Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with the Securities and Exchange Commission (SEC). Any stock that does not have an effective registration statement on file with the SEC is considered "unregistered." To sell or attempt to sell a financial security before it is registered is considered a felony.

However, certain exemptions apply. For example, a privately-owned corporation may issue shares of stock to its executives and board members, but the new stockholders must notify the SEC before selling the stock to someone else. In addition, companies can raise capital by soliciting investments from individuals outside the company who are considered to be "qualified investors." The SEC defines a qualified investor as someone who has a net worth of at least one million dollars or an annual income in excess of $200,000. Individuals who meet "qualified investor" status also can become victims of "private offering" unregistered securities scams.

(For more on this topic, read Policing The Securities Market: An Overview Of The SEC.)

This question was answered by Katie Adams.