Securities Regulation-Notes

Securities Regulation-Notes - Overview of Securities Law...

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Overview of Securities Law The Acts o Section 33 Act Covers the way in which securities are issued o Section 34 Act Covers securities once they are in the market Governs fraud in securities law SEC Regulations o Section 33 - The numbering of the regulations has nothing to do with the numbering of the statutes. Section 34 has corresponding numbers o SEC puts out releases to provide reasons for their regulations, with frequently asked questions and hypotheticals. o “No action letters” – when questions arise and lawyers don’t know how the SEC rules apply, you can send a letter to the SEC, a no action request, stating what you are going to do, your reasoning and interpretation of the statute. The SEC can then send back a letter saying that they will recommend that the SEC take no action in this matter. This is just an opinion and is not binding; you can still get in trouble later. Need for Securities Law o Why is Congress involved at all in this area? Federal law makes sense, as securities are a national market. o The law creates a very expensive and elaborate requirement of disclosure. Exemptions apply, but in general, every transaction involving securities must be officially disclosed. o Once a company is public, there is a whole other level of disclosure required Historical Background o 1929 – Stock market crashes o 1933 act – terribly written o Since then, there have only been minor changes in the statutes, until the SEC recently changed some structural things last fall. o Practices and regulations grew to make the securities law usable o 1960s – modern era of securities law begins. Securities litigation begins. Courts interpreted the statutes liberally, creating many different causes of action to fight fraud. o 1975 – Rehnquist court goes the other way – the entrenchment era – they tried to reign in securities law litigation. The court emphasized the difference between federal securities law and state corporate law. o Securities vs. Corporate Law - Federal law mandates disclosure and prevents fraud. Corporate law is about substantive fairness and corporate governance. Securities law allows you to do whatever you want to the shareholders as long as you tell them – it’s about truth, not fairness. Securities law does not care if the stockholder is treated fairly; only that the stockholder was not deceived.
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o Reagan Years – Law and economics group is influential. They have a different understanding of how the market works, and this is incorporated o 1990s – Business community becomes hostile to legal community – upset over all the litigation. Private securities litigation reform act made it harder to bring a securities action, more complex. o
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Securities Regulation-Notes - Overview of Securities Law...

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