Anyone who dabbles in the stock market or works with any type of securities should have at least a basic understanding of securities law. Reason being, it is easy to fall for an illegal scam involving the exchange of securities if you don’t know what you’re doing is wrong, and the law comes down hard on money crimes like these. Following is a basic overview of securities law and what you need to know.
What are securities?
The name makes securities sound elusive, impressive, monumentally important, when in reality, they are just documents that are meant to indicate ownership over a specific asset. Stocks and bonds, for example, are common types of securities, but this can also apply to bank notes or treasury certificates or anything else that gives you a stake in the earning power of a particular investment. The security itself gives you a percentage of the proceeds or full ownership, depending on the situation.
Securities law, therefore, refers to the regulation of securities and the prosecution of criminals who commit fraud using these documents. It is a fairly common occurrence, as you can imagine, but law enforcement personnel often require full task forces to investigate instances of securities fraud.
What is securities fraud?
Since securities are simply documents, it is easy to alter, forge or fake them for the purposes of making money in investments. Although every possible measure is taken to prevent the facilitation of such crimes, the technology available to law enforcement agencies is constantly surpassed by that of the criminals. Insider trading is one of the most common types of securities fraud, and involves passing along information about a company’s stocks that isn’t available to the public at large.
Securities fraud can also refer to the misconduct of brokers or agents who misrepresent the value—or potential value—of a security. This happens more often than we would like to think, and it is entirely possible for an individual to be conned into buying a security that never performs, or that doesn’t exist at all.
What is Federal Securities Law?
The federal government is responsible for some aspects of securities law, including regulating public offerings, which are the sale and exchange of securities. The Securities and Exchange Commission (SEC) is a federal agency charged with the task of investigating and prosecuting securities fraud as it relates to their sale, exchange or offering. They are particularly concerned with deceptive practices that lure unsuspecting victims to invest in fake or misrepresented opportunities.
What is State Securities Law?
Individual states are also concerned with securities law as it relates to registration or licensure requirements for securities professionals. Even covered securities, which are exempt from state laws and are bound only to federal regulations, can spurn state involvement if fraud or misconduct is suspected in a particular state.
Securities law is something that every investor should understand, especially if he or she is drawn to high-risk investments. There have been numerous crime rings uncovered in the U.S. involving brokers, dealers and even real estate professionals who have stolen millions of dollars from people through securities fraud.