Securities Law – A Hot Practice Area in New York and Washington, DC

Securities law is a hot practice area in New York and Washington, DC. It’s about regulating the stock exchanges, trading, and the issuance of stocks and bonds.

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Federal laws prohibit fraud, require companies to report truthfully and regularly, and protect against insider trading. The Supreme Court has established private causes of action for investors who have been defrauded.

Regulation S

Regulation S is an exemption from registration requirements under the Securities Act. It allows companies to sell securities outside the United States without having to register them with the SEC. This is useful for international companies that want to tap into a broader investor base but need to comply with U.S. securities laws. However, it has some stipulations that should be followed carefully to avoid running afoul of the law.

The exemption is broken down into three categories based on the nationality and reporting status of the foreign private issuer and the degree of substantial U.S. market interest in the securities being sold, whether debt, equity or warrants/convertible securities. Each category has different offering restrictions and a distribution compliance period that must be fulfilled before the securities can be brought back into the United States. In order to qualify for Reg S, the foreign private issuer must reasonably believe that the sale of its securities is not being made in the United States.

A company that sells under Reg S cannot resell its securities to a person in the United States or to a corporation that is organized under the laws of the United States, or to any affiliate of the foreign private issuer. Also, the foreign private issuer cannot engage in a wash sale transaction or sell its securities to a person who is an affiliate of the foreign private issuer within one year of its initial Reg S sale.

Registration

Before a company can sell securities to the public, it must file with the SEC and present comprehensive details about its management and financial standing. These reports are made publicly accessible and help investors, stockbrokers and markets determine if the company is worth investing in. Securities laws also protect investors by prohibiting fraudulent and dishonest practices in the sale of securities.

Most finance transactions involve some type of security, whether it is a bond or equity share. Securities law lawyers review the legal implications of a transaction and take steps to ensure compliance with federal, state and local laws. Lawyers also determine whether a transaction requires registration and prepare or file the appropriate paperwork.

Securities laws regulate a number of different areas of the business world, including the financial industry, corporate governance and investment management. For example, the Investment Company Act of 1940 lays out the rules and regulations that apply to companies that offer funds for public investments, while the Sarbanes-Oxley Act (2002) instituted numerous reforms to enhance corporate responsibility and financial disclosures and combat fraud.

Securities law can be a complex area of the law, but lawyers in this practice area need to have access to comprehensive resources to assist their clients. Bloomberg Law, LexisNexis and Thomson Reuters Westlaw all feature securities law practice pages, which collect both primary and secondary sources like case law, statute compilations, government agency regulations and no-action letters, and EDGAR filings, organized by the federal, state and local statutes to which they relate.

Insider Trading

Illegal insider trading consists of purchasing or selling securities based on non-public information. Such information could be about quarterly results, an upcoming acquisition deal, an impending takeover or other sensitive business activities that are not yet disclosed. The vast majority of countries that have developed securities markets now have laws against this type of trading. Such illegal activity is often punishable with a hefty fine or even criminal prosecution.

In the United States, for example, a company director who traded on confidential or exclusive information that was not made public would likely be convicted of insider trading. The SEC and other federal agencies have a number of rules that prohibit insider trading, including Rule 10b-5, which provides a basis for criminal charges against individuals who engage in such activity.

However, a recent Supreme Court decision has broadened the definition of a person with insider information. In Dirks v. SEC, the Court ruled that tip recipients can be charged with insider trading if the information comes from someone who had a fiduciary duty to the company and gained a personal benefit by passing on that privileged information.

As a result of this and other decisions, prosecutors can now charge anyone who receives tips about company information with insider trading. This also includes people who do not meet the traditional definition of a corporate insider, such as a proofreader for a financial printing firm who determined the identity of a takeover target by reading tender offer documents.

Fraud

Securities fraud is a serious white-collar crime that violates laws designed to protect investors. It can be perpetrated by individuals or entities such as brokerage firms, investment banks, corporations, and private investors. Often, the deception is a misrepresentation of fact that causes others to act in a manner to their own detriment. Examples of securities fraud include fraudulent statements, pump-and-dump schemes, foreign currency manipulation, broker embezzlement, and advanced fee scams.

The SEC is key to enforcing securities law. It has the authority to bring civil actions against violators of the Securities Exchange Act of 1934. It also has statutory powers to prosecute violations under section 16 and sections 10(b) and 10(b)-5 thereunder. The SEC’s enforcement actions often involve disgorgement, requiring defendants to return any illegal profits.

A securities fraud conviction can have many repercussions, including fines, restitution to victims, and jail time. Individuals who are facing such a conviction need the representation of a DC lawyer who has experience in this area. For more information about securities law, legal research resources such as Bloomberg Law and LexisNexis offer comprehensive practice pages that collect primary and secondary sources related to federal securities statutes and regulations. These practice centers include materials from the SEC and Commodity Futures Trading Commission, EDGAR filings, law journals, treatises, and newsletters. They also provide cross-reference tables that facilitate retrieval of known securities statutes and rules.