35securities regulation outline

8/12/2019 35Securities Regulation Outline

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SECURITIES REGULATION OUTLINE

Prof. Henry Hu Spring 1999

This ou !ine is e-mailware " #hi!e here is no $os for using he ou !ine% you &us 'rop &e ( !ine ([email protected] o e!! &e )h( you hin*% if i he!pe' you% e $.+ i ,' (!so -e ni$e if you'roppe' -y &y )e- p(ge ( http://www.geocities.com/NapaValley/3578/ (n' signe' &y gues -oo*.

ee! free o re'is ri-u e his ou !ine unmodified o (nyone )ho &(y fin' i usefu!. This ou !ine is pro/i'e'0(s is (n' I &(*e no pro&ises (s o i s ($$ur($y 2i )or*e' for &e% your &i!e(ge &(y /(ry3. Goo' Lu$*on e4(&s"

5(&ien (!gousUni/ersi y of Te4(s S$hoo! of L()

I. In ro'u$ ion

A. The e4 for his $ourse is he 6ennings% 7(rsh% Coffee (n' Se!ig&(n $(se-oo* onse$uri ies regu!( ion (n' s ( u ory supp!e&en % p!us so&e proprie (ry &( eri(!s

-y Prof. Hu.

A. A--re/i( ions (n' $on/en ions use'

1. HH Henry Hu

8. U # un'er)ri er+ s h sh(reho!'er

:. PSLRA Pri/( e Se$uri ies Li ig( ion Refor& A$ of 199;

ey Ter&s

1. Pri&(ry /s. Se$on'(ry &(r*e s pri&(ry is he 0origin(! issue% )here hese$uri y is so!' -y he issuing $o&p(ny o he pu-!i$+ se$on'(ry refers osu-se?uen r(ns($ ions -e )een in/es ors.

C. Gener(! r(&e)or* of C(pi (! 7(r*e s @ Se$uri ies Regu!( ion

1. The Se$uri ies A$ s

(3 The 19:: Se$uri ies A$ re?uires h( se$uri ies -e registered 2)i hso&e e4$ep ions3 -efore hey $(n -e so!'.

213 Ru!es (re su-se s of regu!( ions+ h( is% regu!( ions (re 0!i-r(riesof ru!es. They in$!u'e

2(3 Gener(! ru!es (n' regu!( ions 21BBs% 81;% 8: 3

2-3 Reg. A 2for s&(!! issues3 28;1D8 :3

2$3 Reg. C 2go/erning regis r( ion%


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2f3 Reg. SD= 2in egr( e' 'is$!osure for s&(!! -usiness3

2g3 Reg. SD> 2ins ru$ ions for for&s for -o h ,:: (n' ,:< A$ s3

2h3 Reg. SDT 2go/erning e!e$ roni$ fi!ing3

2i3 or&s 2SD1% SD8% SD:3

283 Ru!es pro&u!g( e' un'er he ,:: A$ (re 'eno&in( e' -y hreeD'igi nu&-ers% e.g.% R.


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2(3 Nego i( ing ( 'is$oun on he offering pri$e 2 hus i&pro/inghe $h(n$es h( (!! sh(res )i!! -e so!'3.

2-3 Spre('ing he ris* -y (*ing on (''i ion(! U # 2fir& in $h(rgeis he 0&(n(ging U # 3.

2$3 #(i ing un i! he !(s possi-!e &o&en o se he fin(! pri$e.

2'3 Pu ing 0&(r*e ou s in o he un'er)ri ing (gree&en .

2


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(3 5o$u&en s in/o!/e'

213 Gener(!!y% ( prospectus 2see 82(321B 'efini ion -e!o)3. There (re)o ypes

2(3 A preliminary prospectus % use' 'uring he )(i ing perio'+ i$on (ins no pri$e infor&( ion

2-3 A final prospectus % use' 'uring he pos Deffe$ i/e perio'.

-3 Regis r( ion re?uire&en s

213 >eys (re % % Reg. C for gener(! ru!es% (n' Reg. SD> for henonDfin(n$i(! por ions.

$3 Ti&ing res ri$ ions 2i.e.% )h( you $(n 'o (n' )hen3

213 There (re hree perio's preDfi!ing% he )(i ing perio'% (n' he pos Deffe$ i/e perio'. Always -e(r in &in' )h( perio' you (re in"

:. 5 " #he $ost %mportant &ection'

(3 Su&&(ry of ; pro/isions213 ;2(3 $(n, se!! ( se$uri y 2or 'e!i/er se$uri y for s(!e3 un!ess (

regis r( ion s ( e&en h(s -een pu in effect 2i.e.% post-effectivedate 3.

283 ;2-3

2(3 213 $(n, use ( prospe$ us 2see 82(321B3 -e!o)3 o se!! un!esshe prospe$ us &ee s 1B re?uire&en s+

2-3 283 $(n, 'e!i/er se$uri y (f er s(!e un!ess preceded -y ( 1B prospe$ us.

2:3 ;2$3 prohi-i s offers to sell prior o he filing of he regis r( ions ( e&en 2or if su- e$ o SEC s op or'er3.

-3 >eys o (pp!i$( ion of ;

213 The hing so!' &us -e ( 0se$uri y 2'is$usse' infr(3

283 6uris'i$ ion(! &e(ns 2use of &(i!s or in ers ( e $o&&er$e3 gener(!!y very easy o &ee 2in f($ % i ,s h(r' not o &ee i 3.

2:3 : !is s e4e&p e' securities 2'is$usse' infr(% &os no (-!ygo/ern&en se$uri ies3

2(3 No e his se$ ion e4e&p s he !is e' se$uri ies from the entire

act .2


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o &(*e (nnoun$e&en s in he nor&(!

$on'u$ of -usiness% hough.

$3 R. 1:; e4e&p s $er (in ypes of press re!e(ses fro& he gunD u&ping prohi-i ion if hey $on (in no more h(n he !is e' infor&( ion. 2no (-!yno pri$e info% (n' no n(&ing he U #+ you h(/e o s ( e h( he ($ u(!offering )i!! -y /i( prospe$ us3

213 Fues ion is his ( 0s(fe h(r-or or (n e4$!usi/e !is 2i.e.% $(n o heri e&s no !is e' in R.1:; also -e e4e&p 3

'3 Re!e(se ;1 B $(n pu-!i$iJe facts only 'uring he preDfi!ing perio'+ i.e.%no fore$(s s% e $.+ (ns)ering unso!i$i e' in?uiries fro& he press%(n(!ys s% (n' o hers is en$our(ge'.

8. Pro-!e&s

(3 CEO of $o&p(ny 'oes in er/ie) for !o$(! p(per )here he s(ys 0In'us ryis $onsi'ere' ( :B= yr in'us ry (n' )i!! gro)+ Co&p(ny )(n s o -e (!e('er in i s in'us ry% (n' o 'o so )e (re p!(nning o Mgo pu-!i$, in hene(r fu ure.

; of


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213 >ey 'oes his 0(rouse pu-!i$ in eres 2Re$(!! 82(32:3% Loe-%Rho('es3. Thus% his &(y -e ( ;2$3 /io!( ion.

283 Ho)e/er% he CEO 'i' no so!i$i he in er/ie) Re!. ;1 B )or*sin his f(/or 'ue o his f($ . A!so% sin$e his is ( !o$(! p(per% i is!ess !i*e!y o i&p($ he )i'er &(r*e .

2(3 =u pro e$ ion of in'us ry gro) h &(y (*e i ou of Re!. ;1 B -e$(use i &(y -e $onsi'ere' ( fore$(s .

2:3 No e h( pu-!i$!yDhe!' $o&p(nies ypi$(!!y ge &ore !ee)(y h(n'o pri/( e!y he!' $o&p(nies 'ue o he nee' o *eep sh(reho!'ersinfor&e'.

-3 CEO $on ($ s 'e(!er (-ou offer% )ho $on ($ s U #+ CEO (n' U #infor&(!!y (gree o offer 17 sh(res o he U # ( 1B sh.% o -e reso!'o he pu-!i$ ( 11 sh. They sign !e er of in en o h( effe$ .

213 82(32:3 excludes fro& he 'efini ion of 0offer (ny 0pre!i&in(rynego i( ions or (gree&en s -e )een issuer (n' U #.

283 Thus% his is pro-(-!y O>. On!y re(! ?ues ion is if 0pre!i&in(ry&o'ifies 0(gree&en s or no 2i.e.% is (n enfor$e(-!e (gree&ene4$!u'e' fro& he e4$ep ion 3

$3 U # prep(res press re!e(se (nnoun$ing he offering

213 Pro-(-!y O> un'er R. 1:;% )i h fo!!o)ing pro/isos &us -e fromthe company 2no he U #3+ i cannot name the U/W + (n' &uss ( e ($ u(! offering )i!! -e &('e /i( prospe$ us.

'3 U # e!ephones (n' )ri es o se$uri ies 'e(!ers n( ion)i'e o in/i ehe& o oin he U # syn'i$( e.

213 O> un'er 82(32:3% )hi$h excludes fro& he 'efini ion of offer$on ($ 0(&ong U # )ho (re or (re o -e in pri/i y of $on r($)i h he issuer.

e3 U # $on ($ s se$uri ies 'e(!ers )i h !(rge re (i! se!!ing org(niJ( ions%(s*s if hey )ou!' !i*e o pur$h(se ( ( ;BQ 'is$oun for res(!e.

213 This is pro-(-!y ( /io!( ion 2 3

f3 U # &(i!s ou o prospe$ i/e U #% 'e(!ers% (n' i s o)n $us o&ers (nin ern(! s u'y s(ying he $o&p(ny,s in'us ry is ( gro) h in'us ry. I'oes no &en ion he $o&p(ny spe$ifi$(!!y.

213 R. 1: almost &(*es his O> i &(*es his *in' of repor O> for( public 2i.e.% one h( is su- e$ o ,:< A$ repor ing3 $o&p(ny ifh( *in' of repor is gi/en ou o/er he nor&(! $ourse of he'e(!er,s -usiness% (n' 'e(!er re$ei/es no $o&pens( ion fro& heregis r(n . I &(*es i O> -y re&o/ing he repor ing p(r y fro& he 82(32113 'efini ion of 0U #.

of


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2(3 Pro-!e& is h( he 'e(!er issuing he repor &us no -e ( p(r i$ip(n 2or propose o -e ( p(r i$ip(n 3 in he 'is ri-u ionof he se$uri y.

283 R. 1:9 is -(si$(!!y he s(&e ru!e% -u i is &ore !(4 ( 'e(!er can p(r i$ip( e in he 'is ri-u ion (n' s i!! &(*e re$o&&en'( ions if

2(3 The issuer is (n SD: $o&p(ny 2 ypi$(!!y ( -ig% )i'e!yDfo!!o)e'$o&p(ny3 p!us &ee s M&ini&u& f!o( in/es &en gr('e,re?uire&en s 2$o&&on e?ui y ;7 7oo'y,s r( ing3% or

2-3 The re$o&&en'( ion is of ( *in' 'is ri-u e' )i h reasonableregularity % is (nindustry-wide report or is a comprehensivelist of recommended securities % he issuer is gi/en no greater

prominence h(n (nyone e!se% (n' he opinion is no more favorable h(n in he !(s pu-!i$( ion.

g3 Re (i!er of $o&p(ny,s pro'u$ s he(rs of propose' offering fro& CEO% phones 'e(!er (n' offers o -uy ;BB sh(res. 5e(!er s(ys he )i!! se (si'e

he sh(res if he $(n% hen phones U # (n' offers o -uy 1%BBB sh(res.213 No e


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8. Re$(!! h( ;2(3213 prohi-i s actual sales fro& (*ing p!($e un i! heregis r( ion s ( e&en is (ppro/e'+ fur her no e h( hus oral offers (re

per&i e' so long as the sale is not consummated 2or e!se hey,' run (fou! of ;2-33.

:. 7(*ing (n un(u horiJe' )ri en offer 'uring he )(i ing perio' is $(!!e'

0free )ri ing.


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fi!ing perio' 2i.e.% $(n on!y -e use' in he )(i ing or pos Deffe$ i/e perio's3.

. I'en ifying S ( e&en

(3 Li*e he o&-s one ('% -u )i h &ore infor&( ion. 82(321B32-3 per&i s he SEC o 0e4p(n' he (/(i!(-!e $on en of he o&-s one.

-3 R. 1:< (n' 1:. ;2(3213 prohi-i s preD(ppro/(! s(!es.

2:3 Pro-!e& U # h(s o -e (-!e o &(r*e he sh(res in or'er o($$ur( e!y pri$e he offering. The so!u ion is pro-(-!y o s(y o he'e(!er e4p!i$i !y h( 0 his is no (n offer 2-(si$ $on r($ !() ifhere,s no (n offer% here $(n, -e (n ($$ep (n$e3.

-3 U # )(n s o pu-!ish (n (' in he #(!! S ree 6ourn(!% 'es$ri-ing hen( ure of he -usiness (n' ho) he offering,s pro$ee's )i!! -e use'% p!us(n in/i ( ion o su-s$ri-e ( 11 sh(re.

213 Pro-!e& ;2-3213 re?uires h( he prospe$ us $onfor& o 1B.

283 R. 1:< (n' 1:


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pro e$ ion% (n' (n in/i ( ion for e($h 'e(!er o in'i$( e he nu&-er ofsh(res hey (re in eres e' in.

213 Prospe$ us >ey $on$ern is ;2-3213 $(n, 'e!i/er ( nonD 1B prospe$ us+ re$(!! 1B2-3 (u horiJes 0!esser prospe$ us /i( SECregu!( ion.

2(3 Pre!i&in(ry prospe$ us R. I . ;B121B3 0&(gi$ !(ngu(ge h( &us($$o&p(ny su$h ( prospe$ us.

2-3 Su&&(ry prospe$ us R. for he !e ers sen o he U/W % hough -e$(use 82(32:3 e4$!u'es 'e(!ings -e )een U #,s fro& he'efini ion of 0se!!.

2-3 5oes R. 1:< he!p No% -e$(use of he pro e$ ion of e(rnings(n' he s ( e&en h( he in/es &en is ( r($ i/e. Nei her (re!is e' in R. 1:< (s per&issi-!e.

2i3 No e h( e/en hough he R. 1:


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2(3 < B per&i s SEC o (*e in o ($$oun if issuer h(s (*enre(son(-!e s eps o &(*e ('e?u( e infor&( ion 2(n' $opies ofhe regis r( ion s ( e&en 3 (/(i!(-!e.

2-3 < 1 uses ($$e!er( ion (s ( 0$(rro o insure pro&p'is ri-u ion of (&en'&en s. This is e4p!i$i in R. < 12-3283.

f3 5e(!er $(!!s $us o&er% offers o se!! 2)hen issue'3 ( 11 sh. No pre!i&in(ry prospe$ us is sen .

213 R. 1;$8D (ssu&es fr(u' is presen if here is no prospe$ us'e!i/ere'.

2(3 No e his is ( ,:< A$ ru!e i uses SEC po)er o regu!( e -ro*ers (n' 'e(!ers.

2-3 No e su-p(r 2$3% re?uiring ( 'e(!er o (*e re(son(-!e s eps ofu!fi!! (ny )ri en re?ues s for he pre!i&in(ry prospe$ us% (n'su-p(r 2g3% re?uiring he &(n(ging U # o furnish $opies ofs(&e o (!! p(r i$ip( ing -ro*ers or 'e(!ers.

283 or his pro-!e&% no e su-p(r 2-3% re?uiring 'e!i/ery of pre!i&in(ry prospe$ us o (ny person re?ues ing i ( !e(s < hours -efore heeffe$ i/e '( e if he issue is (n IPO.

g3 Rese(r$h 'ep(r &en of ( 'e(!er h(/ing no $onne$ ion o he offering'e$i'es in'epen'en !y h( he $o&p(ny is ( goo' in/es &en % (n' s(ysso in i s )ee*!y ne)s!e er.

213 irs ?ues ion is his (n 0offer I &igh -e+ i $ou!' -e seen (s0$on'i ioning he &(r*e . If i is (n offer% i (!so &ee s he'efini ion of prospe$ us% so )e (re possi-!y f($e' )i h ( ;2-3213

pro-!e&.

283


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1. Three $o&ponen s o 0going effe$ i/e

(3 S ( u ory re?uire&en s

213 Re$(!! ;2(3 s(ys you $(nno se!! un i! ( regis r( ion s ( e&en is ineffe$ .

283 A!so re$(!! h( ;2-3213 &(*es i ( /io!( ion o r(ns&i (nynonD 1B prospe$ us even after the effective date %(ut 82(321B32(3&(*es i O> o sen' ( nonD 1B prospe$ us after the effective date if ( 1B prospe$ us h(s (!re('y -een sen o he re$ipien .

-3 8B 5(y ru!e 2(3 s(ys ( s ( e&en goes effe$ i/e 8B '(ys (f er fi!ingif here is no SEC ($ ion. I $(n -e f(s er /i( ($$e!er( ion 2(!so

per&i e' -y 2(33 or s!o)er if he SEC i&p!e&en s ( 2-3 refus(!or'er.

213 The origin(! i'e( -ehin' his ru!e )(s h( i )(s 0'o(-!e + o'(y%i ,s ( -ure(u$r( i$ nigh &(re. Ho) o ge &ore i&e R. < :

per&i s 0'e!(ying (&en'&en s he resu! is h( he SEC ge s (!!he i&e i )(n s+ he s ( e&en ne/er -e$o&es effe$ i/e (f er 8B'(ys"

$3 Pr($ i$(! &( ers The (&oun of re/ie) gi/en 'epen's on he$o&p(ny. E/en hough e$hni$(!!y he SEC is in eres e' on!y in fu!!'is$!osure% hey )i!! go o/er un*no)n or ris*y -usinesses &ore $(refu!!yh(n s (-!e% es (-!ishe' issuers. Thus ( or une ;BB $o&p(ny &(y noh(/e i s prospe$ us re/ie)e' ( (!!% )hi!e (n IPO or $o&p(ny in (rou-!e' in'us ry 2!i*e he S@L,s in he !( e Bs3 )i!! ge ( fu!! re/ie).

213 The SEC )i!! (!so 'o 0r(n'o& fu!! re/ie)s us o *eep peop!e onheir oes+ so&e i&es% hey go in o e4$ru$i( ing 'e (i! o/er (n

es (-!ishe' $o&p(ny us o &(*e ( poin o he se$uri ies )or!'(-ou so&e spe$ifi$ 'is$!osure issue.

283 The 75@A (n' SD> :B: se$ ions usu(!!y ge he -u!* of he SEC,sfo$us.

2:3 The SEC $(n *i!! (n offering /i( 2'3 s op or'ers -e$(use 2e3 per&i s he& o e4(&ine -oo*s% e $. for ( 2'3 'e er&in( ion% (n'f(i!ure o $ooper( e is groun's o issue he or'er. A s op or'ersuspen's effe$ i/eness of he regis r( ion s ( e&en % hus -ringinghe ;2$3 prohi-i ion (g(ins offering se$uri ies su- e$ o ( s opor'er o -e(r. Thus 2'3 gi/es he SEC ( lot of po)er"

8. E!e$ roni$ 5is$!osures(3 Re!e(se 8:: he *eys o per&issi-!e e!e$ roni$ 'e!i/ery of 'o$u&en s

(re 13 no i$e 2i.e.% in/es or shou!' *no) (-ou i h(/e o e!! he& 0i ,son &y )e- si e 3+ 83 ($$ess 2re$ipien s &us h(/e he (-i!i y o re/ie)he 'o$u&en s3+ (n' :3 e/i'en$e of 'e!i/ery 2possi-!y in$!u'inginfor&e' $onsen of re$ipien 3

18 of


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:. No e h( ( 0goo' 'e(! in he pos Deffe$ i/e perio' )i!! no s(/e you fro&/io!( ions in he pre/ious perio'.

(3 5is*in /. Lo&(nsney @ Co. =ro*er sen's !e er 2i.e.% ( )ri ing3 'uring)(i ing perio' offering o $o&&i sh(res o $us o&er% -u sen's no

pre!i&in(ry prospe$ us. Cus o&er re$ei/es 1B prospe$ us -efore he

'e(! is $onsu&&( e'. He!' he !e er $ons i u es ( ;2-3213 /io!( ion2p!(in iff re$o/ers un'er 18213% pro/i'ing $i/i! !i(-i!i y for ;/io!( ions3.


14/44

2


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283 Ho)e/er% here &(y -e !i(-i!i y un'er he (n ifr(u' pro/isions of -o h A$ s 2i.e.% po en i(! for &isrepresen ( ions (n' o&issions+ fe(rof !i(-i!i y ypi$(!!y pre/en s issuers fro& using su$h -ro$hures3.

'3 8 &on hs (f er he effe$ i/e '( e% &us he 'e(!er sen' ( 1B prospe$ uso $us o&ers -uying he s o$* on he open &(r*e es+ see 'es$rip ion

of


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213 R. 1: if ( or& SD8 or SD: $o&p(ny% -ro*er $(n re$o&&en' ifissue is non$on/er i-!e% nonp(r i$ip( ing preferre' s o$*.

283 >ey o or& SD8 e!igi-i!i y &us h(/e -een su- e$ o ,:< A$repor ing for : &on hs prior o regis r( ion. I ,s ( $!ose $(!! in his$(se 2i 'epen's on ho) !ong he se$on' offering oo*3.

III. The Regis r( ion Pro$ess

A. The In egr( e' 5is$!osure Sys e&

1. I use' o -e h( ,:: A$ (n' ,:< A$ 'is$!osures )ere o (!!y sep(r( e.Reg. SD> 219 3)(s he firs s ep o)(r's in egr( ion% (n' !( er re/isionsfo!!o)e' 2e.g.% or& 1BD>% R. 1 'e(!s)i h nonD($$oun ing 'is$!osures+ SD 'e(!s )i h ($$oun ings (n'(r's.

283 The -igges p(in is SD> I . :B:% 7(n(ge&en 5is$ussion (n'An(!ysis 275@A3. 7(ny ( $orpor( e (sso$i( e goes -!in' !oo*ingo/er his s uff"

-3 Ho) 'o )e !igh en ,:: A$ -ur'ens in !igh of EC7H213 7os !y% repor ing re?uire&en s (re ie' $!ose!y o pro4y s ( e&en

'e!i/ery (n' ,:< A$ 'is$!osures% he r( ion(!e -eing h( in (neffi$ien &(r*e one 'is$!osure is enough.

;. 5is$!osure Aspe$ s of Perio'i$ Repor ing Re?uire&en s

1 of


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(3 182(3 of ,:< A$ -ro*er $(n, r(ns($ in ( se$uri y on ( n( ion(!e4$h(nge un!ess here is (n e4$h(nge regis r( ion s ( e&en in effe$2not ( ,:: A$ regis r( ion"3

213 Is i possi-!e o regis er for ,:< A$ -u no for ,:: es ifse$uri y is !is e' on e4$h(nge -u is e4e&p fro& ,:: A$ for so&e

re(son.283 5e (i!s of regis r( ion (re in ,:< A$ 182-3

-3 1:2(3 if regis ere' un'er 18% you &us perio'i$(!!y repor .

213 Pro-!e& 182(3 is in$o&p!e e 2on!y ge s n( ion(! e4$h(nges3+ 182g3213 (n' R. 18gD1 pu!!s in $o&p(nies )i h 17 (sse s (n'o/er ;B sh(reho!'ers.

283 #h( if ( $o&p(ny issues no hing -u -on's 2(n' h(s fe) or nosh(reho!'ers3 There is no 182g3 (n(!og% -u 1;2'3 (n' i sregu!( ions pu!! in so&e.

$3 5is$!osure re?uire&en s un'er he ,:< A$213 R. 1:(D1 re?uire&en s of (n (nnu(! repor + or& 1BD> is usu(!!y

use'% i pi$*s up ( !o fro& Reg. SD>+ 1:(D11 re?uires or& D> forunusu(! e/en s.

283 R. 1 I .


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2 I . (n' 1BDF2ii3 One $(nno sue pri/( e!y for 'ep(r ures fro& he

re?uire&en s of I . :B: on!y he SEC $(n enfor$e i 2-u possi-!y $(n )i h (n ifr(u' pro/isions% e $. for o&issions%e $.3

2$3 Re!e(se :; 7us 'is$!ose fu ure un$er (in ies )i h ( po en i(! &( eri(! i&p($

2'3 PSLRA in 199;% refor& (''e' +7, o he ,:: A$ (n' + o he ,:< A$ . =o h pro/i'e 0s(fe h(r-ors forfor)(r'D!oo*ing e(rnings pro e$ ions if ( 0&e(ningfu!

$(u ion(ry s ( e&en is in$!u'e'. See 'is$ussion infr(.283 0P!(in Eng!ish ru!es R. :B1

2-3 SD> I . :B12(3 re?uires fin(n$i(! '( ( fro& he pre/ious ;

ye(rs+ :B12-3 re?uires (ny (''i ion(! ye(rs nee'e' o *eep heinfor&( ion fro& -eing 0&is!e('ing.

2$3 So he ?ues ion is is o&i ing he 'rop 0&is!e('ing Cou!' -e ( re(! 'e$!ine% -u hen (g(in $ou!' -e in'us ryD)i'e 'e$!ineor ($$oun ing $h(nge. In/es ors )i!! )(n o *no) his (n')i!! )(n o *no) )hy.

1 of


19/44

2'3 No e I . :B1 Ins ru$ ions% 8% V 8 for &( eri(! fu ureun$er (in ies or hings h( (ffe$ $o&p(r(-i!i y of fin(n$i(!'( ( 2!i*e ($$oun ing $h(nges3% you &us 'is$!ose.

2e3 A!so no e I . :B: 2pi$*e' up -y SD1 I . 112h33% he 75@Ase$ ion. I e$!ipses &u$h of he (-o/e+ -(si$(!!y% you,/e go o

'is$!ose e/ery hing h( has or could &( eri(!!y (ffe$ he$o&p(ny.

283 Issuer ren s -ui!'ing fro& p(r nership. CEO,s )ife is ( p(r ner inh( p(r nership.

2(3 5o )e nee' o 'es$ri-e he -ui!'ing SD> I . 1B8 2pi$*e' up -y SD1 I . 112-33 re?uires 'is$!osure of &( eri(! or prin$ip(! proper ies. The (ns)er is un$!e(r on hese !i&i e' f($ s.

2-3 SD> I .


20/44

2i3 No e re?uire&en is h( i would eop(r'iJe her(ns($ ion no h( i could .

2 :B: 275@A3 $ou!' re?uire his.

2;3 One DP &(*es ( su-s (n i(!!y higher s(!(ry h(n he o her DP,s+'is$!osure )ou!' serious!y i&p(ir re!( ions -e )een he&.

2(3 SD> I . I . 1B:%re?uiring 'is$!osure of !eg(! pro$ee'ings.

2-3 A!so no e SD> I .


21/44

2$3 If here is no !i ig( ion% hen here is no ru!e on poin houghhe SEC &igh -ring ( r(n$h(r'D ype sui .

8. 7( eri(!i y

(3 7( eri(!i y is everything . (i!ure o 'is$!ose is on!y ( pro-!e& if he'is$!osure )ou!' -e &( eri(!.

-3 =(si$ /. Le/inson Supre&e Cour s(ys 0&( eri(! &e(ns he pro-(-i!i y 4 &(gni u'e of (n e/en 'e er&ines &( eri(!i y for$on ingen or spe$u!( i/e e/en s+ i is ( f($ Dspe$ifi$ in?uiry (n' here isno -righ !ine ru!e 2fro& Te4(s Gu!f Su!phur 3

213 =(si$ is &ore i&por (n in h( i ('op s he 0fr(u' on he &(r*eheory i.e.% ( p!(in iff 'oesn, h(/e o pro/e ($ u(! re!i(n$e on (&iss ( e&en or o&ission 2re!i(n$e is presu&e'% (n' he 'efen'(n&us re-u i 3.

$3 The 0&igh D)ou!' 'e-( e 'oes ( f($ nee' o -e certain o i&p($ (nin/es or,s $hoi$e% or nee' i on!y might i&p($ s(&e

213 Supre&e Cour s(ys nei her hey s(y 2in =(si$3 ( 0su-s (n i(!!i*e!ihoo' is )h( is re?uire' 2)hi$h isn, /ery he!pfu!3.

'3 =(si$ $our s(ys in foo no e 1 h( Mno $o&&en , )i!! suffi$e (s no&is!e('ing if no disclosure is mandated . This is pro-!e&( i$ -e$(use

213 Corpor( ion ypi$(!!y h(s no 'u y o $orre$ ( ru&or un!ess i $(&efro& (n insi'er+ po en i(! !i(-i!i y for$es $orpor( ions o on!y$orre$ f(!se ru&ors% )hi$h *i!!s he effe$ i/eness of ( Mno$o&&en .,

283 E4$h(nges 2!i*e N SE3 of en re?uire 'is$!osure.

2:3 Co&p(ny &(y h(/e ( 'u y o 'is$!ose if e/en s h(/e $(use' priors ( e&en s o -e$o&e &is!e('ing.

2


22/44

2$3 Ho) 'oes his (ffe$ 75@A T)o p(r (n(!ysis+ firs % figureou if his is !i*e!y o o$$ur+ if you $(n, figure h( % (s* )h(he po en i(! i&p($ )ou!' -e if i 'oes o$$ur.

283 EPA or'ers $o&p(ny o s op 'is$h(rge fro& i s p!(n .

2(3 Ins ru$ ion ; of SD1 *i$*s you o SD> I . 1B12$321324ii3 en/iron&en (! $!(i&s (re h(n'!e' sep(r( e!y.

:. Re'u$ing 'is$!osure ris*s 2esp. for)(r'D!oo*ing s ( e&en s3

(3 In Re #or!'s of #on'er 2#O#3 Se$. Li . 9 h Cir. (nnoun$es he(espea0s caution1 'o$ rine h( is% ( for)(r'D!oo*ing s ( e&en inhe prospe$ us is per&issi-!e if ($$o&p(nie' -y ( &e(ningfu! $(u ion(rys ( e&en .

213 The s ( e&en $(n, -e ( 0-!(n*e )(rning 2i.e.% 0(!! se$uri ies (reris*y ype s ( e&en 3+ i &us -e (i!ore' o spe$ifi$ ris*s. The)(rnings (!so nee' o -e pro&inen (n' shou!' 'is$!ose (ny(ssu&p ions re!ie' upon.

283 The !e/e! of pro e$ ion (ffor'e' /(ries (&ong Cir$ui s 28 n' gi/es&ore pro e$ ion h(n ; h+ so&e $ir$ui s% !i*e


23/44

2'3 There is (!so ( s(fe h(r-or for oral statements + i is !i&i e' ohe issuer (n' 0persons ($ ing on -eh(!f of he issuer + he0s(fe h(r-or is -(si$(!!y he s(&e% )i h he (''i ion h( he)(rnings $(n -e in ( 'o$u&en in$orpor( e' -y he or(!s ( e&en .

2e3 There (re (!so 0-(' -oy e4$ep ions e4$!u'ing he 0s(feh(r-or fro& persons $on/i$ e' of ( fe!ony in he p(s hreeye(rs% issuers of penny s o$*s% IPOs% e $.

2:3 Heigh ene' p!e('ing s (n'(r's

2(3 The PSLRA in$re(se' he !e/e! of 'e (i! h( &us -e in$!u'e'in ( p!(in iff,s p!e('ings.

2-3 Re$(!! fro& =usiness Asso$i( ions h( % un'er Erns @ Erns /.Ho$hfe!'er% o (sser ( /(!i' 1B-D; (n ifr(u' pro/ision% you&us (!!ege s$ien er.

2i3 Prior o he PSLRA% he /(rious $ir$ui s h(' /(rying p!e('ing s (n'(r's for s$ien er 2i.e.% 8 n' re?uire' high p(r i$u!(ri y% 9 h )(s ?ui e !(4 (-ou p(r i$u!(ri y3.

2ii3 The PSLRA ('op e' ne) 8152-321D83% )hi$h re?uires ( p!(in iff o p!e('

2(3 or !i ig( ion on &is!e('ing s ( e&en s% e4($ !y )hyhe s ( e&en is &is!e('ing

2-3 or !i ig( ion )i h ( s$ien er re?uire&en 2i.e.% 1B-D;3% particular facts h( gi/e rise o ( strong inference h( he 'efen'(n ($ e' )i h he re?uisi e s ( e of&in'.

2i3 Typi$(!!y% his &e(ns ei her es (-!ishing ( motiveand opportunity o $o&&i fr(u'% or rec#lessnessin he 'efen'(n ,s $ons$ious -eh(/ior.

2iii3 No e h( his is ($ u(!!y ( higher s (n'(r' h(n h(e&p!oye' -y e/en he 8 n' Cir.

2


24/44

-3 There (re% ho)e/er% (rgu&en s (g(ins re?uiring 'is$!osure

213 In/es ors )i!! 'e&(n' infor&( ion% espe$i(!!y ins i u ion(! in/es ors)ho h(/e &ore $!ou . This is espe$i(!!y rue for IPOs.

283 A $o&p(ny,s repu ( ion on #(!! S ree &( ers $o&p(nies h( pro/i'e &ore infor&( ion o'(y )i!! -e re( e' -e er )hen heyoffer ( ne) se$uri y o&orro). A!so% $o&p(nies use 'is$!osure (s( sign(!ing 'e/i$e o he &(r*e (-ou he $o&p(ny,s he(! h.

2:3 N SE% NAS5% e $. se!fDregu!( e no one )i!! ris* -eing osse' off(n e4$h(nge% so hey )i!! 'is$!ose.

2


25/44

2ey is h( ( 0se$uri y &us -e so!'% (n' h( he se$uri y isno (n e4e&p one un'er :2(3283 go/ern&en se$uri iesK.

No e h( or(! s ( e&en s $(n gi/e rise o !i(-i!i y here.2-3 A!so (ffir&( i/e 'efense of 0re(son(-!e $(re.

2;3 ,:< A$ 92e3 (nyone 0)i!!fu!!y p(r i$ip( ing in (n ($ h(/io!( es 9 &(nipu!( ion of se$uri y pri$esK.

2(3 This se$ ion is ri''!e' )i h e4$ep ions% so p!(in iffs 'on, !i*ei . No e he s ( u e of !i&i ( ions )i hin one ye(r of 'is$o/eryand hree ye(rs of he /io!( ion.

2-3 A!so no e he M)i!!fu!ness, re?uire&en % (s )e!! (s he f($ h(i 'oes no (pp!y o he OTC &(r*e 21B-D; is e(sier on his3.

2 3 ,:< A$ 1 $i/i! !i(-i!i y for (ny f(!se or &is!e('ing s ( e&en in( ,:< A$ fi!ing.

2(3 >eys p!(in iff &us h(/e pur$h(se' or so!' he se$uri y% he pri$e &us h(/e -een (ffe$ e'% he p!(in iff re!ie' on hes ( e&en % (n' he 'efen'(n $(nno pro/e ( 0goo' f(i h'efense.

2 3 ,:< A$ 1ey Fues ions 2(!! $o/ere' in 'e (i!% infr(3

2(3 #ho &(y sue

2-3 #ho &(y -e sue'

8; of


26/44

2$3 Ho) o &e(sure '(&(ges

2'3 #h( &us he p!(in iff pro/e

2e3 Is here ( 'ue 'i!igen$e 'efense (/(i!(-!e

283 #ho &(y sue

2(3 Anyone )ho pur$h(ses ( se$uri y in ei her he pri&(ry orse$on'(ry &(r*e 2-o h se$ ions3.

2i3 =(rnes /. Osofs*y p!(in iff &us trace his sh(res o hespe$ifi$ offering $h(!!enge'. #hy =e$(use he se$uri y&us -e re!( e' o he regis r( ion s ( e&en 2(rgu(-!ein erpre ( ion3.

2-3 No e 1: pro/i'es ( s ( u e of !i&i ( ions for 11 (n' 182(3283 : ye(rs (f er he offering (n' one ye(r fro& 'is$o/ery.

2$3 1: (!so pro/i'es ( !i&i for 182(3213 ($ ions one ye(r (f erhe /io!( ion.

2:3 #ho &(y -e sue'

2(3 112(3 !is s hose )ho $(n -e sue'

2i3 E/eryone signing he regis r( ion s ( e&en +

2(3 No e his (u o&( i$(!!y in$!u'es he regis r(n 2i.e.%issuer3 -e$(use Ins ru$ ion 1 o or& SD1 re?uires i .

2ii3 5ire$ ors 2(n' hose (-ou o -e 'ire$ ors3 (n' or persons perfor&ing 'ire$ orD!i*e fun$ ions+

2iii3 The U #s+

2i/3 E4per s 2($$oun (n s% e $.3 to the extent of the portioncertified by the expert .

2-3 A!so no e he 1; 07r. =ig e4$ep ion ( person e4er$ising$on ro! 2/i( (gree&en or s o$* o)nership3 o/er (no her is!i(-!e oin !y (n' se/er(!!y o he s(&e e4 en (s he $on ro!!e'

person.

2$3 No e here is no su$h !is for 18.

2


27/44

2$3 11 ( firs -!ush soun's !i*e i uses res$issionD ype '(&(ges -u pro/iso in 112e3 &(*es i &ore !i*e ou DofDpo$*e $os s%)hi$h is &ore in !ine )i h $o&&on !() fr(u'.

2'3 in(!!y% no e h( '(&(ges &us -e re'u$e' o he e4 en h(he defendant pro/es h( he p!(in iff,s !oss )(s fro&

so&e hing o her h(n he &iss ( e&en o&ission. 112e3.2i3 This is soD$(!!e' 0neg( i/e $(us( ion% h( is% he

'efen'(n s &us pro/e hey didn$t $(use he h(r&.

2ii3 A*er&(n /. Ory4 Co&&uni$( ions 'efen'(n &e0neg( i/e $(us( ion -ur'en -y sho)ing h( he pu-!i$ 'i'no re($ ('/erse!y o 'is$!osure of ( &iss ( e&en + in f($ %he pri$e of he s o$* rose. 5efen'(n is no !i(-!e for preD

pu-!i$ 'is$!osure 'e$!ine.

2(3 P!(in iff $oun ers he re!e/(n 'is$!osure '( e should -e '( e of 'is$!osure o he SEC% no he pu-!i$%

-e$(use insi'er r('ing h(' for$e' he pri$e 'o)n (n'U # use' /(rious e$hni?ues o prop he pri$e uphere(f er. Cour ignores -e$(use p!(in iff $(n,

pro/e.

2-3 The $our is unusu(!!y proD'efen'(n in his $(se+ i is pro-(-!y (n ou !ier #O# is &ore !i*e!y o -efo!!o)e'.

2;3 #h( &us he p!(in iff pro/e

2(3 112(3 he &us on!y pro/e (n un rue s ( e&en or o&issionof &( eri(! f($ . There is no reliance re%uirement .

2i3 Re$(!! he =(si$ 0fr(u' on he &(r*e heory.

2ii3 9ut Note 112(3% !(s p(r(gr(ph re!e(se of e(rningss ( e&en $o/ering ( perio' of twelve months (f er heeffe$ i/e '( e re?uires he p!(in iff o pro/e $(us( ion.

2iii3 There is (!so no s$ien er re?uire&en (s here is )i hR. 1B-D;.

2i/3 No e h( here is ( &( eri(!i y re?uire&en % ho)e/er.

2-3 Re$(!! =(rnes /. Osofs*y re?uires p!(in iff o pro/e his sh(res$(&e fro& he spe$ifi$ offering he regis r( ion s ( e&en

re!( e' o.$3 5ue 5i!igen$e 5efenses un'er 11

213 112-3 !is s 0'ue 'i!igen$e (ffir&( i/e 'efenses (/(i!(-!e o'efen'(n s.

2(3 No e h( he issuer is a(solutely (arred fro& (sser ing ( 'ue'i!igen$e 'efense -y 112-3.

8 of


28/44

2-3 The res of he se$ ion 'es$ri-es )hen e4per s (n' none4per s)i!! -e he!' !i(-!e for he 0e4per ise' (n' 0nonDe4per ise'

por ions of he regis r( ion s ( e&en % respe$ i/e!y. No e he$h(r ( he en' of he ou !ine )hi$h su&&(riJes hese

pro/isions.

2$3 E4per s2i3 Are no !i(-!e at all for nonDe4per ise' por ions ( (!!.

112(32ir$her3 e4 re&e!y high s (n'(r'% sin$e hey(re in ( posi ion o *no) )h( is going on. Tough o es (-!ish( 'efense for ei her e4per ise' or nonDe4per ise'.

2-3 Insi'e 5ire$ ors 2young !()yer =irn-(u&3 $ou!' re!y one4per ,s figures% -u $ou!' no re!y on ou si'e $ounse!,s

por ions 2-e$(use h( is $onsi'ere' 0une4per iJe' 3. He &us&(*e his o)n in/es ig( ion.

2$3 Insi'e 5ire$ ors 2o!' !()yer Gr(n 3 $our is h(rsher )i h hi&h(n )i h =irn-(u& -e$(use he,s -een here !onger (n' hush(s gre( er ($$ess o infor&( ion.

2'3 Ou si'e 5ire$ ors 2Aus!(n'er3 he $ou!' re!y on he e4per ,sfigures% -u is on he hoo* for he none4per ise' por ions. He$(n, us re!y on he offi$er,s s ( e&en s 2h(' o ( !e(s re('he prospe$ us"3 >ey you can delegate (ut you are lia(lefor your delegate6s in*estigation .

2e3 Un'er)ri ers 2Co!e&(n3 on!y !i(-!e for none4per ise' por ion% -u &us -e thorough in in/es ig( ing 2i.e.% here% he

8 of


29/44

on!y 0&( or $on r($ !oo*e' ( )(s (n insur(n$e $on r($ h( ,s $er (in!y no enough"3. A!so% U # $(n re!y on (gen % -uis !i(-!e for (gen ,s in/es ig( ion.

2f3 E4per s 2Pe( % 7(r)i$*3 !i(-!e on e4per ise' por ion 'ue oinsuffi$ien in/es ig( ion 'uring he (u'i .

2


30/44

2e3 182(3213 '(&(ges (re !i&i e' o res$ission if he p!(in iff s i!!o)ns he se$uri y+ he $(n on!y pursue '(&(ges if he no !ongero)ns i .

283 182(3283 re$(!! i i&poses !i(-i!i y for misleading statements/omissions in $onne$ ion )i h ( sale/offer to sell a

security -y &e(ns of prospectus or oral communication .2(3 >ey (ffir&( i/e 'efenses 13 &negative causation'( in

su-se$ ion 2-3K (n' 83 &reasonable care in 2(3283 i se!fK

2i3 Re(son(-!e $(re is &u$h !i*e 'ue 'i!igen$e+ see po en i(!'ifferen$es 'is$usse' supr( here% ho)e/er% he 'efense(!so (ppe(rs (/(i!(-!e o (n issuer.

2-3 Gus (fson /. A!!oy' A 0prospe$ us is only ( 'o$u&en use'in ( pu-!i$ offering for 182(3283 purposes+ hus% 182(3283$(nno -e use' o sue o/er ( se$on'(ryD&(r*e r(ns($ ion.

2i3 No e his !i&i s he usefu!ness of 182(3283 -e$(use heissuer r(re!y 'e(!s 'ire$ !y )i h he pur$h(ser% huse!i&in( ing Pin er pri/i y. An' he U # is no !i(-!e )herehe pur$h(ser 'e(! )i h 'e(!er for he s(&e re(son.

2ii3 7os $o&&en ( ors s(y his is ( poor 'e$ision 2(n' ire/erse' ( !o of !o)erD$our pre$e'en 3. The $our uses 1B (s ( 0'efini ion se$ ion ins e(' of referring o 8!i*e hey pro-(-!y ough o.

2$3 No e here is no 0e4per ise' 'efense here !i*e here is un'er 112'3 you h(/e o sho) re(son(-!e $(re (n' $(n, us re!yon e4per s.

. In'e&nifi$( ion% Con ri-u ion% (n' 6oin @ Se/er(! Li(-i!i y

(3 In'e&nifi$( ion shif ing !osses o o her 'efen'(n s

213 Gener(!!y% s ( e !() 'e er&ines )hen ( 'ire$ or offi$er $(n gein'e&nifi$( ion for se$uri ies ($ ions -rough (g(ins he&.

2(3 So&e h(/e 05@O in'e&nifi$( ion s ( u es ypi$(!!y% hey(!!o) in'e&nifi$( ion in goo' f(i h.

283 Offi$i(! SEC posi ion is h( in'e&nifi$( ion is (g(ins pu-!i$ po!i$y.

2(3 SD> I . B8% ;1B% ;18 he s ( u e is si!en + SEC re?uires'is$!osure of effe$ of in'e&nifi$( ion 2 B83 (n' s ( e&en ofSEC,s opinion of in'e&nifi$( ion 2;1B3 o ge ($$e!er( ion.A!so h(/e o (gree o !i ig( e i s (ppropri( eness un'er I .;182h3 o ge ($$e!er( ion.

2-3 G!o-us /. L() Rese(r$h Ser/i$e $our refuses o honorin'e&ni y (gree&en (s (g(ins pu-!i$ po!i$y+ he fe(r is h(U # )ou!' -e $(re!ess if in'e&ni y )(s (!!o)e' in (!!$ir$u&s (n$es.

:B of


31/44


32/44

213 =ough ( 1B% so!' ( 18 )ero " 112e3 2'ifferen$e -e )een(&oun p(i' (n' /(!ue ( i&e of sui pri$e so!' ( 3. Here% yousi&p!y s(y 0 h(n* you.

283 =ough ( 1;% so!' ( ; ;% -e$(use offer pri$e )(s 1B.2 112e3 re?uires h( he pur$h(se pri$e $(nno e4$ee' he offering

pri$e for '(&(ge $o&pu ( ion purposes3.2:3 =ough ( (n' he!' 2 (!ue ( i&e of sui is Jero3.

'3 #h( 'efenses (re (/(i!(-!e o all 'efen'(n s 112e3 neg( i/e$(us( ion% !($* of re!i(n$e 2 ough o sho)3% i&&( eri(!i y.

C. She!f Regis r( ion

1. Pro-!e& Regis r( ion% e $.% is ( -ig% $u&-erso&e pro$ess+ i )ou!' -e ( !oe(sier if $o&p(nies $ou!' us regis er on$e (n' hen pu!! se$uri ies 0off heshe!f.

8. R.


33/44


34/44

213 Aninvestment of money

283 In ( common enterprise

2:3 #i h (n expectation of profits

2os$o In erp!(ne (ry% ( $os&e i$sA&)(yD!i*e pyr(&i' s$he&e s( isfies s ri$ /er i$(!$o&&on(!i y -e$(use he in/es or,s for unes (re $!ose!yie' o hose of he pro&o er,s re$rui &en s$he&e% )hi$h

(!so (ffe$ s he pro&o er,s su$$ess in he en erprise.2-3 =ro(' /ie) in/es or,s for unes nee' on!y -e !in*e' o

pro&o er,s effor s.

2:3 Pro-!e& IID1 Res (ur( eur se!!s 1BW of his profi s e($h o hree!i&i e' p(r ners. They (!so ge 1BW o)nership e($h% p!us he righo ('/ise he res (ur( eur. They &ee (!! he o her e!e&en s of heHo)ey es % so is here $o&&on(!i y here

2(3 Pro-(-!y yes. There is ( pooling of funds (&ong in/es ors% sohis &ee s horiJon (! $o&&on(!i y.

2-3 The *ey here is h( $o&&on(!i y is $onsi'ere' ( oughs (n'(r' o &ee + i is he &os s ringen of he Ho)eye!e&en s.

e3 #h( is &e(n -y 0e4pe$ ( ion of profi .

213 Uni e' Housing /. or&(n A issue (re sh(res in ( nonprofihousing $oDop. The sh(res $(nno -e r(nsferre' or p!e'ge' for!o(ns. They $(n 'es$en' on!y o he ho!'er,s spouse. CoDop /o ingis not on ( perDsh(re -(sis.

:< of


35/44

2(3 He!' conomic 4eality1 go/erns )he her his is ( se$uri yor no here% he $our (pp!ies he Ho)ey es .

2-3 Here% here is no e4pe$ ( ion of profi sin$e he sh(res $(nno -e r(nsferre'% e $.% so he sh(res (re no 0se$uri ies.

2$3 Gren(e'er 2in no es fo!!o)ing $(se3 if (ny profi &o i/e is pure!y in$i'en (!% i is s i!! no ( 0se$uri y 2so e/en if heycould -e r(nsferre'% hey &(y no -e 0se$uri ies% hough hisis ( $!oser $(!!3.

283 A!so see 'is$ussion of 0s o$* (n' L(n're h% infr(.

2(3 E'. A pure!y ($('e&i$ ?ues ion 'oes his &e(n h(e$ono&i$ re(!i y L(n're h 'e er&ines )he her his is ( 0s o$*2)hi$h is ( !is e' i e& in 83 (n' Ho)ey 'e er&ines if i is (n0in/es &en $on r($ 2(no her !is e' i e&3% or 'oes Ho)ey'e er&ine -o h K

f3 #h( is &e(n -y 0in/es &en of &oney

213 In ern( ion(! =ro herhoo' of Te(&s ers /. 5(nie! A issue is (non$on ri-u ory% $o&pu!sory pension p!(n.

2(3 He!' his is no (n 0in/es &en of &oney -e$(use he por ionof his p(y$he$* use' o fun' he pension is no sep(r( e' fro&his gener(! $o&pens( ion 2sin$e his is ( 'efine'D-enefi r( herh(n ( 'efine'D$on ri-u ion p!(n3. A!so% here is no re!( ionship

-e )een ho) &u$h he p(ys in (n' ho) &u$h he re$ei/es fro&he p!(n.

2-3 No e foo no e 18 (n 0in/es &en of &oney nee' no -e$(sh+ goo's (n' ser/i$es $oun % oo.

2$3 A!so no e h( he $our sugges s h( ERISA regu!( ion of pensions )ou!' &(*e SEC $o/er(ge re'un'(n . This see&s o -e (n (f er hough % -u i is i&por (n !( er 2!i*e #e(/er%s(ying h( 5IC regu!( ion pree&p s he use of se$uri ies !()sin so&e $(ses3.

283 SEC Re!e(se 1 SEC (*es posi ion h( /o!un (ry%$on ri-u ory pension p!(ns (re 0se$uri ies.


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213 Righ o re$ei/e 'i/i'en's )hen 'e$!(re'

283 Nego i(-i!i y

2:3 P!e'ge(-i!i y

2


37/44

. HH,s ('/i$e in 'e er&ining if so&e hing is ( se$uri y always !oo* o hegener(! purpose of he se$uri ies !()s 2pre/en ing fr(u' (n' 'is$!osure ofinfor&( ion o he in/es ing pu-!i$3.

=. E4e&p e' Se$uri ies

. :2(328D 3 of he ,:: A$ e4e&p s $er (in se$uri ies fro& ,:: A$re?uire&en s. =ro('!y spe(*ing% hey (re

(3 283 Se$uri ies issue' -y or gu(r(n ee' -y he fe'er(! or ( s ( e !o$(!go/ern&en % or -y ( n( ion(! s ( e -(n*.

-3 2:3 Shor er& no es 2Y 9 &on hs3 use' in ( $urren r(ns($ ion.

$3 2


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r( es rising% for = in eres r( es f(!!ing3 -y 0s)(pping heir in eres p(y&en s.

1 . This r(ns($ ion $(n -es -e f($i!i ( e' -y (n in er&e'i(ry su$h (s ( -(n*.This is so for se/er(! re(sons

(3 The -(n* $(n ($ (s ( matchma#er % sin$e he se(r$h $os s for ( fir& ofin' (no her fir& )i h opposing -u $o&p!i&en (ry ris* )ou!' -e

prohi-i i/e.

-3 The )o p(r ies &(y -e )(ry of e($h o her,s $re'i )or hiness+ he -(n*(s in er&e'i(ry $(n so!/e his pro-!e&.

$3 No ion(! (&oun &(y -e 'ifferen -e$(use of 'iffering siJes of heen erprises on e($h si'e of he r(ns($ ion+ -(n* $(n us se up &u! ip!er(ns($ ions )i h s&(!! p(r ies o s( isfy nee's of ( !(rge p(r y.

'3 The (&oun of i&e he he'ge is nee'e' &(y no &( $h% ei her+ he -(n*$(n ($ (s ( 0so!/en o h(n'!e his pro-!e& 2no e in his s$en(rio% he

-(n* ($ u(!!y (*es so&e in eres r( e ris*3.

E. Pro$ess Pri$ing 7o'e!s

1 . =e$(use fin'ing physi$(! $oun erp(r s is e4pensi/e% he -(n* $(n se up (model o 'e er&ine )h( o -uy 2!i*e in eres r( e fu ures3 h( &( $hesin eres r( e &o/e&en s so he -(n* $(n &(*e f!o( ing r( e p(y&en s.

(3 7os $o&&on su$h &o'e! is he =!($*DS$ho!es Op ion Pri$ing 7o'e!+hough no) !(rge!y ou of f(/or% i ho!'s 2)i h so&e heroi$(ssu&p ions3 h( you on!y nee' o *no) /o!( i!i y% he i&e perio'% (n'he e4er$ise pri$e o pri$e (n op ion.

213 If he e4er$ise pri$e is !o)% hen he op ion pri$e is high 2-e$(use

he possi-i!i y of e4er$ising )hen he &(r*e is (-o/e he e4er$ise pri$e is gre( er3.

283 If he /o!( i!i y is high% hen he op ion pri$e is high 2-e$(use you'on, have o se!!% you 'on, h(/e o )orry (-ou -ig 'rops+ hus%high /o!( i!i y &e(ns here is ( gre( er $h(n$e for (-o/eD(/er(ge

profi on e4er$ise -e$(use i &e(ns -e er o''s on -ig pri$e u&ps3.

213 If he i&e perio' is !ong% he op ion pri$e is high 2-e$(use here is&ore i&e for he &(r*e pri$e o po en i(!!y rise3.

III. S ( u ory E4e&p ions

A. No e ( he ou se h( e($h of hese e4e&p ions only e4e&p ( se$uri y fro& ;+hey 'o not e4e&p one fro& he (n ifr(u' ru!es.

=.


39/44

ey e!e&en s for


40/44

2ii3 on-insiders nee' disclosure of he infor&( ion h()ou!' -e in he regis r( ion s ( e&en .

2(3 No e h( so&e $our s )ou!' 'is(gree% &(y re?uire'iffering !e/e!s of 'is$!osure.

2iii3 A!so no e he sophis i$( ion of he offerees (re ( issue (n' all he offerees &us -e 'ee&e' sophis i$( e' withregards to the securities . 2Here% *no)!e'ge (-ou oi! )e!!s'oes no e?u( e o sophis i$( ion (-ou in eres s in hose)e!!s3.

2-3 The nu&-er of uni s offere'

2$3 The siJe of he offer 2i.e.% he fin(n$i(! s (*es ( ris*3

2'3 The &(nner of he offer. 2i.e.% o he gener(! pu-!i$ ('/er ising Ch(n$es for re'is ri-u ion % e $.3

2


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=. Sophis i$( ion NO he 'o$ ors *no) ( !o (-ou &e'i$ine% -u no hingin'i$( es hey *no) (ny hing (-ou -usiness.

213 The *ey is he (-i!i y o (ssess ris*s. ou h(/e o !oo* o he0Ho&er Si&pson of he group he !e(s $o&&on 'eno&in( or$on ro!s for sophis i$( ion purposes.

283 No e here is (n uns ( e' presu&p ion )e(! hy persons (re &oresophis i$( e' h(n poor persons. Thus% ( 'o$ or )ho is us ou of&e'i$(! s$hoo! (n' $rushe' )i h 'e- is &ore !i*e!y o -e 'ee&e'unsophis i$( e' h(n (n es (-!ishe' surgeon. The *ey here is heability to absorb ris# .

2:3 As ( -usiness !()yer% ho) 'o you (/oi' his pro-!e& =es (ns)eris o $ir$u!( e ?ues ionn(ires 2 before he offer &e&o"3 o po en i(!offerees% (s*ing (-ou heir pre/ious -usiness e4perien$e (n'in/es &en e4perien$e% espe$i(!!y on o her si&i!(r pri/( e 'e(!s2sin$e h( )ou!' &e(n o her !() fir&s (re $o&for (-!e )i h hissophis i$( ion3.

C. Infor&( ion ou 'on, )(n o re!y on (n ($$ess (rgu&en + he 'o$ ors (re noin ( s rong -(rg(ining posi ion% so hey,re un!i*e!y o -e (-!e o 'e&(n'infor&( ion. Thus% i ,s -es o 'is$!ose% us (s you )ou!' in ( regis r( ions ( e&en .

5. A-i!i y o Re'is ri-u e Gener(!!y% his is !ess of ( pro-!e& h(n he o her f($ ors+i ,s &os !y ( pro-!e& )here he res(!e )ou!' -e immediate 2i.e.% using he firss(!e (s ( $on'ui o he se$on'3. To (/oi' pro-!e&s% pu !i&i s on r(nsfer(-i!i y.

E. Nu&-er of Offerees The &(gi$ nu&-er is pro-(-!y 8BD8;% so )e,re fine !o$(!!y.=ig ?ues ion is his H@H is -ui!'ing ho&es n( ion)i'e% so 'o )e in egr( e (!!hose r(ns($ ions

213 Un'er 7urphy 2&u! ip!e $(-!e T sys e&s3 (n' R. 1< % you pro-(-!y )ou!' in egr( e here.

.


42/44

2:3 T(4 e4e&p org(niJ( ions.

2ey is h( he issuer on!ynee's o reasonably believe h( he represen ( i/e s( isfies (!! he $on'i ions!is e'.

5. R. ;B82(3 go/erns in egr( ion. Gener(!!y 0s(fe h(r-or if offers (re &('eou si'e of si4 &on hs fro& e($h o her 2i.e.% ( si4D&on h 0g(p $(n s(/e you3.

E. R. ;B82-3 es (-!ishes 'is$!osure re?uire&en s 2&us on!y -e gi/en onon($$re'i e' in/es ors3. I is extremely 'e (i!e'.

. R. ;B82$3 -(ns 0gener(! so!i$i ( ions 2un!ess i $o&p!ies )i h R. 1:;$3

G. R. ;B82'3 re?uires 0re(son(-!e $(re o (ssure he se$uri ies (re no reso!' 2(n' pro/i'es e4(&p!es of su$h $(re3.

1 . R. ;B is he most important ru!e in Reg. 5.

A. I is he -(si$ 0s(fe h(r-or for 35 2R. ;B 2-32832i33.

2(3 Issuer &us 0re(son(-!y -e!ie/e here (re no &ore h(n :;2(n' re$(!! ($$re'i e' in/es ors 'on, $oun 3.

2:3 Sophis i$( ion of In/es ors 2R. ;B 2-32832ii33

2(3 Non($$re'i e' in/es ors 2)ho 'on, h(/e ($$re'i e' pur$h(serrepresen ( i/es3 h(/e enough fin(n$i(! e4perien$e o e/(!u( ehe ris*s.

2


43/44

C. Pro-!e& Se 2s(&e f($ s $on/(!es$en ho&es3

213 In egr( ion R. ;B82(3 pro/i'es ( D&on h s(fe h(r-or% so you $(ns ru$ ure hese 'e(!s o &ee i . If no % you,re -($* o he fi/eDf($ ors of R. 1< .

283 Infor&( ion If you,re on!y se!!ing o ($$re'i e' in/es ors% no nee'o pro/i'e (ny un'er R. ;B82-3. If here,s ( &i4% i ,s -es o

pro/i'e i o e/ery-o'y.

2:3 Nu&-er of offerees E(si!y un'er he :; &(r*. An' here,s e/enfe)er h(n h( un'er R. ;B12e32132i/3 you 'on, $oun ($$re'i e'in/es ors. P!us% re&e&-er h( he issuer nee' on!y 0re(son(-!y

-e!ie/e here (re fe)er h(n :;.

2


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?ig. : ue iligence efenses

xpertised 2ortion Non- xpertised 2ortion

xperts 112-32:32=3

0re(son(-!e groun's for -e!ief(f er re(son(-!e in/es ig( ion.

112(32

35securities regulation outline

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