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What is an insubstantial portion of a tax return?
less than $10,000 or less than $400,000 and also less than 20% of GI on the return
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What is the penalty if an understatement was due to the preparer's willful or reckless conduct?
greater of $5,000 or 50% of income to be derived
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What is the penalty for disclosure of taxpayer information without consent?
$250 per disclosure with a max of $10,000 per year
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What is the penalty for knowingly or recklessly disclosing information?
Misdemeanor with up to $1,000 in fines and up to 1 year in jail
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What SEC rules were put in place to protect investors in penny stocks?
Brokers must provide documentation explaining the high risks and commission structure.
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What are the tests to determine if something is a security?
- 1. Person invests in common enterprise
- 2. Reasonable expectation of profit
- 3. Profit derived solely from efforts of third party
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How much stock does someone have to own in a company to be considered a controlling person?
10% or more
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What are the characteristics of an emerging growth company?
- 1. Annual gross revenue less than $1 billion
- 2. Remains an EMC until
- a. revenues exceed $1 B
- b. 5 years after IPO
- c. issued over $1B nonconvertible debt
- d. is a large accelerated filer
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What is included in a registration statement?
- 1. Description of
- a. business, property, and competition
- b. significant provisions of security
- c. management & officers'/directors' compensation (highest 5), holdings, and material transactions
- d. material legal proceedings
- e. principal purpose of proceeds
- 2. most recent audited FS and MD&A
- 3. if accountant changed in past 2 FYs
- 4. Signatures of issuer, CEO, CFO, CAO, and a majority of directors
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When does a registration statement become effective if no amendments are needed?
On 20th day after filing
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What is Reg. S-X about?
form and content and requirements of the FSs
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How long can a shelf registration be held?
3 years
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Who can have a shelf registration?
Seasoned and Well-known seasoned issuers.
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What securities are exempt from registration?
- Domestic governments (if for a govt purpose)
- NFP organizations
- Domestic banks and S&Ls
- Federally regulated common carriers
- Receiver or Trustee in bankruptcy (with court approval)
- Insurance policies and annuity contracts or state-regulated issuers
- Corporations in reorganization (if approved by court)
- Issuer exchange with existing SH (no commission or consideration, eg, stock dividend or split)
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What types of transactions are exempt from registering secondary trading under Sec. Act of 1933?
- 1. Transactions by person other than the issuer, underwriter, or dealer
- 2. Transactions by dealers that aren't original distributions or resales within limited period after effective date.
- 3. Unsolicited broker transactions on exchanges or OTC
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What does the SEC have the power to do?
- 1. Issue rules
- 2. Conduct hearings (adjudications)
- 3. Impose penalties
- 4. Investigate violations
- 5. Order suspension of trading of a security
- 6. Prohibit an individual who committed security fraud from serving as an officer or director of a public company
- 7. Freeze extraordinary payments during securities law investigations
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What can the SEC not do?
Prosecute criminal cases.
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SEC registration is required for companies if:
- 1. It lists securities on a national securities exchange.
- 2. It has 500+ SHs and total gross assets over $10M
- 3. It is an issuer with registrations with the SEC under 1933 Act.
- 4. It is a national security exchange
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Organizations exempt under the 1934 Act:
- Charitable organizations
- Investment companies
- S&Ls
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An OTC issuer may terminate its registration under what conditions?
- 1. Holders of registered equity security is fewer than 300.
- 2. Issuer had less than 500 SHs and less than $10M in assets on closing day of last 3 years.
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What is required to be disclosed when registering with the SEC?
- 1. Audited FSs
- 2. Corporate organization
- 3. Financial structure
- 4. Description of all securities
- 5. Names of officers, directors, underwriters, and holders of more than 10% of non-exempt securities.
- 6. Description of nature of business
- 7. Description of bonus and profit-sharing arrangements.
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