Securities Law

Bonds, stocks, certificates of interest, notes, and other securities vary in value. Investors need accurate information about these financial instruments to make informed decisions. Federal securities regulations ensure investors can access accurate financial information about companies.

A broker may have mistreated you, or you may have received misleading investment information. If you have a question about federal securities law and your rights as an investor, a securities lawyer can offer legal advice.

The Securities Acts

Securities can be sold and traded in the stock market, stock exchanges, residual securities markets, public offerings, and private offerings. Different laws regulate the trading and sale of securities. The primary security laws are the Securities Act of 1933 and the Securities Exchange Act of 1934.

The 1933 act mandates that most securities offerings undergo a registration process. Disclosures include publicly available information, a prospectus, and risk factors. These issuers distribute documents to investors like you who are interested in buying the security.

Securities and Exchange Commission

The 1934 act created the U.S. Securities and Exchange Commission (SEC). The SEC regulates and oversees brokerage firms, clearing agencies, and other companies that deal in securities. The SEC also has disciplinary powers. For example, dealers in unregistered securities can face injunctions and civil penalties.

Trade information and investing have changed a lot since 1934. Other federal agencies support SEC regulation and investor protection. This includes the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC).

The Sarbanes-Oxley Act of 2002

Congress enacted the Sarbanes-Oxley Act of 2002 (SOX) in response to securities industry scandals involving large corporations like Enron and WorldCom. This law protects investors by improving the accuracy and reliability of corporate disclosures. It established stricter audit regulations for financial transparency and set penalties for corporate fraud.

Key provisions include establishing an independent Public Company Accounting Oversight Board (PCAOB) overseeing the auditing of public companies. The law requires corporate officers to certify the accuracy of financial statements. There are also increased penalties for fraudulent financial activity.

The Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 in response to the 2008 financial crisis. It aims to prevent the recurrence of similar economic catastrophes.

It introduced significant changes to financial regulation, increasing oversight and transparency. Key components include:

  • Creation of the Consumer Financial Protection Bureau (CFPB)
  • Implementation of stricter capital requirements for banks
  • Establishment of the Financial Stability Oversight Council (FSOC) to address systemic risks
  • Regulations on capital markets and derivative markets
  • Enhanced whistleblower protections

Blue Sky Laws

Blue Sky laws are state regulations designed to protect investors from securities fraud. They regulate the sale of securities to prevent deceptive and fraudulent practices. Each state has its own set of blue sky laws, which generally require sellers to register securities offerings before selling them.

These laws require the registration of brokerage firms, their agents, and investment advisors. “Blue sky” refers to fraudulent schemes with no more substance than blue sky. These laws allow state regulators to investigate and punish fraudulent securities activities. This helps to protect investors.

Securities Fraud

When issuers misrepresent the value of company stock or similar securities, investors may suffer losses. Making misleading statements is securities fraud, which can take many forms.

In some cases, third parties distribute false data concerning stocks. Schemes like “pump and dump” sell shares in stock for undue profit at the buyer’s expense.

Another form of fraud is insider trading. This means someone with access to confidential data uses their knowledge to obtain an unfair advantage.

One example is the 2003 Martha Stewart case. In late 2001, pharmaceutical company ImClone Systems’ stock dropped after one product didn’t get regulatory approval. The SEC discovered that multiple executives and others had sold their stock before the loss. Stewart, her stockbroker, and the CEO were fined and sentenced to prison for insider trading.

Broker Misconduct

Broker-dealers buy and sell securities on their own accounts. Brokers must follow strict security and SEC rules. Common violations of those rules can include:

  • Trading without authorization from investors
  • Excessive trading to increase commissions
  • Selling client accounts and keeping the proceeds
  • Making inappropriate investments

Individual Protections Under Federal Laws

When brokers and other entities commit fraud, it can affect many people. Victims may include investors, creditors, and pension holders. Federal and state securities laws explicitly protect whistleblowers who reveal illicit actions.

As an investor, you have certain rights. These include receiving account statements, accurate risk information, and copies of all agreements. You can file a lawsuit to recover assets if necessary to protect your rights.

The National Association of Securities Dealers requires members to arbitrate upon consumer request. You may have already agreed to arbitration in an initial customer agreement. Securities arbitration takes place out of court and takes less time than securities litigation.

Some securities fraud cases affect many investors at once. Those investors may take part in a class action lawsuit to recover damages. 

Get a Securities Lawyer’s Help

If you have lost savings because of a security law violation, contact an experienced securities law attorney. This is an extremely complex area of law. An experienced securities lawyer will know how to assess your case, determine the possible remedies available, and advise you on a course of action. Your lawyer can represent you in arbitration, settlement negotiations, or in court.

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