Securities Regulation

by Palmiter, Alan R.

• ISBN13: 9780735551008
• ISBN10: 0735551006
• Edition: 3rd
• Format: Paperback
• Copyright: 2005-03-28
• Publisher: Wolters Kluwer

Summary

From basic concepts To The most recent developments, this popular study guide explores and explains federal securities regulation in a proven-effective format that complements any casebook. Students depend on Securities Regulations: Examples & Explanations because it gives them what they need: coverage of key concepts of securities regulation, such as public offerings, exemptions from registration, liability in securities offerings, materiality, definition of 'security,' securities fraud, insider trading, SEC enforcement, and cross-border regulation examples and explanations approach that reinforces learning by combining textual material with well-written examples, questions, and explanations to test student comprehension of the materials and provide practice in applying information to fact patterns assistance in navigating a complex subject, beginning with clear delineations of the basic concepts of securities regulation (markets, federal/state, disclosure philosophy) and then applying the concepts in specific areas numerous examples drawn from newsworthy events, including the initial public offering of Microsoft, recent accounting scandals, even Martha Stewart's trading content corresponds To The topics in the leading casebooks, starting with historical background and moving through the Securities Act of 1933 and Securities Exchange Act of 1934 sound and logical organization, moving from major themes to specifics of regulation of securities offerings and market trading clear and straightforward writing style the Third Edition keeps pace with developments in the law: Sarbanes-Oxley Act comprehensive overview and developments, including new problems new SEC rules on expanded risk disclosure, company certifications, and lawyer 'up the ladder' reporting new material on IPO abuses: spinning, flipping, gun-jumping new NYSE and NASDAQ rules on corporate governance listing standards and stock analysts new and updated cases on definition of securities (SEC v. Edwards, Caiola v. Citibank), securities fraud (Gallagher v. Abbott Labs, In re Razorfish), and insider trading (SEC v. Yun) new and revised examples, including Enron and Martha Stewart

Table of Contents

Preface	xix
Acknowledgments	xxi
Special Notice	xxiii
Chapter 1. Introduction to Securities Markets and Regulation	1	(38)
§ 1.1 Securities Markets and Participants	1	(7)
§1.1.1 Primary and Secondary Markets	1	(2)
§1.1.2 Functions of Securities Markets	3	(1)
§1.1.3 Participants in Securities Markets	4	(2)
§1.1.4 Interconnection among Financial Markets	6	(1)
§1.1.5 New Technologies	7	(1)
Examples and Explanations	8	(5)
§1.2 Efficiency of Public Stock Markets	13	(2)
Examples and Explanations	15	(4)
§1.3 Federal Securities Regulation-Overview	19	(15)
§1.3.1 Securities Act of 1933	19	(1)
§1.3.2 Securities Exchange Act of 1934	20	(2)
§1.3.3 Specialized Securities Laws	22	(1)
§1.3.4 Sarbanes-Oxley Act of 2002	23	(5)
§1.3.5 Securities and Exchange Commission	28	(4)
§1.3.6 Evaluation of Mandatory Disclosure	32	(2)
§1.4 State Securities Regulation-State Blue Sky Laws	34	(2)
§1.5 SEC Exemptive Power	36	(3)
Chapter 2. Definition of Security	39	(30)
§2.1 Implications of Definition	40	(1)
§2.2 Testing for a "Security"	40	(2)
§2.2.1 Investment Contracts-The Howey Test	41	(1)
§2.2.2 Risk Capital Test	42	(1)
§2.3 "Securities" in Varying Contexts	42	(10)
§2.3.1 Real Estate as Securities	43	(1)
§2.3.2 Business Interests as Securities	43	(2)
§2.3.3 Pension Plans as Securities	45	(1)
§2.3.4 Notes as Securities	46	(3)
§2.3.5 Bank Instruments as Securities	49	(2)
§2.3.6 "Stock" as Security	51	(1)
Examples and Explanations	52	(17)
Chapter 3. Materiality	69	(28)
§3.1 Definition of Materiality	69	(3)
§3.1.1 "Substantial Likelihood" Test	70	(1)
§3.1.2 Who Is a Reasonable Investor?	70	(1)
§3.1.3 Relationship of Materiality and Duty to Disclose	71	(1)
§3.2 Materiality-Types of Information	72	(7)
§3.2.1 Historic Information	72	(1)
§3.2.2 Speculative Information	73	(1)
§3.2.3 "Soft Information"	74	(3)
§3.2.4 Information About Management Integrity	77	(1)
§3.2.5 Environmental Disclosure	78	(1)
§3.3 Materiality in Context: "Total Mix" of Information	79	(5)
§3.3.1 "Total Mix" Test	79	(1)
§3.3.2 Safe Harbors for Forward-Looking Statements	80	(4)
Examples and Explanations	84	(13)
Chapter 4. Registration of Securities Offerings	97	(50)
§4.1 Distribution of Securities to Public Investors	97	(6)
§4.1.1 Types of Public Offerings	97	(2)
§4.1.2 Pricing and Commissions in a Public Offering	99	(3)
§4.1.3 Documentation in a Public Offering	102	(1)
Examples and Explanations	103	(5)
§4.2 Registration of Public Offerings	108	(10)
§4.2.1 Section 5: The Heart of the Securities Act	109	(1)
§4.2.2 Contents of Registration Statement	110	(1)
§4.2.3 Preparation of Registration Statement	111	(1)
§4.2.4 SEC Review and Effectiveness of the Registration Statement	112	(2)
§4.2.5 Purchases during Registration	114	(1)
§4.2.6 State Regulation of Public Offerings	115	(3)
Examples and Explanations	118	(7)
§4.3 Managed Disclosure during Registration - "Gun-Jumping"	125	(10)
§4.3.1 Prefiling Period	127	(2)
§4.3.2 Waiting Period	129	(3)
§4.3.3 Posteffective Period	132	(3)
Examples and Explanations	135	(12)
Chapter 5. Exemptions from Securities Act Registration	147	(42)
§5.1 Exempt Securities	148	(1)
§5.2 Transaction Exemptions	149	(13)
§5.2.1 Intrastate Offerings	151	(2)
§5.2.2 Private Placements	153	(2)
§5.2.3 Small Offerings	155	(2)
§5.2.4 Regulation D	157	(5)
§5.2.5 Issuer Exchanges	162	(1)
§5.3 State Blue Sky Exemptions	162	(3)
Examples and Explanations	165	(24)
Chapter 6. Securities Act Liability	189	(42)
§6.1 Common Law of Misrepresentation	190	(2)
§6.1.1 Common Law Deceit	190	(1)
§6.1.2 Equitable Rescission	191	(1)
§6.2 Section 12(a)(1): Violations of S5	192	(2)
§6.2.1 Strict Liability	192	(1)
§6.2.2 "Statutory Sellers"	193	(1)
§6.2.3 Limitations Period	194	(1)
§6.3 Section 11: Misrepresentations in Registration Statement	194	(9)
§6.3.1 Section 11 Plaintiffs	194	(1)
§6.3.2 Section 11 Defendants	195	(1)
§6.3.3 Material Misinformation in Registration Statement	196	(1)
§6.3.4 Culpability-Defenses and Limitations on Liability	196	(5)
§6.3.5 Reliance	201	(1)
§6.3.6 Loss Causation	201	(1)
§6.3.7 Damages	202	(1)
§6.3.8 Periods of Limitations and Repose	202	(1)
§6.4 Section 12(a)(2): Misrepresentations in "Public" Offerings	203	(4)
§6.4.1 Coverage	203	(2)
§6.4.2 Section 12(a)(2) Defendants	205	(1)
§6.4.3 Elements of §12(a)(2) Rescission Action	205	(2)
§6.4.4 Periods of Limitations and Repose	207	(1)
§6.5 Section 15: Liability of Control Persons	207	(1)
§6.6 Fraud Liability under State Blue Sky Laws	207	(3)
Examples and Explanations	210	(21)
Chapter 7. Secondary and Other Postoffering Distributions	231	(30)
§7.1 The §4(1) Exemption: Transactions by Issuers, Underwriters, and Dealers	233	(5)
§7.1.1 Agent "for Issuer"	235	(1)
§7.1.2 Purchaser from Issuer "with a View" to Distribute	236	(1)
§7.1.3 Underwriter for "Control Person"	237	(1)
§7.2 Exemptions: Transactions Not Involving an "Issuer, Underwriter, or Dealer"	238	(5)
§7.2.1 Rule 144: Secondary Distributions in Public Markets	239	(2)
§7.2.2 Exemptions for Secondary Private Placements	241	(2)
§7.3 Corporate Reorganizations and Recapitalizations	243	(2)
§7.3.1 Issuer Exchanges	243	(1)
§7.3.2 Fundamental Corporate Transactions- Rule 145	243	(1)
§7.3.3 Downstream Sales and Spinoffs	244	(1)
§7.3.4 Warrants, Options, and Conversion Privileges	245	(1)
§7.4 Resales under Blue Sky Laws	245	(2)
Examples and Explanations	247	(14)
Chapter 8. Securities Exchange Act of 1934	261	(44)
§8.1 Regulation of Securities Trading Markets	263	(3)
§8.1.1 Regulation of Stock Exchanges	263	(2)
§8.1.2 Regulation of Over-the-Counter Market	265	(1)
§8.1.3 Regulation of Collateral Market Participants	266	(1)
§8.2 Regulation of Abusive Market Practices	266	(4)
§8.2.1 Market Manipulation	266	(2)
§8.2.2 Short Selling	268	(2)
§8.2.3 Purchasing Securities on Margin	270	(1)
§8.3 Regulation of Public Companies	270	(17)
§8.3.1 Registration with the SEC	271	(1)
§8.3.2 Periodic Disclosure	272	(4)
§8.3.3 False or Misleading SEC Filings	276	(1)
§8.3.4 Oversight of Corporate Misconduct	276	(6)
§8.3.5 Solicitation of Proxies (a Summary)	282	(2)
§8.3.6 Tender Offers and Control Changes (a Summary)	284	(3)
Examples and Explanations	287	(18)
Chapter 9. Rule 10b-5	305	(52)
§9.1 Rule 10b-5 Overview	305	(5)
§9.1.1 History of Rule 10b-5	305	(1)
§9.1.2 Some Essential 10b-5 Pointers	306	(2)
§9.1.3 Private 10b-5 Actions and SEC Enforcement	308	(1)
§9.1.4 Typical 10b-5 Cases	309	(1)
§9.2 Scope of Private 10b-5 Action	310	(6)
§9.2.1 Purchasers and Sellers: 10b-5 Standing	311	(1)
§9.2.2 Primary Violators: 10b-5 Defendants	312	(2)
§9.2.3 Fraud "in Connection with" Securities Transactions	314	(2)
S9.3 Fraud Elements of Private 10b-5 Action	316	(14)
§9.3.1 Material Deception	316	(4)
§9.3.2 Scienter - "Manipulative or Deceptive Device or Contrivance"	320	(3)
§9.3.3 Reliance and Causation	323	(2)
§9.3.4 Damages	325	(4)
§9.3.5 Nature of 10b-5 Liability	329	(1)
§9.4 Defenses in Private 10b-5 Action	330	(4)
§9.4.1 Limitations and Repose Periods	330	(1)
§9.4.2 In Pari Delicto Defense	331	(1)
§9.4.3 Contribution and Indemnification	332	(1)
§9.4.4 Contract Defenses	333	(1)
§9.5 Comparison to Other Securities Fraud Remedies	334	(7)
§9.5.1 Express Federal Remedies for Securities Fraud	334	(2)
§9.5.2 State Law Remedies	336	(1)
§9.5.3 Racketeer Influenced and Corrupt Organizations Act (Private RICO)	337	(3)
§9.5.4 Arbitration and Private Ordering	340	(1)
Examples and Explanations	341	(16)
Chapter 10. Insider Trading	357	(44)
§10.1 Introduction to Insider Trading	358	(2)
§10.1.1 Classic Insider Trading	358	(1)
§10.1.2 Misappropriation of Information-Outsider Trading	358	(1)
§10.1.3 Theories for Regulation of Insider Trading	358	(2)
§10.2 Rule 10b-5 and Insider Trading	360	(13)
§10.2.1 Duty to "Abstain or Disclose"	360	(4)
§10.2.2 Insider Trading Rules	364	(1)
§10.2.3 Outsider Trading-Misappropriation Liability	365	(4)
§10.2.4 Remedies for Insider Trading	369	(2)
§10.2.5 Regulation FD and Selective Disclosure	371	(2)
Examples and Explanations	373	(10)
§10.3 Short-Swing Insider Profits: Disclosure and Disgorgement	383	(7)
§10.3.1 Coverage of §16	383	(1)
§10.3.2 Disgorging Short-Swing Profits-Mechanical Test	384	(2)
§10.3.3 Special Interpretive Issues	386	(3)
§10.3.4 Section 16(b) Litigation	389	(1)
§10.4 Sarbanes-Oxley Regulation of Insider Trading	390	(3)
§10.4.1 Insider Trading during Pension Plan Trading Blackout	390	(1)
§10.4.2 Incentive Pay and Insider Trading While Financials Misstated	391	(2)
Examples and Explanations	393	(8)
Chapter 11. Regulation of Securities Industry	401	(32)
§11.1 Capacities of Securities Professionals	402	(1)
§11.2 Broker-Dealer Regulation	402	(16)
§11.2.1 SEC and NASD Supervision	403	(1)
§11.2.2 Regulation in Public Offerings	404	(2)
§11.2.3 Disclosure Responsibilities	406	(1)
§11.2.4 Standards of Conduct	407	(8)
§11.2.5 Enforcement of Customer Rights	415	(2)
§11.2.6 Insurance of Customer Accounts	417	(1)
§11.2.7 State Blue Sky Regulation	417	(1)
§11.3 Investment Adviser Regulation	418	(2)
§11.3.1 Definition of Investment Adviser	418	(1)
§11.3.2 Federal Regulation of Investment Advisers	418	(2)
§11.3.3 State Blue Sky Regulation	420	(1)
Examples and Explanations	420	(13)
Chapter 12. Public Enforcement	433	(36)
§12.1 SEC Investigations	433	(3)
§12.1.1 Investigations: Formal and Informal	434	(1)
§12.1.2 Investigative Powers	435	(1)
§12.2 SEC Administrative Enforcement	436	(4)
§12.2.1 SEC Administrative Enforcement Powers	437	(1)
§12.2.2 SEC Disciplinary Powers	438	(1)
§12.2.3 SEC Settlements and Consent Decrees	439	(1)
§12.3 Judicial Enforcement: Injunctions and Other Remedies	440	(4)
§12.3.1 Standard for Relief	440	(1)
§12.3.2 Types of Relief	441	(1)
§12.3.3 Effect of Injunction	442	(1)
§12.3.4 Modification or Dissolution of SEC Injunctions	443	(1)
§12.3.5 Statute of Limitations	443	(1)
§12.4 Enforcement against Securities Professionals	444	(7)
§12.4.1 SEC Rules of Practice	444	(1)
§12.4.2 Accountant Discipline	445	(2)
§12.4.3 Lawyer Discipline	447	(1)
§12.4.4 Reporting "Up the Ladder"	448	(3)
§12.5 Criminal Enforcement	451	(10)
§12.5.1 Use of Criminal Law in Securities Enforcement	451	(1)
§12.5.2 Criminal Violations of Federal Securities Law	452	(1)
§12.5.3 Securities Activities Creating Criminal Liability	452	(3)
§12.5.4 Non-securities Criminal Law Applied to Securities Activities	455	(2)
§12.5.5 Sentencing of Individual and Corporate Offenders	457	(2)
§12.5.6 Parallel Enforcement	459	(2)
§12.6 State Enforcement	461	(2)
§12.6.1 New York's Martin Act	461	(1)
§12.6.2 Enforcement Actions against Securities Firms	462	(1)
Examples and Explanations	463	(6)
Chapter 13. U.S. Regulation of Cross-Border Securities Transactions	469	(40)
§13.1 Offshore Offerings by U.S. Issuers (and Foreign Issuers)	469	(7)
§13.1.1 A Regulatory Dilemma	470	(1)
§13.1.2 SEC Safe Harbors-Regulation S	470	(6)
Examples and Explanations	476	(8)
§13.2 Foreign Securities in the United States	484	(7)
§13.2.1 Public Offerings of Foreign Securities	485	(1)
§13.2.2 American Depositary Receipts (ADRs)	486	(2)
§13.2.3 Private Placements and Rule 144A	488	(1)
§13.2.4 Disclosure Requirements for Foreign Issuers	489	(2)
Examples and Explanations	491	(5)
§13.3 Extraterritorial Reach of U.S. Securities Laws	496	(6)
§13.3.1 Securities Fraud Litigation	497	(2)
§13.3.2 SEC Enforcement	499	(3)
Examples and Explanations	502	(7)
Table of Cases	509	(4)
Index	513