[REG] 8. Government regulations

8.1 General definition

8.1.1 Securities

- Securities under the Securities Act of 1933 + Securities Exchange Act of 1934

1. Type

Equity security	Debt security	Instrument	Investment contract	Investment profit derived from the effort of another(passive method)
CS, PS	bond	promissory note, check	Investment of money in a common enterprise + expectation of profit	limited p's profit in limited pship

 

* limited pship의 limited p는 경영에 참여X, 해당 수익은 passive way not securiteis, SEC 신고대상

* Certificate of Deposit (CD)는 Securities에 해당되지 않음

 

2. Sales of securities including

- initial issuance of securities = initial public offering

- Issuance of stock warrants

- Issuance of stock for merger, consolidation, reorganization

* dividend를 주는 활동, stock splitting을 하는 활동, 전화사채를 주식으로 바꾸는 활동은 SEC 신고대상이 아님

 

3. Insider Issue

Insider: officer, director, shareholer/owner( 10%이상, 배우자, 자녀 등 가족 지분 포함)

Temporary insider: CPA, lawyer, appraiser, consultant

* Tipper = insider +temporary insider = 내부정보를 전달한 자, Tipee = 재부 정보를 전달받은 자

* Bankruptcy insider: Blood, controlling SH(BOD, CEO, CFO=officer)

 

 

8.1.2 Securities and Exchange Commission(SEC)

1. SEC as a federal agency

- Agency: legislative role + executive role + (judicial role)

- Civil liability(0) + criminal liability(0) against a defendant

- Obtaining injunction of a security sale

- Requiring a party to comply with a proper registration(full and fair disclosure of important info of regulated securities)

* SEC의 역할은 주식가치 평가가 아닌, 평가가 공정하게 이루어지는 환경을 만드는 것임

 

8.2 Securities Act of 1933[Initial Public Offering]

1. Purpose for regulation

비전문 투자자를 보호하기 위한 목적으로 제저오디었음. IPO, seasoned offering, secondary offering 규제하는 법

1) investors receive financial and other significant info concerning security, being offered for public sale

2) prohibit deceit, misrepresentations, and other fraud in the sale of securities

 

2. Process of issuance(public offering)

Step 1. Audit contract be a client and CPA

step 2. Filing registration statement(form S-1) = prospectus + audited financial statement

           * 20 days for filing > corp's offer(0), sale(x), 1) Tombstone advertisement, 2) Oral offer, 3) Preliminary prospectus

           * 20 days after filing > corp's offer(0), Sale(0)

Step 3. SEC> corp:  approval/request for amendment or denial

step 4. Corp>  underwriter: $ <-> shares (exchange)

step 5. underwriter <-> Dealer, 1st investor 

 

3. Registration

Filing a registration statement before the initial sale

Prospectus + audited FS

	Before  filing = pre-filing period	After filing before 20 days = waiting period	After 20days = post- effective period
Offer	X	0	0
Sale	X	X	0
Method for offer	NA	- Oral offer - Tombstone advertisement - Red-herring prospectus   (preliminary prospectus)	Written offer + other methods

 

Requirement of registration

- When the regulated securities are offered, sold, or transferred in interstate commerce by mail

- securities are reviewed by the SEC

- each distribution must be registered

 

Shelf registration

- a qualified issuer eligible to sell for 3yrs once after the valid registration

 

8.2.1 Exemptions of Securities and Transactions

1. Types

1) Commercial paper(maturity date = less than 9 months) for commercial purposes

- 9개월 이하 promissory note, check, Certificate of Deposit(CD)

- 투자목적이 아닌 실제 영업 활동을 위해 발생한 증서만 신고에서 면제됨

- SEC 신고 필요없음

 

2) Securities for intrastate commerce

- 원칙상 주식을 발행하는 회사의 주와 청약을 받는 자의 주는 같다

- 해당주에 80%이상 영업활동중이면 다른주회사라고 해도 원칙이 적용됨. SEC 신고 없이 주식 발행 및 판매 가능

- 12개월 동안 주식 판매 가능. 6개월 Resale 금지

 

3) Securities issued by bank or government

- Municipal bonds, securities issued by common carrier

 * Securities of public utility는 신고되어야함

 

4) Stock splitting

 

5) Securities of a charitable organization

 

6) Insurance policy, pension plan policy

   보험, 연금 관련 증권은 SEC 신고 대상 아님.

 * 보험회사 주식은 SEC 신고 대상임

 

7) Emerging Growth Company(EGC) 회사 주식은 IPO 이후 5년간 신고 의무 없음

연방기관 = Inter-State transaction  주정부기관 = Intra-State Transaction

 

 

2. Special transaction

1) Regulation A + for startups(Jumpstart our biz startups(JOBS) act

JOB act sec 401	Tier1	Tier2
발행금액, 기간	$20M(within 1yr)	$50M(within 1yr)
발행방식	Testing the waters 시장상황보며 발행	Testing the waters 시장상황보며 발행
투자자, 투자금액	제한(x)	- Non-accredited individual 한도, annual income 10% - Non accredited company한도, annual income 10%
Registration	Offering circular + unaudited FS(2yrs) + Form 1-A	Offering circular + unaudited FS(2yrs) + Form 1-A
State regulation	Yes	No

* 주식판매를 위한 홍보, General solicitation, Resale에 대한 특별한 제약사항은 없음. 증권을 발행하는데 부담을 줄여주는 혜택을 신생기업에게 줌

* Offering circular> types of prospectus for a new security listing

 

2) Regulation D(1933 Act)

규정	Rule 504	Rule 506
발행인Issuer	small company(1934 reportining하는 경우제외)	모든회사
발행금액, 기간	$5M(within 1yr)	제한(x)
투자자, 투자금액	제한(X)	Sophisticated unaccredited 투자자=35 purchaser Accredited 투자자: 제한(x)
General solicitation = offering	가능	Accredited 투자자: 가능 이외 불가능, 개별모집요
Resale	제한없음	제한(6개월~1년)
Notice of an exempt Offering of securities = form D	Filing 필수(15일 이내)	Filing 필수(15일 이내)
State regulation	Yes	Yes

Accredited 투자자: 전문지식을 갖춘 기관투자, 투쟈수익이 좀 되는 개인

Sophisticated 투자자: 금융관련지식있는 사람

일반인끼리 증권거래시 SEC 신고할 필요없음

 

8.2.2 Civil, criminal liability

1. Statutory liability to 3rd party: 1933 act + 1934 act

	1933 Act, sec11(젤무서움)	1934Act, sec10b(적용어려움)	1934 Act, sec18
Elements
1) intent to defraud =Scienter 의도적	X	O	X
2) Misrepresentation of material fact	O	O	O
3) Reasonable reliance	X	O	O
4) Damage	O	O	O
Other issues
1) protection for	Potential investor	Seller & buyer
2) 규제대상	발생시장(발행전 신고)	유통시장(정기, 수시 공시)

Defense

1) Elements를 증명하지 못했다고 주장

2) GAAP/GAAS에 따라 문건 작성했다고 주장

3) CPA행동과 Damage사이에 Causation 설명 명확하지 않음

4) Assumption of risk 주장할 수 있음( negligence defense 사용하는 것처럼 해석)

 

 

8.3 Securities Exchang 1934 유통시장 규제

1. Purpose for regulation

- 정기 공시, 수시 공시와 관련된 사항을 규정하고 있음(임원이름,변동,재무제표, 이익분배 규정등

- 내부정보를 활용하여 부당이익 얻는것을 방지하고자 함(insider+tipper+tippee)가 벌어들이는 수익에 대해 규제함

2. Required to reprot

	Required to report	Not required to report
Securities	- National securities exchange 증권거래소에서 거래되는 증권 - 장외시장에서 거래되는 증권(Over the counter:OTC)	- T-bond(미연방 국체) State bond - 연방은행에서 발행하는 증권 - common carrier(ICC) 발행채권 - Industrial development bonds
Corporation	- Assets = $10M + SH(unaccredited) ≥ 500 - Assets = $10M + SH ≥ 200	NA

 

 

3. Regular report vs Special report

1) Basic concepts

Annual report = form 10-K

Quarterly report = form 10-Q

Current report = Form 8-K

* required disclosure: Bonus and profit-sharing arrangements, financial structure and nature of the business, name of officers and directors

 

2) Required Reports 중요사건 = 5% TIP

- More than 5% ownership (지분변경 후 10일 이내) > SEC

- Tender offer > SEC

- Insider trading( 내부자 신분 10일 이내, 내부자 지분변경 2일이내, 1년치 내부자 주식거래현황보고) > SEC

- Proxy solicitations 의결권 위임 10일이내 > SEC

 

3) Tender offer

publicly and invite SH to sell their shares 2) for a specified price and 3) within a particular window of time. The price offered is usually 4) at a premium to the market price

 

4) Insider trading

단기차익거래(short-swing transaction)로 인해 발생한 수익에 대해 SEC는 환수할 수 있음

* 1934act insider: president, BOD, control power 10% SH, 회사소속 attorney, accountant, consultant

 

5) Proxy solicitation = Proxy statement

- 위임권, SH가 특정사람에게 자신의 투표권을 위임할 수 있음

- Corp은 Proxy solicitation 진행에 대해 SEC에 신고해야함. Proxy statement, proxy card주주에게 발송하기 10일전 SEC 신고

 

 

8.3.1 Foreign corrupt practices act(FCPA)

부패방지법. 계약 체결을 위해 뇌물을 공무원, 정치인등에 전달하는 것을 금지

 

8.3.2 civil, Criminal liability

	1933 Act, sec11(젤무서움)	1934Act, sec10b(적용어려움)	1934 Act, sec18
Elements
1) intent to defraud =Scienter 의도적	X	O	X
2) Misrepresentation of material fact	O	O	O
3) Reasonable reliance	X	O	O
4) Damage	O	O	O
Other issues
1) protection for	Potential investor	Seller & buyer
2) 규제대상	발생시장(발행전 신고)	유통시장(정기, 수시 공시)

 

8.4 State "Blue sky" laws

- Federal statutes preempt state statutes in general

- The National Securities MKT Improvement Act (NSMU) preempts most state statutes except "some state rules"

  * Rule 504.505

- blue sky law가 적용되는 경우, State법이 여전히 적용됨. 증권발행하거나 회사 경영사항에 대한 보고시 연방법/주법 다 지켜야함

 

8.5 Jumptstart Our Business Startups(JOBS) Act of 2012

신생회사 도와주는 법

 

8.6 Employment Tax

1. Basic concept

- ERs duty to withhold federal income tax from EE's wages

- failure to withhold & remit > penalty of 100% of the tax not paid

- Resonsible person

  고용주, 재무자금 담당자, 단순장부작성자 해당사항없음

 

8.6.1 Federal Insurance Contribution Act(FICA) 국민연금+의료보험

1. Targeting programs

   1) Social security 국민연금: after retirement + 2) Medicare 의료보험: for 65 and older

2. Funding method

   1) Taxation on wages = active income, salary, commissions, bonuses

   2) Employer(7.65%) + Employee(7.65%) = total 15.3%

      * Medicaid 저소득층을 위한 의료보험서비스 FICA와 관련없음

3. Additonal Medicare Tax(AMT) 오바마 케어

4. Coverage of wage

Wage = active income	Salary, commissions, bonuses, fees, tips
Not wage = passive income	Reimbursed employee expenses, int of bonds, dividends on stock, 부동산

 

8.6.2 Self-employed contribution act(SECA)

- Federal income tax + Social security + Medical Taxes on taxable earnings

- SECA tax rate = 15.3%(ER +EE 모두 한사람이 부담함)

- Self-employed can deduct 50% of FICA from taxes

 

8.6.3 Federal Unemployment Tax Act(FUTA) 실업보험

1. Purpose of FUTA

- unemployment compensation benefits to workers 실업보험료

2. Tax rate

- Only the employer must pay FUTA tax, the first $7K of taxable income of each EE

- FUTA tax rate 6%

3. Eligibility to take the benefit 받는 기준, 한국과 비슷

	Eligible/Not
Involuntary termination	0
Fired because of economic downturn	0
Laid off because of CEO's malpractice	0
Quit because of harassment	0
Fire because of his larceny	x
Seasonal workers paid every quarter	x
Receiving disability benefits	x

* 비자발적으로 회사를 다니지 못하는 경우 대상. 본인의 잘못,자발적 회사를 나오는 경우 실업보험금 혜택 받을 수 없음

 

4. Table

FICA	ER(7.65%), Deductible EE(7.65%), Deductible x	ER(15.3%)  7.65%: Biz exp, Deductible                  + 7.65%: wage, Deductible
SECA	Self-employed person 15.3%, above the line deduction
FUTA	ER only, 6%(state by state), Deduction(Biz exp)

 

 

8.8 Worker Classification Laws and Regulations

1. Employee vs independent contract

	Employee	Independent contract
Behavior factor
- The company gives lots of instructions	0	x
- Company trains workers in its methods	0	x
Financial factor
- Worker has few unreimbursed business exp	0	x
- Worker invests little in tools	0	x
- Worker does not try to sell services to others	0	x
- Worker gets paid by hour or week	0	x
Relationship factor
- Contract describes worker as an independent contractor	x	0
- Worker provides own medical benefit	x	0

 

2. Consequences of misclassification

- EE가 independent contractor로 처리되어있으면 FICA, FUTA 를 책임지라고 소송할수있음

- Special fines, intentional이 더 크다

 

3. Safe harbor rule, Revenue Act of 1978 한번만 봐줍쇼

- Classification is consistent with industry practice

- previous IRS or court rulings found the workers to not be EE

- IRS ruling or opinion letter supports the classification

 

4. Statutory classification

Statutory employee	Statutory nonemployee
- Drivers= delivery service - life insurance agents - Home workers - Salespeople	- Licensed real estate agents - Direct sellers - Companion sitters

 

 

8.9 Sarbanes-Oxly Act, Fair Debt Collection Practices Act

1. Sarbanes-Oxley act 회계장부를 잘못작성한 것에 대해 책임을 묻는다

CFO and CEO must certify reports comply fully with relevant securities laws + fairly present the financial condition of the company in all material aspects

2. Fair Debt colleciton Practices Act 돈받으러 갈때 예의를 지켜라

a debt collector generally can be prevented from communicating with a debtor who is represented by an attorney