but also compelling narratives that detail the company’s mission and strategic goals. The annual reports
of certain companies—for example, Berkshire Hathaway, written by Warren Buffett and Charlie
Munger—provide not only their opinions on their own operations, known as the management
discussion, but also their thoughts on the economy overall. The Form 10-K is a large responsibility for a
company because it must disclose the company’s analysis of its financial conditions, potential market
risks, internal controls, legal proceedings, defaults, and other information that is deemed important for
investors to make sound investment decisions.
•
Form 10-Q. Form 10-Qs are quarterly unaudited financial statements that contain financial information.
Since they are unaudited, they are less expensive and time-consuming for the company to prepare;
however, investors do not have the additional assurance that they have been analyzed by a neutral CPA.
•
Form 8-K. Certain events require the company to file a Form 8-K, such as a change in the company’s
officers, mergers, or declarations of bankruptcy. These are required to be filed within four business days
with the SEC.
•
Proxy Statements. Proxy statements are documents that the SEC requires that shareholders of
companies with securities registered under Section 12 of the Securities Exchange Act of 1934 receive to
allow them to vote on issues that will be decided at a stockholder meeting. This process is commonly
applied when voting for directors or deciding corporate actions. Even shareholders who own just one
share of a company receive proxy statements; thus, the process of sending out these statements is a
large undertaking for companies. While some companies still use the mail to deliver proxy statements,
others send a “Notice of Internet Availability of Proxy Materials” to shareholders a minimum of 40 days
before the shareholders’ meeting.
Ongoing Responsibilities
Businesses must stay current with changes in securities laws that impact their liabilities and responsibilities.
The Exchange Act allows the SEC to make new laws, like it did in 2000 with Regulation FD, which stands for “fair
disclosure”. In 2013, the SEC started to allow the use of social media channels, in certain circumstances, as a
means of distributing information to shareholders.
Summary
These two sections have provided an overview of some of the most important points of the Securities
Exchange Act of 1934. Considering the sheer number of exceptions and complexities, coupled with today’s
rapidly changing technological and political climates, a successful company needs competent legal counsel to
help it navigate the compliance requirements of the SEC. While certain illegal actions can be due to malicious
intent, such as insider trading, this situation is not always the case; a corporate insider can fail to comply
simply because he or she is not aware of the nuances of the law.
14.2
The Framework of Securities Regulation
The Securities Exchange Act of 1934
In 1929, the United States stock market crashed and lost $25 billion, which would be approximately $319 billion
today. The Stock Market crash of 1929 was one cause of the American Great Depression of the 1930s, which
caused the failure of nearly half of American banks and created unemployment rates of almost 25 percent by
154
Chapter 14 Securities Regulation
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