Wednesday, March 29, 2006




Howey test
1. Was there money paid?
2. Was there a common enterprise?
3. Was there a profit from the efforts of others?
(stock is always a security)


REGULATION A: If the public offering is not more than $5million then it is a "mini-offering" and exempt. Advertising acceptable.

REGULATION D: Regulation D provides that a series of safe harbors that issuers can use to come within the private placement exemption and avoid or reduce their required disclosure. For example, if an issuer raises no more than one million through securities, it generally may sell to an unlimited number of buyers without registering the securities. If it raises no more than five million, it may sell to 35 buyers(accredited investors) but no more. And, if it raises more than five million, it may sell to no more than 35 buyers and each buyer must pass a test of financial sophistication.'

Transaction by an issuer not involving any public offering are exempt. This applies to an offering to a relatively small number of private subscribers who are sufficiently experienced or informed so that the disclosure protections are not needed (They are able to fend for themselves)and are acquiring the shares as an investment rather than for resale to the public.

1. number of offerees and their relationship
2. number of units offered
3. size of the offering
4. manner of the offering.

accredited investor exemption..if everyone is accredited you are fine. "Insiders or persons with a million dollars of wealth or more" (rich, dumb peope)

Where the offering and sale is made entirely to residents of the same stated in which the issuer resides and is doing business, the issuer is exempt from registration.

If the registration statement, when it becomes effective, contains a misstatement or omission of material fact, any person acquiring the securities without knowledge thereof has an action for damages (the amount he or she lost on the investment)against various persons connected with the issuance.

1. any person may sue, but not if they knew of the omission or misstatement.
2. P need not prove fraud, just that material fact was omitted.
3. material means the average prudent investor would need it to make an intelligent informed decision
4. no scienter, no causation, no reliance: it is not necessary for P to prove that she relied on the misrepresentation or omission or that it caused the loss in value of the security. The fact that it is material is enough.
5. everyone who signs is liable: liability may extend to the corporation, it's directors and all persons who sign the registration statement.
6. defense: due diligence: issuer absolutely liable, others can avoid liability through due diligence
7. defense: reliance on experts: portions of the registration statement made on the reliance of experts okay if D believed it.


Any person may sue
Misrepresentation or omission of material fact
No scienter, no causation, no reliance
Everyone who signs is liable
Defense: due diligence and reliance on experts


Unlawful to make untrue statements in connection with purchase or sale of securities.


1. purchase or sale of security
2. using an instrumentality of interstate commerce
3. P is SEC or private P
4. misrepresentation of material fact
5. scienter-fault is required here: a. recklessness b. intent
6. causation
7. reliance a. presumption of reliance in omission cases b. fraud on the market theory with publicly traded securities and misrepresentation cases.
8. non-insider trading 10b-5 cases are easy to distinguish-no material nonpublic information is involved

The purchase and sale of corporate stock by a director, officer, or other insider raises issues of fiduciary responsibility.

Insiders (directors, officers, controlling shareholders and corporate employees) violate 10b and 10b5 by trading on the basis of material, nonpublic information obtained through their positions.

MISAPPROPRIATION: noninsiders who wrongfully acquire material nonpublic information.

The "misappropriation" theory holds that a person commits fraud in connection with a securities transaction and violates 10b and 10b5 when he misappropriates confidential information for securities trading purposes.


A person, not an insider, who trades on information received from an insider is a tippee and may be liable under rule 10b5 if
1. she received information through an insider who breached a fiduciary duty in giving the information and
2. the tippee knew or should have known of the breach breach of duty by insider

P should have performed due diligence: If P's reliance on a misrepresentation or omitted fact could have been prevented by his exercise of due diligence, recovery may be barred.

ordinary mismanagement: A breach of fiduciary duty not involving misrepresentation, nondisclosure or manipulation does not violate rule 10b5.


out of pocket damages: difference between price paid and actual value

benefit of the bargain: difference between current value of the stock and its value absent wrongful conduct

rescission: returns parties to the status quo before the transaction. For example, seller returns purchase price and gets back stock she sold.

restitution: measured by the value of waht the D gave up and the value of what D received.

injunction: The SEC often seeks injunctive relief accompanied with a request for disgorgement of profits and other payments that can be used as a fund for injured private parties.

criminal penalties: you can go to jail and get fined.


Provides that corporations may recover profits realized by an owner of more than 10% of shares when that owner buys and sells stock within a six month period.

The elements are

1. Securities must be registered securities
2. must be stock or convertible stock
3. must have a purchase and sale or sale and purchase within a six month period
4. must be an officer, director or 10% shareholder
5. must have made a profit

important issues:

1.must have been an officer or director at either purchase or sale

2.10% shareholder immediately before purchase and immediately before sale

(check notes and 523)



A.Proxy rules

A PROXY authorizes another person to vote a shareholders' shares.

1. generally revocable
2. unless expressly stated and coupled with an interest in the shares themselves (explanation needed here)
3. the effective period is limited in time

B.proxy solicitation

Almost all shareholders of publicly held corporations vote by proxy. Solicitations of proxies are regulated by SEC rule 14(a) of the 1934 act.

requirement of full disclosure

The proxy rules require full and accurate disclosure of all pertinent facts.

C. shareholder proposals

must be an existing shareholder

a corp. may refuse IF

1.Not a proper subject:a corporation may refuse the shareholder proposal if it is not the proper subject for a shareholder action.

2.illegal proposal:If the shareholder proposal would cause the corporation to violate either state or federal law, the corporation need not include it.

3. false and misleading:If the shareholder proposal is misleading, the corporation can refuse to include it.

4. seeks redress of personal claim: If the shareholder proposal concerns the redress of a personal claim or grievance against the corporation or any other person, or is designed to to result in a benefit to the shareholder or further a personal interest that is not shared with other shareholders then the corp. need not include it.

5. Relates to operations accounting for less then 5% of the corporations total assets and is not otherwise significantly related to the corporations business. if there IS a significant relationship, then the proposal must be included.

6. Beyond the corporations' power to effectuate.

7. relates to ordinary business operations

8. is counter to a proposal submitted by the corporation at the very same meeting

9. is moot or duplicative

10. Deals with the same subject matter as a very unsuccesful prior proposal

11. Relates to specific amounts of cash or stock dividends


Access to shareholder lists:

A shareholder has the right to obtain a list of shareholders or to have her communication included with the corporate proxy materials.

A corporation can pay expenses of existing management, win or lose, as long as reasonable

a corporation can pay expenses of challengers only if they win, as long as reasonable and approved by shareholders


four methods

1. proxies
2. pooling agreements
3. voting trusts
4. statutory dissolution

proxies (this area unclear...needs more work)

pooling agreements:Voting or Pooling Agreement
A voting or pooling agreement is an agreement, preferably in writing, of two or more shareholders to vote their shares in a certain manner. The most common use of this agreement would be to pool voting strength for the election of directors.

Voting Trust
A voting trust is an agreement among the shareholders of the corporation. Under a voting trust, shareholders transfer their shares of stock to a trustee in exchange for voting trust certificates. The trustee votes the shares in the manner directed in the voting trust agreement. Voting trusts are often used to preserve control of the corporation.

statutory dissolution:(unclear...needs more work)


Often a controlling shareholder wishes to eliminate minority shareholders from any further participation in the corporate enterprise: There are three ways

1. sale of substantially all assets
2. merger
3. reverse stock splits

sale of substantially all assets: a sale of substantially all assets may be used to freeze out a minority shareholder by causing corporation c to sell it's assets to a controlling shareholder s or to the corp. s controls, for cash. The minority shareholders in c end up with stock in a corporation that holds only cash (and which is normally dissolved) while s ends up with one hundred per cent ownership of the corporate business.

mergers: Most merger statutes permit the surviving corporation in a merger to issue cash, rather than stock, in exchange for stock of the disappearing corporation. This creates another freeze-out technique. Assume that s is the shareholder of corporation c and owns all the stock of corporation d. S then arranges a "cash-out merger" of c into d, in which d issues cash rather than stock to c's minority shareholders. Here again, the minority shareholders in C end up with stock in a corporation that now holds only cash, and s ends up with all of the corporate business (see weinberger v. UOP)

reverse stock splits:Most statutes empower a corporation to involuntarily eliminate fractional shares (i.e. shareholders representing less than one full share) by paying any holder of fractional shares their value in cash. Under this technique, the corporation effects a reverse stock split by amending it's articles to drastically reduce the number of outstanding shares, and then pays off (and thereby ousts)the remaining shareholders who own fractional shares as a result of the reverse stock split.


1. may be similiar to partnership duty
2. may be some lesser fiduciary duty



Statutory mergers:
1. one corporation merges into another
2. the surviving corporation succeeds to all rights, liabilities and assets of the disappearing corporation
3. the board of each corporation must approve
4. Generally speaking the shareholders must approve as well.

The exception is a 'short-form' merger.

many statutes provide special rules for approval of a merger between a parent and a subsidiary when the parent owns the majority of shares in the subsidiary.

Another exception is a "small merger". Some statutes provide that approval by the shareholders of the survivor corporation is not required if the voting stock of the survivor issued to effect the merger does not consitute more than a certain percentage (usually one sixth) of the outstanding shares of voting stock.

appraisal or dissenters' rights may be permitted:

exception: short-form mergers
exception: publicy traded and widely held stock (why..unclear here)


conventional type: acquiror forms subsidiary and target merges into subsidiary

reverse triangular merger: acquiror forms subsidiary, subsidiary merges into target

board approval is required with triangular mergers:
sometimes triangular mergers may avoid shareholder voting and appraisal rights.
(how?...unclear here)


One corporation buys the assets, but not the liabilities of another

board approval necessary

shareholder approval necessary

exception: sale in the ordinary course of business

Shareholders may not get appraisal rights (why not?...may?)


Governed by state statutes
must dissent from transaction
must follow proper procedure
Shareholders have the right to have corporation purchase at fair market value.


Restrictions on stock transfers and mandatory buy-sell agreements are often used in close corporations to control who can become business associates and or to insure that the stockholder will be able to recover his investment if he decides to sell his stock. The restrictions may appear in the articles or bylaws, or in an agreement to which the corporation is a party. The validity of stock transfer restrictions in general are upheld if reasonable and adopted for a lawful purpose. in general, preventing outsiders from obtaining ownership and maintaining the proportionate interests of shareholders is considered valid purposes for such restrictions.

I. restrictions

there are two types: the first option and consent restriction.

a. first option

the first option obliges the shareholder to offer shares first to the corporation or other shareholders before they may be sold to outsiders. The option may be triggered by a proposed sale or transfer, by death, bankruptcy, termination of employment or other specified events. Options may be successive (first to corp. then to shareholders) and may allow some shareholders to buy more than their proportionate share if others do not exercise their options. It is important that the agreement specify whether the selling shareholder can vote his stock on the question of corporate repurchase of his shares. It is also important that the price at which the option is to be exercised is capable of ascertainment; otherwise the agreement may be held unenforceable because of lack of definiteness.

b. consent restrictions

Consent restrictions require a shareholder wishing to sell his stock to give notice to the directors and /or the other shareholders and to receive their approval. In some states, these agreements are presumptively invalied, while in others they are enforceable so long as consent is not unreasonably withheld.

2. mandatory buy-sell agreement.

A mandatory buy-sell agreement is the flip side of a transfer provision, as it requires the offeree-shareholders or the corporation to buy the stock upon the triggering event (i.e. death, disability, termination of employment, or proposed sale). Such agreements, usually funded by a life insurance policy on each stockholder, have the advantage of assuring the purchaser, which is especially important in an illiquid estate.

An agreement may provide for the corporation to buy the shares, or may allow the other shareholders to buy proportionally. Again, provision should be made for fixing the value of the stock- this may be a set price or book value at the time of the buy-out or may be determined by a procedure such as capitalization of earnings, or appraisal by an outside party.


The existence of a restriction on transfer or mandatory buy-sell agreement must be noted conspicuously on the share certificates or it is not binding on a subsequent transferee who is without notice of it.

Tuesday, March 28, 2006

a stupid idea

College Student in Wal-Mart for 41 Hours

By DAVID PITT, Associated Press Writer 9 minutes ago

DES MOINES, Iowa - Some students set out for sun-drenched beaches and tropical party bars for spring break. Skyler Bartels, a 20-year-old Drake University sophomore, headed for the local Wal-Mart.

Bartels, an aspiring writer from Harvard, Neb., thought he'd spend a week in the store as a test of endurance, using it as the premise for a magazine article. He called his adviser and she liked the idea.

"I just intuitively thought, 'This is brilliant!'" said Carol Spaulding-Kruse, a Drake associate professor of English. "I wasn't quite sure why, but it just sounded like a really good idea."

I think her intuition is off a little. There is NOTHING even remotely interesting here. What is interesting is that someone wrote an article about it and idiots are calling him up asking him for the book rights. I'm trying to figure out how much this genius can say about toothless fat people and shelves of potato chips.

Friday, March 24, 2006

A good blog

What bullshit

Quicken Loans

Home Sales Strong in February Due to Low Long-Term Rates
Mar 24, 2006, 10:35 am PST

News provided by Quicken Loans

In February, 1.08 million new one-family houses were sold, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.5 percent below the January rate of 1.207 million houses and 13.4 percent below the rate of February 2005.

"Existing home sales rallied in February after five months of incremental decline and jobless claims are down for the first time in four weeks," said Bob Walters, chief economist of Quicken Loans, the nation's largest online lender. "With long-term interest rates still low, and edging downward for the second straight week, the table has been set for housing to continue flexing its muscle in 2006." Quicken Loans did $16 billion in volume in calendar year 2005.

and on the same page I find this article:

New home sales tumble
Friday March 24, 10:37 am ET
By Kristin Roberts

WASHINGTON (Reuters) - Sales of new U.S. homes plunged 10.5 percent in February, the biggest drop in nearly nine years, while prices fell and the number of homes on the market hit a record high, the government said on Friday in a report signaling significant slowing in the housing market.

If there was any doubt that the real estate industry is filled with snake-oil salesmen and scumbags, here's the proof...

You heard it here first...

I've been saying for years that the rise in home prices is the result of mass psychology and erroneous beliefs and unrelated to actual's someone who agrees...

Mike Swanson and WallStreetWindow

Yes, there is a housing bubble!

Yesterday morning I took my car to get worked on. They gave me a loaner, so while I waited I drove to the nearby Borders Book store. When I got there, I made my usual bee-line for the business/financial section.

Two years ago, there were two full rows of stock market books in this store. Now there was only a half a row. However, there are now almost two full rows of books telling you how to get rich buying real estate. They included titles such as Real Estate Miracles, Why Real Estate Will Go Up in Value for 10 Years, The Baby Boomer Vacation Real Estate Boom, The Weekend Millionaire’s Secrets to Investing in Real Estate: How to Become Wealthy in Your Spare Time, Flipping Properties: Generate Instant Cash Profits in Real Estate, How to Buy Real Estate and Walk Away with Cash, and the aptly titled Real Estate for Dummies.

Monday, March 20, 2006

Top ten biggest problems....

1. Global Warming
2. Global warming
3. Global Warming
4. Global Warming
5. Global Warming
6. Global Warming
7. Global Warming
8. Global Warming
9. Global Warming
10. Global Warming

Anthony Lappé is GNN's Executive Editor. He's written for The New York Times, Details, New York, Paper, The Fader and Vice, among many others. He has worked as a producer for MTV, Fuse and WTN. He is the co-author of GNN's True Lies and the producer of their Iraq doc, BattleGround.

Anyone see the extremely well-reported and thoroughly scary segment on global warming on 60 Minutes this Sunday? It didn’t break too much ground on the subject. But what was amazing was the report featured no comments from or even a passing reference to the global warmning skeptics. What’s even more interesting is my sources at 60 Minutes tell me the correspondent, Scott Pelley, is known as politically conservative.

Pelley responds to complaints about the segment on CBS News’ PublicEye blog here:

“There is virtually no disagreement in the scientific community any longer about global warming,” he says. “The science that has been done in the last three to five years has been conclusive. We talked to the chairman of the National Academy of Scientists, Ralph Cicerone. Jim Hansen at NASA, who’s considered the world’s leading expert in climate change. The people in the story, who are well respected in the field. There’s just no longer any credible evidence that suggests that, a, the earth is not warming or, b, that greenhouse gasses are not the cause. What you do see in the data again and again and again is this almost lockstep increase between the levels of CO2 and the rise of temperature in the atmosphere. And the climate models that predicted these things happening 15 years ago have proven to be accurate.”

“It would be irresponsible of us to go find some scientist somewhere who is not thought of as being eminent in the field and put him on television with these other guys to cast doubt on what they’re saying,” he continues. “It would be difficult to find a scientist worth his salt in this subject who would suggest this wasn’t happening. It would probably be someone whose grant has been funded by someone who finds reducing fossil fuel emissions detrimental to their own interests.”

This should be a case study in responsible journalism. The job of journalists is not to just repeat two sides of every story, it’s to try to figure which side is full of shit, and which isn’t.
60 minutes

Wednesday, March 08, 2006

Myspace is a place for retards

Tuesday, March 07, 2006


Well, here it is...the latest person to step forward and make a complete jackass out of themselves. This column, written by UMASS grad student Rene Gonzalez is a knee-jerk, wingnut left hit piece on Pat Tillman, who, though Gonzalez provided no information and did no research upon, was a "Rambo" who "got what he deserved". This is an incredibly embarrassing, and yes KNEE-JERK reaction by an atypical wannabe revolutionary who sees herself as the uncola of the conservative movement. They say hero, she says nazi. They say white, she says black. Based upon his photograph, she makes a decision about what motivated him.

Of course, everything we have read about Tillman goes against that. He was a quite, unassuming guy, who did what he did because he felt strongly about something other than the type of mindless hatred we see in this moronic piece.

By Rene Gonzalez
April 28, 2004

When the death of Pat Tillman occurred, I turned to my friend who was watching the news with me and said, "How much you want to bet they start talking about him as a 'hero' in about two hours?" Of course, my friend did not want to make that bet. He'd lose. In this self-critical incapable nation, nothing but a knee-jerk "He's a hero" response is to be expected.

I've been mystified at the absolute nonsense of being in "awe" of Tillman's "sacrifice" that has been the American response. Mystified, but not surprised. True, it's not everyday that you forgo a $3.6 million contract for joining the military. And, not just the regular army, but the elite Army Rangers. You know he was a real Rambo, who wanted to be in the "real" thick of things. I could tell he was that type of macho guy, from his scowling, beefy face on the CNN pictures. Well, he got his wish. Even Rambo got shot in the third movie, but in real life, you die as a result of being shot. They should call Pat Tillman's army life "Rambo 4: Rambo Attempts to Strike Back at His Former Rambo 3 Taliban Friends, and Gets Killed."

But, does that make him a hero? I guess it's a matter of perspective. For people in the United States, who seem to be unable to admit the stupidity of both the Afghanistan and Iraqi wars, such a trade-off in life standards (if not expectancy) is nothing short of heroic. Obviously, the man must be made of "stronger stuff" to have had decided to "serve" his country rather than take from it. It's the old JFK exhortation to citizen service to the nation, and it seems to strike an emotional chord. So, it's understandable why Americans automatically knee-jerk into hero worship.Pat Tillman Got what was coming to him

Monday, March 06, 2006

Keira Knightley has racoon eyes...

Didn't I see her diggin my trash the other day?sssssssss

The Oscars sucked

I like John Stewart, but even his presence could not assuage the sinking feeling I got watching a bunch of Gold-toothed rappers doing their rendition of "It's hard out here for a pimp". Was there somebody actually named "ludicris" out there having something to do with that? All the bow-ties, penguin suits and primped ladies and then we are served up with some cutting edge Urban music; what better way to show how hip and groovy Hollywood is than to embrace art born from the street. I guess feminists weren't involved in the choice. Or anyone else who had any notion of doing anything else but cheap pandering to the young Americans who are still dumb enough, like me, to go to movies no matter how bad, stupid, boring and pointless they might be.

It's always fun to watch people move up in the world, and watching Queen Latifah, originally responsible for some vile racist filth at one time coming out of the rap world in the form of some groups she helped out, no becoming a cover-girl and media darling. The American fascination with race relations and the art generated by is getting old; I don't see much of anything come out of that field that can't be translated into "whitey trying to keep a brotha down" when the day is nigh for some serious self-reflection among African Americans. Internalization is in, externalization is out. Ask Bill Cosby. Watching the Oscars made me want to call 1-800-whiteyguilt. And watching the "36 Mafia" gangster rap group who would just as soon hold up the audience as play for them, was 'ludicris'.

I should mention also that Hollywood, having stood up for pimps, failed on another note. I watched a famous Arab film director's photo pass across the screen with various other deceased alumni, and realized that he was murdered by terrorists in Jordan with his young daughter. Here, Hollywood had an opportunity to recognize the price of terror, that it had struck on of their own, but instead, they punted, listing him up their with people who died of heart failure and colon cancer.

Friday, March 03, 2006

THis is funny

Sucking the corporate cockNo hipster at hipster party

I like this blog...although I have to admit that the age of the smart-ass is over and all the glib "I'm cooler than YOU" writers out there propping up their deflated egos by laying into various easy targets (ie cops and hippies...Bush...etc.) I'm nostalgic for the 90's...what can I say?