Part 10- Corporations, Chapter 45: Securities Regulation, Doc 12

1. AltaVerba and SEC Compliance (Securities Act of 1933)     72 Days Before Registration: AltaVerba can release historical information about its business and financial results. However, this release must comply with Section 5 of the Securities Act of 1933, which restricts public offerings and communications prior to a registered offering. Historically, public offerings require strict compliance, so AltaVerba’s communication must avoid offering securities or suggesting a securities offering until the registration statement is filed. 23 Days Before Registration: AltaVerba cannot release forward-looking information at this time. Forward-looking statements, like predictions about future earnings or market performance, are prohibited unless the offering has been filed and registered with the SEC. Such disclosures before filing are deemed an offering under Section 5, which is restricted. After Filing Registration: o Communication with Investment Manager: After filing the registration statement, the vice president of finance may speak with an investment manager like Fidelity, provided they do not discuss specific offering terms before the registration statement is declared effective. o Roadshow: AltaVerba and Goldman can conduct a roadshow for selected investors (wealthy individuals, securities analysts, mutual fund managers). However, they must comply with rules for preoffering communications, ensuring no sales or solicitations occur until the registration is declared effective by the SEC. Free-Writing Prospectus After Registration: A free-writing prospectus is permissible once the registration statement is filed, but it must: o Be filed with the SEC before use. o Include disclaimers and risk factors. o Provide the required information and not mislead investors. 2. GME, Inc. - Rule 506 Exemption    Offering Size: The $2 billion offering is not too large under Rule 506. There is no cap on the offering size under Rule 506, although the issuer must ensure that investors are accredited. Number of Purchasers: Rule 506 allows sales to up to 35 non-accredited investors, but GME plans to sell to a mixture of accredited investors, so the number of purchasers is not an issue as long as the total number of nonaccredited investors remains within the limit. Qualified Purchasers: o Investor 1 (Income: $4.08M, Net worth: $12.2M) is accredited. o COO: Not accredited (income of $175,000 and net worth of $350,000). Pension Fund: Likely accredited if it meets requirements for qualified purchasers. o Mutual Funds: Accredited (with assets over $20 billion). Resale Restrictions: Purchasers of GME’s shares must restrict resale for a minimum of one year under Rule 506. SEC Guidance: If GME is uncertain about meeting Rule 506 requirements, it should request a no-action letter or no-objection letter from the SEC to clarify any compliance issues. o   3. Rule 504 for ROI's $700,000 Offering   ROI can raise $700,000 under Rule 504 as long as the offering: o Does not exceed $10 million. o Does not involve a public solicitation. o Complies with any state securities laws (if applicable). To comply, ROI must: o Ensure all investors are informed properly. o Possibly file a Form D with the SEC to claim the exemption. 4. Podcast Services Company - Rule 147 Compliance    Rule 147 is for intrastate offerings, meaning all sales must take place within the state of incorporation (Illinois in this case). Podcast must ensure that: o 80% of its assets and revenues come from Illinois. o It offers and sells exclusively to residents of Illinois. The offering must be compliant if Podcast conducts the offering properly within the state of Illinois, based on these conditions. 5. ComEd and Section 11 Violation  ComEd may have violated Section 11 of the Securities Act if it failed to disclose the pending license application. Investors claim they suffered losses due to the lack of disclosure about the uncertain approval of the reactor, which would have affected stock price and investor decisions. 6. Joseph Crotty and Section 16(b) Violation  Crotty's short-term profit from buying and selling shares of UA likely violates Section 16(b) because it involves a profit within six months from a purchase and sale by a corporate insider. The key issue is whether the shares bought and sold were related to his position and knowledge of company decisions. 7. Shareholder Proposals and Rule 14a-8  GE can omit the shareholder proposals on cumulative voting and board membership if: o The proposal is irrelevant to the company's operations. o The proposal conflicts with the law or undermines management. o It does not meet SEC rules on proposals under Rule 14a-8. 8. Dura Pharmaceuticals and Rule 10b-5 Loss Causation  The Supreme Court ruled that Broudo did not adequately allege loss causation in the Dura Pharmaceuticals case. The plaintiffs needed to show how the false statements directly caused the price drop and their losses, which they failed to do. 9. Basic Inc. and Rule 10b-5 Violation  Basic’s statement denying merger negotiations, despite the abnormal trading volume and insider knowledge, could be considered a violation of Rule 10b-5 if it misled investors, as it misrepresented the true state of the company’s activities. 10. CIBC and Rule 10b-5 Liability  The court sided with the plaintiffs in the case against CIBC, finding that CIBC’s misstatements regarding its exposure to the subprime mortgage market were misleading and violated Rule 10b-5. 11. Mark Cuban and Insider Trading  Mark Cuban likely violated Rule 10b-5 by trading on insider information after receiving confidential details about Mamma.com’s PIPE offering. Even though Cuban claimed he was concerned about dilution, the insider knowledge from the CEO and banker likely influenced his trading decision. 12. First City Financial and Williams Act Violation  First City and its executives appear to have violated the Williams Act, which regulates tender offers and changes in control. The secret purchases of Ashland stock, especially to avoid crossing the 5% threshold without filing appropriate disclosures, raised red flags for violation of the Act. 13. Amenity, Inc. and Sale of Securities  The distribution of Amenity’s shares by CGC may be considered a sale of securities, violating the Utah Securities Act, as CGC did not receive financial compensation, and the transaction was an attempt to influence the value of stocks indirectly. This could trigger regulatory scrutiny under securities laws. 14. Internet Securities Offerings    Internet offerings raise complications under Rules 505 and 506 due to: o General solicitation issues. o Difficulties proving state law compliance for interstate offerings. Rule 504 and Regulation A are more suitable exemptions because they allow broader access to investors and less stringent requirements on solicitation, making them more appropriate for internet offerings. Dos and Don’ts for Internet Offerings: o Dos: Ensure clear disclosures and compliance with state and federal regulations. o Don’ts: Avoid general solicitation or misleading advertising about the securities being offered. These are complex regulatory issues under the Securities Act of 1933 and Securities Exchange Act of 1934, involving exemptions, insider trading, disclosures, and compliance with registration requirements.