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Title: Should the role of the SEC include reviewing the merits of a registered offering of securities?

Question Details
Q:

The Mission of the SEC

The goal of the registration requirements of the Securities Act of 1933 is to give investors the information they need to make intelligent investment decisions. The SEC reviews the registration materials to be sure the information is complete and not misleading. However, as the law is currently written, the SEC’s mission does not include evaluating the economic merit of the registered securities. Should it?

This is very valid question.  I believe it should include an economic merit of the registered securities to enable evaluation.  Let us examine what the general requirements of the SEC are as follows:

The Exchange Act requiresa company to file certain periodic reports once its registration statement has been declared effective. This obligation continues indefinitely unless:

·        At the beginning of any subsequent fiscal year, the class of securities offered is held of record by less than 300 persons; or

·        At the beginning of any subsequent fiscal year (except the two fiscal years-immediately succeeding the year the registration statement became effective), all securities offered are held of record by less than 500 persons and the issuer has had less than $5 million in total assets for each of its last three fiscal years.

All companies with total assets exceeding $5 million and a class of equity securities held by 500 or more persons are required by the Exchange Act to file the same supplementary, periodic, and current reports as noted above.

 

Should the role of the SEC include reviewing the merits of a registered offering of securities? Suppose while reviewing a registration the SEC concludes that investors are likely to lose money, should the SEC block the offering? Support your conclusions with clear arguments.

Public Issues:

Securities are sold to many investors under a formal contract overseen by federal and state regulatory authorities. When a company issues securities to the general public, it is usually uses the services of an investment banker. If the security issue does not sell well, either because of an adverse turn in the market or because it is overpriced, the underwriter, not the company, takes the loss.

Investment Banker is a financial institution that underwrites (purchases at a fixed price on a fixed date) new securities for resale. We can see the public market where the securities are offered.

The Public Market:

·        Public Issue

·        Privileged Subscription

·        Regulation of Security Offerings

·        Private Placement

·        Initial Financing

·        Signaling Effects

·        The Secondary Market

 

We need to understand the roles that venture capital and an initial public offering (IPO) play in financing the early stages of a company’s growth. We also need to look into the potential signaling effects that often accompany the issuance of new long-term securities. Of course IPOs are vital for the growth for a company but what if it does not meet certain merits? What if the statements are inflated?

Sarbanes-Oxley Act of 2002 (SOX) – Addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information:

Most important security law reform since 1930s.

Establishes:

·        an oversight board to regulate public accounting firms that audit public companies

·        New audit and audit committee standards

·        Executive officers of public companies must certify the company’s SEC reports

·        Increases liability for violations of federal security laws

If the SEC had certain merits for issues securities it would allow risk adverse investors to make sound financial decisions. It would also eliminate the inflated statements. SEC should play a role of the securities and include reviewing the merits of a registered offering of securities. Furthermore, those inflated and below the standard (not meeting the requirements or below the merit securities) should be blocked by the SEC offering. As we can conclude, a merit would be favorable for investors.

 

 

 

           

 


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Title: Should the role of the SEC include reviewing the merits of a registered offering of securities?

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    • Posted Date: Apr 27, 2012 at 9:29:25 PM

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A:
...n of the SEC The goal of the registration requirements of the Securities Act of 1933 is to give inv...

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Assignment SEC.docx  (19K)

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