Securities Laws

• Asset Acquisition


  Form of takeover in which another firm buys all the assets of a firm and gains control through control of the firm's property. If structured property, the acquirer avoid liability for the debts of the acquired business.
• Blue-Sky Law


  State law regulating sale of securities
• Blue-Sky Laws


  State laws regulating the sale of securities
• Comment/Deficiency Letter


  SEC response to registration filing; requires additional information or clarification on proposed offering
• Consolidation


  A form of merger in which two firms unite and become known by a new name
• Due Diligence


  Under the Securities Act of 1933, a defense for filing a false registration statement that requires proof that the individuals involved did all they could to uncover the truth and could not have discovered the false statements despite a thorough review of all relevant information
• Exemption


  Securities and transactions that do not have to be registered with the SEC under the Securities Act of 1933
• Foreign Corrupt Practices Act (FCPA)


  Federal law prohibiting bribes in foreign countries and requiring the maintenance of internal controls on accounting for firms registered under the Securities Exchange Act of 1934
• Howey Test


  Created by the U.S. Supreme Court; it defines a security as an investment in a common enterprise that earns profits from the efforts of others
• Hostile Takeover


  A takeover not favored by the target's management
• Insider Trading and Securities Fraud Enforcement Act of 1988


  Act increasing the Securities Exchange Act of 1934 penalties for insider trading
• Insider


  A corporate officer or director or other executive with access to corporate information that is not available to the public
• Material Misstatement


  A statement of fact that would influence an individual's decision to buy or sell
• Merger


  Process of combining firms so that one firm becomes a part of the other and only one firm's name is retained
• Merit Review


  Process at the state level of reviewing securities registrations to determine whether they are good investments
• Prospectus


  A document describing the nature of securities and the company offering them
• Proxy Solicitations


  The process of seeking voting rights from shareholders
• Red-Herring Prospectus


  A prospectus issued before the effective date of a securities registration statement; permissible to release these before the registration statement is effective so long as a disclaimer that it is not an offer to sell securities is noted in red on the prospectus
• Registration Statement (S-1)


  A filing with the SEC disclosing all the necessary information about a securities offering under the 1933 Securities Act
• Rule 10b-5


  SEC rule prohibiting fraud in relation to the sale of securities
• Section 10(b)


  Antifraud provision of the Securities Exchange Act of 1934
• Section 16


  Section of the Securities Exchange Act of 1934 that regulates sales and purchases of shares by directors, officers, and 10 percent of shareholders
• Securities Act of 1933


  The federal law governing the initial issuance and sale of securities to the public
• Securities Exchange Act of 1934


  The federal law governing the secondary sales of securities, the markets, and the firms dealing with securities
• Securities and Exchange Commission (SEC)


  Federal agency responsible for enforcement of federal securities law
• Securities


  Investment of money in a common enterprise with profits earned largely from the efforts of others
• Short-Swing Profits


  Profits made by corporate insiders during a period of less than six months between purchase and sale
• Takeover


  A takeover of one firm by another firm when the target firm solicits or agrees to the takeover
• Tender Offer


  Offer to more than 10 percent of the shareholders of a firm for the purchase of their shares; generally part of a takeover effort
• Tippee


  Party who receives inside information about a corporation or its securities and uses the information to trade securities
• Tombstone Ad


  Ad run in newspapers announcing an upcoming securities offering; permissible after the registration statement is filed but not yet effective; must indicate it is not an offer for sale
• Williams Act


  Federal law governing the tender offer process
• 10-K Form


  Annual report filed with the SEC; required of all 1934 Act firms
• 10-Q Form


  Quarterly report filed with the SEC; required of all 1934 Act firms
• 8-K Form


  A filing required by the SEC under the 1934 Securities Act; an 8-K is filed by a registered company within ten days of a significant or material event affecting the company (e.g., a dividend being suspended)
• "Fair-Disclosure Rule" (Regulation FD)


  Federal securities regulation that requires publicly traded companies to distribute information to the market as a whole and not to selected investment firms, analysts, or investors; a means of distributing to the market in a fair and open fashion the financial reports and pending and evolving issues of publicly traded company