What Is Securities Law?

Recent financial scandals, including Enron, MF Global, and Bernie Madoff’s Ponzi scheme, have led to heightened public interest in securities law. Despite the notoriety of these high-profile cases, individuals and corporations do benefit from these regulations, which help increase confidence while investing. Of course, all investments have risks, but securities law is designed to protect investors’ money when it matters most.

It’s important to have an understanding of securities law before investing in the markets, but if you have questions about complex state and federal securities laws or a securities-related legal issue, the experienced securities law attorneys at Nix Patterson can review your case.

What Is Securities Law?

Securities are purchased and sold by investors, companies, and governments as a means to invest their money. Many different entities are involved in securities, so numerous laws exist to protect investors and markets. That said, securities laws and regulations focus on three areas:

  • Federal laws mandating that companies selling securities report their assets, liabilities, and other vital accounting information transparently and regularly
  • Federal laws intended to prevent buyers from gaming the system through insider trading and secret market information
  • Federal laws regulating what brokers can and cannot do for investors

These critical federal securities laws were enacted after many unregulated activities in the early 20th century led to the infamous 1929 market crash and the Great Depression. In addition, the federal government created the Securities and Exchange Commission (SEC) to administer federal securities laws.

What Securities Laws Require

Congress passed the Securities Act of 1933 to ensure investors have critical financial and other information about investments in public markets. The Act also bans using deceit, fraud, and misrepresentation when securities are sold. In addition, companies must follow the Securities Act and other federal laws that were passed in the following years and decades. Requirements include:

  • Public disclosure. Publicly traded companies must file financial reports with the Securities and Exchange Commission. The reports must provide vital financial information, including investment results, executive compensation, and financial strength. Individuals, stockbrokers, and markets use SEC disclosures to make investing decisions. When the SEC believes the company has made sufficient financial disclosures, the security may be registered, and sales commence.
  • Registration with the SEC. Securities law also states that publicly traded firms must register with the commission and offer disclosures about the investments they offer.
  • Paying compensation for not complying with securities law. If an organization does not adhere to securities law, the wronged investor can get their money back, plus damages. In addition, in some cases, the company provides a rescission (securities buyback, with interest) to investors who purchased securities that violated the law.

Other securities laws passed include:

  • Securities Exchange Act of 1934
  • Trust Indenture Act of 1939
  • Investment Company Act of 1940
  • Investment Advisers Act of 1940
  • Sarbanes-Oxley Act of 2002
  • Dodd-Frank Act of 2010

How a Securities Law Attorney Can Help

A securities law attorney may have a vital role in safeguarding your investments. As you make investment plans, your attorney can help you research a company’s finances, history, and health based on its SEC reports. The attorney also can advise regarding the broker’s requirement to inform if an investment is a good fit for you and their fiduciary duty to you.

A securities law attorney can also point out possible signs of financial mismanagement or investment fraud. Legal counsel may also recommend options if you suffer losses outside the norm. These options include:

  • Conflict of interest
  • Excessive trading to boost broker commissions (churning)
  • Failure to supervise
  • Failure to diversify
  • Manipulating markets
  • Insider information
  • Investment unsuitability
  • Unauthorized trading
  • Omission of facts
  • Misrepresentation
  • Malpractice or ineptitude

Your securities lawyer also may represent you in any legal action that stems from your investments in publicly traded securities, such as a class action lawsuit, a shareholder’s derivative action, or a lawsuit against the stockbroker. However, many stock broker agreements have an arbitration clause that limits legal action against the broker. That’s why you should have your securities attorney review the contract before you sign.

How Do You Know if You Have a Securities Case?

Investors often are unaware anything has been done wrong with their accounts; account statements are often long and confusing. So, many investors may only know the securities they invested in were unsuitable once they see the steep losses in their accounts.

If you raise questions, the brokerage may insist their broker didn’t do anything wrong with the hope that you will back off. However, a skilled securities law attorney can get around this tactic, and the securities litigation lawyers at Nix Patterson have a successful record of settlements and awards for wronged investors.

Our attorney can help to determine if the brokerage did not supervise the stock broker and whether you suffered financial damages. We also can evaluate if the brokerage did its due diligence before approving a security for sale to the public.

Contact the Nix Patterson Securities Law Attorneys

If you have questions about securities and investments you are considering, please contact Nix Patterson today. Our attorneys are paid a percentage of the client’s settlement or award and never collect unless we win the case.

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