Lesson

This sub-section discusses exemptions and exclusions from registration under the securities laws and regulations. These exemptions and exclusions allow certain securities and issuers to avoid the registration process, which can be time-consuming and costly.

Practice Question #1

Which of the following securities is most likely to be exempt from registration under federal securities laws?

Options

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Terms

Exempt securities:
Securities exempt from registration requirements under federal and state securities laws.
Exempt transactions:
Transactions exempt from registration requirements under federal and state securities laws.
Regulation A:
A regulation that provides an exemption from registration for small public offerings of securities.
Regulation D:
A regulation that provides an exemption from registration for private placements of securities.
Rule 144:
A rule that provides a safe harbor for the public resale of restricted and controlled securities.
Rule 144A:
A rule that provides a safe harbor for the private resale of restricted securities to qualified institutional buyers.
Rule 147:
A rule that provides an exemption from registration for intrastate offerings of securities.
Rule 701:
A rule that exempts registration for securities issued under employee benefit plans.
Accredited investor:
An investor who meets specific financial criteria, such as income or net worth, and is considered financially sophisticated.
Qualified institutional buyer:
An institutional investor that meets specific financial criteria and is considered financially sophisticated.

Practice Question #2

Which of the following rules provides a safe harbor for the public resale of restricted and control securities?

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Historical Example

In the early 1900s, a company issued securities to raise capital for a new business venture. The company did not register the securities with the appropriate regulatory authorities, claiming that the offering was exempt from registration. However, the regulators determined that the offering did not qualify for an exemption, and the company was forced to refund the investors' money and pay a fine for violating securities laws.

Practice Question #3

Which of the following investors is most likely to be considered an accredited investor?

Options

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Real-World Example

A start-up company wants to raise capital to expand its operations. The company decides to issue securities through a private placement under Regulation D, which allows it to avoid the registration process. The company carefully follows the requirements of Regulation D, including limiting the offering to accredited investors and providing the necessary disclosures.

Practice Question #4

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Rhyme

To remember the difference between security issuance exceptions and exclusions: EXception/EXemption: The 'EX' prefix can help you remember that 'EXception' and 'EXemption' are related. Think of the phrase "EXceptionally E-Xempted" to remember that exceptions provide exemptions to certain rules under specific conditions. ExCLusions/CLean-out: The 'CL' in both 'exCLusion' and 'CLean-out' can remind you that exclusions completely 'clean out' certain types of securities or transactions from the purview of a particular law. They're not considered under that law. To remember the difference between 144 and 144A: Rule 144 has specific holding period requirements. You can remember this by saying, "One (1) has to wait For (4) more than Four (4) months" (1-4-4, get it?), although the holding period is usually six months for reporting issuers. 144A: Rule 144A deals with selling securities to Qualified Institutional Buyers (QIBs), typically accredited investors. So, remember the "A" in 144A stands for "Accredited."

Practice Question #5

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More Detail

- Specific exemption: A specific exemption refers to a security or transaction that is exempt from state-level registration requirements under the Uniform Securities Act (USA). - Exclusions from state-level security registration: These are certain types of securities or transactions that are not subject to state-level registration requirements.

Practice Question #6

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More Detail Examples

- Specific exemption: An example of a specific exemption is a private placement, where a company raises capital by selling securities to a limited number of accredited investors. - Exclusions from state-level security registration: An example of an exclusion is a security issued by the U.S. government, which is not subject to state-level registration requirements.

Practice Question #7

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Pitfalls to Remember

- Specific exemption:
A pitfall to be aware of is that even though a security may be exempt from state-level registration, it may still be subject to federal registration requirements under the Securities Act of 1933.
- Exclusions from state-level security registration:
A warning is that not all securities are exempt from state-level registration, and it is important to understand which securities are subject to registration requirements to ensure compliance with the law.

Practice Question #8

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Practice Question #9

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