What Laws Govern the Securities Industry?
To date, the Stock Market Crash of 1929 was one of the most instrumental events that shaped the securities industry and the laws the govern it. As a result of the crash, Congress enacted the Securities Act of 1933. The '33 Act's goals are to require full disclosure regarding securities offered for public sale, and to prohibit deceit, misrepresentations, and other fraud in the sale of securities. To achieve these goals, securities not subject to an exemption have to be registered so that the investing public can make informed decisions. The next year, Congress enacted the Securities Exchange Act of 1934, which created the U.S. Securities and Exchange Commission ("SEC"). The SEC is responsible for enforcing securities laws and regulating the securities industry. In addition to creating the SEC, the '34 Act is also responsible for governing the secondary trading of securities. In other words, once a company complies with the disclosure requirements of the '33 Act, the '34 Act regulates the trading of the security. The Act also requires that companies that meet certain criteria file periodic reports to further assist investors and, pursuant to section 10(b) of the '34 Act and SEC Rule 10b-5, protects investors against fraud. Over the next few years, additional regulations were enacted in an attempt to further protect the investing public. The Investment Company Act of 1940 was enacted to regulate the organization of companies, such as mutual funds, that invest, reinvest and trade securities. With a goal of minimizing conflicts of interest, the Act requires companies to disclose, among other things, their financial condition and other material information about the company. The Investment Advisors Act of 1940 was enacted to define the role and responsibilities of an investment advisor. Fast forward to 2002. In response to a number of corporate scandals such as Enron, Worldcom and Tyco, President Bush signed into law the Sarbanes-Oxley Act of 2002, which set standards for public company directors, management and accounting firms. The Act provides for new duties for reporting and, among other things, requires that management certify the accuracy of financial information. And in 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. One of the many goals is to prevent the excessive risk taking that financial institutions took that contributed to the financial crisis that began in 2008. The Act implements a number of changes regarding oversight and supervision of financial institutions in an attempt to promote transparency and protect the economy and investors. Unfortunately, many regulations were enacted in response to catastrophic events that took place. While we hope that everything is now covered, history shows that new events warrant new regulations. Burr & Forman attorneys have vast experience with representing clients in matters involving the various securities laws. If you ever have a question about the process, something on the blog or have a securities question, feel free to contact any of Burr & Forman's Securities team members, and we will be happy to assist you. For more information on securities litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.
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