One of your firm's clients, Fancy Fashions Inc., is a highly successful, rapidly expanding entity. It is owned predominantly by the Munster family and key corporate officials. Although additional funds would be available on a short-term basis from its bankers, they would represent only a temporary solution to the entity's need for capital to finance its expansion plans. In addition, the interest rates being charged are not appealing. Therefore, Chris Munster, Fancy's chairman of the board, in consultation with the other shareholders, has decided to explore the possibility of raising additional equity capital of approximately $15 million to $16 million. This will be Fancy's first public offering.

At a meeting of Fancy's major shareholders, its attorneys and a member of your firm spoke about the advantages and disadvantages of "going public" and registering a stock offering. One of the shareholders suggested that Regulation D under the Securities Act of 1933 might be a preferable alternative.

Assume that Fancy makes a public offering for $16 million and, as a result, more than 1,000 persons own shares of the entity. Following the public offering, what are the implications with respect to the Securities Exchange Act of 1934?

What federal civil and criminal liabilities under the Securities Act of 1933 could apply if Fancy sells the securities without registration and a registration exemption is not available?

Define "accredited investor" and discuss the exemption applicable to offerings made under Regulation D for accredited investors.