What is Securities Law?

Use these links to jump to different sections:

• Securities Law – What You Need to Know
• An Overview of Securities Law
• Common Questions to Ask an Attorney
• Finding the Right Attorney for Your Needs
• Should I Talk to a Lawyer?

Risks are inherent in something as complex as investing in a company. But the law helps mitigate those risks with investor protections, such as requiring certain disclosures. This way, you can trust that you are fully apprised of a company’s financial health before you invest.

Federal securities laws are some of the most complex laws on the books. This overview will give you an introductory look at how federal laws around U.S. securities regulation; however, due to the complexity of this subject, this overview is best used as a starting point as you prepare to speak with a lawyer about your questions and concerns.

Securities Law – What You Need to Know

• The Securities and Exchange Commission (SEC) is a financial industry regulatory authority that enforces the Securities Act and the Exchange Act.
• Both acts have the general goal of regulating the sale of securities and promoting the disclosure of meaningful information to investors.
• The Securities Act of 1933 created a set of rules to protect stock market investors from fraud, misrepresentation, and deceit in the sale of securities.
• The Securities Exchange Act of 1934 regulates sales between parties when no party is the issuer.

An Overview of Securities Law

A security is an interest in something valuable—commonly, a company’s stock traded via securities markets. While states are empowered to make laws, federal law governs the sale of securities in every state and creates minimum requirements.

Federal Regulations

The Securities and Exchange Commission (SEC) is the financial industry regulatory authority in the U.S. It enforces the Securities Act of 1933 and the Securities Exchange Act of 1934. Both acts have the general goal of regulating the sale of securities and promoting the disclosure of meaningful information to investors. Both come into play when a company wants to sell securities.

Securities Act of 1933

This regulatory act from Congress created a set of rules to protect stock market investors from fraud, misrepresentation, and deceit in the sale of securities. It also requires that investors get financial information about securities being offered for sale. The act accomplishes these goals by requiring companies to register their securities with the SEC. This process involves filing a description of the company’s properties and business and the security it is offering for sale. Companies must also provide information about management and financial statements that have been independently verified.

Securities Exchange Act of 1934

The Securities Act of 1933 regulates the sales of securities from the company itself. Congress intended the Securities Exchange Act of 1934 to regulate sales between parties when no party is the issuer. This act regulates stock exchanges and securities markets on which securities are sold (such as the New York Stock Exchange). Any public company offering securities must also provide regular disclosures through annual and quarterly reports—and they must report important events and other information that would help people evaluate whether the securities are a good investment.

Other major securities laws to be aware of include:

• The Investment Company Act of 1940, which regulates the organization and activities of investment companies
• The Sarbanes-Oxley Act, which sets requirements in corporate recordkeeping, reporting, and auditing activities
• The Dodd-Frank Wall Street Reform and Consumer Protection Act, which instituted a wide range of reforms in response to the 2008 financial crisis

Securities Fraud

Securities fraud happens when a company induces investors to purchase securities by providing false information, including inaccurate financial statements to shareholders, thus making the company look more financially healthy than it is.

Insider trading is another form of securities fraud. This occurs when someone has confidential information about a company’s finances and uses that information to inform decisions about whether to buy or sell stocks.

The third form of securities fraud occurs when someone buys stock in a small company and spreads false information to encourage others to buy a large number of stocks. These purchases drive up the stock price, which allows the original purchaser to turn around and sell their stock at a profit.

The SEC regulations authorize it to seek remedies for fraud, which helps investors recover the money they lose because of the fraud. State laws may also create remedies for fraud, which may require the fraudulent party to compensate investors for wrongdoing.

Common Questions to Ask an Attorney

Below are some common questions you might want to consider when meeting with an attorney for the first time.

1. How does the securities market work?
2. What are the registration requirements to sell stocks?
3. What are the SEC’s periodic reporting requirements?
4. What financial information am I required to disclose to sell stocks?
5. Can I sell private securities?
6. How can I protect myself from securities fraud?
7. Who can I sue if I am a victim of fraud?
8. What actions can state securities regulators take under blue sky laws?
9. Are self-regulatory organizations subject to SEC investigation?
10. Can I represent a class-action lawsuit in federal court against a public company?

Finding the Right Attorney for Your Needs

It is crucial to approach the right type of attorney at the right law firm—someone who can help you through your entire case. To do so, you can visit the Super Lawyers directory, and use the search box to find a lawyer based on your legal issue or location.

To help you get started, you may want to consider looking for a lawyer practicing securities law.

Should I Talk to a Lawyer?

Corporate finance is a complicated business, and a securities attorney can help you navigate financial markets while staying on the right side of the law. A lawyer can help you understand how complex federal and state securities laws apply to you, whether you are a business owner or an investor.

Your lawyer should have experience in securities litigation, dealing with brokerage firms, and the securities industry at large. They should also help you avoid fraud, sue over fraud, defend allegations of fraud, and can help you gather the necessary financial documents to assist you in your case or investment. Your lawyer can help you interview potential witnesses for a lawsuit if necessary.

A lawyer will further be able to anticipate potential problems with your case and advise you on how to approach them, keep track of deadlines and file all the paperwork with the necessary courts and agencies—giving you one less thing to worry about.