What is a “Security”?
Under US federal securities laws, the definition of a “security” is derived from the “economic realities” test first espoused by the U.S. Supreme Court in 1946 in the case, SEC v. W.J. Howey Co., 328 U.S. 293. Under the Howey Test, an economic interest in a business will be classified as a security only if the following three elements are present:
- an investment of money has been made,
- in a common enterprise, and
- the investor has the expectation of profits, which profits are expected to arise solely, or substantially, from the efforts of the promoter or third party.
An important term that I use frequently is “issuer”. An “issuer” is the “person” who sells and issues its own securities. This is different from a business, like a broker-dealer, that buys and sells securities of other businesses. In the definition of “security” above, the issuer is the business that owns the “common enterprise”, and can be thought of as the “promoter or third party”.
What Is An Accredited Investor?: Part 1
“Accredited investor” is term used in the US federal securities laws specifically in connection with the sale and issuance of private securities pursuant to a regulatory exemption under the Securities Act of 1933. The regulatory exemption is known as “Regulation D” and is found at 17 C.F.R. § 230.501 through 508. Very basically, an accredited investor is a wealthy individual or business entity whose wealth indicates to securities regulators and judges that they possess sufficient financial resources to hire attorneys to enforce obligations and analyze investments for legal risks. The US federal securities laws were enacted in part to prevent fraudulent practices in connection with the sale of securities. The idea is that people who do not have the resources to enforce their legal obligations and undertake analysis of investments should not invest in private securities because the issuer of the private securities has reduced disclosure obligations relative to a issuer of securities who files a registration statement with the SEC, and becomes subject to continuing reporting obligations under the Securities Exchange Act of 1934, as amended. These continuing reporting obligations include the filing of 10Ks and 10Qs, which are public annual and quarterly reports of financial results.
What Are Private Securities?
Section 5 of the United States federal Securities Act of 1933 generally provides that it is unlawful for any person to sell its securities unless there is a “registration statement” in effect. The process of filing a registration statement with the SEC is long, arduous, and expensive. At the end, your securities are traded on an exchange like the NYSE or NASDAQ, and you are a company like Apple or Exxon. Fortunately, there are exemptions in the securities laws that allow for the sale of securities other than pursuant to a registration statement. These securities are “private”, and the general rule under Section 4(a)(2) of the Securities Act is that Section 5 does not apply to “transactions by an issuer not involving any public offering.” Filing a registration statement with the SEC might cost $1 million in legal fees alone. A good securities attorney can help you lawfully raise money for your business for a fraction of that cost.
Using Advertising To Sell Your Securities
It truly is an exciting time to be a securities lawyer. In the past, advertising has been prohibited in connection with any offer and sale of private securities. To unpack the significance of that statement, you have to understand what private securities are, and then also understand how the internet allows us to use technology for advertising in completely new ways. Through the use of the internet and very recent changes in the US and state securities laws, we can now sell securities in ways that have never been possible before.