The U.S. Securities and Exchange Commission (SEC) is the federal agency that enforces the nation’s securities laws, which are essential to maintaining the integrity and stability of the United States’ financial markets. Accordingly, the SEC has broad powers to investigate individuals and businesses believed to have violated these laws.
As the Bernie Madoff scandal, the Great Recession of 2008, and several other financial calamities demonstrate, things like greed, a lack of accountability, or simple carelessness can lead to tremendous economic harm. As a result, intentional and unintentional securities law violations can lead to significant penalties.
Watch for These Three Common Securities Law Violations
Securities laws apply to public and private companies that issue securities, the employees and directors of such companies, and anyone who buys, sells, or trades securities. Any one of these individuals or entities can commit a securities law violation.
Three of the most common violations that businesses and individuals commit are as follows:
1. Fraudulent Conduct
Fraudulent activity involves any act committed with the intent to deceive another person or the government, usually for some financial benefit. While anyone is susceptible to making a mistake, fraudulent acts are intentional. For example, someone who purposefully falsifies a company’s financial records has committed fraud.
Companies can protect themselves against employee or director fraud by carefully scrutinizing applicants’ backgrounds before hiring them. Businesses can also reduce the likelihood of fraud by instituting and employing a robust system of checks and balances regarding the business’s finances and disclosures.
2. Insider Trading and Tipping
Although related, insider trading and tipping are two distinct practices that federal securities laws prohibit. Each involves using material but confidential information to buy or sell a company’s securities, giving the person possessing the information an unfair advantage over other traders when buying or selling those securities.
When the person possessing that confidential information buys or sells securities, they engage in insider trading. Conversely, they commit tipping when they share their acquired confidential information with another individual who then buys or sells securities themselves based on such information.
For example, suppose that a private real estate business that issues securities expects a downturn in the value of its shares. If an employee with stock sells those securities because of that information, they’ll have committed insider trading. And they’d commit tipping if they share the information with someone who sells their company shares.
Companies can reduce the likelihood of these practices by adopting and enforcing blackout policies. These policies prevent employees or directors with access to confidential information from buying or selling stock for a specific time after gaining access to such information. Confidentiality policies can reinforce the importance of not sharing non-public information with others outside the company.
3. Sarbanes-Oxley Act Violations
The Sarbanes-Oxley Act of 2002 aims to ensure that investors have accurate financial information about companies before investing in them. Publicizing reports with false information or failing to certify public disclosures as accurate are common ways that individuals and businesses violate this important securities law.
The SEC can punish both unintentional and intentional Sarbanes-Oxley violations. As a result, companies must have and follow systems that review financial disclosures for accuracy before they are made public.
What a California Securities Law Attorney Can Do for You
Avoiding securities law violations is more effective than responding to SEC allegations once a violation has occurred. With experienced and personalized counsel from Alves Radcliffe, you can take proactive measures to protect your business, employees, and reputation from the damage that SEC violations can cause.
Do not wait for an SEC violation to occur before taking action. Contact Alves Radcliffe today and schedule a consultation to discuss your situation.