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Securities Regulation
University of Kansas School of Law
Lovitch, Fred B.

Securities Regulation
Fall 2007
Course Outline
Regulation of the Public Distribution of Securities – Securities Act of 1933
I.        What is Regulated by the Act?
a.      Cannot sell securities without registration (or exemption) – Section 5(a)(1)
                                                               i.      “sale” – 2(a)(3)
b.      Cannot deliver securities for sale without registration statement – 5(a)(2)
c.      Cannot offer to buy or sell without filing registration statement – 5(c)
                                                               i.      2(a)(3) – “offer to sell” does NOT include preliminary negotiations
                                                             ii.      “Prospectus” – offer to sell other than oral – Section 10
                                                            iii.      Rule 135 – some notices of the proposed offering are NOT offers to sell (i.e. press release)
1.       Must comply with all requirements – Chris Craft
a.       Legend
b.       Limited content
2.       Issuers only; Underwriters CANNOT rely on this rule
3.       Rights offering
                                                           iv.      Release 5180 – issuer can continue to do certain things while preparing for an offering
1.       Advertise
2.       Periodic reports
3.       Receive unsolicited inquiries from stock analysts, etc.
                                                             v.      Rule 137
                                                           vi.      Rule 139
d.      Cannot distribute prospectus unless it meets Rule 10 requirements – 5(b)(1)
e.      Cannot deliver security for sale unless preceded or accompanied by a prospectus that meets 10(a) – 5(b)(2)
                                                               i.      Note: The 2005 Reform Rule 172? Relaxed this requirement
II.     3 Periods of the Registration Process
a.      Pre-filing Period
                                                               i.      Section 5(a) and (c) all apply during this period
b.      Waiting Period
                                                               i.      5(a) still applies
1.       Cannot make sales or deliver securities for sale yet
                                                             ii.      5(b) now comes into play
1.       (1) – any prospectus must meet requirements of Section 10
2.       (2) – cannot deliver security for sale unless preceded/accompanied by a Section 10(a) compliant
a.       As a practical matter, you can’t satisfy 10(a) b/c you won’t have a statutory prospectus during the Waiting Period
                                                            iii.      5(c) no longer applies – can make offers to sell
1.       But most offers are prospectuses, and these are heavily regulated
a.       2(a)(10) – any offer to sell EXCEPT oral offers to sell (face-to-face or telephone)
                                                           iv.      Prospectus requirements during Waiting Period
1.       Preliminary Prospectus – § 10(b) à is the only applicable subsection of § 10 that outlines prospectus requirements
a.       Allows SEC to determine that prospectuses that omit certain information to still be valid for purposes of 5(b)(1)
                                                                                                                                       i.      SEC has authority to adopt rules to identify prospectuses that meet requirements
1.       Rule 430 and 431 are the rules the SEC came up with
b.       Rule 430 – preliminary prospectus à permits as a lawful prospectus the initial draft and later revisions of the registration statement
c.       Rule 431 – summary prospectus à must be a reporting company to use this
                                                                                                                                       i.      Can’t use it if you are doing an IPO
2.       Statutory Prospectus – 10(a) à only comes into play after registration statement has become effective
a.       This is irrelevant during Waiting Period
                                                             v.      Lawful means

                                                               i.      10(a) = statutory prospectus must be used to satisfy
                                                                                                                                     ii.      cannot use a Rule 431 summary prospectus
2.       Confirmation of Sale
a.       It is a prospectus, per 2(a)(10), so it has to meet Section 10 requirements
                                                                                                                                       i.      But it does not meet the requirements of 10(b) [430 or 431], 2(a)(10)(b), or Rule 134
1.       So look to 2(a)(10)(a) which says you are in the clear if you precede or accompany the confirmation with a 10(a) compliant prospectus
3.       Delivering the Security
a.       Same analysis as confirmation of sale
                                                           iv.      Rule 430 – Prospectus for Use Prior to Effective Date
1.       Is inapplicable during post-effective period
                                                             v.      Rule 431 – Summary Prospectus à Still applies
                                                           vi.      Rule 430A – Prospectus in a Registration Statement at the Time of Effectiveness
1.       “Priceless Prospectus”
2.       Permits a registration to become effective without the inclusion of price-related information
a.       Allows issuer to time the market and become effective immediately despite lack of pricing information
Effectiveness of registration statement even though prospectus in the registration statement does not yet have pricing information.