The Securities Exchange Act of 1934
JFM
GM520 - Legal Political & Ethical Dimensions of Business
April, 12 2010
The Securities Exchange Act of 1934 was passed by congress to strengthen the government’s control of the financial markets. It was preceded by the Securities Exchange Act of 1933 which was enacted during the Great Depression in hopes that the stock market crash of 1929 would not be repeated. The basic difference between the two acts was that the 1933 Act was to govern the original sales of securities by requiring that the issuers, the companies offering the securities, offer up sufficient information about themselves and the securities so that the potential buyers could make informed decisions. The 1934 Act was
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I find this to be quite an interesting fact. The insiders need to be very careful what they discuss outside of the office.
Violations of section 10(b) can happen due to timing. The textbook discusses how some insiders and tippees involved with a company named Texas Gulf Sulphur, back in 1968, were in violation because they bought stocks too quickly after a press conference announcing the discovery of minerals. They made purchases by telephone faster than the information was disseminated to the public. The SEC found them in violation due to timing only, but that was enough to be considered guilty (Jennings 746). It’s important to keep in mind that this violation would be much less likely to happen today because of the technology surrounding the security exchange. Funny enough, the telephone would probably be considered slower than the internet based transactions that are very common today.
A trend that has recently emerged as a violation of section 10(b) is the use of the internet to engage in pumping and dumping. Although not a new concept, the internet has been used to increase the effect because of its ability to disperse particular company information very quickly in order to affect stock prices. Persons initiating this deceptive behavior can sell their stocks for profit once they see that the changes to price have occurred. This type of behavior is considered fraud since it is a manipulation of
The US Securities and Exchange Commission (SEC) is the US federal agency that holds the primary mandate to enforce federal securities laws and regulations to control the securities industry and the country’s stock exchange and regulation of all activities and organizations including the US electronic securities market. The SEC is committed to promoting a market environment that yields public trust characterized by integrity to attain its mission of protecting investors through maintenance of fair and efficient markets through facilitation of capital information (Basagne, 2010). The SEC financing is a major area of focus since there has been major concern regarding the SEC agency financing and whether they utilize the
The Securities and Exchange Commission has the mission of protecting investors by maintaining fair, orderly and efficient markets. The SEC does this in a number of ways, and firms need to pay attention to these ways in order to ensure SEC compliance. The SEC has enforcement authority over a number of areas related to the nation's capital markets, including insider trading, accounting fraud, and providing false information. The SEC's jurisdiction extends to all securities that are traded publicly. Privately-held companies do not need to register with the SEC (SEC.gov, 2012).
SEC alleged that Mark Cuban violated misappropriate insider trading. To be qualified as misappropriate insider trading, an individual wrongfully obtains (misappropriates) inside information and trades on it for her or his personal benefit. In this case, Cuban actually traded his shares based on the material inside information he was told and saved him $750,000 in losses. Wrongful misappropriation means violation of a fiduciary duty.
The SEC assists in providing investors with reliable information upon which to make investment decision. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 provides additional protection by requiring public companies and others to file detailed annual reports with the commission. Smackey Dog Food, need to file next forms:
In this paper the main focus will be on the clause of 'Liability to contemporaneous traders for insider trading' which is section 20A in the Securities Exchange Act of 1934. The paper will start off by giving some basic points that make up this section followed by the history and background of the Securities Exchange Act of 1934. The paper will then highlight the major impact that this act has made on the industry in the current global standing. Some of the basic points that make up the subsection 20A clauses include the following:
The Banking Act of 1933 was passed by the United States Congress on June 16, 1933. The Banking Act of 1933 is also knows the Glass-Steagall Act, especially when referring to the principal provision of separating commercial banks and investment banking. The term Glass–Steagall Act, however, is most often used to refer to four provisions of the Banking Act of 1933 and only two of those provision restricted or limited commercial bank securities activities and affiliations between commercial banks and securities firms. That limited meaning of the term is described in the article on Glass–Steagall Legislation. Which means, an act to provide for the safer and more effective used of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.
The Securities Act of 1933 was enacted as a result of the market crash of 1929 (). It was the first major piece of federal legislation to apply to the sale of securities. The legislation was enacted as the need for more information within and about the securities markets was acknowledged. Prior to 1933, regulation
The Glass Steagall Act was passed on 1933, which is also known as The Banking Act to tighten regulation on the way banks did their business. This act was written as an emergency measure when about 5,000 banks failed during the Great Depression. Banks mostly failed because of the way they would invest with money. The act prohibits banks from investing money on investments that turn out to be risky. Banks could no longer sell securities or bonds. The act also created Federal Deposit Insurance Corporation (FDIC) to protect the deposits of individuals, which is still used to this date. The FDIC in this era insures your deposits in your bank up to $250,000. This gave the public confidence again to deposit their money in the bank. In 1933
In the criminal case, US v. James Herman O'Hagan (1997), and in the civil case, McDonald v. Compellent Technologies, Inc. (2011), both cases involved the criminal act of insider-trading that were tried in different court systems. Insider-trading is an illegal act involving an individual who has access to nonpublic information about a public company’s stock or other securities who uses the information to make profits that are not available to regular investors. The seriousness of insider-trading relates to the economic downfalls related with the act that affect economic markets. Insiders have an abundance of information that is not yet available to the public, thus, making the insider-trades unfair and illegal of insiders who take advantage to profit from information that has not been released to the public for public trading and transparency (Cui, Jo & Li,
These acts were a violation of the Securities Act of 1933. The objectives of the Securities Act of 1933 are that investors obtain accurate reports of a company's commerce and to prevent misleading securities sales (USSEC, 2007). Although, the USSEC cannot guarantee the information provided by each company; the Securities Act of 1934 grants authority to the USSEC with disciplinary authorization (USSEC, 2007).
Insider trading mostly occurs by individuals close to the upper level management of an organization. This type of unethical behavior undermines the stability of the organization. In the ImClone scandal where Martha Stewart was indicted for her involement, the stability of her company suffered and the companies and people associated with Ms. Stewart suffered as a result of her decision. In this essay I will examine the parties that were privileged to knowing ImClone’s stock was going to drop and those who did not know. I will look at the effects of Ms. Stewart’s action, what she could have done different, and the consequences of her actions. Ethical and public issues must be considered when a business executive makes a decision
In 1 December 2001 with Financial Services and Markets Act 2000’s (FSMA) entry into force, market abuse regime presented for the first time to secure the justice against the trade which based on inside information. Likewise the criminal regulation about insider dealings despite that market abuse regulation compasses more transactions. Additionally even though market abuse can cause high amount fines, can not set up to detention.
They also noticed that the amounts being sold were drastically larger than past selling. In fact, during the 2nd and 3rd quarters of that year, 9 of Novatel’s executives sold 1.4 million shares for 33 million dollars. Gradient noticed more aggressive behavior when those same executives dropped over half of their beneficial ownership of Novatel with the sales of these stocks. Also, any plan less than 12 months is considered aggressive. The President and Acting Chief Executive of Novatel, George B. Weinert, had only a 6-month plan. After Gradient’s report, Novatel’s shares dropped over 50% in 6 months. The lesson of this article is that when a company starts to use insider-trading plans, it may be time to sell that company’s stock. An SEC spokesperson has declined to comment on if they believe some companies could abuse 10b5-1
In 1999 the United States Congress passed the Gramm-Leach-Bliley Financial Services Modernization Act which finished off the repealing process of the Glass-Steagall Act of 1933 (Moffett, Stonehill, & Eiteman, 2012, p. 114). The Glass-Steagall Act had imposed barriers within the United States financial sector, where commercial banking entities were separate from investment banks. This meant that commercial banks were able to operate in higher risk activities that were traditionally reserved for the investment institutes. Commercial banks were now able to directly offer their customers a wider array of loans, including creative mortgage arrangements.
The primary constraint on firms' ability to permit their insiders to trade on the basis of the nonpublic information they obtain in the course of the employment is rule 10b-5, which is the SEC's principal weapon against insider trading. The SEC's authority to enact rule 10b-5 is based on 10(b) of the 1934 act, a broad provision that authorizes the SEC to prohibit "any manipulative or deceptive device or