Securities
What are the federal securities laws?
Federal security laws were put out in the 1920's. I think most of us are aware that in 1929 we had the Great Depression, and the stock market crash. The reason for that is that we didn't have specific laws in place in regards to representation from either new issues which was the Security Act of 1933, Security Act of 1940 which is another regulatory act, or was put there in regards to clear and understandable financials that was supposed to be put out there for people to receive. And these particular laws were put out there to be sure that people had full disclosure.
What is the 'Securities Act'?
The Securities Act - there are 3 of them. There's one of 1933, one of 1934, and one of 1940. These acts were put out for the general public in order to make sure that they had full and total disclosure in regard to products and services. The Securities Act of 1933 was for new issues, to make sure that when companies were coming to market, that they would have to disclose the basics behind the companies themselves. The Securities Act of 1934 was an act where the government wanted to make sure that the general public had all of the financials that were available to them. The Securities Act of 1940 really had to do with investment companies, and investment companies are mutual funds.
What is the 'Exchange Act'?
The Exchange Act is an act that was put out there to allow individuals to get current financial information on companies that are trading on the exchange or companies that are traded over the counter or what we consider the OTC market. The advantage is by having the information you can make, hopefully some type of rational decision on whether or not to purchase that particular company or not to purchase them. If we don't have financials in order to back our decisions, we are unable to determine whether or not a company is solvent or whether or not a company has on-going cash flow. These sort of items allow us to have a better understanding of the companies themselves.
What is the 'Investment Company Act'?
The Investment Company Act is an act that was put together in order to control mutual fund companies themselves. What a mutual fund basically is, is a manager like myself, who was hired to put together a group of companies, to then go to the public to raise funds in order to purchase the group that I put together as a whole.
What is the 'Advisors Act'?
The Advisors Act is put into place in order to control, or to have some sort of rules and regulations with, advisors who make decisions for individuals who give them their money.
Are all companies subject to the securities laws?
Not all companies are subject to securities laws, but most of them are subject to either Federal or State laws. What happens is that there are some companies that are exempt from laws. They're exempt from laws because there's other regulatory bodies that they have to go through prior to coming to market. Therefore, if there's other banking rules or other laws that have already gone through, then the Federal government doesn't make them go through those same laws again. However, there's State laws, Blue Sky rules and other rules that you have to go through in order to provide the correct material to go forward to issue that particular item here in the state or whatever state you might be in.
What are 'blue sky rules'?
Blue sky rules just are something that each state has, and these are specific rules that you have to accommodate in order to sell that specific product in that state.
What is a 'prospectus' and how does it help investors?
A prospectus actually is the beginning of information that goes to the public, or that needs to go to the public, prior to raising money to purchase this item that you're selling. So to give an example is a prospectus on a mutual fund. What you do there is you send your prospectus out to your prospects or the individuals you want to receive money from in order to purchase your mutual fund, and it has all the information in a prospectus in regards to the goals and objectives of the investment too. It has to do with the officers, it has to do with dividend payments or non payments, and it has to do with the actual formulation and running of that fund itself.
What if a prospectus contains false or misleading information?
If a prospectus contains false or misleading information, then the individual who purchased that specific security or that stock has the ability to receive their money back if we found that the information is incorrect.
Is it common for a prospectus to contain false or misleading information?
It's not common for a prospectus to contain false or misleading information. What happens is by the time that the actual prospectus gets sent out, it's really gone through so many legal levels in order to make sure that those items are correct, that very rarely do we see suits in regards of misleading information in a prospectus.
