Chapter Outline
14.1 Liability Under the Securities Act
14.2 The Framework of Securities Regulation
Introduction
Learning Outcome
•
Describe the Securities Exchange Act of 1934 and its impact on business.
14.1
Liability Under the Securities Act
As explained in the previous section, many companies were initially irritated by the creation of the Securities
Exchange Act of 1934, as it created a myriad of legal responsibilities and potential liabilities that impacted their
business models. Companies came to recognize that they needed legal counsel and internal systems in place
to ensure that they were in compliance. The liabilities for not complying with the Securities and Exchange Act
of 1934 include not only monetary fines, but also civil penalties, and in some cases, criminal proceedings.
Insider trading is one violation that can result in criminal charges.
Insider Trading
While laws vary from country to country, insider trading can be understood by what the SEC defines as the
“buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the
basis of material, nonpublic information about the security.” The word fiduciary comes from the Latin word
Figure 14.1 (Credit: Sam Valadi/ flickr/ Attribution 2.0 Generic (CC BY 2.0))
14
Securities Regulation