Final 305

Howey Test

Created by the U.S. Supreme Court; it defines a security as an investment in a common enterprise that earns profits from the efforts of others.

Hostile Takeover

A takeover not favored by the target’s management.

Insider Trading and Securities Fraud Enforcement Act of 1988

Act increasing the Securities Exchange Act of 1934 penalties for insider trading.

Insider

A corporate officer or director or other executive with access to corporate information that is not available to the public.

Material Misstatement

A statement of fact that would influence an individual’s decision to buy or sell.

Merger

Process of combining firms so that one firm becomes a part of the other and only one firm’s name is retained.

Merit Review

Process at the state level of reviewing securities registrations to determine whether they are good investments.

Prospectus

A document describing the nature of securities and the company offering them.

Proxy Solicitations

The process of seeking voting rights from shareholders.

Red-Herring Prospectus

A prospectus issued before the effective date of a securities registration statement; permissible to release these before the registration statement is effective so long as a disclaimer that it is not an offer to sell securities is noted in red on the prospectus.

Registration Statement (S-1)

A filing with the SEC disclosing all the necessary information about a securities offering under the 1933 Securities Act.

Rule 10b-5

SEC rule prohibiting fraud in relation to the sale of securities.

Section 10(b)

Antifraud provision of the Securities Exchange Act of 1934.

Section 16

Section of the Securities Exchange Act of 1934 that regulates sales and purchases of shares by directors, officers, and 10 percent of shareholders.

Securities Act of 1933

The federal law governing the initial issuance and sale of securities to the public.

Securities Exchange Act of 1934

The federal law governing the secondary sales of securities, the markets, and the firms dealing with securities.

Securities and Exchange Commission (SEC)

Federal agency responsible for enforcement of federal securities law.

Securities

Investment of money in a common enterprise with profits earned largely from the efforts of others.

Short-Swing Profits

Profits made by corporate insiders during a period of less than six months between purchase and sale.

Takeover

A takeover of one firm by another firm when the target firm solicits or agrees to the takeover.