Securities are negotiable financial instruments that have a monetary value. Securities can be a complicated area of law.
By Oni Harton, J.D. | Legally reviewed by Melissa Bender, Esq. | Last reviewed October 24, 2024
This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw’s team of legal writers and attorneys and in accordance with our editorial standards.
The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area.
If you're investing in the stock market or making other securities transactions, know basic securities law.
Companies that issue securities must follow strict rules. These rules involve the disclosure of information affecting the value of their securities. They must file many documents about the value of their company and assets with the Securities and Exchange Commission (SEC).
Congress authorized the SEC. It's the federal governmental agency with oversight and control of the industry. It can further regulatory controls. Knowing the basics about federal laws and regulations governing the securities industry is essential if you are an investor.
FindLaw's Securities Law section provides basic information about this complex area of law. We have articles on how to prove securities fraud, the responsibilities of investors and brokers, and a guide to understanding securities arbitration. You can also find links to various resources related to securities markets.
Companies and people in capital markets must follow specific rules and regulations. Congress, regulatory agencies, and self-regulatory organizations oversee securities markets.
Failure to follow these rules can result in criminal and civil actions. For example, the federal Securities Act of 1933 mandates disclosures for securities for sale as a public offering. (Exemptions to this rule include private offerings made to a limited number of people or entities.)
The law has reporting requirements. Compliance also requires companies to provide registration statements. These statements allow potential investors to learn about the company. They show a description of the company's properties and businesses, financial conditions, and more. U.S. public companies must follow Generally Accepted Accounting Principles (GAAP) in financial statements.
Individuals and institutions involved in buying and selling securities must follow strict rules. These broker-dealers have various rules about the investment advice they provide to clients. Broker-dealers also have rules relating to the actions they take with their clients' money.
Brokers are subject to registration requirements. Brokers must register with the SEC and become members of the Financial Regulatory Authority (FINRA). Find or research an investment professional or firm with FINRA or your state's securities regulator.
Despite rules and regulations, abuses involving securities continue. Companies, broker-dealers, or ordinary people can perpetrate these abuses. The most common abuses that can happen with companies issuing securities are:
Insider trading happens when a person with inside knowledge of the company's business uses that information to trade stocks. Claims that a company committed fraud are often related to the company's public offerings. Market manipulation can happen when a company, broker, or investor creates a false impression about a security or its activity.
Broker-dealers can also commit various abuses in the securities industry. Misconduct committed by broker-dealers includes:
Some of these acts are self-explanatory. Others are more difficult to understand. For example, churning happens when a stockbroker executes excessive trading on a client's account. This boosts the broker's commissions. Unsuitability is when a broker makes investment recommendations contrary to the investor's objectives.
People outside the securities industry can also commit securities abuses. Con artists use tricks and tactics to induce people into fraudulent investment schemes. These con artists trick people into investing their savings. They promise unrealistic financial returns. These offers typically involve offers for oil and gas leases, limited partnerships, stocks, and bonds.
Investing your money can be overwhelming if you lack an understanding of securities law and your rights as an investor. Before you take the plunge, research investments and the legal framework governing securities.
Below are links to nonprofit groups, academic institutions, trade organizations, and other places with information for investors. Explore them to learn more about your rights as an investor, securities laws and regulations, and more.
Several laws govern the securities industry. Primary federal securities laws include the following:
At the federal level, securities laws and regulations control most aspects of the securities industry.
It can be hard to know that you've been the victim of securities fraud before losing your investment money. It's critical to pay attention to your investment accounts and investigate if something doesn't seem right. If you feel that securities or investment fraud is happening in your account, contact a local securities attorney.
