Securities Regulation Summary – Fall 2006
I. Introduction
A. How to approach a fact-pattern – fundamental analytical approach to a securities problem
1. Is a “security” created or involved? If so, is it only one security or more than one?
2. Do one or more of the proposed transactions constitute a “trade”? Is so, in what jurisdictions and by whom? Is there a registration exemption available? Has the exemption been taken away by “universal registration” rules?
3. Will the issue or trade in securities constitute a “distribution” or “distribution to the public”?
4. If a distribution or distribution to the public is involved,
Is a prospectus or registration exemption available and if the exemption is relied upon, can it be demonstrated that the exemption was not used for a purpose inconsistent w/ the intended purpose of exemptions?
Need a prospectus be filed?
Can an exemption ruling be obtained as an alternative to a prospectus?
5. If a sizeable purchase of securities is involved, do the take-over bid rules apply?
6. Are insiders involved in the transaction, and if so,
Is undisclosed material information an impediment to proceeding w/ it?
Are any special filings of insider reports or other reports of beneficial ownership necessary?
7. Does the transaction in substance raise any “public interest” concerns or novel issues that require special treatment or consultation?
8. Remedies
9. Enforcement
10. Statutory limitations
B. Terminology
1. Terms
§ Non-reporting issuer
§ Buying short & selling long
§ Primary & Secondary markets
§ Security v. equity v. debt v. loan
§ Money market instruments (T-Bills) v. Securities market (debt, equity)
§ Goodwill: Difference b/w price paid for an asset (acquisitions) and its BS value. It is a depreciable asset.
§ Multiple: A means for investors to valuate a company. (May value a mining co at a multiple of 10. Thus, an Earnings Per Share of $1.00 means there should be a share value of $10 per share. In Hi-Tech, growth rates are higher thus so are multiples – anticipate future earnings)
§ Rights offering: Rights to …
§ Derivatives: Assets on an asset (right), but don’t own the asset [eg: mortgage on a house]
§ Book value: As shown on its balance sheet. (Accounting techniques, like depreciation, may understat
ht, but not the obn, to buy or sell a certain number of securities at a fixed price, for a predetermined amount of time.
§ Calls and puts are economical and highly effective tools for speculating on the increase or decrease in the value of stock market securities.
v. Futures Ks
§ Ks under which a buyer agrees to take possession of a certain quantity of product at a predetermined time and price.
§ Traded by speculators who bet on fluctuations in product value.
C. Pre-Kimber history
§ Scandals in ON resulted in pressure on govt to bail out investors that lost money
· Premier Robarts refused
· Established 3 commissions, each found there was fraud involved
· E.g.: Buying short & selling long in a period of increasing interest rates bankrupted a company.
· Legislation was tightened but no change to reimburse for losses on the market
· Unlike banking system (a sound sector is important)
