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Chapter 33 Securities Regulation

Learning Objectives

After reading this chapter, you should understand the following:

  1. The nature of securities regulation
  2. The Securities Act of 1933 and the Securities Exchange Act of 1934
  3. Liability under securities laws
  4. What insider trading is and why it’s unlawful
  5. Civil and criminal penalties for violations of securities laws

In Chapter 31 "Legal Aspects of Corporate Finance", we examined state law governing a corporation’s issuance and transfer of stock. In Chapter 32 "Corporate Powers and Management", we covered the liability of directors and officers. This chapter extends and ties together the themes raised in Chapter 31 "Legal Aspects of Corporate Finance" and Chapter 32 "Corporate Powers and Management" by examining government regulation of securities and insider trading. Both the registration and the trading of securities are highly regulated by the Securities and Exchange Commission (SEC). A violation of a securities law can lead to severe criminal and civil penalties. But first we examine the question, Why is there a need for securities regulation?