Securities law is a specialty area within corporate law that deals with stocks and other documents representing shares, or ownership, in a company. The term “securities” refers to stocks, bonds, notes, convertible securities, warrants, or any other document that represents a share in a company or a debt owed by a company or government entity. In most cases, companies sell securities to raise capital, or money, to cover operating costs or grow the company’s operations. Investors purchase securities to share in the company’s profits with the hope that in the end their share of the company’s profits will exceed the amount they initially paid for the securities. The federal agency, which administers federal securities laws, is the Securities and Exchange Commission (SEC). State securities laws are commonly known as “Blue Sky Laws” and are regulated by state securities regulators.

 

The Securities Act of 1933 prohibits material misrepresentation, falsity and other fraudulent or manipulative acts and practices in connection with the sale of securities. The full disclosure objective of the 1933 Act is implemented by requiring an issuer of securities to file a registration statement with the SEC before securities can be offered for sale to the public. The registration statement contains pertinent information regarding the issuer, the offered securities, and the offering An Initial Public Offering (IPO) refers to a company’s first offering of securities for sale to the public. An IPO registration statement contains a prospectus (a document distributed to potential buyers, which describes the terms of the securities offering) and additional information, which is filed with the SEC and available for public inspection. The securities cannot be sold until the registration statement has become effective. During this waiting period, the SEC may examine the registration statement to determine whether it complies with the full and fair disclosure requirements of the 1933 Act.

 

The Securities Exchange Act of 1934 was passed to supplement the disclosure requirements of the 1933 Act and to regulate broker-dealers and the markets for post-distribution purchases and sales of securities. The 1934 Act's reporting provisions require a corporation with a security registered with the SEC to file with the SEC and each stock exchange on which the corporation has a listed security, periodic reports of its activities (including financial statements), and to prepare and distribute an annual report to its stockholders. For the typical issuer, the required periodic filings are on Form 10-K for annual reports, Form 10-Q for quarterly reports, and Form 8-K for reports based on the occurrence of certain materially important events. Usually, a Form 10-Q report consists primarily of quarterly financial statements. A Form 10-K report, which contains annual audited financial statements, is much like the Form 10 registration statement used to register securities under the Exchange Act. Finally, the disclosures that Form 8-K requires are myriad. The form also allows any information to be filed on the form that an issuer desires. The stock exchanges and securities associations are required to register with the SEC and to adopt rules subject to SEC approval; in addition, the SEC exercises supervisory authority over activities on registered exchanges and in the over-the-counter markets. Brokers and dealers are required to register with the SEC and to furnish certain financial information, to keep their books up to certain standards, and to maintain a certain degree of solvency.

 

The Investment Company Act of 1940 regulates companies, such as mutual funds, which engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The objective of the 1940 Act is to minimize conflicts of interest. The 1940 Act requires investment companies to disclose their financial condition, investment policies, and company structure and operations to investors when stock is sold initially and on an ongoing basis subsequently. The Investment Advisor Act of 1940 requires investment advisors and firm providing investment advice to register with the SEC and comply with SEC regulations. Investment advisors are persons who provide advice to others about investments for a fee, and they are required by most states to register or become licensed. Common examples of investment advisors include hedge fund managers, pension fund managers, mutual fund managers, trust fund managers and also individuals, partnerships, or corporations.

 

Securities attorneys prepare and review filings with the SEC, and they counsel corporations on structuring transactions within the boundaries of SEC rules and regulations. They help a company determine filing strategy; perform due diligence; draft, execute and file documents; negotiate transactions, and review the company’s compliance with state regulations and SEC rules and regulations. Securities attorneys review press releases and draft documents for client companies. Due diligence includes a comprehensive review of all available information about a company, its officers, and its directors and an in-depth analysis of the company profile. Compliance with federal and state securities regulations is essential because potential investors use such information in deciding whether to invest in the company. First year associates assist in the process of document preparation and filing. They also perform research on federal and state filing requirements, regulations, and guidelines.