Securities are notoriously complex financial instruments. While securities, taken as a whole, offer great opportunities for investors, they also have the potential to be a conduit for financial fraud. As such, there have been many different state and federal laws enacted to regulate these products. Securities laws work to both to 1) promote market efficiency and 2) protect investors.
At the Sonn Law Group, our firm is passionate about protecting the rights and interests of investors. We fight aggressively to hold bad acting brokers and brokerage firms liable for their negligence and misconduct. If you believe that you have been a victim of securities fraud, please do not hesitate to contact our experienced investor losses attorneys today. We will help you assess how the securities laws apply to your legal claim.
Prior to the Great Depression, there were almost no federal securities laws on the books. As the New Deal era hit in the 1930s, that changed fast. In fact, within that period, five critically important securities laws were passed by the United States Congress and signed by President Franklin D. Roosevelt. The five foundational laws are as follows:
Notably, since these laws have been passed, they have all been amended many different times. In fact, for the most part, when federal securities regulations are changed, it is done through amending one of these five New Deal era laws. For example, in the early 2000s, two U.S. companies (Enron and WorldCom) were involved in two of biggest corporate accounting scandals in world history.
In response to the widespread corporate fraud, Congress passed Sarbanes-Oxley, a law created to protect shareholders and the public from accounting mistakes and intentional fraud with public companies; and to increase the accuracy and reliability of corporate disclosures.
While Sarbanes-Oxley is often referred to as its own piece of legislation, it is technically an amended section of the Securities Exchange Act and other pre-existing securities laws.
In large part, the U.S. legal system relies on the federal agencies to enforce the laws. Within the securities industry, the Securities and Exchange Commission (SEC) is the key federal agency. However, there are federally mandated bodies, such as the Commodity Futures Trading Commission (CFTC) and the Securities Investor Protection Corporation (SIPC) that play an important role as well.
Agencies do not write the law. Instead, their role in the legal process is to carry out the wishes of Congress. That being said, since enforcing legislation is extremely complex, federal agencies have been granted considerable rule making authority. Essentially, rules made by agencies are known as regulations under the law.
For example, SEC Rule 10b-5 is one of the single most important legal rules in the securities industry. Rule 10b-5, which was crafted by the SEC pursuant to the authority granted to the agency under the Securities Exchange Act, makes it unlawful to defraud securities investors, either directly through false statements or indirectly through an act of omission. This rule is the main tool that lets the SEC investigate and stop stockbroker fraud.
There are many other important SEC rules as well, including SEC Rule 17a-4. This regulation compels all registered brokers and brokerage firms to retain all records related to securities transactions for at least six years. This requirement provides vital protections for investors, as it gives them an avenue to obtain information to make their claim should they sustain illegitimate investment losses.
The United States is a federalist system. Essentially, that means that political power is divided between the national government in Washington D.C. and the individual state governments in the 50 capitals throughout our country. As securities are regularly sold across state lines, federal regulation plays a key part in every securities transaction.
That being said, state-level securities regulators play a very important role as well. Agencies like the Florida Office of Financial Regulation and the New York Investor Protection Bureau have considerable responsibilities to oversee the industry and to protect investors in their respective state. For example, these agencies:
Finally, one of the most important parts of the U.S. securities industry is the Financial Industry Regulatory Authority. FINRA is a non-governmental body that has been created to self-regulate the securities industry. The agency has the legal authority to take enforcement action against bad acting brokers and broker-dealers, and it oversees the general dispute resolution process.
For the most part, under the current legal structure, securities disputes between brokers and investors are resolved through FINRA’s arbitration process. Indeed, every year, thousands of investor claims are required to go before FINRA arbitration panels. You can think of FINRA arbitration as being similar to a speedy, more efficient trial. Of course the process also has its own rules and evidence standards.
FINRA has developed a large number of industry rules and standards to regulate registered brokers and brokerage firms. These rules ensure compliance with other securities laws as well as market fairness. For example, one of FINRA’s most prominent regulations is Rule 2010, which compels all FINRA members and associated persons to uphold high standards of commercial honor and just principles of trade.
There are many other FINRA rules as well. These rules regulate a wide variety of issues, both broad and narrow. For example, FINRA Rule 3240 regulates borrowing and lending between customers and their individual investment advisors. To remain active in the securities industry, brokers and broker-dealers must comply with all of FINRA’s rules and regulations.
If your registered investment adviser or brokerage firm violated any securities regulations, whether a federal law or a FINRA rule, and you sustained significant financial losses as a result, you have a right to take legal action to seek full and fair compensation for your damages. Generally, your path to recover compensation will be through a FINRA arbitration proceeding. Though, in some cases, other legal avenues may be available or necessary.
Ultimately, if you were a victim of securities fraud or securities broker negligence, you need to get your claim into the hands of an experienced attorney as soon as possible. Your attorney will be able to review the individual aspects of your case in order to determine exactly what you need to do to hold your broker accountable and obtain the full financial compensation that you deserve.
At the Sonn Law Group, we have extensive experience handling all aspects of securities law and investment fraud claims. If you sustained significant losses due to the misconduct of your broker or brokerage firm, we can help.
To schedule a free, no-obligation review of your case, please do not hesitate to call us today at 844-689-5754 or to reach out to us directly through our website. From our primary office in South Florida, we represent securities fraud victims nationwide and around the world.