Quiz 42: Investor Protection, Insider Trading, and Corporate Governance


As per Section 5 of the Securities Act, 1933, if a corporation is not exempt, the securities of the corporation must be registered before it is sold to the public. On the other hand, under rule 504, the company may be exempt. Moreover Rule 504 is generally used in small businesses and if this corporation is a non-investment company and is offering less than $ 1 million in a 12 month period, then the company is exempt. Hence, as long as the brothers do not offer more than $1 million over 12 months, then they are exempt from the registration rule.

SEC Rule 10(b)-5 applies to almost all cases concerning the trading of securities, whether on organized exchanges, in over the counter markets, or in private transactions. Generally the rule covers just about any form of security. The securities need not be registered under the 1933 act for the 1934 act to apply.

No. Federal securities law dictates that a stock split is an exception to the registration requirement. Here, the existing shares are just being split. Furthermore, the corporation is not receiving any consideration for the splitting of the shares.

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