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Are Your Investments Secure? An Overview of Securities Law

  • By:sierralit

It has been 10 years since the second worst financial meltdown in American history. The federal government in tandem with the Federal Reserve System gave trillions of dollars to giant Wall Street banks that crossed the line dividing reason and speculation. Many financial analysts blamed the repeal of Glass-Stegall in 1999 with contributing to much of the downfall of Wall Street investment houses. Glass-Stegall, which President Franklin Roosevelt signed into law, separated personal banking from investment banking.

However, numerous securities laws on the books in late 2007 and early 2008 remain integral parts of the legal system that protects your hard earned money.

Overview of Securities Law

Securities represent a wide variety of investment instruments that return what is referred to as a yield. Stocks, bond, and mutual funds are the most common types of investment instruments used by Americans to generate “yield” income. Securities reflect the investment value of common business enterprises, such as corporations that primarily produce revenue overseas. Because of the rapid changes of the securities industry, the United States Congress has passed myriad laws that regulate investment instruments. The heart of securities laws involves preventing financial institutions from performing deceptive and fraudulent business practices.

Landmark Securities Legislation

The Great Depression prompted President Roosevelt to push for financial system reform. The Securities Act of 1933 regulates how companies create and issue securities. Passed and signed into law a year later, the Securities Act of 1934 established the standards for the sale, trading, and purchase of securities. The first Securities Act created the Securities Exchange Commission (SEC) and the second Securities Act gave the SEC more power to issue regulations. Other pivotal securities laws passed by the United States Congress include the Private Securities Litigation Reform Act and the Sarbanes-Oxley Act of 2002 that closed several legal loopholes. Moreover, most states have enacted laws that allow state securities commissions to initiate investigations into securities fraud.

Common Securities Abuses

Unfortunately, far too many businesses in the securities industry operate under the principle of “What you don’t know can hurt you.” The centerpiece of securities law is to prevent you from falling for one or more of the most common abuses.

Company Fraud

If you have heard of the term “cooking the books,” then you understand company fraud. A company cooks the books to make the bottom line appear healthier than it is, which boosts the price of the securities offered by the company. The SEC mandates every company to follow Generally Accepted Accounting Principles (GAAP) closely.  Any deviation from federally established accounting standards represents the commitment of a crime.

Insider Trading

As the movie that best describes the rampant greed of the 1980s, Wall Street gave us a crash course on the fraudulent practice called insider trading. As the term implies, insider trading involves securities brokers using information not available to average investors to earn profits. The professionals who gain access to inside financial information include brokers, stock analysts, investment bankers, and corporate upper management. Federal law makes it illegal to buy or sell stocks based on information only available to a few select investors.

Fraud

Company fraud often involves public offerings and the inaccurate financial data presented in public offering documents. The financial information can be inaccurate and/or some financial data is omitted to make a company look financially better on paper. Corporate fraud in relation to initial public offerings is performed to attract more investors, which drives up the price of securities and hence, enriches the sellers of the securities. The financial meltdown of late 2007 and early 2008 represents the ideal example of corporate fraud that artificially inflates the value of securities.

Litigating securities cases requires a consumer protection attorney who understands the complex statutes, regulations, and financial industry standards. Contact a California attorney today who has amassed an impressive resume litigating securities fraud cases.

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