Stocks, bonds, and mutual funds are examples of securities. Individuals looking to make a profit purchase these investments. Stocks are purchased in a firm to offer people a stake in the company. The complexities of this field of law are governed by multiple federal and state regulations that govern investor behavior.
As a result, securities law covers a wide range of assets that both individuals and businesses can own. Furthermore, securities law is frequently grouped with finance law, which deals with all types of investments, loans, and other valuables.
Securities law encompasses the several federal statutes and regulations that govern the sale, purchase, and development of security interests.
According to these guidelines, all investors, whether huge organizations or regular individuals, should have access to basic details about an investment before purchasing it. This is only possible with a consistent flow of timely, comprehensive, and reliable information that can assist consumers in making informed financial decisions.
What Is the Goal of Securities Regulation?
Because investors own secret and unique information, securities legislation exists.
Securities rules and regulations are intended to ensure that investors receive accurate information about the value of the interest in which they invest when they purchase securities.
Securities regulations also exist to ensure that insiders with information about securities do not exploit this type of inside information by investing in non-public details.
The Securities Act of 1933 was enacted with this goal in mind:
- Require investors to get accurate financial information and other important information about securities being offered for public sale and fraud, deception, misrepresentation, and other forms of fraud in the sale of securities.
The Securities and Exchange Commission, or SEC, is the primary body in charge of enforcing securities legislation throughout the United States. They are primarily responsible for protecting investors and preserving the integrity of the securities markets by forcing public corporations to disclose important financial information to the public. This is done so that they may evaluate security investments before making them.
Every year, the SEC brings between 400 and 500 civil enforcement proceedings against people and organizations who violate securities legislation. These are regarded as major criminal offenses that can result in both incarceration and substantial fines.
What Are Some Examples of Common Abuses?
Insider trading is the most widespread type of misuse nowadays. This can happen when someone with extensive information about a firm uses that information to buy or sell stocks. Insider trading is most commonly seen with brokers, firm workers, stock analysts, etc.
In addition, improper accounting methods are becoming a widespread form of abuse that happens when a corporation understates or exaggerates its losses.
There are also different types of securities abuse, including securities fraud and spoofing.
Furthermore, the deception must impact interstate commerce to be covered under federal securities fraud laws. This can be as simple as providing information over the phone or the internet; also, particular states may have their own securities fraud laws that apply.
One prevalent sort of securities infringement is related to the actions of trustees or someone assigned with the obligation to manage another person’s securities. Trustees and brokers have a legal obligation to manage securities prudently. As a result, any failure of this obligation may subject the trustee to liability for damages resulting from mismanagement.
Other examples of securities violations and allegations in securities action include:
- Market Manipulation: This occurs when a securities company, broker, or investor participates in any activity that generates a misleading impression about a security’s price, availability, and or distribution;
- Breach of Fiduciary Duty: A trustee or broker cannot manage the securities of another person if they have a conflict of interest that prevents them from keeping loyal to the beneficiary;
- Churning: Churning occurs when a broker engages in excessive trading in order to increase their own sales compensation. This is considered unethical and is therefore prohibited by securities rules; and
- Unauthorized Trading: Although trustees have some leeway in investing safely and reasonably, they usually cannot trade against the wishes of the stockholder who has hired them; and
- Broker Misconduct or Ineptitude: Broker malpractice occurs commonly when an unqualified person poses as a professional. Brokering without a proper license is one example of this.
It is crucial to remember that the regulations regulating these types of securities offenses may differ depending on the form of securities being traded. For example, legislation governing the trading of stocks may differ from those governing the trading of other types of securities.
What Exactly Is Insider Trading?
Insider trading is the sale of securities by a firm employee with confidential inside knowledge that has not been made public.
When a person with inside information trades on that materially nonpublic information in violation of a duty to withhold or refrain from dealing, it is considered insider trading. The securities legislation broadly forbids any child from engaging in fraudulent actions concerning the offer, acquisition, or sale of securities.
Many disciplinary actions are launched against anyone who trades or sells shares based on inside information under these regulations.
What Are Some of the Most Common Penalties for Security or Financial Violations?
Securities crimes can frequently result in highly severe legal sanctions, including federal prosecutions with harsh penalties.
Penalties may include misdemeanor or felony charges; civil or criminal fines; jail or prison sentences, depending on the severity of the offense; and business penalties, such as the suspension of an operating license or the loss of broker certification.
Furthermore, securities crimes might lead to class action litigation. An example of this would be when a firm’s fraudulent issue of stock impacts a large group of stockholders who file a single lawsuit against the company. This litigation can take several years to complete and, as a result, can be very expensive.
Again, many securities offenses might result in a civil action claim in addition to criminal sanctions.
For example, it is usual for a security holder to sue a trustee when the trustee fails to manage security assets according to professional standards. The trustee could then be forced to pay damages to compensate the plaintiff for economic losses caused by the trustee’s misconduct.
What Are Some Remedy Options for Securities Fraud?
Investors have several choices if they want to collect compensation or penalize companies/individuals who commit securities fraud.
These are some examples:
- Inform law enforcement: The Department of Justice has a long and distinguished history of pursuing federal securities violations; and
- Initiate a class action lawsuit: When a company’s exploitation of insider trading or poor accounting methods harms a large number of investors, the victims can file a class action lawsuit.
You can also get in touch with the Securities and Exchange Commission.
What Can I Do to Protect My Investments?
There are numerous actions that an investor can take. These are some examples:
- Check to see if your brokerage firm is licensed;
- Check the Central Registration Depository (CRD) for information on brokers and licenses; and
- Maintain communication with your broker.
Should I Speak With an Attorney?
The legislation governing securities is just too complex to comprehend without the assistance of an expert securities attorney to guide you through the procedure. If you have lost a considerable amount of money, you should speak with an attorney and explain your position.
Furthermore, repayment is barred after a specified period of time. You should contact a lawyer immediately if you suspect you have a case.
