In the United States, investment laws extend back to the beginning of the 20th century. Before that time, there was very little regulation of investments.
The Securities and Exchange Act of 1933
While the Securities and Exchange Commission (SEC) does police the accuracy of these reports, it does not guarantee it. However, investors who purchase securities and suffer losses have necessary recovery rights related to these reports if they can show that the information provided was inaccurate or incomplete.
Public securities offerings must be registered with the Securities and Exchange Commission (SEC) and conform to the SEC's disclosure requirements. Companies or their agents file a registration statement with the SEC and, if accepted, are permitted to offer their securities to investors.
Registration statements must include a description of the company, its officers and directors, its financial condition, its business plan, and other pertinent information. Financial statements for the company that has been certified by independent accountants must also be included.
Registration statements and prospectuses become publicly available shortly after filing with the SEC and are subject to examination for compliance with disclosure requirements.
Some securities are exempt from the requirements to register with the SEC. Common exemptions include private offerings to a limited number of buyers, offerings of limited size, offerings only to entities within the same state as the company making the offering, government offerings, and several others.
The requirements for each exemption are different, so entrepreneurs need to make sure they understand the full scope of their offering and consult with a lawyer to comply with all regulatory and legal requirements.
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 is the United States federal legislation that sets out the rules by which financial securities markets operate. A central component of the Act is to require companies to periodically file reports with the SEC outlining significant events that shareholders should know about.
The Securities Exchange Act of 1934 empowers the SEC with broad authority over every aspect of the securities industry, including the power to register, regulate, and oversee brokerage firms, transfer agents, clearing agencies, and self-regulatory organizations (SROs). The Act also prohibits certain conduct in the markets and gives the SEC disciplinary powers over regulated entities and persons associated with them. The Act also empowers the SEC to require periodic information reporting by companies with publicly traded securities as described above.
The Securities Exchange Act of 1934 was enacted in response to the stock market crash of 1929 to regulate corporate financing and trading and ensure transparency in the securities market. It governs the disclosures in materials used to solicit shareholders' votes for annual or special meetings.
Additional disclosures are required by the Securities Exchange Act when an investor acquires more than five percent securities of a company.
Insider trading is selling or buying stocks or other equity securities while possessing nonpublic information relating to the issuing company.
The Sarbanes-Oxley Act of 2002 (SOX) is a United States federal law enacted in 2002 to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise which runs public-traded corporations.
These were followed in short order by the disastrous U.S. financial crisis of 2008 and the economic crash that followed. The financial scandals of Enron, WorldCom, and Tyco in the waning years of the 20th century, as well as the ongoing banking crisis, had created a quite a political crisis, and the Sarbanes-Oxley Act of 2002 was therefore passed, which imposed upon corporations several compelling and sweeping new requirements and obligations.
It created the "Public Company Accounting Oversight Board (PCAOB)," to oversee the activities of the auditing profession, as well as several significantly enhanced reporting requirements and public transparency mandates.
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