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Securities Fraud

Federal Securities Laws Overview

The two primary federal laws governing securities are the Securities Act of 1933 and the Securities Exchange Act of 1934, which are are covered in separate articles.

Trust Indenture Act of 1939

This Act applies to debt securities such as bonds, debentures, and notes that are offered for public sale. Even though such securities may be registered under the Securities Act, they may not be offered for sale to the public unless a formal agreement between the issuer of bonds and the bondholder, known as the trust indenture, conforms to the standards of this Act. The full text of this Act is available at: http://uscode.house.gov/download/pls/15C2A.txt (Subchapter III). (Please check the Classification Tables maintained by the US House of Representatives Office of the Law Revision Counsel for updates to any of the laws.)

Investment Company Act of 1940

This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The regulation is designed to minimize conflicts of interest that arise in these complex operations. The Act requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis. The focus of this Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. It is important to remember that the Act does not permit the SEC to directly supervise the investment decisions or activities of these companies or judge the merits of their investments. The full text of this Act is available here.

Investment Advisers Act of 1940

This law regulates investment advisers. With certain exceptions, this Act requires that firms or sole practitioners compensated for advising others about securities investments must register with the SEC and conform to regulations designed to protect investors. Since the Act was amended in 1996, generally only advisers who have at least $25 million of assets under management or advise a registered investment company must register with the Commission. The full text of this Act is available here.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which he characterized as "the most far reaching reforms of American business practices since the time of Franklin Delano Roosevelt." The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession. The full text of the Act is available here. You can find links to all Commission rulemaking and reports issued under the Sarbanes-Oxley Act at: http://www.sec.gov/spotlight/sarbanes-oxley.htm.

Source: SEC



Michigan Enacts New Securities Act

Written by Steven Daily   
Last Updated January 19, 2009
Michigan has become the fifteenth state to enact the 2002 version of the Uniform Securities Act. The act is intended to prevent fraudulent sales of securities to investors.  Included in the definition of "securities," are notes, stocks, treasury stocks, security futures, bonds, debentures, evidences of indebtedness, certificates of interest or participation in profit sharing agreements, collateral trust agreements, options on securities, and investments in viatical or life settlement agreements.  Other states that have enacted the 2002 version are: Missouri, Idaho, Iowa, Kansas, Oklahoma, South Dakota, U.S. Virgin Islands, Maine, Vermont, South Carolina, Minnesota, Hawaii, Indiana, and Wisconsin.  HB 5008 was signed by the Governor January 15th.

Securities Fraud and the Securities Act of 1933

Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:
  • require that investors receive financial and other significant information concerning securities being offered for public sale; and
  • prohibit deceit, misrepresentations, and other fraud in the sale of securities.

The full text of this Act is available here.


Securities Exchange Act of 1934

With the Securities Exchange Act of 1934, Congress created the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation's securities self regulatory organizations (SROs). The various stock exchanges, such as the New York Stock Exchange, and American Stock Exchange are SROs. The National Association of Securities Dealers, which operates the NASDAQ system, is also an SRO.


Why The Madoff Judge Got It Right

Written by Julie DiCaro   
Last Updated January 16, 2009


     Howls of protest could be heard ringing from the tree-lined streets of the Upper East Side of Manhattan today, as U.S. District Court Judge Ronald Ellis denied the prosecution's motion to revoke the bond of alleged Ponzi scheme mastermind Bernard Madoff, following allegations that Madoff and his wife transferred over $1 million in valuables to friends and relatives in late December.

    The public outcry is understandable. After all, petty shoplifters, often unable to make even the most paltry of bail, often spend weeks or months languishing in county jail before trial. Meanwhile Madoff, accused of running the biggest Ponzi scheme in history and defrauding investors out of billions, is languishing in his $7 million penthouse under 24-hour house arrest. A cage, I'm certain Madoff would be the first to tell us, but a gilded one nonetheless. But while the decision to allow Madoff to remain free on bond isn't going to win Judge Ellis any popularity contests in the financial community, it should win him points for making the right decision.



Securities Fraud - State Laws

New YorkNew York Laws - General Business > Article 21-A - Fraudulent Transactions In Securities
New York Laws - General Business > Article 23-A - Fraudulent Practices In Respect To Stocks, Bonds and Other Securities
New YorkNew York Laws > General Business > Article 21-A - Fraudulent Transactions In Securities
New York Laws > General Business > Article 23-A - Fraudulent Practices In Respect To Stocks, Bonds And Other Securities


Questions & Answers: Securities Fraud

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