Corporate Governance

ü Relationship between a corporation and its shareholders. (See OECD definition.)

ü Attempts at Alignment between Officers and Shareholders.

ü Corporate Governance and Corporate Law.

ü Importance of the Audit Committee.

The Sarbanes-Oxley Act of 2002

ü Attempts to increase corporate accountability:

Imposes stricter disclosures.

Harsher penalties for violations.

Requires CEO’s to take responsibility for accuracy of financial statements filed with SEC.

Creates new private civil actions.

ü Creates Public Company Accounting Oversight Board regulates public accounting firms.

ü Key Provisions:

Certification Requirements.

Loans to Officers and Directors.

Protections for Whistleblowers.

Enhanced Penalties.

Statute of Limitations for Securities Fraud.

Regulation of Investment Companies

ü Act on behalf of many smaller shareholders by buying stock and professionally managing the “portfolio.” (MUTUAL FUNDS.)

ü To safeguard company assets, all securities must be held by a bank or stock exchange member.

ü No dividends paid except from undistributed net income.

State Securities Laws

ü State securities laws are called “blue sky” laws.

ü Issuers must comply with federal and state securities laws and states do not allow the same exemptions as federal government.

ü States could require registration or qualification.

ü Uniform Securities Act has been adopted in part by many states.

Online Securities Offerings and Disclosures

ü Springstreet Brewing Co. was the first online IPO (1996).

ü Regulations Governing Online Securities Offerings:

Timely and Adequate Notice of Delivery of Information.

The online communication system must be easily accessible.

Some evidence of delivery is required.

Potential Liability Created by Online Offering Materials

ü Online offerings should exercise caution in hyperlinking to external documents.

ü There is also a concern if the offering is placed on a website that can be viewed by anyone.

Many offerings are restricted to a limited number of “unaccredited” investors.

Online Securities Fraud

ü The SEC is aggressively prosecuting internet fraud using traditional laws.

ü Investment Scams.

ü Using Chat Rooms to Manipulate Stock Prices.

Pumping and Dumping.

Jonathan Lebed charged with securities fraud.