Securities Law

Securities are negotiable financial instruments that have a monetary value. Securities can be a complicated area of law. 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.

Securities Rules and Regulations

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.

Rules for Broker-Dealers

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.

Common Securities Abuses

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
• Fraud
• Market manipulation

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:

• Churning
• Unauthorized trading
• Misrepresentation and omissions
• Unsuitability
• Misappropriation

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.

Learn More

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.

• American Association of Individual Investors. A nonprofit that educates people in stock investing, mutual funds, portfolio management, and retirement planning.​​
• Investor Protection Trust. Offers non-commercial investor education materials.
• North American Securities Administrators Association. A voluntary association of securities administrators. It works in the 50 states, the District of Columbia, Puerto Rico, Canada, and Mexico. Provides investor education and protection resources.​​
• National Association of Investors Corporation. Offers educational materials for individual investors and investment clubs.
• Financial Industry Regulatory Authority (FINRA). Regulates the securities industry and oversees most all U.S. stockbrokers and brokerage firms.​
• Securities Investor Protection Corporation. Nonprofit membership corporation created by the Securities Investor Protection Act. It's dedicated to restoring funds to investors with assets in the hands of bankrupt and troubled brokerage firms.​
• Securities Lawyer's Deskbook. From University of Cincinnati College of Law. Full text of selected securities laws and regulations.
• State Securities Regulators. They enforce state securities laws, known as blue sky laws.​

Stock Exchanges

• New York Stock Exchange American
• NASDAQ
• New York Stock Exchange

Laws

• Administrative Law Judge Decisions
• Commodity and Securities Exchanges Regulations. Code of Federal Regulations (CFR), Title 17.
• Securities Lawyer's Deskbook. From the Center for Corporate Law, University of Cincinnati College of Law. Includes texts to the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940.
• U.S. Securities and Exchange Commission Opinions
• U.S. Securities and Exchange Commission Regulatory Actions. Include proposed rules, final rules, concept releases, interpretive releases, policy statements, and more.
• U.S. Securities and Exchange Commission Rules of Practice
• U.S. Securities and Exchange Commission Staff Interpretations. Includes staff accounting bulletins, legal bulletins, and telephone interpretations.
• U.S. Securities and Exchange Commission Trading Suspensions

Federal Securities Laws

Several laws govern the securities industry. Primary federal securities laws include the following:

• Securities Act of 1933. Addresses company securities issuance, including the registration of securities, registration statements, and prospectuses​
• Securities Exchange Act of 1934. Governs the trading, purchase, and sale of securities
• Trust Indenture Act of 1939. Applies to debt securities, such as bonds, debentures, and notes offered for public sale
• Investment Company Act of 1940. Regulates companies that engage in investing, reinvesting, and trading securities​
• Investment Advisers Act of 1940. Regulates firms or sole practitioners compensated for advising others about securities investments. It also ensures that they follow securities regulations.​
• Sarbanes-Oxley Act of 2002. Implemented many reforms to enhance corporate responsibility and combat corporate accounting fraud
• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Seeks to reshape the U.S. regulatory system in several areas. That includes consumer protection, regulation of financial products, corporate governance, and transparency.​

At the federal level, securities laws and regulations control most aspects of the securities industry.

Hiring a Securities Lawyer

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.