Practice Areas FINRA and Financial Fraud Financial Fraud Laws & Regulations

Financial Fraud Attorney

As an individual investor, you enjoy substantial protection under U.S. securities laws. These laws protect investors against fraud, and they entitle investors to financial compensation when they suffer fraudulent losses. But, asserting your rights under these laws is not easy, and, to make sure you have the best chance of recovering your fraudulent losses, it is important to work with an experienced financial fraud attorney.

Our financial fraud law firm has been helping investors recover their fraudulent losses for decades. Located in the heart of Wall Street, we represent individual investors in securities arbitration, securities fraud litigation, and FINRA arbitration nationwide. We also handle class action lawsuits when multiple investors suffer losses due to the same fraudulent market activities, and we routinely conduct investigations focused on uncovering all forms of securities fraud.

A Financial Fraud Attorney Explains What the Laws Are That Protect Investors From Fraud

There are several securities fraud laws that protect investors in the United States. These laws address all forms of securities fraud, from insider trading and other forms of corporate securities fraud to fraud committed by investment brokers and advisors. Some of the most important laws that protect individual investors include:

Securities Act of 1933

The Securities Act of 1933 was the first major piece of federal legislation in the U.S. that was specifically designed to protect individual investors. Among other key provisions, the Securities Act of 1933 requires companies to make financial disclosures when offering securities to the public, and it specifically prohibits misrepresentations and other deceitful practices.

Commonly known as the “truth in securities” law, the Securities Act of 1933 protects main street investors in two primary ways—and it provides two main avenues for a financial fraud lawyer to pursue claims on an aggrieved investor’s behalf:

• Mandatory Disclosures – Under the Securities Act of 1933, companies must provide certain mandatory disclosures to prospective investors. These include disclosures regarding companies’ finances and future prospects, as well as information about the specific investments being offered for sale. If a company fails to make any of the mandatory disclosures required under the Securities Act of 1933, this can give rise to a claim for financial fraud.
• Prohibitions on Fraud and Deceit – In addition to requiring certain affirmative disclosures, the Securities Act of 1933 also prohibits companies from deceiving and defrauding investors through inaccurate disclosures. As a result, not only can a financial fraud lawyer help investors pursue claims for omissions, but for misrepresentations as well.

To enforce companies’ disclosure obligations (both the obligation to affirmatively disclose financial obligation and the obligation to avoid fraudulent misrepresentations), the Securities Act of 1933 established the securities registration system that remains in place today. Companies that offer securities to the public must register with the U.S. Securities and Exchange Commission (SEC); and, through the registration process, companies must make information publicly available. Registered companies also have an obligation to make supplemental filings on an ongoing basis—both at regularly scheduled intervals (i.e., quarterly and annually) and when significant events are likely to impact investors’ decisions.

Securities Exchange Act of 1934

The Securities and Exchange Act of 1934 created the U.S. Securities and Exchange Commission (SEC), which is the federal agency primarily responsible for regulating the securities markets in the United States. It also established various requirements for securities trades conducted between investors and companies other than the securities’ original issuers.

In addition to creating the SEC, the Securities Exchange Act of 1934 gave the SEC the authority to oversee the securities industry’s self-regulatory organizations (SROs). These include the NYSE and NASDAQ, as well as the Financial Industry Regulatory Authority (FINRA). FINRA provides an arbitration forum for aggrieved investors to pursue claims under the Securities Act of 1933 (and other pertinent laws and regulations) with the help of an experienced financial fraud attorney.

The Securities Exchange Act of 1934 also established additional prohibitions and requirements designed to strengthen the investor protections provided under the Securities Act of 1933. Some examples of these include:

• Additional Corporate Reporting Obligations – Under the Securities Exchange Act of 1934, companies with more than $10 million in assets and more than 500 shareholders have enhanced corporate reporting obligations.
• Proxy Solicitations – The Securities Exchange Act of 1934 establishes the major requirements for companies issuing proxy solicitations in connection with votes for the election of directors and other corporate acts.
• Tender Offers – When a person or company seeks to acquire five percent or more of a company’s securities by direct purchase or tender offer, companies are required to provide notice to shareholders under the Securities Exchange Act of 1934.
• Insider Trading – The Securities Exchange Act of 1934 established the first major prohibitions against insider trading. It also established the initial penalties and remedies for insider trading violations.

Investment Company Act and Investment Advisers Act of 1940

These laws establish public disclosure requirements and other legal obligations for investment companies, mutual funds, and individual investment advisers.

Under the Investment Company Act and Investment Advisers Act of 1940, brokerage firms, advisory firms, broker-dealers and advisors are all subject to prohibitions against providing misleading information to investors. This includes prohibitions on affirmative misrepresentations as well as misrepresentations by omission. Along with the other laws discussed above, the Investment Company Act and Investment Advisers Act of 1940 are two of the key statutes that a financial fraud lawyer can use to protect investors who fall victim to fraud.

The Investment Advisers Act of 1940 also established registration requirements for investment advisors. Under amendments adopted in 1996 and 2010, the Act’s registration requirements currently only apply to advisors with at least $100 million in assets under management. But, while registered advisors are subject to additional requirements, all advisors must comply with the Act’s general anti-fraud provisions.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (commonly known as “SOX”) was the direct result of the Enron and WorldCom securities fraud scandals around the turn of the century. It expanded on the requirements established under the Securities and Exchange Act of 1934, and it established several completely new requirements with regard to corporate responsibility, financial accountability, and securities-related disclosures.

Some examples of the requirements established under the Sarbanes-Oxley Act of 2002 include:

• CEO and CFO Responsibility for Financial Statements – Under SOX, corporate CEOs and CFOs are personally responsible for ensuring the accuracy of their companies’ financial statements and the proper submission of all required financial disclosures.
• Internal Controls – SOX requires publicly-traded companies to adopt comprehensive internal controls focused on preventing fraudulent misrepresentations and omissions. Companies must also document their internal controls and provide a description of their internal controls to the public.
• Compliance Documentation and Monitoring – In addition to adopting and documenting various internal controls, companies must also document their compliance with all other provisions of the Sarbanes-Oxley Act of 2002. Companies must also monitor for ongoing compliance, and they must promptly remedy any compliance failures.
• Independent Auditing – The Sarbanes-Oxley Act of 2002 requires publicly-traded companies to engage independent auditors to examine their books and records and prepare financial reports that get filed with the SEC. These reports must include a statement regarding the auditor’s opinion on the accuracy of the company’s books and records.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2020

This law, often simply referred to as the Dodd-Frank Act, was another responsive piece of legislation—in this case, enacted to address the fallout of the 2007 financial crisis. Among other key provisions, the Dodd-Frank Act established accountability and transparency requirements that expanded on those established under SOX in order to help protect unwary investors from securities fraud.

Under the Dodd-Frank Act, the SEC has also adopted several rules that further enhance companies’ compliance and disclosure obligations when they offer securities to the public. These rules fall into 10 broad categories:  

• Private funds
• Executive compensation calculations and disclosures
• Proprietary trading and relationships with hedge funds and private equity funds (the “Volcker Rule”)
• Asset-backed securities (ABS)
• Security-based swaps
• Credit rating agencies
• Clearing agencies
• Specialized disclosures for resource extraction and conflict minerals
• Municipal securities advisors
• Other (including whistleblower rights, filing procedures, and liquidation of broker-dealer firms)

While many of these rules apply only in certain specific scenarios, they are all designed to address specific risks facing retail investors. As a result, for investors who believe they may have suffered fraudulent losses, hiring a financial fraud attorney who is intimately familiar with the Dodd-Frank Act and the SEC’s rulemaking under the Act can be crucial for effectively asserting their legal rights.

Are You a Victim of Financial Fraud?

Regardless of which law (or laws) protect you, recovering your losses as a victim of investment fraud requires experienced legal representation. If you need to know more about your legal rights as a retail investor, you should speak with a financial fraud legal attorney as soon as possible.

Contact An Experienced Financial Fraud Attorney at Zamansky, LLC Today

Do you think you may have a claim for securities fraud? If so, it is extremely important that you speak with a lawyer right away. To discuss your situation with an experienced financial fraud lawyer at Zamansky LLC, call 212-742-1414 or request a free consultation online now.