Some Securities Rules in New York, NY

Here are some important New York securities rules.

Registration of Securities

Securities are financial instruments offered by companies for sale as an investment. It is a way for companies to raise capital from the public. As a general rule, all securities are required to be registered, except for government and bank securities and securities sold below $75 million

within a 12 month period, among other exemptions. The prospectus is a document used to sell securities. A securities lawyer can assist companies in the registration of their securities, including structuring, drafting, and filing documents for public offerings, private placements, mergers, acquisitions, and other securities transactions.

Exemption on Registration

Securities being offered to the public should be registered, unless they are bank securities, government securities, securities below $75M sold within a 12-month period, short-term securities (less than 20 days), and securities from employee stock plans. A securities lawyer can advise the company in determining whether the financial instruments being offered can be exempt from registration or how to obtain exemption from registration (Regulation D and Regulation A offerings). Although exempted, these securities still need to file a notice for exemption.

Disclosure Requirements

The Securities and Exchange Commission (SEC) requires the disclosure of certain transactions before investments are made. In publicly traded companies, purchases that can increase an investor’s share to more than 5% of a close of voting securities requires a disclosure with the SEC. A securities lawyer can assist the client in the filing of schedules in compliance wth disclosure requirements.

Other Securities Transactions

A securities lawyer can also assist the client in major securities transactions involving initial public offerings, private placements, private secondary market transactions, special purpose vehicles, and reverse mergers.

Rules of Securities Fraud

Securities fraud can take many forms. Examples of the most common types of securities fraud are:

Ponzi Schemes

Ponzi schemes promise a guaranteed return for the investment. In reality, the earlier investors are simply getting the capital of the new investors. The best example of the Ponzi scheme is the scheme employed by Bernie Madoff, a Wall Street financier who scammed $65 billion from around 40,000 investors, using money from new clients instead of actual profits in paying off the promised guaranteed returns of earlier clients.

Pyramid Schemes

A pyramid scheme is similar to a Ponzi scheme in the sense that payments are made to the earlier investors by later investors. However, in a pyramid scheme, the investors are called recruiters and there is no consistent guaranteed return unless the earlier investor or recruiter is able to recruit a later investor or recruiter. The payments made by the later recruiter is then given to the earlier recruiter. Thus, money is made by recruiting more people into the scam, and the scheme can collapse when recruitment slows down.

False Information

When individuals or companies provide misleading information to manipulate the market, there is securities fraud. For example, a company can manipulate its own financial information in order to influence an investor to buy its shares. This is what happened to ENRON, where they hid billions in debt in their financial statements using accounting loopholes and special purpose entities.

Pump and Dump Schemes

The pump and dump scheme is a type of securities fraud committed by a group of investors who artificially inflate stock prices by spreading false or misleading information and thereafter selling their shares at excessive prices.

Unsuitable Investment Recommendations

Finance professionals, such as brokers and investment advisors, may recommend unsuitable securities based on the investment objectives, risk tolerance, and other factors that make up the customer´s profile. Although investment mistakes can be made, when a broker or financial advisor intentionally deceives the customer into making an unsuitable investment, the broker or advisor may be held liable for securities fraud.

Elements of Securities Fraud

The elements of fraud are similar in proving securities fraud:

Material misrepresentation or omission: The defendant made a material misrepresentation or omission of fact.
Scienter: The defendant acted with the intent to deceive, manipulate, or defraud.
Reliance: The plaintiff relied on the defendant’s misrepresentation or omission of fact.
Causation: The defendant’s misrepresentation or omission of fact caused the plaintiff’s financial loss.

Most securities fraud claims are made in a class action lawsuit. However, when a person’s financial loss is large, it makes more sense to file an individual securities fraud action.

Investigating Securities Fraud

The Securities and Exchange Commission (SEC) is the primary agency tasked with prosecuting civilly securities fraud. However, criminal cases of securities fraud are handled by the Department of Justice (DOJ).

Prior to filing charges, however, both the SEC, FBI, and DOJ play a role in investigating securities fraud.

Although FINRA cannot prosecute securities fraud, it can impose disciplinary action against firms or individuals that violate securities laws and regulations.

What To Do When You Have Been a Victim of Securities Fraud

If you have been a victim of securities fraud, report the fraud to the appropriate agencies, such as SEC, FINRA, and DOJ. Ensure that you have gathered all documentation related to your case so you have strong evidence to prosecute the perpetrator.

A securities lawyer can assist corporate clients in dealings involving securities. The sale and purchase of securities are highly regulated, violation of which can result to civil and crikminal sanctions. Should you need legal representation, we, at the law offices of Albert Goodwin, are here for you. We are located in Midtown Manhattan in New York, NY. You can call us at 212-233-1233 or send us an email at [email protected].