Securities law
Securities laws came into effect after the Great Depression. In the 1920s, companies issued securities back by extraordinary promises of high returns and increased wealth. Companies were not obligated to disclose the risks associated with the securities purchases. Lack of full disclosure laws contributed to the Stock Market Crash of 1929. In 1933, Congress passed the Securities Act followed by the Securities Exchange Act in 1934. Congress hoped these and subsequent acts would prevent future financial disasters.
Securities Act of 1933
This Act, commonly called the “Truth in Securities” law requires full disclosure of any material facts concerning securities presented for public sale. Companies must register securities sold in the United States. Intrastate, government and private offerings to a small number of investors do not require registration. Although some securities sales are exempt from federal laws, state laws may apply.
Securities Exchange Act of 1934
The Exchange Act formed the Securities and Exchange Commission. The SEC has regulatory, registration and monitoring authority over financial institutions that specialize in publicly sold and traded securities. This includes brokerage firms, trust companies and self-regulatory organizations. The New York Stock Exchange, American Stock Exchange and the National Association of Securities Dealers fall under SEC regulatory, registration and monitoring authority.
Trust Indenture Act of 1939
This Act requires a formal agreement between the bond issuer and bondholder before presenting debt securities for public sale. Examples of debt securities include bonds, debentures and notes. Debentures refer to unsecured loan certificates usually backed by credit, not assets.
The Investment Company Act of 1940
Companies must disclose financial position and investment guidelines at the time of the securities sale and regularly afterwards. This Act seeks to reduce conflict of interest problems that may arise when establishing a company.
Investment Advisers Act of 1940
Compensated firms and individuals who provide advice about securities investments must register and comply with SEC regulations. Subsequent amendments normally require registration from advisers who counsel registered investment companies or have managed assets of $100 million.
Sarbanes-Oxley Act of 2002
Signed by President George Bush, this Act created the Public Company Accounting Oversight Board to monitor auditing profession activities. The Act also increased corporate responsibility, financial disclosure and fraud laws associated with corporate and accounting actions.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
This Act restructured the U.S. regulatory system by establishing new regulation of hedge and private equity funds. Act requirements also include the public disclosure of CEO compensation, equal access to consumer credit and incentives for banks that promote banking to low- and middle-income residents.
