Securities regulations are laws that govern the sale of securities to the public. They include the SEC’s Blue sky laws, which prohibit fraud in the sale of securities. The SEC’s Division of Enforcement has authority to investigate and enforce civil fraud in connection with all secondary market securities transactions. It also has the authority to recommend that the SEC take further action, when necessary.
- 1 Issuer transactions vs trading transactions
- 2 Blue sky laws prohibit fraud in the sale of securities
- 3 SEC’s authority to investigate and enforce prohibitions against civil fraud in connection with all secondary market securities transactions
- 4 SEC’s Division of Enforcement recommends when further action is needed
Issuer transactions vs trading transactions
There are two basic types of transactions under securities regulations. Issuer transactions are conducted when a company sells shares of its stock to raise capital. Trading transactions involve the sale of existing securities between investors.
These transactions are subject to a number of federal and state laws. In the United States, the Securities and Exchange Commission has reviewed and revised some of the rules concerning trading practices. The new regulatory framework has helped to ease some of the burdens that were imposed on market participants. It has also maintained important investor protections. However, in recent years, market participants have complained about the complexity of the rules.
Non-issuer broker-dealers are governed by less stringent regulations than issuers. However, if a broker-dealer engages in stabilization activities, the broker-dealer must follow Rule 104. As part of their duties, broker-dealers can enter into continuing agreements with selling security holders.
Issuer transactions can be divided into two categories: initial public offerings and exchange offers. While issuer transactions occur when a business sells an interest in its stock to raise capital, trading transactions are conducted between investors. They take place on stock markets.
One of the more important developments in the securities industry is the continuing globalization of markets. This has resulted in new ways to offer securities, including the use of technology and innovative techniques. Another major development has been the increasing institutionalization of the markets.
Issuer transactions are governed by the Securities Act of 1933. Trading transactions are governed by the Securities Exchange Act of 1934. During an issuer transaction, a business is required to register its securities with the SEC. Other requirements include filing a Form 144 and providing information to the issuer.
When purchasing or resale a security, the seller must determine whether the purchaser is a qualified investor. If the purchaser is not a qualified investor, the seller must assess the likelihood of the buyer’s investment and the financial condition of the purchaser.
Although the Securities Act is the primary federal law that governs issuer transactions, other state securities laws apply. These laws vary, but the majority of the content pertains to the same basic aspects of securities trading.
Blue sky laws prohibit fraud in the sale of securities
Blue sky laws are a way for states to combat fraud in the sale of securities. They typically require various forms of registration. Typical registration requirements include a license for brokers, investment advisors and private investment funds. If a broker fails to comply, the state might fine the broker.
Most states have implemented some form of blue sky law. However, the majority are modeled after the Uniform Securities Act of 1956. This law was drafted by the Uniform Law Commission and has been adopted by 40 of the 50 states.
These laws typically include a merit review by a state agent. In addition to a number of exemptions, the statute may offer an individual a right to sue for rescission. Despite this, it isn’t uncommon for an unscrupulous businessperson to avoid the registration requirement altogether by doing business in another state.
While these laws aren’t exactly new, they are a great way to protect the public from fraudulent investment schemes. They are also designed to encourage efficiency in capital formation. A blue sky law isn’t perfect, but it is at least a good start.
Although a blue sky law might sound like a good idea, it might have a negative impact on small issuers. The cost of registering an offering is a burden on small businesses, particularly when multiple blue sky laws are involved.
On the other hand, the most obvious effect of a well-constructed blue sky law is to prevent securities fraud. While the federal Securities and Exchange Commission (SEC) may not be able to detect every instance of securities fraud, it can help to provide the necessary regulatory oversight.
While there are no guarantees that a blue sky law will deter all fraudulent schemes, the presence of one will make it harder for unscrupulous traders to skirt the law. Some states have even tailored their blue sky laws to combat pyramid schemes, a common scam among investors.
The Uniform Securities Act of 1956 is perhaps the best example of the benefits of a well-crafted blue sky law. It has served as the model for many states’ blue sky laws and provides guidelines on which ones to implement.
The Securities and Exchange Commission (SEC) is a United States federal regulatory agency that investigates and enforces civil fraud in connection with all secondary market securities transactions. SEC enforcement actions are the primary mechanism for enforcing the federal securities laws. These actions are taken in the form of orders to cease and desist, injunctions, and civil penalties.
The Securities and Exchange Commission’s main goal is to protect investors. In particular, the SEC aims to prevent fraudulent trading activities and the misuse of inside information. It also seeks to ensure fair dealing.
A primary tool in achieving this goal is the registration process. The registration process requires that companies provide detailed financial statements certified by independent public accountants. Companies must also provide the prospectus that the SEC has reviewed. Whether a company is registered or not, the SEC has the power to impose civil penalties.
Another tool the SEC uses to prosecute fraud is Section 17(a) of the Securities Act of 1933. This law is the central anti-fraud provision in the act. It makes it unlawful to engage in any practice involving fraud or deception. For example, it is illegal to obtain property or money through a false or fraudulent promise. Also, it is a crime to employ any device to commit a fraud.
Another tool the SEC can use is Section 20(d) of the Securities Act of 1933, which allows it to impose fines. There is a maximum penalty of $100,000 for a natural person and $500, 000 for an entity.
The SEC also has the authority to conduct surprise inspections of brokerage records. It may also interview witnesses and review trading data. However, it does not have legal authority to determine whether a security is worth the price offered.
SEC prosecutions of securities violations are usually based on the complaints of individual investors. These cases are then referred to the Justice Department for criminal prosecution. If the case is found to be a civil fraud, the SEC can pursue administrative action or seek a court judgment.
Among the most common types of fraud investigated by the SEC are insider trading, bribery, and misapplication of funds. Financial institutions are the target of these crimes. Most schemes involve the compromising of customers’ accounts and personal information.
SEC’s Division of Enforcement recommends when further action is needed
The Securities and Exchange Commission (SEC) Division of Enforcement has sent multiple subpoenas to a company that is being investigated for violations of securities laws. Each subpoena requests specific information regarding the investigation.
Several subpoenas also seek testimony and documents related to the investigation. Although the SEC has not yet recommended any formal disciplinary action, the company must consider all available facts. In addition, the company’s officers and executives are required to consider any and all relevant circumstances.
In one case, the SEC alleged that a financial adviser made cash transfers between funds without authorization and altered financial records. He also allegedly forged the signatures on several documents. As a result, he violated FINRA’s rules and regulations.
In another case, a pest control firm allegedly failed to document various entries from the years 2016 to 2018. The company had been audited, but failed to memorialize the basis for these entries. It had reduced its accounting reserves to meet quarterly targets.
A former accountant agreed to pay more than $1.9 million in penalties. He also consented to a permanent injunction for future violations. During the course of the investigation, the accountant reportedly traded on confidential company information, earning $960,000 in profits.
The Securities and Exchange Commission’s Division of Enforcement is responsible for investigating and recommending further action when necessary. These recommendations could include a formal disciplinary action, an informal disciplinary action, a disgorgement of profits, or a cease-and-desist order.
Several of the SEC’s recent enforcement actions involved a wide variety of financial reporting violations. Public company accounting and disclosure cases represented a significant portion of the SEC’s cases in 2022.
Another major focus of the SEC’s Division of Enforcement is on digital asset offerings. These offerings include non-fungible tokens and digital asset lending. Some of the units focused on these areas include the Crypto Assets and Cyber Unit and the Stablecoin Unit.
The SEC’s earnings per share initiative continues to seek out hard-to-detect disclosure violations. While these violations do not necessarily lead to a customer’s harm, they may affect the market.