Questions About Securities Law

Congress has enacted many laws to govern the securities industry. The regulatory scheme authorizes the Securities and Exchange Commission (SEC) to pass regulations to further the broad legislative provisions. Each state also has a securities regulator to enforce state securities laws, called blue sky laws.

Suppose the SEC believes a person or entity violated a statutory provision, such as those in the Securities Act of 1933, Securities Exchange Act of 1934, or the Investment Company Act of 1940. In that case, the SEC or the Department of Justice can institute disciplinary actions. The government can prosecute those violating securities regulations and federal securities laws.

The United States District Court, then the Court of Appeals, and potentially the Supreme Court can determine whether a violation occurred. Courts may also decide how to interpret a provision in one of the securities laws. Courts can analyze whether the SEC properly exercised or exceeded its authority in rulemaking or proposed rules.

Below are frequently asked questions and answers related to federal and state securities laws. These FAQs provide an overview of securities-related topics. Please visit FindLaw's Securities Law page for more topics and in-depth discussions.

• What are securities?
• What is securities fraud?
  
• Who commits securities fraud?
  
• What is a securities class action?
  
• What are the benefits of a class action?
  
• How do I know if I have a securities claim?
  
• What should I do if I think I have a securities claim?
  
• How long does securities class action litigation take?
  
• What is securities arbitration?
  
• What is corporate fraud?
  

What are securities?

Securities are investment vehicles like stocks, mutual funds, and bonds. Securities reflect investments by various individuals and entities in a joint enterprise. It could be an investment in a corporation made with the expectation of deriving a profit. For example, many people invest in public companies through the stock market.

A stock represents a share, or percentage, in a corporation's profits and assets. By purchasing stock, an investor buys a percentage of the company's ownership. If the corporation makes higher profits, the value of its securities will increase. Shareholders make money by selling their shares of stocks at a higher price than when they bought them. When a corporation loses money, the value of the investor's shares decreases.

What is securities fraud?

Securities fraud occurs when an individual or entity attempts to manipulate the investment market illegally. Renewed concern over securities fraud arose during the recent telecom bust. Investors lost millions on internet companies that had gone from being highly rated and seemingly secure to bankrupt in a short time. As a result, Congress passed the Sarbanes-Oxley Act of 2002. It required many reforms, including requiring CEOs and CFOs to attest to the truthfulness of financial statements. It also provided more oversight over corporate accounting practices.

Who commits securities fraud?

Any of the following may commit securities fraud:

• Brokers-dealers (misleading clients or advising based on inside information)
• Financial advisers or analysts (purposefully offering poor advice or inside information)
• Investment advisers
• Corporations (hiding or distorting information)
• Private investors acting on inside information relating to the sale of securities

Investor education is critical to reducing their chances of being victims of an investment scam or securities fraud.

What is a securities class action?

A securities class action is a lawsuit filed by a group of investors who lost money. They make claims because of claimed violations of the securities laws. Often, such cases allege that a series of false and misleading statements regarding a company's business caused its stock to trade at higher prices than it otherwise would have.

Investors often claim they would have paid less than they did for the stock if they had known the truth about the company's business. Typically, it is more efficient for investors to pursue their claims as part of a class rather than an individual claim.

What are the benefits of a class action?

A securities class action allows small shareholders to litigate against large, well-funded corporations. Shareholders allege that a company violated the securities laws. A class action allows many people who would not bring an individual action against a company to seek recovery from the company. The individual shareholders do not each need to retain a lawyer or incur legal fees before receiving compensation for the claim.

How do I know if I have a securities claim?

If you purchased a publicly traded security that declined in value after a significant adverse disclosure about the company, you might have a claim. The best way to determine whether your situation involves an actionable claim is to contact a securities law attorney. They will be able to evaluate your claim and explain your legal options.

What should I do if I think I have a securities claim?

If you or someone you love has been the victim of securities fraud or other securities wrongdoings, you should contact a lawyer with experience representing investors. For example, an investment adviser representative owes clients fiduciary duties under state law and SEC regulations. An attorney can explain how these may apply in your situation.

An attorney who understands securities law can explain investor protections and securities claims available to you. They may be able to help recover some, if not all, of what you lost.

How long does securities class action litigation take?

It all depends. A class action typically takes one to four years to resolve. However, this is only an estimate. Each case depends on the circumstances. There is no one answer. If the case goes to trial and is followed by appeals, it will last even longer.

What is securities arbitration?

In 1987, the U.S. Supreme Court held that brokerage firms could enforce pre-dispute arbitration clauses in their customer agreements. Virtually all brokerage firms' customer agreement forms now contain arbitration clauses. As a result, brokerage firms and customers arbitrate most claims.

Securities arbitration is a private dispute resolution process in which one to three arbitrators decide the merits of a case. In an arbitration, counsel presents evidence through testimony and documents like in a court proceeding.

The Financial Industry Regulatory Authority (FINRA) oversees broker-dealers. FINRA is a self-regulatory organization (SRO) overseen by the SEC and charged by Congress to protect U.S. investors by ensuring the broker-dealer industry operates fairly and honestly. FINRA handles the arbitration process for investors and broker-dealers.

What is corporate fraud?

When a corporation deliberately conceals or skews material information to appear profitable, it has committed corporate or shareholder fraud. Corporate fraud may involve a few individuals or many.

Fraud committed by corporations can be devastating for everyone involved. In recent years, Congress has enacted several reforms to restore stability and oversight in the financial systems. One example is the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The Dodd-Frank Act and its amendments instituted several consumer and investor protections in the financial services industry. They also introduced reforms for financial institutions and rules impacting credit card issuers. One of the act's most notable achievements is the creation of the Consumer Financial Protection Bureau (CFPB).

Get Help With Your Securities Case

Securities laws cover a wide range of conduct impacting the financial markets. Understanding securities law and applicable rules and regulations is a complex process. It takes years of practice.

If you have a securities-related issue, contacting an attorney is in your best interest. An experienced securities attorney can explain your legal options and protect your interests.