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Securities Law  

Last Updated: Jun 30, 2014 URL: Print Guide RSS Updates

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Federal Statutes

Following are the major U.S. federal statutes relating to securities regulation: 

Securities Act of 1933: This legislation was enacted during the Great Depression, in the aftermath of the stock market crash of 1929. It is seen as Congress’ initial foray into the battle against securities fraud.  Colloquially called the “truth in securities” act, it requires that investors receive key financial and other information for publically traded companies. It also forbids deceit, misrepresentation and fraud in securities sales.  The Securities Act of 1933 primarily focuses on initial distributions.

Securities Exchange Act of 1934: Congress used this act to create and empower the Securities and Exchange Commission (SEC) which has broad authority to regulate the securities industry. The SEC is responsible for the regulation and oversight of the United States’ securities self-regulatory organizations (SROs), such as the New York Stock Exchange, the NASDAQ and the Chicago Board of Options, in addition to brokerage firms, transfer agents and clearing agencies. Under the act the SEC can regulate and police conduct and require periodic reporting. This Act focuses on the purchase and sale of securities after their initial distribution.

Trust Indenture Act of 1939: This act applies additional standards to those found in the Securities Act for the trust indenture required for public sale of debt securities such as bonds, debentures and notes.

Investment Advisors Act of 1940: This legislation pertains to the role and duties of an investment advisor. Among other things, the Investment Advisors Act of 1940 requires that investment advisors (or their firms) managing a certain amount of assets register with the SEC and follow regulations aimed at consumer protection. This act was amended in 1996 and 2010.

Investment Company Act of 1940: The Investment Company Act of 1940 concerns complex organizations that perform multiple functions such as investing, reinvesting and trading in securities and who offer their own securities to public investors. The classic example of such an organization is a mutual fund. In regulating these companies the Act requires disclosure of financial information and investment policies/objectives at designated times and transparency regarding corporate structure and operations.

Private Securities Litigation Reform Act: This legislation, which was enacted over President Clinton’s veto, provides measures to discourage frivolous or abusive lawsuits, specifically class action lawsuits, brought under the Securities Act of 1933 and the Securities Exchange Act of 1934. The law establishes rules related to civil liability for causes of action related to securities.

Gramm-Leach-Bliley Act: The Gramm-Leach-Bliley Act creates requirements related to the protection of sensitive data and information sharing transparency with customers for financial institutions.

Sarbanes-Oxley Act of 2002: Enacted in the wake of the Enron scandal of the early-2000s, Sarbanes-Oxley is wide-reaching legislation that targets the enhancement of corporate responsibility and financial disclosures.  It also addresses corporate and accounting fraud. The “Public Company Accounting Oversight Board” or PCAOB was created through this legislation to provide oversight to the auditing profession.

Dodd-Frank Wall Street Reform and Consumer Protection Act: Enacted in 2010, during the Obama administration, Dodd-Frank reformed the U.S. regulatory system in a wide variety of ways. Areas impacted include: consumer protection, trading restrictions, credit ratings, regulation of financial products, corporate governance/disclosure and transparency.

Jumpstart Our Business Startups Act 2012: Signed into law in April 2012, this Act requires that the SEC address the issue of capital formation, disclosure and registration requirements as well as investor protection. Under the Act, the SEC will have the task of promulgating rules that encourage cost-effective access to capital. 


State Statutes

The term “Blue Sky Laws” refers to laws for offering or selling securities passed by individual states within the United States, usually predating federal securities legislation. These laws, created in an attempt to prevent ordinary investors from losing their shirts in high-risk and exotic investments during the investment craze in the years prior to the Great Depression, provide investor protection by requiring the registration of securities and those who sell them within a given state. Notoriously cumbersome to companies and brokerage firms wishing to sell securities in multiple states, many Blue Sky Law provisions have been pre-empted by federal law.

Westlaw, Lexis and CCH IntelliConnect (via the Blue Sky Law Reporter) provide access to these Blue Sky Laws.


Uniform Securities Act

The Uniform Securities Act is a model statute designed to guide each state in drafting its own securities-related statute. It is available on Lexis, Westlaw and the ABA website.

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Mary Beth Chappell Lyles
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