W1: Introduction to the Field of Securities Regulation 33 Act 2(a)(11) security excludes derivatives (eg futures), which are

governed by (1) CFTC (be/c CEA makes it illegal to enter into futures K unless standardized & governed by CFTC), whose jx preempts & excludes SEC; (2) state insurance (but CDS unregulated and dont net out) & (3) gambling agencies be/c 2000 CFMA said neither CFTC or SEC could regulate them so long as entered into be/w sophisticated parties & customized/bespoke. Includes options (S-8 for 701 compensatory continuous shelf; 4(2)/506 for warrants) so need to register or get exemption.

SEC divisions: (1) corp fin; (2) enforcement (only one w/ local offices be/c
need to sue locally); (3) investment mgmt (40 + Advisers Act); (4) trading & markets (broker-dealers & exchanges)

Retail (equity) vs professionals (debt) but debt dwarf equity & 2 trading
dwarf 1 (issuances) markets. The Rise of Derivatives:1999 GLBA (repealed Glass-Steagall & formed huge global financial firms that play in all fields including unreg deriv space) 2000 CFMA (handcuffed CFTC in that deriv provided were negotiated & be/w sophisticated parties were officially unregulated) 2010 Dodd-Frank also hasnt done much for deriv but only says CFTC & SEC will make rules. Overview of the Major Securities Regulatory Statutes 33 Securities Act: governs issuances of securities (offerings& resales). Rule 405 definitions.

business). 2002 SOX (Public Co Accounting Reform and Investor Protection Act): heavy criminal provisions & invaded realms of corp law & governance. Set new or enhanced standards for all US public company boards, mgmt & public acct firms. N/A to private co. SEC under SOX created PCAOB charged w/ overseeing, regulating, inspecting & disciplining accounting firms in their roles as auditors of public companies. Blue sky regs: KS 1st copied England in 1911; used to require lots of disclaimers and had to comply w/ merit regs (PA) so needed both state & fed exemptions until National Securities Markets Improvement Act (1996) partially preempted state securities laws & increased SEC jx. NSMIA also said if doing a private placement under 4(2)/506 then can just file your Form D w/ the state but states then imposed 5 day window and some made it felony if fail (KS) others fingerprint signatories (NH, AL) now file form D in 15 days (but NY still need to file form99). In CA 25102.1 ~ rule 506.

including options but excluding discussions w/ UWs 33 Act 2(a)(3) includes for value whereas 34 Act 3(a)(14) excludes it (broader). W3: 33 Act Registered Offerings 11 fraud liability on reg statement: 11(a) broad in post effective period; can sue anyone who signed the reg statement (CEO, directors, CFO) even 11(a)(3) those about to become directors, 11(a)(4) accountants and even lawyers and 11(a)(5) every UW. exemptions via affirmative defenses (but n/a to issuer). (e) limits UW liability to value of securities sold; 11(f) J&S; 11(g) liability cap on price of securities sold

11(b)(3)(A) if they had reasonable ground to believe the info (UW due
diligence defense); (B) if expertized and had believed reasonably after his due diligence; (C) if relied on an expert 12 broad liab to prospectus & oral communications; 14 cant K out of securities laws; 15 liab of controlling persons under 11-12 J&S liable; 17 govt uses to prosecute: 17(c) says 3 exemptions (for classes of securities) n/a so antifraud applies irrespective of kind of securities; 20 SEC equipped w/ investigative, subpoena, 8A cease & desist orders, can order disgorgement, impose D&O bar.

IPO issuers then says must deliver prospectus w/in 48 hours of purchase. Post-effective period: 430A (permits reg statement to go effective w/o pricing, hence how sequence changed to effective, then pricing amendment filed per 424(b)) but limit: cant cut back offering volume by 20%; notwithstanding 5(b)(2) (cant deliver securities unless accompanied by final prospectus), 172 (access = delivery). W4: 33 Act Registered Offerings: the reg statement itself Form D (Reg D) precedes S1 (default form); ignore reg A forms (req offering circ); S3 multipurpose but for seasoned & shelf reg; S4 for M&A securities when offered as consideration for target; S8 options & shares to be acquired; other forms for exemptions per Reg D or 144. S1 info reqd per Item 501 in Reg S-K (lays out 33 Act reporting reqts): (1) plain English per rule 421(d) of reg C; (2) front cover pg must have delaying statement legend per Rule 473; (3) limit outside cover pg of prospectus/red herring (which is maj of reg statement) to include name, title & amount of the securities, offering price, market for securities, risk factors. Item 2 points to info reqd per item 502 of reg S-K. Item 503 summary info, risk factors but must be meaningful, with examples and not boilerplate per Easterbrook 7th, ratio of earnings to fixed charges. Item 303 MD&A forward-looking statements requiring granular discussion of financials and what drove movements therein but immunized per 27A of 33 Act & 21B of 34 Act (from PSLRA). Item 504 use of proceeds. Item 506 dilution. Items 301-8 financials (signed accountants report, balance sheet, earning statement, cash flows, footnotes to the financials, table of exhibits, signatories). W5: 34 Act Filings by Public Co: note reg issuance (txn-specific) vs. class 12(a) reg reqts; 12(b) procedure for registration without w/ cant effect a securities txn on an exchange per 12(a). Then 13(a) covers what must be filed w/ SEC (13a-1 annual report, 13a-13 10-Qs and 13a-11 8-Ks). Need to file per 13 - if you have class listed per 12(g) (exchange listed; basically concerns 500 holders) or 12(b) non-exchange listed but this refers only to a ministerial finding of incorp docs. 12g5-1(b)(3) looks through ~ 48(a) 40 Act hence FB should have filed. Form 10-K end of fiscal yr reporting: WKSIs (60 days), accelerated/seasoned ($75M public float & public for 1yr; 75 days) and all others 90 days reps made must be accurate as of filing. 12(b)(20) works in addition to Rule 10b-5 liab in case theres info that isnt covered by risk factor line items but must still be disclosed. Instruction D signed by registrant principal officer & maj BOD (still req paper!). Instruction G the other annual report and per Part III incorporate by ref from proxy (to be filed w/in 120 days) but note annual report need not be filed in toto w/ SEC though must file 10-K + proxy. Part I cites item 101 reg S-K (the business, risk factors). Part II requires MD&A (item 7), financials (item 8), accounting changes (item 9), controls & procedures (item 9A), exec comp (item 10). Part III calls for stuff from proxy statement. 15(d) is the alternative to 13 becoming a public reporting company (high yield debt securities not traded on an exchange). Form 10-Q: WKSIs (40 days after fiscal quarter), accelerated/seasoned (40). Form 8-K: due w/in 4 business days and per item 1.01 need to disclose any material deal other than in ordinary course. Item 6.01 requires certain things as exhibits to your reports (copies of material agmts) and + 1.01(b) define materiality as per 6.01(b)(10) insider txn (D/O are parties), substantially dependent on the txn, acquisition/sale of PPE 50% assets, material lease but per 6.01(1)(iii)(C) need not file compensatory stuff. Material means something avg businessperson will rely upon to make an investment decision (total mix of info), but includes: geographic scope of licenses, unexpected termination of a K (1.02), acquisition/disposition of assets (2.01 made need to report twice at signing acquisition agmt & at closing). Item 2.01(f) if co is a shell trying to go public through backdoor still need to file form 10. Item 2.02 results of ops is the 8-K triggered by the earnings release but per 2.02(b) none reqd for the conference call (so long as occurs w/in 48 hrs + broadly accessible). Item 2.03 off-balance sheet obligations must also be disclosed even if only contingently liable (Enron). 2.04 triggering events w/r/t off balance sheet. 2.05 costs associated w/ exit/disposal activities. 2.06 where board concludes need to make a material impairment charge. 3.01 receipt of notice that will be delisted. 3.02 unreg sale sof securities. 3.03 mods to rights of securities holders (entering into high yield facility that limits dividends pmts). 4.01 change accountants or procedures. 4.02 non-reliance on previously-issued financials (notice that will do a financial restatement) and under 4.02(b) if you dont figure it out but your accts do you have to report that too. 5.01 changes in control. 5.02 D/O coming/going. Proxy Statement per reg 14A: allows voting SHs to vote by proxy; recall WKSI 10-K due w/in 60 days incorporating everything from (i) annual report + (ii) proxy statement (filed within 120 days). Proxy card vs proxy statement (big disclosure doc about stuff will be voting on + info re: co). Idea is everytime soliciting proxy auth, need to disclose to SEC (& SHs). Reg 14A definitions: proxy; solicit very broadly defined (i. request for proxy, ii. Request not to execute proxy, iii. Influencing others to vote certain way on proxy) but carveouts allow SHs to talk: (14a-1(e)(2)(iv)(A)) press releases; (14a-2(b)(1)) proxy rules dont apply to affiliates of issuer who arent actually seeking proxy auth; (14a-

o 33 Act 18(b)(4)(D) is fed preemption of state blue sky laws but only if
you sell pursuant to SEC rules & regs aka 506 (only case where they are covered securities and thus preempted)! not if doing caselaw 4(2) W2: What Is a Security? Generally any txn used to obtain long term capital (even exotic vehicles like franchise agmts, rental condos & LPs but not GPs). Its where you expose something riskless to risk in order to turn a profit.

(1) stock (equity) always but see Forman NY co-op outlier was stock;
Landreth (if called stock its a security);

Gun-jumping: offers during QP (pre-reg); normally can trigger 12(a)(1)

2(a)(1) security: any investment but excludes currencies. But 2A of 33

Act & 3A of 34 Act exempt swaps from definition.

(2) bonds/debentures/notes (debt). Reeves (1990) family resemblance test

presumes notes are securities but can be rebutted via 4 factors: (1) motivation for txn (if profit, probably a security), (2) existence of risk reducing factor (eg, another regulatory framework), (3) reasonable expectations of the investing public, (4) plan of distribution (trading?). But generally look @ economic reality of txn if resembles this family of (short-term financing, or collateralized) txns then not a security: notes in a consumer financing, shortterm notes secured by a mortgage, short-term notes secured by a lien on a small business or some of its assets, notes evidencing a character loan to a bank customer, short term notes secured by an assignment of A/R, notes which formalize an open acct debt incurred in ordinary course of business, notes given in connection w/ loans by commercial banks. Holder & its sophistication also helpful: [commercial bank loan] promissory note (retail) not a security but bond & debenture sold to professional investor is.

3 exempted securities: govt securities and per 3(a)(2) insurance Ks and

3(a)(8) also says insurance is not an investment K; 4 exempted txns: 4(1): txns by any person other than an issuer, UW or dealer [permits 2 trading]; 4(2) txns by an issuer not involving any public offering [fundamental private placement exemption, also good for warrants = rule 506]; 5 (drives fundamental structure): 5(c) no offer unless reg filed; covers up to filing; QP 5(a) no sale unless reg statement is effective; post-effective and 5(b) reqts that kick in at filing and continue through & beyond effectiveness; WP; usually 60 days: 5(b)(1) must satisfy 10 disclosure reqts (prospectus reqts), and 5(b)(2) cant deliver security after sale unless accompanied by prospectus but has been liberalized via rule 172 (need not deliver hard copy once filed w/ SEC).

o During QP pre-filing, nothing; during WP post initial filing amendments

are made and bankers go on roadshow w/ prelim prospectus (lacks pricing but soft circle) permissible to make offers but sales can only be made once reg goes effective.

(3) investment Ks (other) will include PSHPs & LLCs. Howey (orange grove
interests were securities) seminal case; mere offer = security and ct imported blue sky laws jx over capital-raising for profits, saying these leasebacks were investment Ks; test: (1) investment of $ (2) due to expectation of profits arising from (3) a common enterprise (4) and such profits derive solely predominantly from efforts of promoter or 3rd pty. Thus under this def txns involving real, personal property, metals, franchises have been deemed investment Ks. But see Marine Bank v Weaver (there may still be an exception for privately-negotiated txns)

rescission right but well-known-seasoned-issuers (WKSIs) $700M market cap exempt (also applies to final UW agmt). But see Loeb, Rhoades egregious gun-jumping (cant whip up fake interest during QP; applies even to news or anything that might condition the market); but exception to QP in Chris-Craft / Rule 135 announcements that are permissible and wont rise to offer level (2nd cir agreed w/ dark horse acquirer in that must comply w/ 5(c) & Rule 135, saying issuer can disclose intent to make a public offering, type of security, manner and purpose but not price or UWs). Pre-QP rules: 163A applies to issuers & agents only and exempts issuer communications > 30 days before filing reg statement (that dont refer to offers) QP (no offers per 5(c)) rules/exceptions: 135 (written w/ legend sans price) only applies to written communications and only invoked as a shield during QP; 163 (WKSIs can gun-jump but must file; so WKSIs can use FWPs at any time); 168 (reporting issuers & certain seasoned foreign private issuers not most IPOs exempted from factual business info or forward looking statements / MD&A / guidance); 169 (IPO issuer to customers & suppliers; does not cover forward looking info; limited safe harbor for previously-released info). But note once 5(c) satisfied can make oral offers subject to 5(b) (requires comply w/ 10(b) prospectus disclosure)

Regulating broker-dealers during registration: 133 (cant use research to

market a deal); 137 (but if not in syndicate of banks can publish research); 138 (applies only to reporting companies - if will participate can continue to publish research about diff classes of securities that wont convert into those offered); 139 (BDs can report on and even publish recommendations on large cap issuers). During WP (while amending reg statement; offers & prelim prospectus red herring per 10(b) OK but no sales) exceptions: 134 (tombstone); 164 + 433 (FWP defined Rule 405 definitions = other form of written communication other than prelim prospectus; aka writing that constitutes offer outside prelim prospectus during WP but in 2005 SEC said permissible if satisfied 10(b) along w/ rest of securities offering reform release which downsized QP = all rules in 160s) 2(a)(10) prospectus broad. 460 (distribution of prelim prospectus); 461 (acceleration of effective date)

6 reg then fee to file 7 info reqd in reg statement (bare minimum is that
reqd per SchedA to the 33 Act) 8 effective date of reg statement: 20th day after filing or such earlier date as SEC says (nobody relies on 20 days and so everyone files a delaying statement) 10 info reqd in prospectus (keys back to 5 but basically whatever SEC requires) 11 & 12 liabilities to purchasers (but note UWs not purchasers though UWs are separately liable to purchasers under 11(a)(5)) 18 fed preemption/exemptions from state securities laws regs (no state quals for covered securities) 27A safeharbor for forward-looking statements (1995 PSLRA) leading to boilerplates in all 10Qs & 10Ks advising no reliance 28 broad rulemaking authority granted to SEC

o prong 3 common enterprise split: SEC v Life Partners Inc holding that
viatical settlements were not securities be/c no common enterprise since minimal to no post-purchase efforts but see Mutual Benefits (11th 2005 saying they were securities; agrees w/ LPI Wald dissent)

o3

rd

prong common enterprise: (1) horizontal (expenses, profits shared) &

o Rule 701 employee stock option plans (only for employees, even if
unaccredited) 34 Exchange Act: Rule 12b-2 definitions. Public reporting reqts for IPOd companies; antifraud, insider trading (10b-5) & broker-dealer regulations. Governs broader terrain than 33 Act; sets up continuous disclosure system for public companies; also governs tender offers (takeover bids where bidder contacts SHs directly) & 10b-5 insider trading.

Typical disclosure cycle (w/ 8-Ks peppered throughout): (1) 12/31 end of
fiscal period: shortly hereafter have earnings release, then file 10-K w/ exhibit (which contains (i) annual report to SHs w/ financials & MD&A + (ii) proxy statement per Sched 14A w/ detailed disclosures on exec comp, corp governance, directors, SH proposals and things on which Im asking for votes) (2) 3/31 earnings release + 10-K (3) 6/30 (4) 9/30. 1939 Trust Indenture Act: if selling bonds to public, must have indenture (trustee who acts on behalf of bondholders & interfaces w/ issuer). 1940 Investment Company Act (40 Act): regulated mutual funds but w/ big exceptions (one is hedge funds). 1940 Investment Advisers Act (Advisers Act): sought not to regulate investment advisers so much as to keep track of who is in industry (registration reqts w/ SEC for those using mails to conduct investment counseling

(2) vertical: individual investors profit is tied to (i) efforts of promoter (broad; looks like last prong of reliance on others and if satisfied wipes that category out) or (ii) profits/returns to promoter (strict vertical). SEC says any works (wants broad jx so favors vertical) but cts disagree saying need horizontal interdependency among investors (tightening prong 3) but loosening prong 4 (solely became predominantly derived from efforts of others to find investment K) see Koscot (profits inextricably tied to promoters involvement so franchising agmt is a security) focus on verticality but but for promoters efforts test; some cts willing to go w/ just vertical.

10(a) final prospectus (w/ price & UW names) + 10(b) red herring (preeffectiveness of reg statement; omits price)

During WP SEC permits: oral offers; tombstones per 2(a)(10)(b) or

identifying statement per 134; prelim prospectus that meets 430/430A; prelim summary prospectus prepared by issuer in compliance w/ 431; brokers card under 134(d).

FWP 433 (cant contradict anything in reg statement): WKSIs ($700M cap)
can use anytime but must file; seasoned (can use S-3; $75M float) need not precede or accompany w/ copy of prelim but must have legend; nonreporting/unseasoned (cant use S-3) must either file reg statement or precede/accompany FWP w/ copy of prelim prospectus (but can hyperlink); UWs must also file FWPs they use (unless memo to limited group of institutional investors) and roadshows count as FWPs but reg FD exempts some things so issuer need not disclose everything in roadshow but if accessible broadly, graphic, electronic or in any way written (405) its an FWP (+433 must file). 164 post-filing FWP (including those of UWs).

o Investment can exist even if just fixed returns (Edwards) but involuntary
non-contrib employee plan w/o choice is not (Daniels exempting co bonus plans).

o LP/LLC interests (rely on GP for profits) security but GP not. But

see Williamson v Tucker (5th 1981) JV interests in parcel of underdeveloped real estate were securities and GP/JV not a shield from securities laws (if claim GP/JV not inv K, must show dependence on promoter/3rd pty such that unable to exercise control over PHSH). Look to control. 2(a)(3) sale broadly defined as any offer to sell a security/interest for value,

Delivery during WP: 34 Act Rule 15c2-8 (pelim prospectus must be widelydistributed in order to be declared effective so print enough!); 15c2-8(b) for

2(b)(v)) those voicing opposition to M&A; (14a-2(b)(vi)) small SHs not seeking to vote anyone elses shares but note Sched 13D group defined 13d-5b picks up 5% active SHs/13G passive & group but distinct from proxy ; (14a-2(b)(2)) solicitation made on behalf of registrant not for its direct benefit unless solicit > 10 ppl (so registrant can evade by calling chief voting officer @ Fidelity, who then calls others); (14a-2(b)(6)) can also talk so long as not w/in 2 mos SH mtg. Rule 14a-3 basic rule requiring delivery of the proxy statement (meeting 14A reqts); 14a-3(h) requires each proxy statement preceded w/ annual report to SHs if it relates to an annual mtg @ which directors will get elected and must include 10-K financials designed to protect large SHs who otherwise wouldnt vote on nonroutine matters via broker nonvote (but routine matters cut back so more discretionary vote opportunity). Rule 14a-4 reqts as to what proxy looks like (separate items for voting; anything substantive must be run by SH discretionary auth). Rule 14a-6 filing reqts (plain vanilla for BOD elections, acct ratification, SH proposals per 14a-8; approval of equity comp plan or sale/merger/amend charter docs in which case must file w/in 10 calendar days). Rule 14a-8 federal intervention/preemption that permits SH proposals. Rule 14a9 false/misleading statements/antifraud for proxies. Rule 14a-13 when co doesn't know SHs contacts ADP/Broadbridge to send them proxies. Rule 14a-16 accommodation to web so that everytime do proxy must also be online. Sched 14A is the actual proxy form. W6: Exempt Offerings: Caselaw 4(2): Ralson Purina only case to have interpreted 33 Act 4(2) exemption (txns by issuer not involving public offering) otherwise private offering not statutorily defined even though 10b-5 still applies to them. # offerees is not what 4(2) turns on; rather (1) sophisticated investors + (2) access to all the info & principals, and employees lacked access. Sine qua non is access & 2 ways to get it (deliver info or access=disclosure). But caselaw 4(2) hard to do be/c hard to prove delivery or access and must prove all offerees not just purchasers had access. Ralston only applied if not doing 4(2). Doran addressed sophistication (LLP interests refunded even though oil expert), saying also need access; held can have public offering even to just one person. Also see Kenton (advertised 3750% returns). Here sold sans reg statement, which is prima facie violation but 4 factors relevant for exemption: (1) # offerees & relationship to issuer, (2) # units offered, (3) size of offering, (4) manner of offering (no ads). But even if all offerees insiders, exemption not guaranteed (be/c need access). Reg D: Rule 506 (safe harbor under 4(2) per Reg D) is the umbrella (caselaw 4(2) is outlier). 3 main exemptive rules: Rules 504 (<$1M; states hate hard to find exemption) & 505 (<$5M limited to 35 non-AI; no bad boy exemption; requires furnishing basically reg statement = info to any non-AI; states dont hate as much theres Uniform Limited Offering Exemption) safe harbors under 3(b) (limited small offerings in terms of $ but potentially public be/c to retail investors, such that left to states) but no fed preemption be/c only attaches to rules under 4(2) so states hate these. Rule 506 safe harbor under 4(2) (no public offerings where public = unsophisticated) if sell to 35 purchasers, which per 501(c) excludes AI + 502 says need not deliver reg statement to AI (also as a bad boy exemption so can use 506!). Reg D/Rule 506 instructions: (1) exemptions are not exclusive; (2) rules only avail to issuer; (3) can be used for business combos that involve sales per 145(a); (4) can run simultaneous offerings (domestic D to AI in US + S to non-US ppl in Europe; or global D; but cant do partial D/S in Europe) so use questionnaire (are you US? Accredited? Then D; if foreign, then S). 33 Rule 502(a) must fit entire offering within single exemption (integration) and if w/in 6 months (before/after offer) considered same offer/sale [single plan of financing; same class; at or about same time; same type of consideration; for same general purpose]; Rule 502(b) info to deliver; Rule 502(c) no general solicitation broadly defined to include even when using questionnaire (=anytime go to ppl you dont know) but excludes going to B-D for private placement. Rule 502(d) limits on resales securities sold under Reg D are restricted and this attaches to securities themselves. State Regulation Must file Form D/99(NY) w/in 15 days. Note PPB not state of incorp determines where to file. Rule 508 even if you blow your exemption but in good faith dont lose federal (but will lose state). 506 ~ CA 25102.1(f). Others: Reg A (but requires offering circular); rule 147 (intrastate); Reg CE CA 25102(n) accredited lite will yield fed exemption but not used be/c says can only have C/S afterward. AI: $200K/yr or $1M net worth defined in rule 501 of reg D and includes D/O of issuer be/c have business knowledge & run it, as well as trust w/ $1M (but only if freely revocable). Compensatory Equity: Rule 701 ~ CA 25102(o). Per 701(b)(1) its for privates (public use S-8). 701(c) txns exempted/conditions: must be written; can use 1 entity to issue across structure; can use consultants & advisors; unlimited amt. 701(f) no integration w/ other offerings whether registered or exempt (can use 701 to issue continuous to employees while also using 506 to issue VC p/s simultaneously). 701(d) limits: sales in 12 months $1M, 15% assets, 15% class outstanding sold under 701 (each yr can only add so much). 701(e) disclosure reqts: summary of material terms of plan, risk factors, and financials. W7: Private Resales exempt under 4(1) txn not by issuer, UW, dealer. 2(a)(1) defines UW as person buying from an issuer with view to distribute;

issuer includes issuer affiliates (rule 405 defined as: D, O, 10% SHs but true test is actual control per Wheat Report). Note if entire txn chain is viewed as single offering and any participant loses 4(1), all lose it, so if looks like single plan of offering, entire offering must come w/in the exemption. Restricted securities: shares sold in a txn or chain of txns not involving a public offering, so where P buys from Issuer: ~ come to rest Come to rest P may lose 4(1) OK ~ Affil 2 problems; P may lose 4(1) P may lose 4(1) Affil 4(1) analysis: although reselling under 4(1), want to make sure all txns would qualify under 4(2) just in case. (1) I P1 (NA, ~ come to rest) P2: P1 fills out accredited questionnaire + P2 investor reps that bind transferees via 180day lockup so not acting like UWs + legend); (2) I P1 (A) P2: solely for figuring out if P2 is UW look if its an affiliate be/c if it is needs its own 4(1). Public Resales exempt under Rule 144 (in which case comply w/ 4(1)) applies to/helps these entities resell: (1) non-affiliates w/ restricted stock (e.g., bought P/S when co was private; former founder but no longer affiliate; buy from public co that did a private placement or from an affiliate in a private txn), and (2) affiliates. So 144 provides safe harbors for resales by: (1) persons w/ restricted shares & (2) affiliates, provided: (1) must be current public info re: co; (2) holding period applicable to restricted securities only; (3) volume limits (w/in 3 mos allowed: 1% outstanding shares or avg weekly trading vol) but where restricted shares vol limits stop once shares come to rest, affiliates have them forever; (4) manner of sale (must sell via broker/market maker). (A) Affiliate w/ restricted shares: hold for 1 yr + vol limits forever. (B) ~A sell unrestricted: no holding period (unrestricted stock) but vol limits forever. (C) Bought from issuer affiliate in private txn requires going through 4(1) be/c have become restricted securities again. But note shares transferred per 144 = public sale/unrestricted. (D) ~A sell restricted: hold 6 mos + only require current public info; 1 yr freely tradable. So for ~A was liberalized but affiliates have vol limits forever. 144A is for bonds/144 for equity. Reg S + 144A (can only resell to QIBs = hold $100M in investment securities) are restricted securities. 144A limited to debt, coverts w/ big premiums, or foreign companies to sell their C/S into US. Regulation S (~foreign private placement): can issue abroad/extraterritorially and then 5 n/a motivated by concern about flowback (~// imports); requires investor reps, investor covenants, legends. Possible to have US private go public abroad. Rule 901 reg reqt only applies to sell/buy in US. Rule 902 defs offshore txn, US person (looks @ place of org, not PPB). Rule 903 offer by issuer deemed outside US if category 1 securities (1) offer/sale made in offshore txn, (2) no directed selling efforts made in US, (3) securities are foreign issued, offered & sold in an overseas directed offering, back by FFC of foreign govt, or sold to issuer employees per a 701-like plan under another jxs laws; or category 2 securities (equity securities of a reporting foreign issuer, or debt securities of a reporting foreign issuer or non-reporting foreign issuer) require 40 day distribution compliance period; or category 3 securities (SEC most worried) any US issuer doing a reg S 40 day no flowback on debt/1yr equity. 10b5 still applies. W8: 33 11 & 12 Liability: 11 (bad reg statement; contained an untrue statement of a material fact or omitted to state a material fact reqd to be stated therein or necessary to make the statements therein not misleading = broad materiality std material statement or omission that a reasonable investor would have considered sig in making inv decision, but SEC considers everything material) but oral lies excluded. 11(a) liab extends to UWs & experts. 11(b) defenses (but n/a to issuer) (3)(A) reasonable grounds to believe; (3)(B) experts immunized; (3)(C) those who relied on experts also immunized. Any buyer can sue and only cut liab via reasonable std of due diligence. Escott v BarChris (Df built bowling alleys w/o having customers lined up and everyone got sued): all liable (CFO be/c cant rely on expertised opinion if in a privileged position, inhouse counsel be/c Director, outside directors of banks/lenders, outside counsel who drafted and signed reg statement be/c in position of privity + sophistication, lead UWs + other UWs, Pete Marwick auditors be/c didnt follow through for duty of heightened diligence post-red flags and analyze financials). Also see WorldCom outside Directors disgorged but rare be/c D&O friendly DE corp law, D&O insurance & limited liability insulate. 12 (broader liability but unlike 11 which lacks privity 12 has it). Post-Pinter clear that brokers/agents passing title also liable even if not buyers under 12(a)(1). 12(a)(2) prescribed liab for oral omissions or misleading statements and has reasonableness defense. 34 Act Rule 10b-5 Liab: applies to (1) false public statements & (2) insider trading [(3) manipulation not really enforced] and makes it unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, To employ any device, scheme, or artifice to defraud, To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security. (1) No express private rht of action but implied, created by cts (Wharf Holdings Hong Kong case liable though K never reduced to writing) & ratified by Congress in PSLRA but see Central Bank of Denver holding that under private rht of action no A&A liab (so only SEC using 10b5 can allege A&A as in Stoneridge Scientific-Atlanta liable). (2) Applies to all securities (public + private); concurrent w/ other liab. (3) Also spans duty to correct (unavoidable) if traders could reasonable rely on the info but not if true at time made but (4) cts split on duty to update (none per se but do it, as w/ 8-K liab) = shutting up OK unless have duty to update or disclose and fail as w/ (A) 415 evergreen reg statements for resale under S-3 shelf or (B) S-8 option plans. W/r/t 3rd pty statements, liab turns on entanglement (if dont control them but furnished them w/ info then need to correct their erroneous conclusion) or adoption (other pty makes statement we endorse) otherwise if not your stmt, no duty to correct. Materiality Basic v Levinson (really was negotiating merger but publicly denying it) ct adopts (1) TSC std significantly alters mix of info + (2) fraud on market theory (goes to reliance, not liability). Ganino says this means total mix + relevant to making investment decisions. Examples & guidance: (1) exec comp be/c material per proxy the pulled into 10-K, (2) 8-K, (3) understanding each substratum is material to understanding strata above it, which is material to understanding total mix. Per Ganino: (i) need not assert Pl would have acted differently (SEC SAB99 bulletin says this too); (ii) if done deliberately to deceive; (iii) forward-looking statements but materiality depends on indicated probability that event will occur; (iv) MD&A creates duty to speak as to forwardlooking statements but PSLRA safe harbors for forward-looking statements (a) accompanied by meaningful cautionary statements, (b) refers to avail doc, or (c) Pl is hamstrung be/c has to prove actual knowledge and no way to do this w/ forward-looking. Ernst & Ernst v Hochfelder 10b5 requires scienter/recklessness (not knowledge or negligence) and even for civil actions private Pls need to prove it. Liab spectrum: (1) knowledge/intent/purpose, (2) recklessness/scienter = 10b5, (3) gross negligence, (4) negligence, = 11&12 (5) strict liability = 16, 12(a)(1) 10b-5 is (1-2) crim + civil liab, 12(b)(2) is (1-4) civil only.] Recklessness defined in Sundstrand but see SEC v Lehman (can be established if deliberately avert eyes like ignore red flag) but see further Chiarella (financial printer not 10b-5 liable for divining M&A pty ID be/c theory pled too broad; just possessing MNPI not a violation need a violation of duty yet he wasn't a corporate insider) and Dirks (banker told by whistleblower & tips off clients but no 10b5 liab be/c per KD Roberts 1st need a breach of an affirmative duty and 2nd tippee duty derives from insider duty). Tipees only liable to SHs of corp when (i) insider has breached that duty to SHs/misappropriated info by disclosing to tippee, (ii) tippee knows/should know theres been a breach, and (iii) expected a benefit (can be non-pecuniary / reputational if will translate to future earnings). Swizer accidental tippee no liab @ game (didnt fit classical theory of insider trading on MNPI) but see OHagan Dorsey & Whitney partner liable on broad misapprop theory that extends to noninsiders/outsiders and SEC v Yun (11th 2003) liable be/c business relationship implied duty, which was breached, and there was an expectation of benefit (see also Sargent where giving info to maintain networking contact was enough). Grand unified misapprop theory synthesized in In re Cady, Roberts (non-insider convicted after receiving tip from director of a public co). 10b-5(2) specifies non-exclusive situations where duty of trust arises: (1)) agreed to keep info secret, (2) 2 folks have history, pattern, practice of sharing confidence, ad (3) whenever get MNPI from close fam. Safe harbors: (1) 10b5-1 written trading plan but (1) cant have any MNPI when enter into plan and (2) can change or amend plan but will ve subject to intense SEC scrutiny. (2) Reg FD non-discrim disclosure to market analysts. W9: 34 Act 16 Insider Trading: 16(a) requires D, O, 10% holders to report w/in 10 days of becoming beneficial owners (Form 3) or w/in 2 business days for change in beneficial ownership (Form 4). 16(b) provides for recovery of shortswing profits so cts put in place prophylactic strict liab rule whereby if opposite way trading by insider w/in 6 mos, clawed back. Rule 16a-1 defines beneficial owner as having pecuniary interest solely for 16 liability purposes (otherwise 13d-3 says 10%er beneficial owner if have voting or investment power) so could be 10%er sans pecuniary interest hence no 16b liability but see CSX (16(b) liable for synthetic TRS be/c 16a-1(b) + (h) include call- + put-equivalent positions under reporting reqts). 16a-1(f) officer any policy maker including a head of sales. 16a-3 reporting reqts on Forms 3-5. 16a-4 deriv securities deemed same class as underlying. 16a-8 trusts. 16b-3 txns be/w issuer and its O&Ds. 16b6 deriv securities defining call- & put-equivalents. W10 M&A: Can acquire via cash or securities, and if use latter, trigger 33 Act offer/sale restrictions. 3 ways to acquire via securities: (1) S-4 business combo under 33 Act (368(a)(1)A)) 145(a) merger txn requiring vote of target SHs good per IRC 368(a)(1); (B) share for share tender offer only (but if cash wouldn't use S-4 but TO), which is the only way to evade target BOD and go directly to SHs; (C) 145(a) asset sale requiring vote of target SHs; (D) forward triangular merger; (E) reverse triangular merger. Prospectus must have txn info,

txn terms, pro forma financials (as combined would look) & incorp by ref as would in S-3. (2) 33 Act 3(a)(10) state fairness hearing on merits (only CA); great be/c shares are freely tradable rater than 506 restricted. (3) 4(2)/506. Cash Cash & Secs Secs Offeror/acquiror oblig. 145(a) merger asset sale; S-4 S-4 368(a)(1)(A, C, D, E) TO: exchange offer Sched Sched TO & S-4 Sched TO & S-4 368(a)(1)(B) TO Wellman v Dickinson lead case defining tender offer (if planning to acquire a significant class of shares quickly) either by issuers (self-tender; governed by Rule 13e-4) or outsiders; so if dribbling acquisitions probably OK. Tender offer reqts: (i) non-discrim; (ii) best offer & all holders per 14d-10; (iii) timing reqts to hold open for 20 days per 14e-1even if for private co or debt; (iv) procedural outs; (v) can do a subsequent offering to extend your offering period thereafter. Williams Act 13(d) requires filing Sched 13D if hit 5% beneficial ownership but exempted if QIB or passive investor and cant acquire unless filed 13D; but when hit 10% also think 16 liability in addition to filing Sched TO. 33 Act rules 165 & 425 liberalized M&A communication restrictions so can make offers and communicate re: the deal w/o worrying about QP/WP restrictions but do have to file w/ SEC. Prompt filing for 13D/G = 2 business days hence CSX liab. Williams Act 14(d) equity of public co registered under 12, 14(e) debt, or private co stock, & Sched 14D-9 also require offeree/target to file. Once hit 15% securities, conduct Wellman TO analysis: (1) Active and widespread solicitation of public shareholders for shares of an issuer; (2) Solicitation made for a substantial percentage of an issuer's stock; (3) Offer to purchase made at a premium over the prevailing market price; (4) Terms of the offer are firm rather than negotiated; (5) Offer contingent on the tender of a fixed number of shares and possibly specifying a maximum number of shares; (6) Offer only open for a limited time period; (7) Offeree subject to pressure to sell stock; (8) Public announcements of a purchasing program that precedes or is coincident with a rapid accumulation of shares. Investment Company Act of 1940 (40 Act) and Exceptions: set up to address mutual funds/investment companies and unlike 33 Act uses exceptions whereby entity is literally carved out of investment co definition, which per 3(a) means (i) purport to be in investment business or (ii) hold 40% equity (inadvertent investment companies but there is a transient investment company safe harbor). Exceptions are 3(c)(1) beneficial ownership 100 ppl and not making a public offering (only raising capital via 4(2)/506; and 3(c)(7) Qualified Purchasers (5X AI; $5M NI/$25M investments) so would use same standards as 506 safe harbor and lacks # limit. Note 3(c)(1)(a) has a lookthrough rule which says if your beneficial owner owns 10% and would be an investment co but for 3(c)(1) or (7), then look through its beneficial owners. Note risk of integrating/consolidating 3(c)(1)s for purpose of 100 limit, which would eliminate exception for all funds involved. Also cant (1) & (7). 48 also prohibits doing indirectly what cant do directly. Open end funds (can get in/out anytime) also have reg reqts anytime (i) someone buys shares in fund, (ii) regular 40 Act ongoing investment co obligations, and (iii) substantive play fair disclosure rules for fund managers precluding > 60% of directors from being interested persons and requiring maj approval of mgmt agmt + fund must be able to terminate agmt. Advisers Act of 1940 (uses exemptions): governs investment advisers including GPs) but Dodd-Frank changed landscape giving SEC window into hedge funds by requiring them to register as investment advisers by eliminating 15 exception (but w/ carveout for VCs). Note specialty acts have more rigorous reqts than 33 (mere disclosure) reqts. If registered investment co, must file Form ADV. Broker-Dealers Provisions of 34 Act: dont advise like investment managers but they have fiduciary duties and are prohibited from (i) recommending sans reasonable basis, (ii) churning (successively trading customers accounts), and (iii) recommending unsuitable txns. Broker defined as any person in the business of effecting txns in securities for the accts of others but rule 3a4-1 exceptions for issuer officers or employees whose job it is to help the issuer do the offering but no safe harbor for lawyers or accountants notwithstanding compensation keyed to delta between [successful unsuccessful M&A txn] proceeds. Note using finders (unregistered brokers) will blow 506 via general solicitation prohibition, and states have corresponding provisions. W11: Government Enforcement by the SEC and DOJ. Expanding (DOJ) criminal (+ SEC civil) liability regime whereby SEC now nails penumbra (lawyers inclusive) and sharper A&A legal climate. SEC Rule 102(e) can disbar fro practicing before securities bar (SEC) = private securities bar to enforce securities laws (Commissioner Karmel) SOX 307 reporting up rules for attnys whereunder SEC adopted permissive rat rule (cf mandatory rat) resign or rat but if rat state bar can come after you for breach of professional duty! Law firms reacted w/ lockdown rules to salvage client relationships; also many rules not enforced by SEC for want of resources. Reporting up process: CLO audit committee resign or rat. But see Carter & Johnson where SEC made example of them but reversed ALJ A&A indictment (client ignored Johnsons advice but

Johnson nabbed for not resigning or ratting client out, bad press release w/r/t liquidity management agmt contingency obligations, issuer sending SH letter against counsels advice & behind C&Js back, inadequate disclosure of LMP in 8-K; held counsel duty to corp & SHs so failure to advise BOD is itself an A&A violation, and counsel cant help client in conduct lawyer knows is illegal = cant draft bad disclosure). SEC on A&A: (i) independent securities law violation committed by some other party, (ii) A&A knowingly and substantially assisted in the conduct, violation, and (iii) A&A was aware or knew his role was part of activity that was improper or illegal. Also see Fehn (core of A&A is substantial assistance; A&A liability begins @ recklessness not reasonableness). Criminal liability (1) Reyes (CEO of SV VC firm) indictment on options backdating for (i) deprivation of right to honest service (this is under some constitutional attack & cloud (Skilling part convicted for this but then this was reversed); (ii) 18 USC 371 conspiracy; (iii) 10b-5 securities & mail fraud; (iv) false SEC filing; (v) 13b2-2 falsifying books & records [classic SEC ligation workhorse]; (vi) false statement to accountants. (2) Collins (outside counsel to Refco, big NY deriv trading house that was hiding liabilities via related pty roundtrip loan wash txns = shell game recall Stoneridge 10b-5): watch for separate letters of guarantee, side letters, agmts that change terms of txns in some way not disclosed in closing docs. (3) Brooks (outside directors who ran audit committee of major supplier of body armor to US military DHB nabbed for ignoring red flags; co failing to have proper internal controls and BOD in bed w/ accountants compromised audit firm independence. Charges: 10b-5; 14a-9 bad disclosure in proxy; 12b-20 (bad SEC doc like 10b5); 13a-1 and 13a-11; and 13a13 (these are basically filing false financials via 10K, 8K, 10Q). Note per reg S-T cant file until get sig pages back. (Acct) opinion shopping also improper. W12: Corporate Governance, Shareholder Proposals and 34 Act Rule 14a-8 34 Act Rule 14a-8 designed for SHs and tells you how to do a proxy statement (most significant invasion of state corp law) but tool for big institutional investors/SHs to affect corp governance. SEC flipped reqt that if unrelated to business need not be in proxy now required anything socio-political-religious (now deemed material) to be included in proxy and ordinary course of business stuff need not go into the proxy statement. Now issue orgs (church groups) buy shares just to introduce SH proposals and use 14a-8 to compel companies to put these into proxy statements and vote on them at SH meetings. Must own $2K shares for 1 yr (particular shares must be owned continuously) and there are substantive bases for exclusion, including: where proposals deemed improper under state law (so precatory proposals ensued in bylaws be/c proper). SEC also enacted rule 452 that prevents brokers from casting votes of small retail clients as broker sees fit for director elections (so only ppl voting shares today are big institutions). SEC adopted new rule 14a-11 (2010) that says if 1 or a group of SHs collectively has 3% of shares, they get to force company to put at least one candidate (or up to 25% of BOD open seats) onto the ballot as op o candidates (opposition candidates) and exchanges adopted listing rules too including independent nominating committee reqt [see below] The Impact of Sarbanes-Oxley and Dodd-Frank on Securities Regulation and Corporate Governance. Over the years 1968 Williams Act, 1995-6 PSLRA & NSMIA, 1998 ISTFEA (Insider Trading and Securities Fraud Enforcement Act) Congress has done things to tweak securities laws but really the big structural change was 1933, then SOX. Dodd-Frank similar impact. SOX: Fundamental objectives: (1) Remake accounting profession; lawyers in congress wanting to oversee accountants; (2) place restrictions on corp management; (3) ensure proper reporting and speed up rate at which they need to report; (4) massively jack up criminal penalty structure so were taken seriously. Many are general application laws not restricted to public companies. 2(a)(7) defines issuer be/c SOX mostly applies to public companies, and captures any public reporting co. TITLE IPUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD built up BOD audit committee and acct industry cant self-regulate anymore via FASB & AICPA. PCAOB must pre-approve all services by auditors (whod expanded into non-audit advisory businesses) and made up of 5 members, maj not even accountants - private-sector, non-profit corporation to oversee auditors of public companies. But see Free Enterprise Fund challenging its constitutionality so amended such that directors serve at pleasure of Pres (can be fired anytime). Moreover SEC pressured NYSE & Nasdaq to pass listing rules, which it then approved + SOX reqts [Internal Audit Comm.] SOX indep NYSE.Nasdaq Audit Comm. X (separate from X NYSE/Nasdaq reqts) Comp Comm. X? X Nominating Comm. X? X AC: everyone on it is independent; runs financials & legal compliance. CC: pure independents. NC: decides wholl be up for election next yr so mgmt w/o control. Maj of BOD must also be independent but significant carveouts (co charter w/ dual-class voting structure like Googles ensuring Brin & Page have full control; grandfathering clause). TITLE IIAUDITOR INDEPENDENCE white glove rules 201(g):

prohibited activities include (1) bookkeeping or other services related to the accounting records or financial statements of the audit client; (2) financial information systems design and implementation; (3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports; (4) actuarial services; (5) internal audit outsourcing services; (6) management functions or human resources; (7) broker or dealer, investment adviser, or investment banking services; (8) legal services and expert services unrelated to the audit; and (9) any other service that the Board determines, by regulation, is impermissible. 202. Audit Committee must preapprove auditors and any non-audit services including tax services. 203. Audit partner rotation. 204. Audit reports to audit committee on major judgment calls. 205. Anti-revolving door (unlawful for public acct firm to perform for issuer an audit if CEO/CFO/controller/CAO was employed by that audit firm & participated in the audit within 1 yr preceding the start of the proposed audit. TITLE IIICORPORATE RESPONSIBILITY 301. Public company audit committees. 301(m)(1)(A) AC responsibilities: appointment, comp & oversight over the work of any audit firm, including resolving disagreements between auditing firm & management; auditing firm shall report directly to AC; independence: AC member independence prohibits (i) accepting any consulting, advisory, or other compensatory fee from the issuer; & (ii) being an affiliated person of the issuer or any subsidiary thereof. 301(m) (4) public co anonymous complaints hotline; also can have outside counsel review them for extra prudence to avoid conflicts of interest. AC free to engage its own advisors. 302 enhancements to reporting structure. Corporate responsibility for financial reports must sign & rep. Also classic 10b-5/12b-20 liab attaches but see 906 (broader than 302). 303. Improper influence on conduct of audits extends to outside counsel. 304. Forfeiture of certain bonuses and profits = clawback but see Dodd-Frank (predicated on strict liab!). 305. O&D bars. 306. Pension fund blackout periods requires uniformly applying policies so bigwigs cant sell as in Enron. 307: Rules of professional responsibility for attorneys report material violations of securities laws. TITLE IVENHANCED FINANCIAL DISCLOSURES 401. Disclosures in periodic reports if use non-GAAP must translate and present side-by-side. 402. Prohibits personal loans to execs. 403. 16 reporting D/O if change holdings in stock must be reported w/in 2 days! 404. Management assessment of internal controls (doubled audit costs). 406. Code of ethics for senior financial officers. 407. Audit committee must have a financial expert. 409. Real time issuer disclosures. TITLE V ANALYST CONFLICTS OF INTEREST (i-bank internal walls). TITLE VIIIcriminal liab stuff 802. Criminal penalties for altering documents grabs you even before pendency, imminence or threat! 20 yr felony to destroy, alter, modify, cover up, make a false entry in any tangible record w/ the intent to impede proper administration of any matter under the jx of any federal agency (codified under 18 USC 1519 obstruction of justice statute). Not limited to public companies. Dont delete docs/emails! 803. Debts nondischargeable cant get out of convictions through bankruptcy. 804. S/L securities fraud extended. 805. Fed sentencing guidelines enhanced. 806. Protection for whistleblowers others are 302 anon hotline, 1107 10-yr felony for retaliation & D-F bounty program. 807. 25 yr criminal penalty for securities fraud & deliberately left it undefined to ensure broad prosecutorial discretion. TITLE IXWHITE-COLLAR CRIME PENALTY ENHANCEMENTS 902. Attempt & conspiracy same penalties as primary crime. 903. Criminal penalties for mail and wire fraud up 5 20 yrs, including any false statement! 904. ERISA felony 1 10 yrs. 905. Amendment to sentencing guidelines relating to certain white-collar offenses. 906. Corporate responsibility for financial reports (CEO/CFO certifications reqd). TITLE XICORPORATE FRAUD AND ACCOUNTABILITY 1102. Tampering w/ the record (20 yr) looks like SOX 802. 1103. Gives SEC temp freeze auth to prevent money from moving. 1104. Amendment to the Federal Sentencing Guidelines. 1105. SEC auth for D&O bars. 1106. Felony & penalty provisions under 34 Act 32(a) up to 20 yrs if willfully violate an SEC rule. 1107. Retaliation against informants. Dodd-Frank. Objectives: regulate derivatives; create consumer protection agency; some limited provisions relate to corp gov and our course. Subtitle BIncreasing Regulatory Enforcement and Remedies 922: whistleblower incentivizing provision. 929M. A&A punished to fill extent of the underlying crime if SEC brings actions under 33 Act 20(b) or 20(d), 48 or 40 Act (codifying Stoneridge (that although there is no private right of action for A&A violations of 10(b), SEC enforcement powers are live). 929N. ditto for 209 Advisers Act. 929O. Aiding and abetting standard of knowledge satisfied by recklessness. Subtitle EAccountability and Executive Compensation 951. Shareholder vote on executive compensation disclosures say on pay votes every 3 yrs. 952. Compensation committee independence (in addition to AC). 953. Executive compensation disclosures. 954. Recovery of erroneously awarded comp spanning 3 yrs preceding date issuer was reqd to prepare acct restatement. 955. Disclosure regarding employee and director hedging (SEC will make rules). 956. Enhanced compensation structure reporting prohibits certain comp arrangements = Congressional wage controls!. 957. Voting by brokers (brokers dont get to cast discretionary vote idea ratified; nor do they have a say on SH pay votes). Subtitle GStrengthening Corporate Governance 971. Proxy access (giving SEC auth to institute SH proxy access). 972. Disclosures re: why issuer

chose to either have same or diff person serve as chair of BOD or not to do so (many SH activists say CEO should not be chair of BOD).