIVE PERIODS
§ 5(c)
Unlawful to offer to sell or offer to buy any security unless a registration statement has been declared effective.
(Bans all offers prior to filing of registration statement.)
APPLIES TO PRE-FILING PERIOD
Focus of the Securities Acts
Regulating TRANSACTIONS. SEC did not adopt company registration, but instead incorporated the intuitions behind company registration within the existing transaction-focused regulatory framework.
3 periods of the public offering process
1. Pre-Filing.
3. Post-Effective period.
No periodic reports.
Not required to file pursuant to § 13 or § 15(d) and not doing so voluntarily.
Unseasoned Issuer
Reporting (under § 13 or § 15(d)) but not eligible for Form S-3.
Seasoned Issuer
Form S-3 eligible for primary offerings.
WKSI (Rule 405)
$700 mm in equity or $1 bb in debt over the last 3 years.
Determination date (w/in 60 days). Most recent shelf registration statement (or amendment, whichever is later). If no shelf registration statement filed in last 16 months, go by date of filing of the most recent 10-K.
WKSI ineligibility
Ineligible issuer as defined by Rule 405.
Investment company or business development company.
Rule 163A
Pre-filing period begins 30 days before the date of the filing of the registration statement.
Issuer must take reasonable steps to prevent further distribution of communication during the pre-filing period.
§ 2(a)(3) - preliminary negotiation
Terms shall not include preliminary negotiations between issuer and any underwriter or among underwriters who are to be in privity of K with the issuer.
§ 2(a)(3) - Options
Options not an offer or sale until exercised.
§ 2(a)(3) - Emerging Growth Companies
Publication/distribution by broker-dealer of a research report on an emerging growth company does NOT constitute an offer for sale or offer to sell - even if broker dealer is participating or will participate in the registered offering.
"Offer" encompasses ALL communications that may CONDITION THE MARKET for the securities.
In re Carl Loeb (SEC 1959)
Press release an offer w/in meaning of § 2(a)(3).
§ 2(a)(3) prohibits publicity efforts which CONDITION THE PUBLIC MIND or AROUSE PUBLIC INTEREST in the particular securities. Begins/part of the distribution process.
Potential to whip up speculative frenzy re: offering by incomplete/misleading publicity & facilitate distro of security at inflated prices?
SEC Release No. 2844
May not legally initiate a public sales campaign prior to filing of registration statement.
Does the issuer's communication condition the market? (1) Motivation of communication; (2) Type of information (soft, forward more likely an offer); (3) Breadth of distribution (written, easily reproduced and distributed); (4) Mentioning facts about offering (ex., mentioning underwriter)
SEC Release No. 5180
Don't initiate publicity while in registration - but should continue to respond to legitimate inquiries for factual info about the company's financial condition and business operations
AVOID: (1) issuance of forecasts, projections, predictions relating but not limited to revenues, income, earnings per share; (2) publishing opinions concerning value.
Rule 405 - graphic communication. Includes all electronic communications (ex., recorded electronic version of roadshow) as written communications.
Excludes "real time" communications as oral communications.
Hyperlinks can be an offer - if you have linked to other info, you have essentially adopted that info and we treat that as an offer.
Excludes historical issuer information contained in a separate section of issuer's website unless info is incorporated by reference, included in a prospectus, or otherwise referred to in offering.
Pre-Filing Period Safe Harbors
163A. Prior to 30 days before filing.
168. Regularly released factual and forward-looking info by reporting issuers.
169. Regularly release factual info by non-reporting issuers given only to investors.
163. WKSI comms prior to RS filing.
Exemption: § 5(c)
Type of Issuer: All
Type of Info Allowed: May not reference offering, Reg FD applies
Restrictions: > 30 prior to filing of RS, not for underwriter or dealer participating in offering.
Type of Issuer: WKSI
Type of Info Allowed: Offers, Reg FD applies
Mandatory info: Legend if written
Restrictions: Must file written communication as FWP after filing of RS; not for underwriter or dealer participating in offering, excluded issuers
Exemption: §§ 5(c), 2(a)(10)
Type of Issuer: Exchange Act Reporting
Type of info allowed: factual info + ads + certain forward-looking info
Restrictions: Not for underwriter/dealer participating in the offering; previously released type / ordinary course of business; consistent timing, manner, form; not an investment or business development company
Type of Issuer: All.
Type of info allowed: Factual info + ads; many not be part of offering activities
Restrictions: Not for participating UW/dealer; ordinary course of biz; consistent timing, manner, form; info released for use of persons other than in capacities as investors - provided by those who have historically provided such info; not investment or business develoment co.
Notice of proposed offering will NOT be deemed an offer if:
Includes legend that it does not constitute an offer of securities for sale.
Limited notice content - NO more than what is enumerated. Expanded content for certain enumerated offerings.
Because Rule 135 generally excludes from communications it requires from the scope of "offer," Rule 135 also exempts them from the definition of prospectus for the purposes of § 5(b).
"In registration" - SEC release 5009
"In registration" is used to refer to the entire process of registration, at least from the time an issuer reaches an understanding with the broker-dealer which is acting as managing UW.
§ 5(d)
Emerging growth companies can engage in oral or written communications with potential investors that are QIBs or institutions that are accredited investors to determine whether such investors might have an interest in a contemplated securities offering.
Emerging Growth Company - § 2(a)(19)
Issuer with total gross revenues of less than $1 bb during most recent completed fiscal year.
Lasts until you hit $1 bb in revenues OR 5 years post-IPO.
§ 5(d) exemption - must be contacting QIBs or accredited institutional investors (applies only to banks, etc. - NOT people).
§ 5(b)(2)
Unlawful to transmit any prospectus relating to any security with respect to which a registration statement has been filed, unless such prospectus meets the re
§ 2(a)(10)
Prospectus. Generally defining a prospectus to include all "prospectuses," also includes "notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security" in the definition.
COMMUNICATION MUST EITHER OFFER THE SECURITY OR CONFIRM SALE OF SECURITY TO BE PROSPECTUS.
Relationship - § 2(a)(10) and § 5(b) [WAITING AND POST-EFFECTIVE PERIOD]
§ 2(a)(10) prospectus definition sweeps in all written and broadcast communications offering the security - § 5(b) then prohibits such communications if they do not comply with § 10. So, in practice § 5(b) reintroduces general prohibitions on offers in Pre-Filing Period - but because the prohibition is now limited to offers by means of a prospectus not complying with § 10, the restriction is NOT as broad as in § 5(c).
Only written and broadcast communications are restricted in Waiting Period - by negative implication oral communications not involving a broadcast medium are permitted during Waiting Period.
Communication Safe Harbors
Work either to:
(a) include communication as a § 10 prospectus [THUS SUBJECT TO § 12(a)(2) LIABILITY]
(b) exclude communication from § 2(a)(10) definition of prospectus.
Preliminary prospectus. Must contain essentially the same info as the final statutory prospectus, with the exception of price-related info. Only meets the requirements of § 10 until the effective date.
FWP. Treated as a § 10(b) prospectus, thus satisfying § 5(b)(1) requirement.
Road Shows and Other Oral Offers
Not considered prospectuses under § 2(a)(10) and thus not prohibited by § 5(b)(1).
Rules 168 and 169 - § 2(a)(10)
Ordinary course of business safe harbors continue to apply after the Pre-Filing Period. Exempts communications from the scope of § 2(a)(10) and thus no § 5(b)(1) Waiting Period prohibition.
Rules 134, 135; § 2(a)(10)(b)
Rule 134 (1 of 2)
Communications deemed not a prospectus.
Permissible info. Factual info on issuer, info on security price, use of proceeds, UWs, procedures UWs will use to conduct offering.
Mandatory info. Legend - securities may not be sold prior to RS effective, contact for prospectus
Why doesn't Rule 134 apply in the Pre-Filing Period?
§ 5(c) prohibits all offers in Pre-Filing Period - Rule 134 only excludes communications from the definition of a prospectus.
Rule 134 (2 of 2)
Exceptions from 134(b). Communication accompanied by preliminary prospectus OR notice does no more than state from whom prospectus may be obtained and include URL, identify the security, state price, and stateby whom orders will be executed.
Solicitations of interests. Can solicit people - not acceptances
A FWP that meets the requirements of Rule 433 is treated as a § 10(b) prospectus for the purposes of § 5(b)(1).
Free Writing Prospectuses (Rules 164, 433)
Any written communication that offers to sell or solicits an offer to buy a security that is or will be subject to a registration statement that do not meet the requirements of a § 10 statutory prospectus.
Rule 164(a)
A FWP, as defined in Rule 405, will be a § 10(b) prospectus for the purposes of § 5(b)(1) PROVIDED that the conditions of Rule 433 are met.
FWP - Non-Reporting and Unseasoned Issuers (Rule 433(b)(2))
Must be post-filing - only WKSIs can use FWPs in pre-filing (163).
Applies if FWP prepared by issuer or other offering participant OR compensated media.
Must accompany with statutory prospectus - no need to send again if it has been provided already unless there has been a material change.
Once final 10(a) prospectus is filed, 10(b) can no longer be relied upon and 10(a) must be sent.
FWP - Seasoned Issuers and WKSIs
Can use FWP after registration statement has been filed that satisfies the requirements of § 10.
WKSIs and FWPs
A WKSI may distribute FWPs freely through public offering process using Rule 163 in Pre-Filing Period and Rules 164 and 433 thereafter.
FWP disclosure requirements (Rule 433(c))
1. FWP may NOT contain info that is inconsistent with info in either filed statutory prospectus or periodic/current report incorporated by reference into the reg statement.
2. FWP MUST include a specific legend that the issuer has filed RS with the SEC and where the recipient may obtain the preliminary or base prospectus.
Rule 433 FWP must be filed on or before the date of 1st use in 2 situations
1. Any "issuer free writing prospectus" by any person.
2. Any "issuer information" that is contained in a FWP prepared by any other person (but not info prepared by a person other than the issuer on the basis of issuer information).
FWP prepared for compensation
For non-reporting and unseasoned issuers, if compensation has been provided for the dissemination of the FWP, then must accompany with statutory prospectus, etc. (433(b)(2) reqs)
Rule 433 FWPs requirements - offering participants
Offering participant shall file any FRP used or referred to by them and distributed by or on their behalf in a manner reasonably designed to lead to its broad unrestricted dissemination.
Media FWPs
Conditions of 433(b)(2)(i) do NOT apply if:
No compensation given to media.
Issuer or offering participant files the written communication within 4 days of becoming aware of it.
What is broad unrestricted dissemination?
SEC tells us that FWPs "sent directly to customers of an offering participant, without regard to number, would NOT be broadly disseminated."
Issuers transmitting pre-recorded versions of an electronic roadshow (graphic communication - Rule 405) may qualify for FWP treatment even if they do not file roadshow with the SEC.
Bona Fide Electronic Roadshow (433(d)(8))
Electronic roadshow by non-reporting issuer must be filed as FWP unless issuer makes at least 1 version of a bona fide electronic roadshow available without restriction by means of graphic communication to any person.
Process of Going Effective
§ 8(a). Effective date is technically 20 days after filing (but Rule 473 notation) - but SEC has the power to accelerate.
§ 8(b). Refusal order if registration statement is "on its face incomplete or inaccurate in any material respect."
§ 8(d). Stop order suspending effectiveness of registration statement.
§ 8(e). SEC investigatory powers.
Rule 473
In practice, no issuer allows its RS statement to become effectively automatically under § 8(a) - 473 notation automatically amends the RS until the SEC has declared the RS effective.
Final prospectus - included price and price-related information. Must file/use at and after effectiveness.
Analyst Safe Harbors
Rules 137, 138, 139
Safe harbor for broker-dealers not participating in the offering. If Rule 137 applies, broker dealer has not made an "offer" or "participated in an offering" within the definition of an underwriter in § 2(a)(11) (and thus may use 4(a)(3)).
Dealers can rely on § 4(3) if 2 conditions apply:
1. Dealer is not an underwriter, AND
2. Publication or distribution of research does not take place during prospectus delivery period as defined in § 4(3) in connection with Rule 174. Even with Rule 137, a non-participating broker-dealer must be careful not to condition the market during the prospectus delivery period. But Rule 174(b) reduces that period to 0 days for reporting issuers.
3 Main Requirements of Rule 137
1. Not participating in the offering.
2. No direct or indirect compensation.
3. Regular course of business.
Does NOT apply to: blank check company, shell company, issuer in a penny stock offering
For participating broker-dealers. Gives a safe harbor to offer opinions on ONE group of securities even though the issuer is offering securities that belong to the other group (convertible v. nonconvertible).
Legal effect: Not an offer.
LIMITED TO EXCHANGE ACT REPORTING ISSUERS
Must issue reports on the types of securities in the regular course of business.
2 prongs: (1) issuer specific reports (limits the type of issuers that allow broker-dealer to qualify)
Emerging Growth Companies - Research Reports (§ 2(a)(3))
Publication or distribution by a broker dealer of a research report on an emerging growth company that is the subject of a proposed public offer shall not be deemed an offer even if the broker-dealer is participating. (Trying to loosen things up to get offering participants to provide research in an effort to promote liquidity.)
Rule 430A
Allows issuers to go effective with a RS that contains a form of the statutory prospectus but omit certain information - AVAILABLE ONLY FOR ALL-CASH OFFERINGS.
Shelf-Offerings
Meets 5(b)(1) reqs for § 10 prospectus and allows issuer to go effective, but 430A prospectus cannot be used as a § 10(a) final prospectus for other purposes.
Traditional Free Writing - § 2(a)(10)(a)
Removes traditional free writing from the definition of a prospectus in the Post-Effective Period as long as the traditional free writing is preceded by or accompanied by a § 10(a) final statutory prospectus.
NOT treated like FWPs - no legend, filing, or record retention requirements.
Requires that § 10(a) final prospectus precede or accompany the transmission of securities for sale through an instrumentality of interstate commerce.
Prospectus Delivery Requirement - Step By Step
(1) Written confirmation of sales are, without more, prospectuses under § 2(a)(10).
(2) § 5(b)(1) prohibits transmission of written confirmation since confirmation not a § 10 prosp.
(3) § 2(a)(10)(a) removes written confirmation of sales from the definition of a prospectus if accompanied by a § 10(a) final statutory prospectus.
(4) Once § 2(a)(1)) removes from definition of prospectus, the transmission of confirmation no longer violates § 5(b)(1).
Rule 15c2-8(b)
Brokers for non-reporting companies must send a copy of the preliminary prospectus at least 48 hours prior to the sending of the confirmation.
§ 4(1)
Exempts transactions not involving any "issuer, underwriter, or dealer" from § 5.
§ 4(3)
Exempts dealers.
Dealers still acting as underwriters cannot use and must comply with prospectus delivery requirements.
Dealers who are not underwriters but still participants in the distribution selling an allotment from the offering may NOT use § 4(3) with respect to securities that are part of the unsold allotment.
Establishes time periods when § 4(3) is not available.
Beyond these time periods, § 4(3) exempts dealers from the application of § 5(b)(1)
0 days - Rule 174 prospectus delivery period
Issuer that is an Exchange Act reporting issuer immediately prior to the filing of registration statement (subject to reporting requirements of § 13 or § 15(d)).
25 days - Rule 174 prospectus delivery period
Issuer whose securities will be listed on a national securities exchange as of the offering date.
40 days - Rule 174 prospectus delivery period
Issuer that does not fit into 0 or 25 day categories that is NOT doing an IPO (§ 4(a)(3)(A)).
90 days - Rule 174 prospectus delivery period
Issuer that does not fit into 0 or 25 day categories that is doing an IPO.
4(a)(4)
§ 5 does NOT apply to brokers' transactions executed upon customers' orders or on any exchange in the OTC market, but not the solicitation of such orders.
Access = delivery. If 172(c) is satisfied, 172(a) exempts written confirmations of sales from the reach of § 5(b)(1), obviating the need for broker-dealers to mail out a final prospectus with the confirmation of sales.
172(a)
After the effective date of the registration statement, written confirmation of sales are exempt from § 5(b)(1) requirement (prospectus must meet § 10 reqs) if conditions in 172(c) are satisfied.
172(b)
Any obligation under § 5(b)(2) to have a prospectus that satisfies the requirements of § 10(a) precede or accompany the carrying or delivery of a security in a registered offering is satisfied if the conditions in 172(c) are met.
172(c)
Issuer MUST file a § 10(a) file prospectus with SEC or "make a good faith and reasonable effort" to file such prospectus within time required by Rule 424 (or as soon as practicable thereafter).
Dealers. Can use this regardless of whether filing condition is satisfied.
Free Writing and Rule 172
General free writing other than the written confirmation of sales is not covered under Rule 172 and therefore falls under traditional prospectus delivery requirement.
Seasoned issuer or a WKSI may avoid prospectus delivery if they comply with FWP requirements under 164 and 433 - but this will NOT allow them to avoid 12(a)(2) liability.
Transaction in which final prospectus delivery requirements apply under 174/§ 4(3), participating UWs, brokers, & dealers (or issuer) must either notify purchasing investors that sale took place under effective RS (required to deliver in absence of 172) OR provide a final prospectus.
Notice informs purchaser that they may have rights under §§ 11 and 12(a)(2).
SEPARATE OBLIGATION FROM § 5. Non compliance may lead to SEC enforcement but not a prerequisite for application of Rule 172.
Rule 174(f)
Nothing in Rule 174 "shall affect the obligation to deliver a prospectus pursuant to the provisions of § 5 by a dealer who is acting as an underwriter."
Dealers acting as underwriters in an offering as well as dealers otherwise participating in an offering and selling unsold allotment securities face an indefinite prospectus delivery requirement.
3 basic duties require updating the prospectus
1. § 10(a)(3) of Securities Act.
2. Antifraud Liability.
§ 10(a)(3)
If a prospectus is used more than 9 months after effective date, info used in prospectus must not be older than 16 months.
(This is generally only important for shelf offerings.)
Updating the Prospectus - Antifraud Liability
§ 12(a)(2) provides the major incentive for updating the prospectus - if the info in a prospectus is no longer accurate, issuer and others involved w/ prospectus are potentially liable under both § 12(a)(2) and 10b-5.
Updating the Prospectus - Shelf Registration
Issuers doing a shelf registration under Rule 415 must update the prospectus to reflect any "fundamental" change to the information set forth in the RS pursuant to Item 512(a) of Reg S-K.
Process by which new info is directly added (or substituted) onto the relevant page of the prospectus.
Has the advantage of updating only the prospectus and not the RS - thus only the possibility of § 12(a)(2) and not § 11 liability.
No general duty to update the registration statement
Although issuers (and other associated parties) may have a duty to correct materially false or misleading info in the RS at the time of the effective date, NO duty exists to update previously accurate info.
2 major exceptions to the no general duty to update the RS
1. Rule 415 shelf registration. Must include an Item 512(a) undertaking.
2. Under certain circumstances, Rule 424(b)(3) requires issuers to file an updated prospectus that represents a "substantive change from or addition to" a previously filed prospectus. (Compare with stickering - this is deemed as part of the RS.)
Reg S-K Item 512(a) Undertaking
Requires issuer to make a post-effective amendment to the RS for certain invents.
Includes any § 10(a)(3) change to the prospectus, any "fundamentaL' changes to info set forth in RS, any material change in the plan of distribution.
Requires that issuers must file an updated prospectus that represents a substantive change from or addition to a previously filed prospectus.
Designed to prohibit activities that would artificially influence the market for the offering security - including supporting the offering price by creating the exaggerated perception of scarcity or creating a misleading appearance of active trading.
Reg M 101(a)
Limits purchases by:
- Prospective underwriters
- Broker dealers who have agreed to participate in the transaction
- Affiliates of the above
Reg M 102(a)
Prohibits purchases by:
- Other persons on whose behalf the offering is made (i.e., offering on behalf of the managers and directors)
Reg M Rule 101(b)
- Rule 138 and 139 research reports
- Transactions complying with Rule 103 (market making) and Rule 104 (stabilization)
- Unsolicited transactions
- De minimis transactions
- Transactions among distribution participants
- Solicitations of offers to buy securities being distributed
Reg M Rule 101(c)
- Companies with $1 mm average daily trading volume, and
- Public float of $150 mm or more.
Reg M 100(b) Affiliated Purchaser
A person acting, directly or indirectly, in concert with a distribution participant, issuer, or selling security holder in connection with the acquisition or distribution of any covered security.
Reg M 100(b) Completion of participation in a distribution
An UW, when such person's participation has been distributed, including all other securities of the same class that are acquired in connection with the distribution, and any stabilization arrangements and trading restrictions in connection with the distribution have been terminated.
- UWs participation will NOT be deemed to have been completed if a syndicate over-allotment option is exercised in an amount that exceeds the net syndicate short position at the time of such exercise.
Reg M - Rule 104 Stabilization
[principle exception to 101]
ONLY FOR UNDERWRITERS - not issuer or affiliates
Stabilizing may be at a price no higher than the last independent transaction price.
No stabilizing shall be made at a price higher than the lower of the offering price or the stabilizing bid for the security in the principal market.
§ 2(a)(3) - Shelf Registration
Option not an offer or sale until exercised. "which cannot be exercised until some future date, shall not be deemed to be an offer or sale of such other security . . . but the issue or transfer of such other security upon the exercise of such right of conversion or subscription shall be deemed a sale of such other security.
Rule 415 - Shelf registration pertains only to:
Securities sold by someone other than the registrant OR
Which are to be issued upon conversion OR
Securities to be issued in connection with business combination transactions OR
Securities the offering of which will be commenced promptly, made on a continuous basis and continue for a period in excess of 30 days OR
Form S-3 - sold on an immediate or delayed basis.
Rule 405 - Automatic Shelf Registration Statement
A registration statement filed on Form S-3 by a WKSI.
S-1 Issuer, Shelf Registration (415(a)(2))
If securities are not registered on Form S-3, may only register in an amount which, at the time the registration statement becomes effective, is reasonably expected to be offered and sold within 2 years from initial effective date of registration.
Reg S-K and Shelf Registrations (415(a)(3))
Registrant furnishes the undertakings required by Item 512(a) of Reg S-K.
Shelf Offering Time Limits
Non-Form S-3 Issuers: 2 years
S-3 Issuers: 3 years
But can rollover unsold securities from previous shelf registration statement onto new one.
Issuer can rollover any previously paid and unused filing fees with regard to unsold securities.
Rule 462
Automatic shelf registration. Shelf registration is automatically effective, as is any post-effective amendment (even absent SEC review).
Rule 430B(a)
Form S-3 issuer filing a registration statement for offerings pursuant to Rule 415 may omit info required by the form to be in the prospectus information that is unknown or not reasonably available to the issuer.
Base prospectus - (a) tells us what can be omitted.
8-K Item 2.03
§ 12(a)(1)
Guards against circumvention of the rules of the registration process.
For violations of § 5. No materiality, causation, reliance. Provides a private CoA for § 5 gun-jumping rules.
STRICT LIABILITY FOR § 5 VIOLATIONS
NO loss causation defense
Targets misstatements in the registration statement.
Essentially strict liability.
Any person acquiring such security is entitled to suit.
Tracing requirement.
§ 12(a)(2)
Any person liable who offers or sells a security by means of a prospectus or oral communication, which contains an untrue statement of material fact (the purchaser not knowing the untruth of the omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known of such untruth.
Tracing Requirement
§ 11 only provides a CoA for persons "acquiring such security" sold through the registration statement - thus cts have interpreted § 11 as imposing a stringent tracing requirement.
π must show that the specific shares they were sold as part of the public offering under the RS that contained the alleged misstatement.
Krim v. pcOrder.com (5th Cir. 2005)
Statistics are, standing alone, not enough to confer standing.
§ 11(g) Damages
Damages capped at the price at which the security was offered to the public.
§ 11 ∆s
Those who signed the registration statement.
Experts (only on the hook for the part that they prepare).
Controlling persons of any of the above (§ 15)
Every person who controls any person liable under § 11 or § 12 shall be liable jointly and severally to the same extent as such controlled person
DEFENSE: No knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
§ 6(a)
Registration of Securities - Method of Registration. Each registration statement shall be signed by each issuer, its principal executive officer or officers, its principal financial officer, its comptroller or principle accounting officer, and the majority of its board of directors or persons performing similar functions.
Elements of the Cause of Action - § 11
Materiality is the key thing. There is NO scienter, reliance, causation requirement.
PSLRA and § 11
Because you don't have to plead scienter as part of your § 11 case, the requirement of the PSLRA that you plead scienter with particularity does not apply to § 11 suits - other provisions do aply.
§ 11(a) - Reliance
If issuer has made available an earnings statement for a period of at least 12 months beginning after the effective date of RS, Πs bear the burden of demonstrating reliance on RS.
§ 11 - Timing
Misstatements in the RS for § 11 purposes are determined as of the effective date.
Post-effective amendment. Includes the amendment info in the RS and establishes a new effective date for purposes of § 11 liability.
Rule 430B(F)(2) - prospectus supplement sets a new effective date for the securities in the particular shelf takedown.
§ 11(b) - due diligence defense
No person other than the issuer shall be liable for non-expertised portion he had after reasonable investigation, reasonable ground to believe and did believe.
§ 11(e) Damages: Price paid (but not greater than offer price) MINUS
1. Value at suit filing
2. Resale price if sold before suit filing
3. Resale price if after suit filing (no lower than value at suit filing).
§ 11(e) negative causation defense (damages)
If ∆ proves that any portion or all of such damages represents other than the depreciation in value of such security resulting from such part of the registration statement, with respect to which the liability is asserted, such portion of or all such damages shall not be recoverable. Other things going on in the market. (Beecher)
§ 12(a)(1) standing
A person who purchases a security offered or sold in violation of § 5.
Who can be deemed to offer and sell for § 12(a)(1) purposes?
Person who successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner.
Pinter (SCt 1988)
Liability extends only to the person who successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner.
§ 12(a)(1) and § 12(a)(2) and loss causation
The big distinction - no loss causation defense for § 12(a)(1), but available for 12(a)(2).
Rule 159A
Treats the issuer as a statutory seller regardless of the underwriting method. Defines "seller" in a primary offering of securities for 12(a)(2) purposes only to include the issuer of securities "sold to a person as a part of the initial distribution of such services."
First investor who purchases from UW infirm commitment offering is part of initial distribution, can be sued under 12(a)(2) pursuant to Rule 159A (even if no direct privity of K).
Compare Reg S-K Item 512(a)(6)
Reg S-K Item 512(a)(6)
Shelf registrations. Provides that purchasers in the initial distribution of securities have standing to sue the issuer as a "seller" of the securities regardless of the underwriting methods.
Unlike 159A, expands scope of ∆s for 12(a)(1) in addition to 12(a)(2) - however, applies only to shelf registration issuers while Rule 159A applies to public offerings generally.
§ 12(a)(2) Scope
Only reaches fraud committed by "means of a prospectus or oral communication."
Gustafson (SCt 1995)
Prospectuses only exist in the context of public offerings - liability cannot be attached unless the obligation to distribute the prospectus exists in the first place. Contrains what is a prospectus to documents used in a public offering (or, perhaps to § 10 prospectuses), thus limiting the scope of 12(a)(2).
Feiner (D. Conn. 1999)
Cts are unwilling to extend § 12(a)(2) liability to those who purchase in secondary market transactions that do not require prospectus delivery.
(Not to say that a prospectus need in fact have been delivered for a purchaser to have a 12(a)(2) claim - all that is necessary is that delivery of a prospectus have been required under statutory and regulatory framework.)
Elements of § 12(a)(2) Cause of Action
2. Instrumentality of interestate commerce.
§ 12(a)(2) Defenses
Loss causation - providing evidence that drop in issuer's stock price due to factors unrelated.
πs knew about untruth omission OR that they did not know, and in the exercise of reasonable care could not have known, of such untruth or omission.
Version of the DD test (expertised or non-expertised)? WorldCom says that ∆ is only required to show that it used reasonable care - no distinction made for expertise.
§ 12(a)(2) Remedy
Rescissionary damages
§ 12(a)(2) Misstatements
Only available in connection with a public offering.
∆ must be a "seller."
Defense of reasonable care.
Rescission damages - loss causation defense available.
§ 4(a)(2)
Exempts transactions by an issuer not involving any public offering.
Binary categories - either you are public or you are private.
Ralston Purina (SCt 1953)
An offering to those who are shown to be able to fend for themselves is NOT a public offering.
Focus of inquiry - and applicability of § 4(2) - is whether the particular class of persons affected need the protection of the Act.
Doran (5th Cir 1977)
§ 4(a)(2). Sophistication a (basically) necessary but not sufficient element - still need access.
Just as a scientists cannot be without his specimens, we will require that even sophisticated investors have access to info.
§ 3(b)
Allows the SEC to exempt from § 5 offerings those worth up to $5 mm
Securities sold through Reg D
Restricted. Resales are limited from the date of investment UNLESS the securities are registered under § 5 or the selling investor finds an exemption from § 5 (ex., Rule 144).
Reg D 502(c)
General solicitation ban.
Applies to both Rule 505 and 506 offerings - Rule 504 exempts issuers from 502(c) if issuer meets certain state law offering requirements.
Soliciting someone with whom you have a pre-existing relationship is NOT a general solicitation.
General solicitation ban shall NOT apply to offers and sales made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors.
§ 4(b)
Offers and sales exempt under Rule 506 shall NOT be deemed public offerings under the federal securities laws a result of general advertising or general solicitation.
Kenman (SEC 1985)
Even if the hit rate for accredited investors is probably going to be pretty high, it will still be a general solicitation if there is no pre-existing relationship.
See Rule 502(b)(2) - differs for reporting and non-reporting issuers.
Integration (Reg D)
Ability to break apart transactions would allow an end run around many of the Reg D limitations.
Single plan of financing
Same class of securities
At or about the same time
Same type of consideration
For same general purpose.
Safe Harbor Window
Stretches from the beginning of the pre-offering 6 month period to the end of the post-offering 6 month period.
Six-month period window
Consisting of the pre-offering and post-offering six month periods, but not the timing of the offering itself.
Rule 502(a)
Safe harbor from integration.Sales outside the safe harbor window are separate from Reg D window. During the 6 months period window, if the issuer offers or sells the securities that are of the same or similar class as those offered/sold under Reg D, then the issuer loses the safe harbor entirely.
Innocent/insignificantmistakes. Failure to comply with a requirement for a Rule 504, 505, or 506 offering will not necessarily result in a loss of exemptions for an offer or sale to a particular individual or entity.
Reg S - Rule 901
Terms offer, offer to sell, sell, sale, and offer to buy shall be deemed to include offers and sales that occur within the US and shall be deemed not to include offers and sales that occur outside the US.
2 basic requirements imposed on all 3 categories of Reg S
1. All offerings must take place through an offshore transaction.
2. All offerings must involve no directed selling efforts into the US.
2 alternative ways to qualify as offshore
1. Buyer is outside the US or the seller reasonably believes that the buyer is outside the US at the time of the origination of the buy order.
2. Transaction is executed on an established foreign securities exchange.
Reg S - Rule 903
Offer deemed to occur outside the US within the meaning of 901 if it satisfies following requirements:
Offshore transaction (buyer is offshore or trade on physical trading floor of a foreign exchange).
No directed selling in the US.
Reg M Covered Security
Any security that is the subject of a distribution, or any reference security.
Integration v. Resale
Integration Asks: Are these the same transaction?
Resale Asks: Is the "sequence" one, or more than one, transaction?
(§ 2(a)(11))
1. Any person who purchases securities from the issuer with a view towards distribution.
2. Person who directly or indirectly participates in the offering, selling or underwriting process for an issuer in connection with a distribution.
3. Any person who purchases from or sells for a control person when such purchase or assistance is a part of the control person's distribution.
Control Persons and UWs
Control persons of the issuer count as an issuer for § 2(a)(11) but NOT for § 2(a)(4) or § 4(a)(1).
Control persons are NOT issuers - BUT they are considered issuers when determining if an UW is present in the transaction to determine § 4(1) exemption eligibility.
Not able to fend for themselves --> public offer
Defenses to being an UW:
1. Investment intent
2. No public distribution
Gilligan, Will
Need investment intent to not be considered an UW - shares must come to rest. Downturn of the issuer not enough to show investment intent, but personal change in circumstances causing the sale will be.
Will not be considered an UW unless engaged in a public offering - do Ralston Purina analysis.
jjfsdlfsdjfdfsdf
Chinese Consolidated Benevolent (2d Cir 1941)
The association solicited offers to buy, which brings it within the meaning of an UW, regardless of whether they were being compensated or not.
Control Persons and § 4(a)(1)
Control persons do NOT qualify for 4(a)(1) if they sell securities with the assistance of an intermediary (or sell through an intermediary to another investor) because § 2(a)(11) makes the intermediary an UW.
Presence of an UW in the transaction spoils it for everyone
§ 2(a)(11) and Controls persons
"Issuer" under § 2(a)(11) shall include any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer. (NOT deemed to be issuers for other provisions - most critically § 4(1)).
Wolfson (2d Cir 1968)
Operation of § 2(a)(11) in combination with §§ 4(1) and 5 places a registration obligation on control persons seeking to resell securities.
No exemption - the broker is an UW and cannot get the § 4(1) exception.
Brokers can exempt under § 4(4) because of the unsolicited sale. But these are not broker's transactions for Wolfson - he is a control person and must find his own exemption and he cannot fit into 4(a)(1).
§ 4(a)(1 1/2)
If the control person is selling to an investor with an ability to fend for himself, there is not "distribution" within the meaning of § 2(a)(11) and thus no "underwriter" in the control person's transaction.
When a control person resells shares, we conduct 2 separate analyses: NEED TO DO BOTH OF THESE
1. Is the control person acting as an UW for the issuer? If yes, 4(1) not available.
2. Is a 3rd party acting as an UW for the control person?
Exempts party from having engaged in a "distribution" - thus not an UW and 4(1) is available.
Unrestricted securities.
If you sell on behalf of a control person or issuer, your sale pursuant to Rule 144 is NOT a distribution and you are not an UW.
Rule 144(a)(1) - Affiliate
Reg D Rule 502(d)
Limitations on resale. Securities acquired in a transaction under Reg D shall have the status of securities acquired in a § 4(2) transaction and cannot be resold without registration under the Act or exemption therefrom.
Issuer shall exercise reasonable care to assure that purchasers of securities are not UWs within meaning of § 2(a)(11).
Holding Period of Restricted Securities (Rule 144(d)(1))
Exchange Act Reporting: 6 months
Non-Reporting: 1 year
Rule 144(c) - Current Public Information
Reporting companies: (1) Issuer has had reporting status for at least 90 days before sale AND issuer current in all periodic filings for the past 12 months.
Non-Reporting: No info requirement
Rule 144(e)(1) Volume Limitation
If any securities are sold for the affiliate, regardless of whether the securities are restricted, shall not exceed the greatest of:
1% of the shares or other units of the class outstanding
Average weekly reported volume in trading.
Securities sold are deemed not to be offered to the public under § 4(2).
Security comes out RESTRICTED.
Requirements: (1) QIB, (2) notice of exemption from section 5, (3) nonfungibility requirement, (4) information
Any of the following entities that owns and invests on a discretionary basis at least $100 mm in securities: dealers, investment companies, banks
Rule 405 - definition of control
The term control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract, or otherwise.
Rule 139 - Issuer-specific research reports
Limits the TYPE of issuer that may qualify:
S-3 issuer
Filed required periodic reports for the past 12 mos.
Regular course of broker-dealer's biz.
Cannot initiate (or renew) coverage.
Rule 139 - Industry Report
Broader range of issuers but more limits placed on research:
Similar info re: other issuers or comprehensive list of recommended securities
No greater space or prominence.
144(f) Manner of Sale Restrictions
Must be sold in one of the following manners:
Brokers' transactions
144 Requirements
2. Amount of sale
3. Manner of sale
Runs from the LATER of the acquisition of the securities from:
2. An affiliate of the issuer
Reg S - directed selling efforts
Any activity undertaken for the purpose, or that could be reasonably expected to have the effect of, conditioning the market.
Includes placing an ad in a publication "with a general circulation in the US" that refers to the offering of securities being made in reliance upon Reg S.
SOL - § 11
Brought within 1 year after discovery of untrue statement or omission OR after discovery should have been made by exercise of reasonable diligence.
§11: In no event shall an action be brought to enforce a liability created more than 3 years after the security was bona fide offered to the public.
SOL - § 12(a)(1)
Brought within 1 year of the action upon which it is based.
In no event shall an action be brought to enforce a liability created more than 3 years after the security was bona fide offered to the public.
Significance of treating § 4(a)(1) as a transaction exception
If any participant in an offering is classified as an issuer, underwriter, or dealer, no participant can rely on § 4(1).