business law chapter 45

business law chapter 45 - Chapter 45 Securities Regulation...

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Chapter 45 Securities Regulation Modern securities regulation arose from the rubble of the great stock market crash of October 1929 The most common problems in security transactions: o Investors lacked the necessary information to make intelligent decisions whether to buy, sell, or hold securities o Disreputable sellers of securities made outlandish claims about the expected performance of securities and sold securities in nonexistent companies o The disclosure scheme assumes that investors need assistance from the government in acquiring information but that they need no help in evaluating information Purposes of Securities Regulation The securities act of 1933 and the securities exchange act of 1934 have three basic purposes: o To require the disclosure of meaningful information about a security and its issuer to allow investors to make intelligent investment decisions o To impose liability on those persons who make inadequate and erroneous disclosures of information o To regulate insiders, professional sellers of securities, securities exchanges, and other self regulatory security organizations There is a duty to disclose important information, even if they are not asked by investors to make the disclosures Securities and Exchange Commission SEC was created by the 1934 act Responsibility is to administer the 1933 act and 1934 act, and other securities statutes The legislative branch promulgates rules and regulations The executives branch brings enforcement actions against alleged violators of the securities statutes and their rules and regulations The judicial branch decides whether a person has violated the securities laws The SEC is empowered to investigate violations of the 1933 act and 1934 act and to hold hearings to determine whether the acts have been violated Has the power to impose civil penalties up to $500,000 and to issue cease and desist orders-directs a defendant to stop violating the securities laws and to desist from future violations Only can ask federal district courts for injunctions against persons who have violated or are about to violate either act May ask the courts to grant ancillary relief A no action letter is where the SEC staff states it will take no legal action against the issuer or other person if the issuer or other person acts as indicated in the no action letter What is a security? A security is a wide array of investments such as stocks, bonds, notes, debentures,
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limited partnership interests, oil and gas interests, and investment contracts The howey tests, a three part test for an investment contract, defines an investment contract as an investment of money in a common enterprise with an expectation of profits solely from the efforts of others Family resemblance test is used to determine whether promissory notes were securities Courts held that notes are presumed to be securities unless they bear a strong family resemblance to a type of note that is not a security
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This note was uploaded on 11/16/2010 for the course BMGT 380 taught by Professor Mark during the Spring '08 term at Maryland.

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business law chapter 45 - Chapter 45 Securities Regulation...

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