ÿWPCý lŒ U/‚ö<í¾:B‘ð…ßzŠìà‹ÆlLµžug ã5¹Rêu#þ&'âÑ ^Û1[‰$)uÉ?³úÍ–¸afþ ÷c¸'ù+ÇOn£è¾KPÁ žNmöWŸºìÑ”îÅ74grõço—Ÿ“Ž\2`¡ŒŠÛ`¼P èÙ '$’ 4@§·6“0לUB òX6öâh W¶Dë|è£H`‚QÙ´?š %~Ã~*»3øY™6ñc?ÊKÐ_ðëZYCĆ§Íº„xš&VlÃZnµ°“°¨Y;§”vÓWE Á³²Ãª©äß¾ÕâIÖ÷ÎwD¥/â(XjŽ[qu”‹ü”¡ýý¦ð¡Ò º©ÂœçÞ°¬³¡ç_FâHނɡi®«™@ìôèlo"Í®ª0æŠQ½Ê*‘2C†ã Ñx‘ÜX‚®æ ¾Ð¬'?C§ìÿêHõ­~˜W¬J𼦤Á5ø…{Úƒûˆ†81ÅÅSŸk´ÞC‘¹0¶Ø›h±\¸Ö¥^Dd4«áAXˆ@<Ư´«´ høÿO¹Täùì>ÀZOÆÕíü=õ×{g¶lW‹ú¯^!zõ«Iƒ#Ûÿ±;½Ø …¦ #!ÄUNå %3 0(9 a^ gw@s4³ÇÖ mØ ïõ˜HP DeskJet 820C Series Printer,(,,,,,(0(ÖÃ9 Z‹6Times New Roman RegularX($¡¡HÌŽ¢(c ÌDÍÎDÏÐDÑÒÓÔÕÊó€4( ‚3|xÕ ÿU‹ÿÀÀÀÈÌ Ý ƒ!ÝÝ  ÝÔ_Ôà@BBìàÔ‡„Š„XXÔò òSECURITIES€REGULATION€EXAM€ANSWERSˆÐ ° Ðà@ææ%ìàSpring€2000ó óÔ#†XçX„„Š=#ԈР` ÐÌà  àYour€preliminary€grade€for€each€question€appears€on€your€blue€book.€€These€grades€areÏcalculated€on€the€usual€Law€College€grading€scale€(9=A+€to€0=F).€€Your€overall€score€wasÏcalculated€by€computing€a€weighted€average€of€all€four€questions,€with€the€weight€for€eachÏquestion€determined€by€the€amount€of€time€recommended€for€that€question.€€Thus,€Question€1Ïcounts€for€%€of€the€overall€average,€Question€2€counts€for€%,€Question€3€counts€for€%,€andÏQuestion€4€counts€for€%.ÌÌà  àThe€average€score€for€each€question€and€for€the€exam€as€a€whole€were:ÌÌÓ  ÓQuestion€1€€€€€€€€6.43€(High€8;€Low€4)ÌQuestion€2€€€€€€€€6.50€(High€9;€Low€4)ÌQuestion€3€€€€€€€€5.43€(High€8;€Low€2)ÌQuestion€4€€€€€€€€5.29€(High€9;€Low€ñËñ0ñËñ)ÌÌOverall€Average€€€€€€€€ñÌñ5.63ñÌññÍñ6.11ñÍñ€(High€ñÎñ6.98ñÎññÏñ8.64ñÏñ;€Low€ñÐñ3.65ñÐññÑñ4.08ñÑñ)ÌÓ  ÓÌñÒñà  àI€adjusted€the€grades€upwards€a€little€to€account€for€the€fact€that€my€personal€grading€scaleÏdiffers€a€little€from€the€Law€College€grading€scale.€€After€that€upward€adjustment,€and€after€takingÏinto€account€class€participation,€the€distribution€of€grades€was€as€follows:ÌÒ™ °ÒÒä °ÒÌÒ(Ü}™ ô™ ô(Ò9€€€0Ì8€€€5Ì7€€€2Ì6€€€2Ì5€€€2Ð |Ì Ð4€€€2Ì3€€€0Ì2€€€0Ì0€€€0ÌÐ |Ì ÐÒ°™ ÒÒ°ä ÒÒ(Ü}°Œ °Œ (Òà@tt ìàAverage€Grade€=€6.46ˆÐ T ¤ ÐÌñÒñà  àI€have€attached€copies€of€the€outlines€I€used€to€grade€each€question.€€These€are€not€sampleÐ l Ðanswers;€they€are€simply€something€I€used€to€keep€track€of€issues€when€I€graded€the€exam.€€NoÏone€covered€all€the€issues€in€the€outlinesñÔñ,€although€a€couple€of€people€came€pretty€Ô_ÔcloseñÔññÕñÔ% € ÔñÕññÓñ€and€for€some€questions,€particularly€Question€6,€it€wouldÏhave€been€impossible€to€cover€all€of€these€issues€in€the€time€allotted€(although€a€couple€of€youÏcame€close)ñÓñ.Ô_Ô€€TheÏoutline€answers€also€are€not€always€complete;€sometimes€I€just€raise€an€issue€without€reallyÏdiscussing€it€in€the€outline.€€Some€issues,€particularly€interstate€commerce€requirements,€do€notÏappear€on€the€outlines,€even€though€I€gave€you€credit€for€discussing€them.€€The€outlines€also€doÏnot€necessarily€represent€the€ð ðcorrectðð€answers.€€Some€issues€could€be€argued€either€way;€if€theÏoutline€contains€a€conclusion€with€respect€to€such€an€issue,€it€is€merely€how€I€would€resolve€theÏissue.€€If€you€adequately€supported€your€conclusion,€you€were€not€penalized€for€a€conclusionÏcontrary€to€mine.ÌÌà  àI€hope€these€outlines€give€you€sufficient€feedback€concerning€what€I€was€looking€for.€€FeelÏfree€to€drop€by€if€you€want€to€discuss€the€exam€with€me.€€The€best€procedure€is€to€drop€off€yourÏexam€and€make€an€appointment€to€discuss€it€after€Iððve€had€a€chance€to€reread€it.Ð  #h  Ðà@ìì$ìàò òQUESTION€ONEó óˆÐ ° ÐÌÌ1.€€The€registration€statement€has€already€been€filed€and€there€is€no€refusal€order,€stop€order,€orÏsection€8€proceeding,€so€section€5(c)€no€longer€applies.€€Section€5(a)€applies€because€theÏregistration€statement€is€not€yet€in€effect.€€Section€5(b)€applies€because€a€registration€statementÏhas€been€filed.Ìà  à„Section€5(a)(1)€is€not€violated€because,€although€Broker€has€made€an€offer€to€sell,€there€isÏno€actual€sale€yet.Ìà  à„Neither€section€5(a)(2)€nor€5(b)(2)€is€violated€because€no€security€has€been€delivered.Ìà  à„Section€5(b)(1)€has€not€been€violated€because€Broker€has€not€carried€or€transmitted€anyÏprospectus.€€Broker€clearly€has€made€an€offer€to€sell€the€security,€but€it€is€not€a€ð ðprospectusððÏbecause€it€is€not€ð ðwritten€or€by€radio€or€television.ðð€€Section€2(a)(10).€€Section€5(b)(1)€does€notÏprohibit€oral€communications.ÌÌ2.€€The€preliminary€prospectus€clearly€is€a€prospectus.€€It€is€a€written€offer€to€sell€the€security.€ÏSection€2(a)(10).€€Thus,€Broker€has€transmitted€a€prospectus.€€However,€under€section€5(b)(1),€itÏis€lawful€to€transmit€a€prospectus€if€it€ð ðmeets€the€requirements€of€section€10.ðð€€Section€5(b)(1).€ÏThe€preliminary€prospectus€is€ð ðdeemed€to€meet€the€requirements€of€section€10€of€the€Act€for€theÏpurpose€of€section€5(b)(1)€thereof€prior€to€the€effective€date.ðð€€Rule€430.ÌÌ3.€€This€letter€clearly€is€an€offer€to€sell.€€Broker€is€soliciting€an€offer€to€buy€from€Purchaser.€ÏSection€2(a)(3).€€It€is€written,€so€it€falls€within€the€basic€definition€of€prospectus.€€SectionÏ2(a)(10).Ìà  à„Neither€of€the€exceptions€to€the€definition€is€available.€€It€was€not€accompanied€orÏpreceded€by€a€section€10(a)€final€prospectus.€€Section€2(a)(10)(a).€€And€the€letter,€if€it€mirrors€theÏphone€conversation,€goes€beyond€what€section€2(a)(10)(b)€and€Rule€134€allow.€€Neither€allowÏsale€and€revenue€forecasts.Ìà  à„This€letter€is€in€connection€with€a€registered€public€offering,€so€it€is€not€within€theÏòòGustafsonóó€exclusion€from€the€definition€of€prospectus€of€communications€in€connection€withÐ l¼ Ðprivate€offerings.€€However,€òòGustafsonóó€also€talks€about€prospectuses€having€wide€publicÐ X ¨ Ðdissemination€and€this€letter€does€not.ÌÌ4.€€Section€5(a)(1)€prohibits€the€actual€sale€of€the€security,€and€this€contract€clearly€is€a€sale.€ÏSection€2(a)(3).€€But€section€5(a)(1)€no€longer€applies€because€the€registration€statement€is€inÏeffect.Ìà  à„Section€5(b)€still€applies,€but€this€oral€conversation€is€not€a€prospectus,€section€2(a)(10),Ïand€no€security€has€been€delivered€yet.Ìà  à„The€letter€does€not€meet€the€requirements€of€section€10.€€Therefore,€Broker€appears€toÏhave€violated€section€5(b)(1),€unless€the€òòGustafsonóó€argument€works.Ð  ¤(ô#' Ðà@ÐÐ$ìàò òQUESTION€TWOó óˆÐ ° ÐÌÌò òSection€12(a)(1)ó óÐ tÄ Ðà  à„Section€12(a)(1)€makes€liable€any€person€who€offers€or€sells€a€security€in€violation€ofÏsection€5.€€Section€Ô_Ô12(a)(1).Ô_ÔÌà  à„ò òSaleó ó.€€The€terms€ð ðsaleðð€includes€ð ðevery€contract€of€sale€or€disposition€of€a€security€orÐ 8 ˆ Ðinterest€in€a€security,€for€value.ðð€€Section€2(a)(3).€€Teen€clearly€sold€the€securities€to€Ô_ÔKelsoÔ_Ô.€ÏÔ_ÔKelsoÔ_Ôððs€release€of€his€claims€against€Teen€clearly€constituted€value.€€Although€his€likelihood€ofÏsuccess€was€low,€Teen€still€had€potential€liability,€so€the€release€had€at€least€some€value.Ìà  à„ò òSection€5€Violationó ó.€€Absent€an€exemption,€this€sale€clearly€violated€section€5.€€AmongÐ ì <  Ðother€violations,€the€securities€were€sold€prior€to€a€registration€statement€being€in€effect.€€SectionÏ5(a)(1).Ìà  à„ò òSelleró ó.€€Jackie€is€liable€under€section€12(a)(1)€only€if€she€is€a€seller.€€A€seller€is€one€whoÐ ´  Ðsolicits€a€purchase€ð ðmotivated€at€least€in€part€by€a€desire€to€serve€his€own€financial€interests€orÏthose€of€the€securities€owner.ðð€€òòPinter€v.€Dahlóó.€€It€does€not€include€a€person€who€acts€gratuitouslyÐ à  Ðwhose€sole€motivation€is€to€benefit€the€buyer.€€Jackieððs€discussion€with€Ô_ÔKelsoÔ_Ô,€where€she€pushedÏthe€desirability€of€the€stock,€clearly€was€a€solicitation.€€And€Jackieððs€motivation€arguably€was€notÏsolely€to€benefit€Ô_ÔKelsoÔ_Ô.€€Ô_ÔKelsoÔ_Ô€owes€Jackie€a€substantial€sum€of€money,€and€Jackie€would€benefitÏif€Ô_ÔKelsoÔ_Ô€had€additional€assets.€€Also,€her€motivation€was,€at€least€in€part,€to€benefit€her€friendÏDonna,€who€is€a€partner€in€Teen.€€Thus,€Jackie€could€be€a€seller.ò òó óÐ ,| ÐÌÌò òSection€4(1)€Exemptionó ó.€€The€only€potential€exemption€for€this€resale€transaction€is€section€4(1),Ð ð@ Ðwhich€exempts€ð ðtransactions€by€any€person€other€than€an€issuer,€underwriter,€or€dealer.ððÌà  à„ò òIssuer€or€Dealeró ó.€€Neither€Teen€nor€Jackie€are€the€issuer€of€the€preferred€stock.€€SectionÐ Ì Ð2(a)(4).€€Nor,€as€far€as€the€problem€indicates,€are€either€Teen€or€Jackie€dealers.€€Section€2(a)(12).€ÏEven€if€they€were,€if€that€were€the€only€problem,€section€4(3)€would€exempt€the€transactionÏbecause€it€has€been€over€two€years€since€the€securities€were€first€offered€to€the€public.Ìà  à„ò òUnderwriteró ó.€€One€is€an€underwriter€if€one€(1)€ð ðpurchased€from€an€issuer€with€a€view€to€.Ð €Ð Ð.€.€the€distribution€of€any€securityðð€or€(2)€offers€or€sells€for€an€issuer€in€connection€with,€theÏdistribution€of€any€security.ððÌà  àà0 ` à„ò òPurchased€with€a€View€to€Distributionó ó.€€Teen€might€be€an€underwriter€if€itÐ H"˜  Ðpurchased€the€Seventies€stock€with€a€view€to€distribution.Ð ` (#` (# Ðà  àà ` àà0 ¸ à„ò òHolding€Periodó ó.€€The€usual€means€of€showing€that€one€did€not€purchaseÐ $$t" Ðwith€a€view€to€distributing€is€to€show€a€sufficient€holding€period€toÏdemonstrate€investment€intent.€€Under€the€common€law,€two€years€was€theÏpoint€at€which€the€presumption€was€investment€intent.€€Here,€Teen€held€forÏtwo€years€and€a€month.€€Rule€144€does€not€displace€these€common€lawÏrules.€€Rule€144(j).Ð ¸ (#¸ (# Ðà  àà ` àà0 ¸ à„ò òChange€of€Circumstancesó ó.€€If€the€sellerððs€circumstances€change€after€theÐ °)%( Ðpurchase,€it€may€be€able€to€show€investment€intent€even€if€the€holdingÏperiod€is€relatively€short.€€Here,€the€accident€occurred€in€1997,€long€beforeÏTeen€bought€the€preferred€stock.€€However,€Ô_ÔKelsoÔ_Ô€did€not€sue€Teen€untilÏ1999,€after€the€purchase.€€Teen€might€argue€that€the€lawsuit€constituted€aÐ d-´(, Ðchange€of€circumstances€that€led€them€to€sell,€even€though€they€originallyÏpurchased€for€investment.€€But,€once€the€accident€occurred,€wasnððt€theÏlawsuit€predictable?€€If€so,€has€there€been€a€sufficient€change€ofÏcircumstances€to€show€a€change€of€intent€on€Teenððs€part.€€The€SECÏpurported€to€abolish€the€ð ðchange€of€circumstancesðð€doctrine€when€itÏadopted€Rule€144.€€òòSecurities€Act€Release€No.€5223óó.€€But€since€thatÐ L œ Ðdoctrine€is€an€interpretation€of€the€statutory€definition€of€ð ðunderwriter,ððÏdoes€it€really€have€the€authority€to€do€that?Ð ¸ (#¸ (# Ðà  àà ` àà0 ¸ à„ò òDistributionó ó.€€Before€the€securities€come€to€rest€(i.e.,€if€investment€intentÐ  ` Ðis€lacking),€ð ðdistributionðð€is€defined€as€anything€inconsistent€with€theÏissuerððs€original€exemption.€€Seventiesðð€sale€to€Teen€was€pursuant€to€RuleÏ506,€the€section€4(2)€safe€harbor.€€Teenððs€sale€to€Ô_ÔKelsoÔ_Ô€would€not€beÏconsistent€with€that€exemption€because€Ô_ÔKelsoÔ_Ô,€a€high€school€drop„out€whoÏworks€as€an€auto€mechanic,€would€not€be€either€an€accredited€investor,ÏRule€501(a),€or€sophisticated.€€Rule€506(b)(2)(ii);€òòRalston€Purinaóó.Ðœì ¸ (#¸ (# Ðà  àà ` à„ò òSelling€for€an€Issuer€in€Connection€with€a€Distributionó óÐ ˆØ  Ðà  àà ` àà0 ¸ à„ò òð ðIssuerððó óÐxȸ (#¸ (# Ðà0  àà0` (#(#àà ¸ àà0` (#` (#à„For€purposes€of€section€2(a)(11)€only,€the€term€ð ðissuer€includesÏð ðany€person€directly€or€indirectly€controlling€or€controlled€by€theÏissuer,€or€any€person€under€direct€or€indirect€common€control€withÏthe€issuer.€€Section€2(a)(11).Ð (#(# Ðà  àà0 ` àà0¸ ` (#` (#àà0¸ (#¸ (#à„ð ðControlðð€means€ð ðthe€possession,€direct€or€indirect,€of€the€powerÏto€direct€or€cause€the€direction€of€the€management€and€policies€of€aÏperson,€whether€through€the€ownership€of€voting€securities,€byÏcontract,€or€otherwise.ðð€€Rule€405.Ð (#(# Ðà  àà0 ` àà0¸ ` (#` (#àà0¸ (#¸ (#à„Teen€clearly€is€a€control€person€of€Seventies,€because€they€appearÏto€be€under€common€control.Ð (#(# Ðà  àà ` àà0 ¸ àà0¸ (#¸ (#àà0h(#(#à„Eric,€with€45%€stock€ownership€of€Seventies,€appears€toÏhave€the€power€to€direct€the€management€and€policies€ofÏSeventies.€€Thus,€Eric€controls€Seventies.Ð h(#h(# Ðà  àà ` àà0 ¸ àà0¸ (#¸ (#àà0h(#(#à„Eric,€as€one€of€three€general€partners€of€Teen,€also€has€theÏpower€to€direct€the€management€and€policies€of€Seventies,Ïso€Eric€controls€Teen.Ð h(#h(# Ðà  àà ` àà0 ¸ àà0¸ (#¸ (#àà0h(#(#à„Thus,€Teen€is€under€common€control€with€the€issuer,ÏSeventies,€and€is€therefore€treated€as€an€issuer€for€purposesÏof€section€2(a)(11).Ð h(#h(# Ðà  à„ò òSelling€for€an€Issueró óÐ ì%