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Securities Act Of 1933, Securities Exchange Act Of 1934, Regulation Of The Securities Business, Securities Investor Protection Corporation

Evidence of a corporation's debts or property.

Securities are documents that merely represent an interest or a right in something else; they are not consumed or used in the same way as traditional consumer goods. Government regulation of consumer goods attempts to protect consumers from dangerous articles, misleading advertising, or illegal pricing practices. Securities laws, on the other hand, attempt to ensure that investors have an informed, accurate idea of the type of interest they are purchasing and its value.

Types of securities include notes, stocks, treasury stocks, bonds, debentures, certificates of interest or participation in profit-sharing agreements, collateral-trust certificates, preorganization certificates or subscriptions, transferable shares, investment contracts, voting-trust certificates, certificates of deposit for a security, and a fractional undivided interest in gas, oil, or other mineral rights. Under certain circumstances, interests in oil- and gas-drilling programs, interests in partnerships, real estate CONDOMINIUMS AND COOPERATIVES, and farm animals and land also have been found to be securities. Certain types of notes, such as a note secured by a home mortgage or a note secured by accounts receivable or other business assets, are not securities.

Both federal and state laws regulate securities. Before 1929 companies could issue stock at will. Bogus corporations sold worthless stock; other companies issued and sold large amounts of stock without considering the effect of unlimited issues on shareholders' interests, the value of the stock, and ultimately the U.S. economy. Federal securities law consists of a handful of laws passed between 1933 and 1940, as well as legislation enacted in 1970. The federal laws stem from Congress's power to regulate interstate commerce. Therefore the laws are generally limited to transactions involving transportation or communication using interstate commerce or the mail. Federal laws are generally administered by the SECURITIES AND EXCHANGE COMMISSION (SEC), established by the Securities Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.). Securities regulation focuses mainly on the market for common stocks. The SARBANES-OXLEY ACT OF 2002 (Public Company Accounting Reform and Investor Protection Act, Pub. L. 107-204, July 30, 2002, 116 Stat. 745, July 30, 2002) makes securities FRAUD a serious federal crime and also increases the penalties for WHITE-COLLAR CRIMES. In addition, it creates a new oversight board for the accounting profession.

Securities are traded on markets. Some, but not all, markets have a physical location. The essence of a securities market is its formal or informal communications systems whereby buyers and sellers make their interests known and execute transactions. These trading markets are susceptible to manipulative and deceptive practices, such as manipulation of prices or "insider trading," that is, gaining an advantage on the basis of nonpublic information. To prevent such fraudulent practices, all securities laws contain general antifraud provisions.

Exchange markets, of which the New York Stock Exchange is the largest, have traditionally operated in a rigid manner by careful delineation of numbers and qualifications of members and the specific functions members may perform. Conversely, over-the-counter markets (OTC) are less structured and typically do not have a physical location.

Based upon dollar volume, the bond market is the largest. Bonds are the debt instruments issued by federal, state, and local government, as well as corporations. The bond market attracts mainly professional and institutional investors, rather than the general public. In addition, many of these obligations are exempt from direct regulatory provisions of the federal securities laws and consequently usually receive little attention from SEC regulators. However, in the mid-1980s, a debacle occurred in the JUNK BOND market, which included insider trading charges. (Junk bonds are highly risky bonds with a high yield.) The scandal, which involved the investment firm of Drexel Burnham Lambert Inc. and trader Michael R. Milken, attracted much attention and a flurry of SEC enforcement activity.

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