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White-Collar Crime - Securities Regulation

stock market act investors

Between 1929 and 1941 the people of the United States suffered through the Great Depression, the deepest and most prolonged economic crisis in American history. Although many factors contributed to the economic depression, the crash of the stock market in October 1929 marked its beginning. Investors in securities, stocks, and bonds lost everything in the unregulated market.

Following the leadership of President Franklin D. Roosevelt (1882–1945; served 1933–45), Congress passed new legislation known as the New Deal, designed to protect citizens from economic fluctuations. Two of these legislative remedies were the Securities Act of 1933 and the Securities Exchange Act of 1934. Both laws restored investor confidence in the market by providing more structure and government regulation.

The 1933 Securities Act required both businesses who desired to sell their stock and stockbrokers who sold stock to provide full information about stocks to potential investors. The Securities Exchange Act of 1934 prohibited certain activities in stock market trading and set penalties for violations. It also established the Securities and Exchange Commission (SEC) to oversee stock market trading.

These laws were based on two ideas. First, companies offering stock on the market had to tell the public the truth about their businesses and the risks involved in investing in them. Second, stockbrokers were to put the interests of investors above any other consideration and deal with them fairly and honestly.

The two 1930s acts remain the foundation of securities regulation. The SEC continued to be the top regulatory agency at the beginning of the twenty-first century. The SEC oversees all key participants in the securities market including the stock exchanges, stock brokerage firms, the actions of individual stockbrokers, investment advisors, and mutual funds (groups of stocks in which people may invest). They are the overseer to protect investors against deceptive or illegal activities such as security fraud.

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