Securities Law

Securities law is one of the more complex areas of the legal field. A security’s value comes from the claims it entitles its owner to make upon a company’s assets, and these values depend on many variables.


The law prevents deceit and misrepresentations in the sale of securities. Westlaw offers a large collection of primary and secondary sources on the topic in its Capital Markets and Securities Enforcement & Litigation practice areas.

The Securities Act of 1933

Enacted during the Great Depression and after the stock market crash of 1929, this act created a federal agency to oversee the sale of securities. The SEC is empowered to investigate complaints of violations and bring civil actions in federal court to impose civil penalties. The commission is authorized to interview witnesses, examine brokerage records and review trading data for leads. Its investigations usually come from tips from investors and the general public.

The ’33 Act requires a variety of market participants, including companies that issue securities, to register with the SEC and file regular disclosures. It also makes it illegal to misrepresent any information that is material to an investor’s evaluation of the security. In addition, the act prevents fraud by requiring companies to disclose any history of fraudulent practices. 성범죄전문변호사

Securities law questions often center on whether a particular investment or document is a security. The Supreme Court has established the Howey test, which defines a security as “an investment contract, certificate of interest or participation in any profit-sharing agreement, or the right to acquire such an instrument.” The ’33 Act also requires that any company that wishes to sell securities must first register with the SEC. The registration process includes providing standard documentation to potential investors, which includes detailed financial statements certified by independent public accountants.

Although the SEC is charged with ensuring that all securities are offered to the public with proper disclosures, it does not decide whether a particular security offering is worthwhile or worthless. That is a decision for the public, and 성범죄전문변호사 the SEC’s main task is to ensure that all investors receive adequate information to make their decisions. The SEC also has authority to punish anyone who violates its rules by making them jointly and severally liable for damages suffered by investors, a rule that was clarified by the Supreme Court in Case v. Borak.

The Securities Act of 1934

The Securities Act of 1934 and the Securities Exchange Act of 1933 grew out of the 1929 stock market crash and aimed to create a more transparent and fair system of investing in the United States. They prompted the formation of the Securities and Exchange Commission (SEC), giving it broad powers to regulate the secondary market for securities. These include the power to register and oversee brokerage firms, transfer agents, and self-regulatory organizations like the New York Stock Exchange and NASDAQ. The SEC also has the authority to punish market participants who violate federal securities laws. It is important to note that the provisions of the Exchange Act prohibiting fraud and misrepresentation in connection with stock transactions apply equally to both publicly-traded and private company securities.

The SEC also promotes transparency through disclosure requirements for companies that sell securities. These require the disclosure of important financial information to investors, enabling them to make sound investment decisions. This information can be found in the SEC’s EDGAR database. The SEA also prohibits certain fraudulent activities, such as insider trading, which can lead to substantial losses for investors. In addition, the SEA includes anti-fraud provisions that give investors recovery rights in cases where they can prove that their losses were incurred due to inaccurate or incomplete disclosures of information.

The SEA also requires the SEC to establish rules and regulations to implement federal securities laws. These include regulations that protect against sham tender offers or direct purchases of 5% or more of a company’s shares. These regulations are intended to prevent manipulation of stock prices and ensure that investors have access to all the information they need to make informed investment decisions. The SEA also contains provisions that provide joint and several liability for people who control or abet violators of the law, thereby increasing the chances that victims can recover damages.

Rule 10b-5

Rule 10b-5 prohibits the use of manipulative or deceptive practices in connection with the purchase and sale of securities. This is a serious white-collar crime, and violations can lead to both criminal and civil penalties. The SEC often serves as plaintiff in securities fraud cases, but private parties also may sue under this statute if they have standing to do so.

Those who violate this law are subject to substantial fines, prison terms, and other sanctions. They are also liable for the loss of their ability to work in the financial industry. To be liable for this violation, the defendant must have acted with either actual or constructive knowledge that his actions would cause others to rely on false statements. This is different from ordinary negligence, which requires only recklessness or a lack of care or diligence.

In order to be liable for a violation of the securities laws, a defendant must have misrepresented or omitted material information about a company’s stock. This information must be significant enough to affect a reasonable investor’s decision to invest in the company. The Supreme Court established a four-part test for this in TSC Industries, Inc. v. Northway, Inc.: The fact must assume “actual significance” in the investor’s consideration of the company and its affairs, and it must be material in relation to all the information available to the shareholder at that time.

Rule 10b5-1 plans were developed as an alternative to trading prohibitions for senior company officials who want to buy and sell their own shares without being circumscribed by limited trading windows or fear of liability for insider trading. However, these plans are not foolproof and must be carefully considered by companies and their executives. For instance, the SEC now requires that such plans must be set in motion at least 90 days before any transactions are made. This is to prevent the appearance of insider trading and gives the SEC a chance to evaluate the materiality of nonpublic information at the time the plan is enacted.