Question

A. While investigating the shares offered to you by your potential boss, you discover that the company you are considering working for is not registered as required under the Securities Act of 1933. How does this influence you as a potential employee and as a potential shareholder? Be sure to reference any applicable statutes or laws.

B. You know that accepting this job may eventually lead to a promotion into the role of the financial manager. As the potential financial manager, what federal and shareholder requirements would you need to be familiar with in order to ensure that you are being completely compliant?

Answer 1

• A. The 1933 act prohibits offers to sell or to buy before a registration is filed. The SEC takes a broad view of what constitutes an offer. For example, the SEC takes the position that excessive or unusual publicity by the issuer about a business or the prospects of a particular industry may arouse such public interest that the publicity appears to be part of the selling effort.

  The 1933 act provides for civil liability for damages arising from misstatements or omissions in the registration statement, or for offers made in violation of the law. In addition, the law provides for civil liability for misstatements or omissions in any offer or sale of securities, whether or not the security is registered. Finally, the general antifraud provision in the law makes it unlawful to engage in fraudulent or deceitful practices in connection with any offer or sale of securities, whether or not they are registered.

  In general, any person who acquires an equity whose registration statement, at the time it became effective, contained an "untrue statement of a material fact or omitted to state a material fact" may sue to recover the difference between the price paid for the security (but not more than the public offering price) and the price for which it was disposed or (if it is still owned) its value at the time of the lawsuit. A purchaser must show only that the registration statement contained a material misstatement or omission and that he or she lost money. In many circumstances the purchaser need not show that he or she relied on the misstatement or omission or that a prospectus was even received. The SEC defines "material" as information an average prudent investor would reasonably need to know before purchasing the security.

• B. As a financial manager it is significant to make sure that the organization sticks onto all the constitutional requirements. It is necessary for the organization to be entirely complaint with the federal and State formalities such that legal or criminal proceedings are avoided. The federal and shareholder needs that are required to be familiar in order to be wholly complaint are as follows:

  1. Details of the non-public offerings
  2. Regulation of D with respect to Rules 504, 505 and 506
  3. Updation with respect to the Government orders
  4. Details of Exemptions
  5. Restrictions of Offer, other Federal and State Rules

  Above are some of the areas in which a financial manager is supposed to be familiar in order to handle shareholder and federal requirements.