In the United States, securities are traded on stock exchanges, such as the New York Stock Exchange and the American Stock Exchange, or on over-the-counter markets. The U.S. Securities and Exchange Commission is the primary federal agency that oversees the registration, listing and trading of public companies. Public companies are those companies who have stocks trading at stock exchanges. The Securities Exchange Act of 1934 is the primary federal legislation governing securities trading. Through the years, other legislation were enacted to provide additional protection to investors from fraudulent securities trading. Policies, rules and decisions by the SEC and court decisions also form part of securities fraud law.
The U.S. Crimes and Criminal Procedure Code classifies as a felony any violation or attempt to violate securities trading law and imposes accompanying penalties relating to securities trading fraud offense. The fine accompanying a securities fraud offense depends on the value of losses resulting from the fraudulent act, while incarceration is not more than 25 years. The filing of securities fraud cases has a statute of limitations of six years after the commission of the offense. In securities fraud, investors are induced to buy or sell stocks based on false information.
Securities fraud law is a complicated area of law because securities trading is a sophisticated industry ruled by financial experts. Many criticize the SEC as a reactionary body, rather than an enforcing agency, following events in the past two decades when many insider trading schemes almost brought the collapse of the American financial system. Because the SEC is a regulatory government body and securities traders are finance experts, many securities fraud schemes have been discovered in the past years. This is an indicator that sophisticated securities trader can find ways to circumvent regulatory policies and the acts may not be found until billions of dollars have been lost to unsuspecting investors.
One of the common securities trading fraud is the creation of dummy corporations. Investors are led to believe that there is an existing corporation, especially when the dummy company has a similar name to an existing company. Another common securities trading fraud is internet fraud, when false information is spread through social networks in order to inflate stock prices. Once the stock prices are inflated the fraudster disposes of the stock holdings before the unsophisticated investors realize the scheme.
Another common securities trading fraud is trading of securities by insiders, which include officers and directors. Trading of securities by insiders is not illegal per se. It is only when they trade the securities based on information they obtained as a result of their position in the company that the act becomes illegal. Insider trading is not easily detected, and, often, only revealed when the company has filed for bankruptcy or in the brink of financial collapse.
Securities trading fraud happens on a daily basis and goes undetected. For unsophisticated investors, it is best to employ the services of an expert securities fraud law attorney in order to shed light to a complicated web of regulations and policies. On the other side of the spectrum, when faced with charges of securities fraud, it a good idea to hire an expert securities trading law defense lawyer as the government is zealous in its pursuit against these fraudulent schemes.