This action might not be possible to undo. Are you sure you want to continue?
Agency is a legal relationship in which one person or entity (the principal) appoints another person or entity (the agent) to act on his behalf. Requisites for Creation i. Principal with capacity and consent 1. Principal must have contractual capacity (not a minor and not incompetent) 2. Writing generally not required- Unless LAND or greater than 1 YEAR 3. Agent need not have capacity- Minors can be agents 4. Consideration NOT required ii. Power of Attorney- Written Authorization of Agency 1. A power of attorney is a written authorization of agency 2. The agent has the power to act on behalf of the principal 3. Generally only the principal is required to sign the power of attorney. There is no requirement that the agent sign the instrument 4. The agent s authority is normally limited to specific transactions Rights and Duties Between Principal and Agent i. Duties of Agent to Principal 1. Duty of Loyalty- Act solely in the Principal s interest a. No kickbacks or self dealing b. Avoid conflicts c. Do not disclose confidential information 2. Duty of Obedience- Do not exceed authority and obey reasonable instructions rd 3. Duty of Reasonable Care- Liable if Negligent- to principal and/or 3 party 4. Duty to Account a. Unless otherwise agreed, the agent has a duty to account to the principal for all property and money received and paid out when acting on behalf of the principal. The agent CANNOT commingle the principal s property with the agent s property. 5. Subagent a. If a subagent is authorized to hire a subagent, the subagent owes a duty of care to both agent and the principal. ii. Principal s Remedies 1. If the agent breaches the duties he owes to his principal, the principal can recover damages from the agent a. Tort damages- civil wrong b. Contract damages- breach of contract c. Recovery of secret profits d. Withhold compensation- If the agent committed an intentional tort or intentionally breached her duty to her principal, the principal may refuse to pay the agent. iii. Duties of Principal to Agent 1. Compensationa. Unless the agent has agreed to act gratuitously (free),
Actual authority ( real authority . Since an agency relationship is consensual. 3. This includes the authority to do things reasonable necessary to carry out the agency. either party generally has the POWER to terminate the relationship at any time. The agent has a duty to mitigate damages iv. the agent can bring an action against the principal for any damages caused b. b. Act of the parties i. Power to Terminate Relationship. Implied Actual Authority a. Express Actual Authority a. Accomplishment of Objective or Expiration of Stated Period c. Death of principal or agent ii. (Agent is a creditor of the principal) Agent s Power to Contractually Bind Principal a. Actual Authority i. . EXCEPTION a. Agent s with actual authority has the POWER and RIGHT to bind his principal.The principal also has an implied duty to reimburse the agent for all expenses incurred in carrying out the agency. only the agent. Incapacity of principal iii. Termination of Actual Authority can Occur By: a. Termination of Actual Authority i. simply Authority ) is the authority the agent reasonably believes he possesses because of the principal s communications to the agent. not the principal. Destruction of subject matter vi. Discharge in bankruptcy of principal iv. Apparent Authority i. Exception. Agent has the POWER BUT NOT RIGHT to bind the principal.2. If the principal breaches her duties to the agent. The principal has an IMPLIED DUTY to give the agent REASONABLE COMPENSATION 2. 3. (either because the rd principal s conduct has caused 3 parties to reasonably believe the agent had authority or because the principal was negligent and so will be stopped from denying that the agent had authority. 2. ONLY an agent can terminate an agency coupled with an interest. The principal cannot terminate an agency coupled with an interest. Termination can occur through the acts of either the principal (a revocation) or the agent (a renunciation) ii. Reimbursement.Generally Terminable at Will 1. b. Remedies of the agent a. Failure to acquire a necessary license (agent) v. Subsequent illegality b. Oral or written instructions 2. has the power to terminate. 1. Agent has Right and Power b.If the agency is coupled with an interest. but not necessarily the RIGHT.
May Ratify Expressly or Impliedly 3.agent engaged to perform a series of transactions involving continuity of service iii. Secret Agent. Agent cannot give themselves apparent authority Common Apparent Authority Situations a. The principal s secret limiting instructions. Performance would be illegal b. Cannot be Ratified a. All material facts must be disclosed to the principal c. If the agent discloses the existence and identity of the principal.e. 1. The principal must ratify the entire transaction.3 party for contract duties (obligations) 1. 2. Only disclosed principal may ratify Contractual liability rd i. 3rd party withdraws 4. Actual Notice. As a general rule. Giving the agent title or position b. The agent must have indicated that he or she was acting on behalf of the principal b.given to old customers ii. d. c. must be given to new customers (i. Termination of Apparent Authority by Operation of Law ( Exception) NO NOTICE i. Ratification allows a principal to choose to become bound by a previously unauthorized act of his agent. Constructive Notice. Principal s conducta.1.Agent NOT liable if authorized a. Ratification i. Disclosed principal. there must be some act that prevents the third party in question from reasonably believing that the agent had authority. to terminate an agent s apparent authority.NO PARTIAL RATIFICATION 2. but rather notice imputed by law 1. Agent s Liability. Notice Generally Required to Terminate Apparent Authority i. Apparent Authority From Position/ Title i.perform one or more transactions not involving a continuity of service b. the 3rd party cannot hold the authorized agent liable .not actual notice or knowledge. Requirements a.while effective to limit the agent s actual authority.are not effective to limit the agent s apparent authority (unless 3rd party is given notice of the limit) ii. publication in a magazine) c. General Agent.
Scope of Employment i. the agent is liable on the contract to the 3rd party. rd ii. Actuated. an employer can be liable for an employee s torts committed within the scope of employment.& No ratifying iii. but NOT both. ii. Intentional Torts b. i. The 3rd party can hold either the principal or the agent liable. NO APPARENT AUTHORITY with an undisclosed principal. In General. As a general rule a principal is NOT LIABLE for the torts committed by his agent. Control 2. Of the same general type the employee was hired to perform b. by a desire to serve the employer 2. the 3 party can hold the agent liable for any damages caused based on breach of this implied warranty (agent wrong. If the principal s identity is NOT disclosed to the 3rd party or neither the existence nor the identity of the principal is disclosed to the 3rd party. breach of implied warranty) 2.If in fact the agent has no such authority. Activities 1. Generally only principal can hold 3rd party liablea. Degree of supervision c. 3 Party s Liability 1. Conduct must be: a.ONLY THE AGENT IS LIABLE ii.Agent Liable for contract a. The injured person may sue both the employer under respondeat superior and the agent. This does not relieve the agent of liability. EXCEPTIONS: 1.Respondeat Superior i.The fact that the principal is undisclosed has no effect on the agent s actual authority. 3. Under the doctrine of respondeat superior. As a general rule. The injury must have occurred while the employee was working for the employer within the time and geographic area in which the employee was to work. What constitutes Employer-Employee Relationship 1. rd . liable for fraud. Partially Disclosed and undisclosed Principal. only principal (not the agent) can hold the third party liable on a contract the agent entered into on the principal s behalf. Employer. No Effect on actual authority.Employee Relationship i. Who provides tools/ facilities 3. b. iii. An employer is not liable to an injured party merely because an employee caused the injury the injury must also have occurred within the SCOPE OF THE EMPLOYMENT 1. Length of employment 4. ii. An employer is liable only for torts of an employee and is usually not liable for torts of independent contractors. ii. at least in part. Tort Liability a.
corporations) i. Chapter 11 Reorganization. ii. Partnership.NO LIQUIDATION. with certain exceptions. since intentional torts are seldom within the scope of employment. 13 trustee oversees the handling of the CH. The conduct must also have occurred within usual employment time and space limits. a Ch. iv. 3. Chapter 7 Liquidation.e. partnerships.Individuals (Voluntary) i. At the conclusion of a Ch. Cannot Limit Liability by Agreement with Employee 1. The employer can seek reimbursement from the employee. BANKRUPTCY 1. the remaining debts of the debtor are discharged. The debtor repays all or a portion of his debts over a THREE year period to a maximum of a 5 year period. ii. and uses the proceeds to pay off creditors to the extent possible. iii. a plan to pay off debts at different time and/or different amount than originally due) is adopted. a trustee usually is NOT appointed.Individual. No discharge is given but the effect is the same. 13 proceeding. (Preferred by debtor for this reason) iii. If the debtor is an individual. An employer generally is not liable in tort for an employee s conduct that constitutes a serious crime (carrying an illegal weapon) iii. the debtor s debts are then discharged. EXCEPTION: Where tort is authorized or use of force is authorized (Bouncer at a bar) Crimes a. b. b. all debts are wiped out. 13 proceeding iii. it is dissolved. Corporation i. Trustee Not Required ( individuals. Types of Bankruptcy Cases a. Reorganization case (usually used by businesses but also available to individuals). A trustee is appointed. . If the debtor is an artificial entity. The debtor remains in possession of his or her assets and a plan of reorganization (i. The employer usually is liable only for an employee s negligence and is not liable for intentional torts. c. Intro 2. (Not preferred for this reason) ii.a. Chapter 13 Adjustment of Debts of Individuals with Regular Income. Time and Geographic Area 1. An agreement between the employer and employee that the employer will not be liable for employee torts does not prevent a third party from holding an employer liable. Creditors are paid to the extent possible and the business continues. The trustee collects the debtor s assets liquidates them . Although there is no liquidation.
Limitations on Ch. 7 permitted 2. Current monthly income. If debtor s income exceeds state median income-> Step 2 Means Test c. Automatic Stay.Be open and honest.Ch. Dismissal of Conversion of a Ch. A Chapter 7 case by an individual consumer debtor may be dismissed (or with the debtor s consent converted to a case under Ch. Savings Institutions 3.Calculate Debtor s Income i. Limitation in CH. Brokers 2.725 but more than $7. Insurance Companies 4. If less than $11.2. an AUTOMATIC STAY become effective against most creditors b. If less than $7. and cases brought to establish spousal or child support obligations 2. A schedule of current income and expenditures d. 13 or dismissed 4. b. Banks ii. Person= Individual. When bankruptcy petition is filed in either a voluntary case or an involuntary case. 11 Reorganizations= NO BIBS 1. a debtor must file: a. 1.725 or more. If $11. 7 Liquidations= NO RIBS 1. 7 would constitute abuse. Partnership.THE MEANS TEST i. Step 2.Abuse only if amount Equals 25% of non-priority claims 4. The stay stops almost all collection efforts c. 13) upon finding that granting relief under Ch. Copies of tax returns from the last tax year 3. 7 (to Ch.Stops Collection Efforts a.Ch.After a petition is files. Does not apply to criminal prosecutions. Only a person who resides. paternity suits. 13) case. Who may be a debtor a. or has a place of business.AVERAGE OF 6 MONTHS PRECEDING FILING 1. Step 1. A schedule of assets and liabilities (@ FMV) c. If equal to or less than state median income. The means test is designed to determine whether the debtor has sufficient income to repay debts using a Chapter 13 plan.Ch. Railroads 2. Corporation i. in the United States is eligible to be a debtor under the Bankruptcy Code. . Savings Institutions 3. and Corporation) 1. Banks Common Features of Ch 7 and Ch 11 Cases (Individual.025.Presumption of abuse.025. Current Net Monthly Income Mult. [ Average monthly income allowed expenses] x 60 2. A list of creditors and their addresses b. Insurance Companies 4. Partnership. By 60 a.THE MEANS TEST a. 7 permitted 3. Duties of the Debtor.
Voluntary Cases a. 7 case fails to file any of the items specified within 45 days after filing the petition. 12 or More Creditors. If creditors improperly filed an involuntary petition. Persons who become creditors of the debtor during the involuntary case gap are given high priority in recovering against the debtor s estate Dismissal of Petition. Section 341 Meeting Creditor s Meeting a. Grounds. Debtor Files for Order of Relief i. . Income generated from estate property 2. a hearing is held to determine the debtor s solvency. undisputed debt must join in the involuntary petition.1 or more owed at least $14. (the test for solvency is whether the debtor is generally paying his debts as they come due) d.(in default) b. If the debtor does object.Unsecured creditors may petition a debtor involuntarily into bankruptcy proceedings under Chapter 7 or Chapter 11. Debts of any amount not capable of paying as due b.3 owed $14. If a debtor has 12 of more creditors. There Is a GAP between the filing and the order of relief. Farmers and nonprofit charitable organizations may not be petitioned involuntarily into bankruptcy c.Damages. and even punitive damages if bad faith can be shown.Owed at least $14. Only creditors who are owed. An Involuntary Petition Does Not Constitute and Order for Relief a. a court may award the debtor compensatory damages.e. Involuntary Case. 1. Debtor Need not be insolvent. Ch 7 Cases may be dismissed if the debtor has too much income. 4.Generally Not Paying Debts When Due. 3.Frivolous a. court costs. Chapter 7 and Chapter 11 May be voluntary or involuntary 1. A voluntary case under Ch 7 or Ch 11 is commenced by the debtor filing a petition for relief. 20-40 days after the order for relief b.The primary purpose of the meeting is to provide creditors an opportunity to examine the debtor Property of the Bankruptcy Estate a. 5. at least 3 who are owed $14.425 in unsecured undisputed debt may petition a debtor involuntarily into bankruptcy. NOTE: if an individual debtor in a voluntary Ch. the case is automatically dismissed on th the 46 day. Ineligible debtors. (involuntary case gap) b.425 a. Fewer than 12 Creditors. attorney s fees. The court will enter an order of relief if the debtor does not object to the petition within 20 days c. individually or in aggregate AT LEAST $14. 3. Who must join petition. Property included Time of filing i. Unlike a voluntary petition.425 in aggregate in unsecured.Must Pass Income Tests i. The debtor s estate (all the debtor s real and personal property at the time of filing) ii. 6. a.Farmers and Charities i.425 2. Debtor must attend. Notice Requirements c. an involuntary petition does not constitute an order for relief.425 i.
a filed claim or interest will automatically be allowed b. Trustee is a Hypothetical Lien Creditor as of Filing Date i.Hide/ fake sale a. Domestic support obligations Claims against the estate a. Must file a proof of interest with bankruptcy court ii. PMSI perfected within 30 days iii. Unless someone objects. Transfers in the ordinary course of business ii. Trustee Can Disaffirm Preferences (90 days/ 1 year) a. This means that the trustee has priority over all creditors except creditors with prior perfected security interests or prior statutory or judicial liens Power Over Fraudulent Transfer. tax lien Trustee s Powers as a Lien Creditor a. Pre-paying.4. A trustee also has power to set aside fraudulent transfers made within 2 years of the filing date b. Government benefits 7. NOTE : Exemptions do not apply if PMSI. mortgage. Unsecured creditors and equity security holders must file i. Motor vehicle up to 3. Homestead up to 21. 5. 7. or insurance within 180 days after filing the petition b. A fraudulent transfer is any transfer made with intent to hinder.525) 5. Household goods . educational IRAs. Tools of a trade. Made within 90 days prior to filing of the petition (one year if the creditor is an insider) iv. Health aids 8.625 3. The trustee is treated as having a lien on all of the debtor s property the instant the bankruptcy petition is filed ii. EXCEPTION: Transfers that cannot be set aside i. accelerating payments iii. Post.450 4. Also includes property the debtor receives from a divorce. Made while the debtor was insolvent b. A transfer made to or for the benefit of a creditor 1. and State tuition programs ii. professional books 6. the payment is taken back from the creditor who received it and it comes part of the bankruptcy estate i. Prevent one creditor from being preferred over others ii.Petition Earnings. spendthrift trusts. Generally things necessary to live 2. Exempt Property 1. animals (550 per item up to 11. Alimony iii. Property Excluded from the Estate i. crops. inheritance. Consumer payments under $600 iv. The general rule is that a perfected security interest passes through and survives bankruptcy even if the creditor does not file a proof of claim . On account of an antecedent debt of the debtor 1. delay or defraud creditors or any transfer where the debtor received less than equivalent value with the debtor was insolvent. 6. When the payment is set aside. The trustee has the power to set aside preferences. iii.
725 (combined with Wage Claims.775 (7) Seventh Priority.Administrative Expenses. vii) Fines and penalties viii) Educational loans b) Reaffirmation of Discharged Debts i) Sometimes a debtor does not want a particular debt discharged in bankruptcy. The debtor may reaffirm such debts only if the following requirements are met: (1) The agreement to reaffirm was made before granting of the discharge (2) The agreement contains a clear and conspicuous provision that the debtor has the right to rescind the agreement any time prior to discharge or within 60 days after the agreement has been filed by giving notice to creditor (3) Debtor s attorney advises him that reaffirmation is not required by law c) Revocation of Discharge i) A creditor or trustee may request the discharge be revoked for the following (1) Debtor commits fraud (2) Fails to obey court order d) Distribution of the Debtor s Estate.Personal Injury Claims Arising from Intoxicated Driving iii) General Creditors who filed their claims on time . support and settlements from marital separation vi) Willful and malicious injury (1) Liabilities arising from willful and malicious injury to another are not dischargeable. cannot exceed $11.Consumer Deposits up to $2.725) (6) Sixth Priority.725 (5) Fifth Priority.Grain Farmers and Fisherman up to $5. and fiduciary s fraud v) Alimony.600 (8) Eighth Priority.1) Chapter 7 Bankruptcy a) Certain Debts that are not discharged (WAFTED) i) Taxes due within 3 years of filing ii) Debts incurred by fraud iii) Debts undisclosed in the bankruptcy petition iv) Embezzlement.Involuntary Case Gap Claims (4) Fourth Priority. larceny.Tax Claims (9) Ninth Priority. maintenance.Payments and priorities i) Secured Claims ii) Priority Claimants (SAG WEG CTI) (1) First Priority-Support obligations to Spouse and Children (2) Second Priority. (2) Liabilities arising from negligent torts are dischargeable.Wage Claims up to $11.Fees (3) Third Priority.Employee Benefit Plans up to $11.
UNANIMOUS NOT REQUIRED i) A class of impaired clams is deemed accepted if it is accepted by 2/3 vote h) Confirmation of the Plan by Court i) Only court can confirm . the debtor has an exclusive right to file a plan during the first 120 days after the order for relief.IPC.Approve Plan d) Debtor Generally Remains in Possession i) In Ch 7 liquidation.2) Chapter 11 Bankruptcy. a trustee is appointed to take over the debtor s assets ii) In a Ch 11 reorganization case. Other interested parties may file a plan if: (1) A trustee has been appointed (2) The debtor has not filed a plan within 120 days (3) The debtor ahs filed a plan but has not obtained the acceptances of every impaired class within 180 days after entry of the order for relief.To Save Business i) The debtor may file a reorganization plan under Ch 11 any time during the bankruptcy case. committees are appointed to consult with and advise the debtor. but a trustee is generally NOT appointed e) Chapter 11 Reorganization Plan. ii) Unless a trustee has been appointed. Voluntary or Involuntary a) Creation of Creditor s Committee i) Committee of the willing persons holding 7 largest unsecured claims b) Creation of Equity Security Holder s Committee i) 7 largest holders of equity securities c) Powers of Committees. f) Contents of the plan i) Classify all claims ii) Describe the treatment to each impaired class iii) Treat each claimant within a particular class identically iv) Establish ways to implement the plan. g) Acceptance of the plan by creditors/ stockholders.
No sales activity allowed 1. 30 Days before registration (prefilling period). Permitted if the issuer has continuously filed under the 1934 Act for 1 year and the information is continuously updated. B/S not more than 90 days before filing and P&L for preceding 5 years 2. Dealer. communications do not constitute sales activity ii. or TV offer to sell securities 2. Underwriter. The SEC does not guarantee the accuracy of this information b. iv.Most securities cannot be sold unless they are first registered with the SEC. The SEC reviews the registration statement to ensure both parts are complete v. Each investor must receive a copy of the prospectus before or contemporaneous with every sale of the security ii. Any written.Provide Investors with Sufficient Investment Information i. There is a 20-day waiting period between registration and the filing date.or part-time basis c. addresses of directors. Summarizes important information contained in Part 2 3. The goal of the 1933 Act is to assure that investors have sufficient information on which to make and informed investment decision.A written offer to sell securities 1.entity who s securities are being sold ii. Timetable of Sales Activity i. Registration Statement.one who sells or trades securities on a full. Names. Those Required to Register: i. Amount of stock and debt outstanding c. After registration but before effectiveness (waiting period) 1. Part 1: The Prospectus. The registration statement consists of two parts: i. Prepare one registration statement for all securities that they will offer in the future. Purpose of offering iii.intermediary who sells an issuer s securities to the general public or to dealers iii. ii. Part 2: Information About the Securities being Issued must Include: 1.Securities Regulation 1) Securities Act of 1933. Purpose. 2.IPO a.Registration Statement for Future Issuances 1. Audited Balance Sheet and P&L Statement a. >10% shareholders b. It accomplishes this goal by requiring most issuers to register new issues of securities with the SEC and provide prospectuses containing material information regarding the securities to prospective investors iii. Issuers. Issuer is permitted to negotiate with underwriter. Permitted activities include . Shelf Registrations. officers. radio. underwriters. The registration statement becomes effective on the 20th day after its filing with the SEC d. Other Material Facts Requiring Disclosure a.
505. Securities issued by BANKS and savings and loans 2.g. 505. No limit on number or type of purchasers iii. b.statement in red ink (not final) iii. Under Regulation A.ad identifies security. 505. Securities of REGULATED common carriers (railroads) 5. Not exceed $1M in a 12 month span ii. Not exceed $5M in a 12 month span ii. SHORT-TERM commercial paper with a maturity of 9mo or less 6. INSURANCE policies ii. Securities issued under 505 may be sold any number of accredited investors and 35 or fewer unaccredited investors.no advertising ii. Casual sales exempt.effective period) Exemptions from Registration i. 504.$5M limit i.Regulation D a. Intrastate sales 4. or dealer 2. General solicitation usually prohibited. Oral offers to sell Tombstone ads. permitting a simplified form registration that costs less to prepare than full registration. Regulation D Exempts private offerings and the SEC has 3 private offering exemptions under Regulation D: 504. Regulation A is a partial Exemption. c.one transaction 1. 506. a.e. and who will execute orders c. Securities issued by the GOVERNMENT 4. Securities Exemptions --BRINGS 1. . Transaction Exemptions. price.$1M limit i. SEC must be informed within 15 days c. Private Offering Exemption. Exemption when an issuer exchanges securities with its existing holders provided no commission is paid (e. stock dividends and stock splits) 3. Preliminary (red herring) prospectus can be made.Not an issuer.506 i. (Unaudited FS) b. the issuer files an offering statement. Securities issued by NOT FOR PROFIT organizations 3. Corporate Reorganizations a. which consists of a notification and an offering circular. Regulations A (partial exemption) a. After effective date (post. Regulation A sales may not exceed $5M in a 12 month period 5. instead of filing a registration statement.must hold LT investment (2 years or more) iii. underwriter. b. General Conditions of 504. Exchanges with existing holders. No specific disclosures required d. Immediate resale to public is prohibited.
bank. Any number of accredited and 35 or fewer unaccredited. person with $1M of net worth or $200.Unlimited $ amount. but sophisticated investors iii. directors. If only accredited investors purchase. If there are any unaccredited investors. 6. ACQUIRED the stock b. all investors must be given at least an annual report containing audited financial statements 506. underwriters) liable for all damages caused by a misstatement of material fact. Makes anyone who signed a registration statement (officers. no disclosure is required. Suffered a LOSS c.000 annual income iii. A person suing must prove: a. auditors. 3. The cause of action must be brought within 1 year after discovery and within 3 years of the offering date. Elements of a Section 11 Cause of Action 1.e. Registration statement contained a MATERIAL MISREPRESENTATION 2.institutional investor. lawyers. If there are any unaccredited investors.SOPHISTICATED INVESTORS ONLY i. all investors must be given at least an annual report containing audited financial statements 1. Due diligence defenses i. Defenses a. Liability Under the 1933 Act a. GAAP/GAAS workpapers . in registration statements i. If only accredited investors purchase. Section 11 (LAM) imposes civil liability for misstatements whether or not intentional. no disclosure is required. Accredited. No limit on the amount of stock that can be sold ii.
and 8K 1. issuer. National stock exchanges. if a prospectus was not given to all investors or if materially false statements were made or omitted in connection with sales or offers to sell. resignation of directors. 2) Securities Act of 1934 a. The SEC can seek suspension or revocation of a company s registered securities for violation of the 1934 s registration or reporting requirements b. disposition of major assets. b.to SEC. and exchange . Only two types of companies must register their securities: 1. Misstatement did t not cause plantiff s damages Section 12: Civil Antifraud Section of the 1933 Act i. 10Q.b. Sec.quarterly report filed within 40 days. Registration requirements i. brokers. Information Required in registration statement i. 5% or more owners must report. such as in a change in control. ENFORCED BY THE SEC AND PROSECUTED BY THE JUSTICE DEPT. Companies whose shares are traded on a national exchange 2.annual reports filed within 60 days (large corporations) and 90 days (small corporations) of the end of the fiscal year.must be filed within 4 days after a major change in the company. Company s financial structure.Savings and Loans and Charitable Organizations e. 1934 Act has registration and reporting provisions that apply only to certain companies and anti-fraud provisions that apply to all purchasers and sellers. Section 12 imposes civil liability if a required registration was not made. c. All companies required to register under the 1934 Act must report (500 shareholders and more than $10M in asset) 2. Periodic business reports. etc. Companies Required to Report. Introduction i. change in officers. Any issuer that must register under the 1933 ii. 17 imposes criminal penalties against anyone who uses any type of fraud in connection with the issuance of a security ii. 10Q. iii. c. Audited financial statements d. nature of its business and outstanding securities ii. 8K. regardless of registration iii. The immediate purchaser may sue for damages Section 17: Criminal Antifraud Section of the 1933 i. ii. The 1934 Act is concerned with exchanges of securities after they are issued ii.Two categories 1. 45 for small corporations 3. 2. 10 K. and dealers must also register.MANDATORY DISCLOSURES i. Companies that have at least 500 shareholders in any outstanding class and more than $10M in assets ii.10K. or directors. Exemptions.Called Reporting Companies. Reporting Requirements.
prohibits fraud in connection with the purchase or sale of any security 2. Insiders must file a report with the SEC disclosing their holdings in the reporting company and make monthly updates 3. Insiders must report 1. the issuer and the exchange on which the share are traded 3. the source of her funds. Any party making a tender offer to purchase 5% or more of the shares of a class of securities registered under the 1934 Act must file a report with the SEC. Suffered a Loss 3. Violation of rule 10b-5 can result in civil damages. an SEC injunction action.f. The report must include background information about the purchaser. more than 10% stockholders. Proxy Solicitations and proxy statements must be reported 1. Rule 10b-5 applies whether or not the securities are of a registered company. The plantiff must show scienter 1. and the purpose in buying. iv. the issuer and the exchange on which the security is traded. Plaintiff bought or sold securities a. Insiders are officer s directors. Imposes absolute liability on any insider who makes a profit on the purchase or sale of a reporting company s stock within a 6 month period (short-swing profits) vi. Rule 10b-5 applies only if the plaintiff bought or sold securities. Proxy statements and any other documents that will be sent to shareholders as a part of the proxy solicitation must be filed with the SEC vii. Scienter (intent to deceive or reckless disregard for the truth) a. accountants and attorneys 2. A tender offer is an offer to all shareholders to purchase stock for a specific price for a specified period of time 2. A proxy solicitation is a written request for permission to vote a shareholder s shares at a shareholder meeting. The report must include background information about the purchaser. v.Rule 10b-5 i. 2.by the one making the tender offer 1. promulgated by the SEC under Section 10(b) of the 1934 Act. Rule 10b-5. Proxy statements must be sent to all stockholders disclosing all facts that are pertinent to the matter on which the stockholders will vote. 2. or criminal fines and penalties. Section 18 liability 1. A person can be held liable for intentionally making false or misleading statements in a registration statement or any report required under 1934 Antifraud Provisions. ii. Must be reported to SEC 2.Rule 10b Applies Even if Registration is Not Required 1. Anyone who sells or buys securities using fraud can be liable. 3. Tender offers must be reported. the source of her funds and her purpose in buying. General Elements of cause of Action 1. In General. . Material Misstatement or Material omission of fact 4. Any person acquiring 5% or more beneficial ownership in any equity security registered under the 1934 Act must file a report with the SEC.
such as a director. a securities issuer s insider. dept of justice does) .Thus Federal laws apply a. Insider Trading under Rule 10b-5 1. it is illegal for a person to trade on the basis of inside information if the person would breach a duty of trust owed to the issuer of the security or the shareholder of the issuer. 5. Negligence on the part of the defendant is NOT sufficient to satisfy this element Reliance a.b. Any use of the mail or phones or a national securities exchange is sufficient to satisfy this element. The SEC can impose fines and seek criminal penalties (but does not prosecute. a. iii. Typically. Under rule 10b-5. attorneys as well) c. The plaintiff must have relied on the defendant s misrepresentation Interstate commerce. Basically. officer. b. 6. (CPAs. The plaintiff must show that a means of interstate commerce was involved. inside information is any material nonpublic information about the security or the issuer. A private person injured by a violation of rule 10b-5 can bring an action against the person violating the rule for any actual damages (not punitive) or seeking recission of the transaction. etc will be held to owe a duty of trust and confidence.
If a CPA does not fulful the terms of his engagement. b. To make out a case for negligence. Damages rd i.Ordinary. a CPA owes a duty to his or her client not to perform work negligently. the client can hold the CPA liable for breach. Contract liability generally requires PRIVITY. so only a party to the contract can sue under a contract theory.As a general rule. CPA liability can also arise from commission of a tort. Negligence. Of course. Client s falure to let the CPA see accounting records 2) Commission of a Tort a. the CPA cannot recover any payment iii. the client must prove: . i. the client or named 3 party beneficiary is entitled to recover compensatory damages ii. Where a CPA breaches the contract.CPA Legal Liability 1) Breach of Contract a. all defenses that were mentioned in the contract outline apply to a contract made by the CPA 1. If the CPA s breach is material.
CPA is liable to anyone who proves the above elements 1. An intent to induce plaintiff s reliance on the misrepresentation 5. c. Damages ii. A CPA s duty to act with reasonable care generally runs only to clients. and under the majority rule. The defendant owed a duty of care to the plaintiff 2. 1. . The breach caused plaintiff s injury 4. intentionally deceiving iii.Intentional Misrepresentation 1. Actual and justifiable reliance by plaintiff on the misrepresentation 4. Even if not specifically named 3rd party beneficiary Fraud and Constructive Fraud (gross negligence) i. Privity is not a defense for fraud. Elements of Actual Fraud. Elements of Constructive Fraud 1. Intent to deceive 3. Damages ii. any person or limited forseeable class of persons whom the CPA knows will be relying on the CPA s work. The defendant acts recklessly. 1. The defendant breached that duty by failing to act with due care 3. Misrepresentation of material fact 2.b.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.