Exempt Transactions - § 4 (& 3(a)(11)
Exempt Securities - § 3
Registration Burden
Exemptions of
proving
Under '33 Act that an
exemption
Even if exempted from
registration a security is is
NOT exempted from the avaliable
falls on
anti-fraud provisions 17(a) &
17(b) & 12(a)(2). the
& 10b-5. ISSUER
INTEGRATION DOCTRINE (super important)
Comes in via "part of an issue" concept
Exemptions from 3(a)(9), 3(a)(10), and 3(b) must not integrate.
1) are sales part of a single plan of financing?
2) do sales involve issuance of the same class of securities?
3) were the sales made at or about the same time?
4) was the same type of consideration recieved? and
5) Were the sales made for the same general purpose?
In any given case, one of these alone could be determinative. Absence of
single plan of financing has been said to preclude integration.
3(a)(111) 147, 147A
(Transaction Based on Recipeint)
4(a)(5) Sales only to Accredited Investors.
Accredited Investor:
Lare institutional business. Banks, insurance,
etc. ; OR
Wealthy people.
Wealth: 200k single income/ 300k spouse
income (for past 2 years + expected continuity)
OR > $1 million net worth
Major Limitation. Cannot exceed $5 million per
transaction.
The sale of an unregistered security from
any transaction exepmtion will need to be
justified at each stage, as they are restricted
securities.
Prelim, note that you could request the issuer
to file a registratrion statement.
First, try to find a an existing security or
statute exemption. But probably not.
Second, look to Rules 4(a)(1), Rule 144, Rule
4(a)(7) (aka 4a1.5), and Rule 4(a)(4).
4(a)(1) - A transaction not involving an
issuer, underwriter, or dealer is exempted
from the trade.
4(a)(7) - Resale by Non-Issuer
-Accredited INvestors Only
-Only for companies with "active
business";
-NO gen solicitation;
-Must have been authorized &
outstanding for > 90 days;
-No bad actors in issue crew (per Reg
D);
- NO disclosure for '34 reporters;
-Non-reporters need minimal
information.
Rule 144A - Resale to QUIBS
Investors worth more than $ 100 million in
discretionary basis account; ALSO -> $10
million for deaelrs to play
-Securities must not be otherwise fungible
or liquid on an exchange;
-Immedaite resale;
-Issuer sells to a "private placement" broker
(via a 4(a)(2) -> then broker uses 144A)
- provision
Apply to SECURITIES themselves,
regardless of the transaction's form.
-Government securities
- Short-term commercial paper
- Securities issued by banks
- Insurance policies issued by
STATE-REG insurance companies
- Qualified employee pension plans
-Certificates by bankruptcy trustees
-Securities of Not-For-Profit Issuers
Regulation D basic elements form chart/handout.
(Transaction Based on Recipient & Size)
4(a)(2) Issuer " Non-Public Offering" [no application to
resales; ISSUER ONLY]
Investors must be able to "fend for themselves" Ralston
Purina. Quality of investor important. WEalth alone not
enough, sophistication stuff.
Basics
Must consider (1) relationship between issuer and offeree; (2)
nature, scope, size, type & manner of offering.
"Key Employee"
Offering -> must have
access to kind of 4(a)(2) to QIBS.
information available
in a registration
statement (ie no
offerings to janitor ->
public).
Unlike Rule 701
PROMOTERS are
COOL.
Re-Sale of
Restricted
Securities
Is the person acting as an
underwriter?
Part of necessary COG in
the operation of gettin
security to market -> no
investment intent (intent
regards changes to the
purcahser not the issuer)
Also, stat. def. of
underwriter. Person who
acquires a secuirty "with a
view towards its
distribution"
Investment intent.
4(a)(11/2) - Apply the two
4(a)(2) factors to a private
party to prove not an
underwriter in the context of
4(a)(1)
MAIN FACTORS -> (1)
ability to fend for self; (2)
ADEQUATE INFORMATION
-Limited number of
purchasers, less than 25
-NO advertisment
-Purchaser should have
information about issuer.
-If seller is affiliated, should
limit purchasers to those who
are sophisticated enough to
be able tot evaluate risks.
Apply to TRANSACTION form, to any underlying security otherwise not
excluded.
- Market Trading Exemption 4(a)(1) (non-issuer, underwriter, or dealer)
- Non-public Offering 4(a)(2)
- Unsolicited Broker's Transaction 4(4)
Exempt from PROSPECTUS REQ. if execute customer's order
- Intrastate Offerings 3(a)(11)
- Crowdfunding 4(a)(6)
- NEW 4(a)(7) - Resales of Accredited Investors.
- Reg D. Small Offering - Reg A. Small Offering
- Employee Offering, Rule 701
701
Regulation A+
Exchange of Securities with
Existing Holders [no application to
resales; ISSUER ONLY]
3(a)(9) -> Allows reclassifications of
stock without registration change.
On exempts exhange with existing
holders; if the new security is also to
Only to be sold at large must be registered or
Institutional otherwise exempted.
Buyers?
->
Beware: If
convertible
securities are
issued under
this, it may be
considered a
public offerimg.
No 4(a)(4) availment for control
stocks.
" Control" / Affiiliate If selling large blocks, cannot rely
Securities. on the provisions for broker's
transactions.
Note. Last sentence of
2(a)(11) definition of Wolfson case. Broker dealers may
underwriter holds that any even be held liable as underwriters
control person or affiliate is if selling control person's
an underwriter. Therefore, securities.
these people MUST find
safe harbor in Rule 144 or BUT even though 4(a)(4) exempts
Rule 144(a) because they the Brokers, "control people have to
are underwriters per se. find their own exemption" Wolfson.
Does the person meet If no to both, then ->
the stat. definition of Transaction is exempt.
a dealer?
BUT STILL -> remember that
Test: engaged in this is what people have
busines . . . yada yada called Rule 4(a)(11/2).
4(a)(3) - Broker not acting as
underwriter exemption.
NO PROSPECTUS REQ.
FOR ALL Dealers
transactions taking place
more than 40 days
(sometimes 90 days) "
quiet period" from first
offered to public/ effective
date.
-> Does not apply to unsold
allotment -> regardless of
time elabsed
RULE 174 -> Rule 144
Provides exception to the -> Must wait six
40 and 90 day quiet period . months for a 34
34 act companies? act company; on
eyear otherwise.
-> Adequate
information must
be available
Control Securities
->Dribble out
->