Janice Cullen, owner of a nationally renowned photography business, files a regi

Question

Janice Cullen, owner of a nationally renowned photography business, files a registration statement and prospectus with the SEC. Five days after she files the registration statement, she has a meeting with her top 10 clients (primarily business owners who usually seek Janice for marketing purposes). During this meeting, Janice distributes a red-herring prospectus. At the end of the meeting, Janice decides to sell securities to her 10 clients, as well as 30 other clients with whom she had been emailing, despite the SEC’s not having yet declared her registration statement effective. Consequently, the SEC takes Janice to court for selling securities before the effective date of registration. The court holds Janice liable for violating the 1933 Securities Act.

Janice’s photography business was a registered non-profit, and focused on teaching art and photography in public schools. Her top 10
clients were owners of local charities.

Janice published a tombstone advertisement before meeting with her top 10 clients. They saw this advertisement and were eager to
engage in business with Janice.

The 40 clients who bought the securities from Janice were accredited investors.

Janice sold the securities to the 40 clients 25 days after she filed her registration statement.

Explanation / Answer

Securities Act of 1933 was the first major legislation pertaining tosale of securities. By registration with SEC, the legislation ensures the need for better disclosure Registration ensures that company provides all detailed and relevant information to SEC and potential investors by means of prospectus and registration statement.

As SEC has not yet declared the registration statement of Janice Cullen effective,it means Janice has not fulfilled the requirements before selling the securities.

Thus Janice is convicted of violating Securities Act of 1933 by not disclosing the relevant information and thus is found performing illegal activity and to be penalised.

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