3. Laugh House Inc. runs a chain of comedy clubs in New Columbia.Its three owners  Larry, Curley, and Moe  want to expand and add new clubs in other states. Banks won't lend more money unless the company raises new capital. Laugh House hires Keystone Securities to help it raise $6 million in a common stock offering.Identify any Regulation D problems.

a. Keystone has identified 50 investors who may be willing to buy $6 million in Laugh House stock. Twenty are millionaire entertainment moguls. The Laugh House owners think it is silly to give anyone a formal disclosure document

b. [RESERVED].

c. Laugh House's accountant, Cantinflas, has helped the three owners keep their company's books but has never performed an audit of its financial statements

d. Curly and Moe give each nonaccredited investor an investment circular, with audited financials. But they do not bother to give anything to accredited investors

4. Laugh House proceeds with a Rule 504 offering. Many of the millionaires get serious and abandon the offering. But Laugh House has identified exactly 35 nonaccredited investors who are still interested. Identify any problems with adding the following investors

a. Ivan, a home builder with limited investment experience, wants to add some mirth to his life and has his bank buy the stock.

b. Iris, Laugh House's vice president for sales who has been with the company for six months, invests her life's savings.

 

 c. Imelda, who owns a $1.3 million collection of antique porcelain and has been heavily sedated since she began turning gray, will sell half her collection to buy the stock. Imelda is debt free by the way. 

g. Irene and Irwin, a married professional couple who each have had an annual income of $160,000 for the last two years, will buy $250,000 worth. Keystone Securities, however, failed to investigate or document their income.

5. Laugh House plans to proceed using Rule 506. Imogene lacks investment experience, but wants to invest in the offering. She considers getting investment help. Identify any problems if the following people advise her about her Laugh House investment

a. Rochester Imogene's former husband, is an experienced stock broker. Laugh House does not know that Rochester is helping Imogene with her investments.

b. Curly and Moe, officers of Laugh House, are helpful to a fault and disclose to Imogene the risks of the investment and their possible conflicts of interest.

c. William Claude, a professional investment counselor and long-time patron of Laugh House, is friends of the Laugh House owners and has invested in the offering.

d. Laugh House considers restructuring the offering to satisfy Rule 504. William Claude continues to advise Imogene, without disclosing his interests in Laugh House.

6. Laugh House has many potential investors perhaps more than 35 for its Rule 506 offering. How many nonaccredited investors must Laugh House count in the following cases?

a. Investors Henry and Wilma are married. Neither is an accredited investor. Each invests in Laugh House.

b. Harold and Wendy are married, and they live together.Wendy a director on the Laugh House Board. Harold is not accredited. Each invests in Laugh House

  

9. Laugh House completes a $7 million offering under Rule 506 to 10 accredited investors, but in a somewhat cavalier fashion. Identify any problems.

a. Laugh House sells only to accredited purchasers. It places no limits on resales, figuring that what the purchasers do with their stock is their business

b. Laugh House fails to notify the SEC of its offering, but otherwise complies scrupulously with all the Rule 506 conditions.