BUSA+Investor+Protection+and++Securities - Investor...

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Investor Protection and Online Securities Transactions INVESTOR PROTECTION AND ONLINE SECURITIES TRANSACTIONS What’s wrong with insider trading? I. Overview Assume a sporting event were to be contested under the following conditions: 1. All the players were well trained. 2. The rules of the game were fully explained to the players. 3. Those rules are fairly and evenhandedly applied to all participants. 4. An even playing field is used as a site for the contest. With all these suppositions in place, can you rest assured your team will win? Or can you, at best, hope that, win or lose, your team was engaged in a fair contest? In the broadest sense, the buying and selling of securities is indeed similar to an athletic event. Each participant goes into the game with his or her own self-interest in mind. And all the fair rules in world will not change one essential truth of these or any other contests--there will be winners and there will be losers. That reality must always be kept in mind from the outset by anyone seeking to make his or her fortune through the sale or purchase of securities. Risk is inherent to the nature of this activity, and anyone who fails to appreciate that simple fact should not be there in the first place. It is most difficult for professionals to master the ins and outs of the financial markets, let alone the casual investor. Yet the lure of playing this game is so strong that every year millions of people invest hard-earned money with nothing more than high hopes and a prayer. Securities law was designed to at least give some substance to those hopes and prayers. That substance is public information upon which investment choices can be rationally made. These laws are not designed to assure a win in this high-risk game, but rather to provide a more even playing field. The great financial stock market crash of 1929 and the ensuing Depression brought on by that calamity brought to the fore the need to create a greater governmental role in securities markets. Prior to that period, the sale of stocks in corporations remained essentially unregulated except for the common law doctrines of fraud and the like. Manipulative and unscrupulous trading practices coupled with a lot of hopes and unrequited prayers all pointed to a need for a better set of ground rules by which this game could be played. The basic rules of the game go back almost seventy years to the Securities Act of 1933 and the Securities Exchange Act of 1934 that created the Securities and Exchange Commission. The approach is simple. Provide all information that is deemed necessary to market operation and be honest while doing it. The 1933 Act covers initial issuances while the 1934 Act deals with subsequent trading. Over the years, the Commission's role has greatly increased with the advent of new technologies like programmed trading and with the need to expand its regulatory framework into the financial services arena. Because of recent scandals in this sector of the economy, a number of new white-collar crimes have been added to
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This note was uploaded on 03/19/2008 for the course BUSA 2106 taught by Professor Lee during the Summer '07 term at UGA.

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BUSA+Investor+Protection+and++Securities - Investor...

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