Securities Law

Securities Law and SEC Regulation

The world of investing in the stock market is both fascinating and complex. However, it can be as fruitful as easily as it can be
disheartening. There are certainly people who have made millions in the market as well as those that have lost just as much. The U.S. Securities and Exchange Commission (SEC) is the government agency granted the powers to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. In essence, the SEC is the police for the securities markets.

While the SEC does not recommend stocks, its purpose is to make sure that the entire process of choosing which stocks to buy and sell are made fairly and by people who are either well informed about the information they need to make educated decisions, or at least have a venue to get the knowledge they need. As more investors turn to the securities markets to help secure their future, such as pay for homes, pay for college, or invest their 401K and IRA’s, the market is virtually flooded with trillions of dollars. In fact, the market is so wealthy and volatile, that within a moment, it could break or bankrupt individuals, companies, and even entire countries. Therefore, we need rules and regulations to allow us to trust that the market system will be fair. The SEC does this by regulating companies that issue stocks or other securities and sell them on the open market.

In the world of banking, savings and loan corporations, and credit unions, the deposits are guaranteed by the Federal Deposit Insurance Company (FDIC). While the FDIC only insures each account to a maximum of $250,000, the public believes in the banking system because the insurance protects us for banks that invests poorly and collapse. However, in the securities world of stocks, bonds and other securities, they can loose some or all of their value. There are no guarantees with securities. The best way for investors to protect the money they put into the securities markets is to do research, ask questions, and educate themselves about the companies they invest in.

The laws and rules that govern the securities industry derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common venue of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. It is because the SEC has created this information venue, that the use and flow of timely, complete, and accurate and transparent information can allow people to hopefully make sound investment decisions.

To achieve transparency and full disclosures of the information, the SEC oversees the securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud. With literally trillions of dollars being traded every day, the potential for fraud is enormous.

Each year, the SEC, using its enforcement authority, files hundreds if not thousands of civil enforcement actions against individuals and companies for violation of the securities laws. Typical infractions include insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issue them. Sometimes brokers lose their license to sell securities and could be banned from trading, as well as pay massive fines and/or restitution to the SEC or investors, and some actually serve jail time.

To help support investor education, the SEC offers the public a wealth of educational information, which also includes the EDGAR database (http://www.sec.gov/edgar.shtml) of disclosure documents that public companies are required to file with the Commission.

The regulation of financial products and services is an enormous undertaking. As a result of the regulations, the SEC has established a regulatory framework which encompasses a diverse range of market activity. This includes the development and dissemination of exempt and non-exempt financial products and services, the registration or licensing of dealers, advisors and alternative trading systems and the ongoing trading and advisory activities that are conducted by them. These regulatory requirements are complex and pervasive and can have a significant impact upon the way in which people, companies and institutions structure and operate their investments. The most common legal services needed generally fall into one of the following legal service categories:

Securities trading – Regulatory requirements governing the trading of securities by investors, dealers, advisors, financial institutions, marketplaces and other market intermediaries.

Advisor regulation – Regulatory requirements in relation to services and products offered by businesses and individuals engaged in offering investment counseling and portfolio management services.

Investment funds – Assisting with the establishment, distribution, governance, day-to-day operations, restructuring and termination of investment funds, including mutual funds, pooled funds, closed-end funds, alternative-investment funds and labor-sponsored funds.

Transactional work – Assisting with the conduct of transactions involving the establishment, sale, transfer, restructuring or merger of dealers, advisors and financial products and services.

Regulatory and administrative proceedings – Advising on regulatory risks associated with particular trading and advisory activities, responding to compliance reviews, audits and information demands by regulators, responding to investigations and enforcement proceedings and assisting with securities firm bankruptcies, insolvencies and civil cases.

Anti-money laundering and privacy – Advising on compliance with recently amended anti-money laundering rules and
privacy regulations, including disclosing required information to the Financial Transactions and Reports and developing anti-money laundering and privacy programs.

The SEC does not tolerate fraud and typically obtains evidence of possible securities laws violations from many sources, including market surveillance activities, investor tips and complaints, other Divisions and Offices of the SEC, the self-regulatory organizations and other securities industry sources, and media reports. The most common violations that lead to SEC investigations are against brokers or companies that make misrepresentations or omissions of important information about securities; manipulating the market prices of securities; stealing customers’ funds or securities; violating broker-dealers’ responsibility to treat customers fairly; insider trading (violating a trust relationship by trading on material, non-public information about a security); and selling unregistered securities.

While every bad investment or poor recommendation is not necessarily fraud, the SEC is concerned that you were not provided with false information. The right lawyer can make the recovery process easier than you think. Not all complaints actually go through the trail process, as most of these complaints are handled efficiently in arbitration. The law limits the amount time you have to file a complaint. If you believe that you have been provided unclear, false, incomplete or misleading information from a securities broker or company, you should speak with an attorney immediately.

Securities lawyers also represent corporate acquirers, targets, boards, committees, shareholder groups and financial advisors in a wide range of mergers and acquisitions. They assist with negotiated (friendly) and non-negotiated (hostile) take-over bids, plans of arrangement, divestitures, corporate reorganizations, proxy contests, going private transactions, leveraged buy-outs, and transactional work. Additionally, an experienced lawyer will also deal with compliance, corporate governance, disclosure obligations, stock exchange requirements and
other securities regulatory matters.

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