LEARNING OBJECTIVES
- Recognize that the definition of security encompasses a broad range of interests.
- Understand the functions of the Securities and Exchange Commission and the penalties for violations of the securities laws.
- Understand which companies the Securities Exchange Act of 1934 covers.
- Explore the purpose of state Blue Sky Laws.
- Know the basic provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
What we commonly refer to as “securities” are essentially worthless pieces of paper. Their inherent value lies in the interest in property or an ongoing enterprise that they represent. This disparity between the tangible property—the stock certificate, for example—and the intangible interest it represents gives rise to several reasons for regulation. First, there is need for a mechanism to inform the buyer accurately what it is he is buying. Second, laws are necessary to prevent and provide remedies for deceptive and manipulative acts designed to defraud buyers and sellers. Third, the evolution of stock trading on a massive scale has led to the development of numerous types of specialists and professionals, in dealings with whom the public can be at a severe disadvantage, and so the law undertakes to ensure that they do not take unfair advantage of their customers.
The Securities Act of 1933 and the Securities Exchange Act of 1934 are two federal statutes that are vitally important, having virtually refashioned the law governing corporations during the past half century. In fact, it is not too much to say that although they deal with securities, they have become the general federal law of corporations. This body of federal law has assumed special importance in recent years as the states have engaged in a race to the bottom in attempting to compete with Delaware’s permissive corporation law (see Corporation: General Characteristics and Formation ).
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