Securities Law

Securities law is a crucial aspect of business law. It governs the principles and guidelines controlling the purchase and sale of business entities or assets owned by them. These types of transactions usually encompass the exchange of stock shares and bonds, along with mortgage and loan products created that are accessible for sale by a financial institution. These securities are financial products that indicate a stake in an organization or undertaking. 

This law is usually generated at the federal level. However, each state will have its laws pertaining to securities. These laws govern the issuing of securities, the activities associated with them, and any legal proceedings that may result from them. Securities include a variety of instruments, such as notes, shares, and bonds. A significant part of securities-related litigation centers around identifying what is considered a security and the rules that apply to them.

Some essential terms to know about the US securities law are as follows:

• Unauthorized Trading: An unauthorized trading is a trade entered into by a broker without the client's particular consent.
• Churning occurs when a broker performs multiple trades without his client's authorization, with the sole intention of increasing the broker's commission.
• Insider Trading: Insider trading occurs when a business executive or any other individual with confidential knowledge trades securities using that information.
• Class Action Lawsuit: A class action lawsuit involves a large number of plaintiffs who all share identical or significantly similar grievances.

• Transactional Securities Law

The transactional section of the law governs the compilation of loans or assets for sale as a security to a financial institution or an association of investors. 

• Regulatory Securities Law

The regulatory section of the law addresses the creation of securities, which is strictly monitored by the Securities and Exchange Commission (SEC).

• Litigation Securities Law

This section of the securities legislation deals with litigation circumstances that arise, usually as a consequence of investors initiating a lawsuit against the security's issuer due to charges of fraud.

• Administrative Securities Law

Administrative securities regulation ensures the smooth operation of financial institutions that deal in securities. Like every other securities regulation, this law governs the trading system and ensures its proper operation.

Let us go through the following examples to understand this law:

Example #1

Suppose David and Rose is a company that issued its securities in the market. However, the company refrained from disclosing several essential information about its financial standing and presented a false disclosure statement to the general public. The regulatory authorities investigated the company, and upon gathering sufficient information about the falsified records, the authorities heavily penalized the company. Furthermore, the regulatory bodies warned the company that any further failure to comply with the security regulations would lead to severe consequences. This is an example of securities law violations.

Example #2

The US Securities and Exchange Commission has placed Coinbase, a leading cryptocurrency exchange, on notice for suspected violations of the securities regulations. The SEC's actions suggest that Coinbase may face some form of disciplinary action after the inquiry is concluded. Following a preliminary review, the SEC sent a "Wells notice" to Coinbase involving an unknown amount of its listed digital asset holdings, including the staking platform Coinbase Earn, Coinbase Prime, and Coinbase Wallet. This is another example of securities law violations.

• Federal Laws

The primary federal securities law supervisor is the Securities and Exchange Commission (SEC). The Commodity Futures Trading Commission (CFTC) oversees futures and some forms of derivatives. Knowing about and adhering to security standards helps companies avoid legal disputes with the SEC, state security commissioners, and private entities. Failure to follow regulations may even potentially result in criminal charges. The Federal securities law controls the offering, sale, and trading of securities. Moreover, it monitors the operations of specific industry professionals, tender offers, proxy declarations, investment businesses like mutual funds, and the overall regulation of publicly traded companies.

• Securities Act of 1933

The Securities Act of 1933 has primarily two goals:

• To mandate that investors obtain financial and other essential data about securities offered for public sale and
• To declare it illegal to sell securities through deception, misrepresentation, or other forms of fraud.

The SEC achieves these objectives primarily by demanding businesses disclose significant financial details when registering securities. This knowledge allows investors, instead of the government, to make informed decisions about whether to invest in a business's securities. In a broader sense, all securities issued in the United States must be registered with the Securities and Exchange Commission or satisfy certain exemptions from the registration requirements.

• Securities Exchange Act of 1934

With this US Securities Law Act, Congress established the Securities and Exchange Commission. The Act equips the SEC with expanding jurisdiction over every component of the securities market. It includes the authority to set up, supervise, and control brokerage companies, transfer representatives, clearance organizations, and the nation's securities self-regulatory organizations (SROs). The Act also recognizes and forbids specific types of market conduct, and it grants the Commission authority to exercise discipline over monitored companies and the individuals involved with them. Furthermore, the Act also gives the SEC the authority to demand regular submission of data by companies with publicly traded securities.

• State Securities Laws

Every state in the United States has its own set of laws. They are known as "Blue Sky Laws". These laws have been created to safeguard participants from unethical sales techniques and operations. Although these regulations differ across states, the majority of them require companies making securities offers to apply for registration of their offerings in advance of they can be marketed in that state unless an exclusive state exception has been granted. The laws also regulate brokerage companies, agents, and investment adviser representatives.