Securities Law: An Overview
Securities Law Abuses and Enforcement
A violation of the securities laws can have significant, negative effects on a business, including investigation by the Securities and Exchange Commission (SEC), criminal proceedings and civil lawsuits. It is crucial for companies to understand and comply with the securities laws and regulations. A securities attorney at Jacko Law Group, PC in San Diego, California can advise your business about the securities laws and compliance issues.
Securities Abuses by a Business or its Officers
Companies, officers and directors must be aware of securities laws and avoid violations. Allegations of securities fraud and other violations may arise out of public offerings, takeovers and in dealings with shareholders. An issuing company has a continuing obligation to file reports that contain information regarding the business' operations, finances and management with the SEC.
Generally, if a company knowingly discloses false or misleading information in these documents or fails to provide information to correct false statements, it may be liable for fraud, misrepresentation and omissions. Section 10b of the 1934 Securities and Exchange Act and Rule 10b-5 are antifraud provisions. All business owners must be familiar with these sections in order to avoid charges of fraudulent business practices in their securities trading. In addition, a company that creates a false impression regarding a security, its trading activity or price movement may be liable for market manipulation.
Directors, officers and major shareholders who are involved in the management of the business cannot use their position to gain an unfair advantage over other investors. When a person who has material, nonpublic information about a company uses this information when buying or selling securities, it is called insider trading.
Securities Abuses by a Broker-Dealer
Brokers and dealers of securities must comply with the rules that govern the buying and selling of securities, giving securities advice and using a client's money for a securities transaction. A broker may not carry out trades without investor approval and cannot make trades that contradict a client's directives. If a broker does take these actions, he or she may be liable for unauthorized trading. A broker must also avoid churning, which is the excessive trading of an account for the purpose of generating commissions while disregarding the interests of the client. Brokers who make investment recommendations that are inconsistent with the client's known investment objectives and financial situation may be subject to claims for losses based on unsuitability. If a broker keeps the proceeds from a sale of a client's accounts for him or herself it is known as misappropriation.
In addition, a broker may be liable for fraud, misrepresentation or omissions if the broker knowingly gives out false information, conceals true information or fails to provide information to correct false or misleading statements. If a broker-dealer does something to create a false impression regarding a security, its trading activity or price movement, he or she may be liable for market manipulation.
Securities Enforcement
The SEC is charged with overseeing the securities industry and maintaining fair and efficient securities markets. The SEC has the power to investigate alleged violations of federal securities laws, subpoena witnesses and compel the production of documents. The SEC can order a hearing against a person or firm registered with the SEC to determine liability and sanctions, including censure, limiting the registrant's activities or revoking registration. An administrative law judge presides over the hearing and issues an initial decision, which can be reviewed by the SEC. SEC "orders" are subject to judicial review in federal court. The SEC also has the power to seek injunctive relief for violations of the securities laws in federal court. The Department of Justice can also institute a criminal prosecution for federal securities violations.
In addition to the SEC, states generally have their own Securities Commissioners who regulate and enforce state securities laws. States have the authority to bring actions against those who violate state securities law.
Finally, individuals can initiate private, civil suits against companies or individuals alleging violations of the securities laws. Private securities litigation often takes the form of a class action, in which a group of individuals who allege they were similarly injured by a violation of the securities laws join together to sue the defendant.
Conclusion
The interplay between state and federal securities regulations can seem complicated and confusing. A basic knowledge of the agencies that enforce the law and of common securities abuses are both important steps in compliance. A securities lawyer at Jacko Law Group, PC in San Diego, California can lead your business in the right direction, helping it stay in compliance with the securities laws.
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