Securities

The Securities Act of 1933 (the '33 Act), 15 U.S.C.S. § 77a, and the Securities Exchange Act of 1934 (the '34 Act), 15 U.S.C.S. § 78a et seq., form the backbone of American securities law. Together these securities laws protect investors and preserve the integrity of the financial markets. The '34 Act established the United State Securities and Exchange Commission (SEC), which enforces both Acts. State blue sky laws also regulate the registration and sale of securities where their enforcement is not preempted by the federal Acts and their amendments.

The primary securities law, the '33 Act, which is also called the "Truth in Securities" Act, requires issuers of publicly-traded securities to file with the SEC registration statements disclosing material information relating to their securities. The '33 Act also governs the accompanying prospectus, which markets the security to the public. The SEC monitors all filings and prosecutes companies that fail to register or misrepresent their offerings to the public. Civil and criminal penalties are possible under American securities law. Limited exceptions to the registration requirement exist for certain offerings, including governmental securities, purely intrastate securities, private securities, and certain small offerings. Rule 10b-5 of the '34 Act contains the primary anti-fraud provisions of the Acts. Unlike the anti-fraud provisions of the '33 Act, § 10(b) of the '34 Act, 15 U.S.C.S. § 78j (b), (and its accompanying Rule 10b-5) provides a private right of action for investors damaged by the fraudulent activity of issuers. Section 10(b) makes it illegal for any person "to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." More recently, Congress enacted the Sarbanes-Oxley Act of 2002 (SOX) in response to a series of corporate scandals. SOX, touted as containing "the most far reaching reforms of American business practices" since the time of the New Deal, seeks to eliminate accounting fraud and to increase corporate responsibility by imposing stiff civil and criminal penalties for noncompliance with securities laws.