Regulation of the Securities Business Only dealers or brokers who are registered with the SEC pursuant to the 1934 act may engage in business other than individuals who deal only in exem
Trang 1cases the persons who made the transactions, or persons who passed information to those indivi-duals, were found to have violated rule 10b-5
However, not every instance of financial unfairness rises to the level of fraudulent activity under rule 10b-5 In Chiarella v United States,
445 U.S 222, 100 S Ct 1108, 63 L Ed 2d 348 (1980), Vincent F Chiarella, an employee of a financial printing firm, worked on some docu-ments relating to contemplated tender offers
He ascertained the identity of the targeted companies, purchased stock in those compa-nies, and then sold the stock at a profit once the tender offers were announced The Supreme Court overturned Chiarella’s criminal conviction for violating rule 10b-5, ruling that anALLEGATION
of fraud cannot be supported absent a duty to speak and that duty must arise from a relation-ship of“trust and confidence between the parties
to a transaction.” However, following Chiarella, criminal convictions of lawyers, printers, stock-brokers, and others have been upheld by courts that have ruled that these employees traded on confidential information that was “misappro-priated” from their employers, an issue that was not raised in Chiarella Moreover, courts have also ruled that the person who passes inside information to another person who then uses it for a transaction is asCULPABLEas the person who uses it for his or her own account
The test for materiality in a rule 10b-5 insider information case is whether the information is the kind that might affect the judgment of reasonable investors, both of a conservative and speculative bent Furthermore, an insider may not act the moment a company makes a public announcement but must wait until the news could reasonably have been disseminated
The Insider Trading Sanctions Act of 1984 (Pub L No 98-376, 98 Stat 1264) and the Insider Trading and Security Fraud Enforcement Act of 1988 (15 U.S.C.A §§ 78u-1, 806-4a, and 78t-1) amended the 1934 act to permit the SEC to seek a civil penalty of three times the amount of profit gained from the illegal transaction or the loss avoided by it The penalty may be imposed on the actual violator,
as well as on the person who “controlled”
the violator—generally the employing firm
A whistleblower may receive up to 10 percent
of any civil liability penalty recovered by the SEC The maximum criminal penalties were increased from $100,000 to $1 million for
individuals and from $500,000 to $2.5 million for business or legal entities
Regulation of the Securities Business
Only dealers or brokers who are registered with the SEC pursuant to the 1934 act may engage in business (other than individuals who deal only
in exempted securities or handle only intrastate business) Firms act in three principal capacities: broker, dealer, and investment adviser A broker
is an agent who handles the public’s orders to buy and sell securities for a commission A dealer is a person in the securities business who buys and sells securities for her or his own account, and an investment adviser is paid to advise others on investing in, purchasing, or selling securities Investment advisers are regu-lated under the Investment Advisers Act of 1940 (15 U.S.C.A § 80b et seq.) This law provides for registration similar to that in the 1934 act for brokers and dealers, but its coverage is generally not as comprehensive Certain fee arrangements are prohibited, and adverse personal interests in
a transaction must be disclosed Moreover, the SEC may define and prohibit certain fraudulent and deceptive practices
The SEC has the power to revoke or sus-pend registration or impose a censure if the broker-dealer has violated federal securities laws
or committed other specified misdeeds Similar provisions apply to municipal securities dealers and investment advisers
Problems may arise in a number of ways For example, a broker-dealer may recommend
or trade in securities without adequate infor-mation about the issuer Churning is another problem Churning occurs when a broker-dealer creates a market in a security by making repeated purchase from and resale to individual retail customers at steadily increasing prices This conduct violates securities antifraud provisions if the broker-dealer does not fully disclose to customers the nature of the market Churning also occurs when a broker causes a customer’s account to experience an excessive number of transactions solely to generate re-peated commissions Fraudulent scalping occurs when an investment adviser publicly recom-mends the purchase of securities without disclos-ing that the adviser purchases such securities before making the recommendation and then sells them at a profit when the price rises after word of the recommendation spreads
78 SECURITIES
Trang 2In 1990 Congress enacted the Penny Stock
Reform Act (15 U.S.C.A § 78q-2), which gives
the SEC authority to regulate the widespread
incidence of high-pressure sales tactics in the
peddling of low-priced speculative stocks to
unsophisticated investors Dealers in PENNY
documents discussing the risk of such
invest-ments, the customer’s rights in the event of
fraud or abuse, and compensation received by
the broker-dealer and the salesperson handling
the transaction
Securities Investor Protection
Corporation
The Securities Investor Protection Act of 1970
(15 U.S.C.A § 78aaa et seq.) created the
Securities Investor Protection Corporation
(SIPC) to supervise the liquidation of securities
firms suffering from financial difficulties and to
arrange for the payment of customers’ claims
through its trust fund in the event of a
broker-dealer’s BANKRUPTCY SIPC is a
government-sponsored, private, nonprofit corporation It
relies on the SEC and self-regulatory
organiza-tions to refer brokers or dealers having financial
difficulties In addition, SIPC has authority to
borrow money (through the SEC) if its trust
fund from which it pays claims is insufficient
SIPC guarantees repayment of money and
securities up to $100,000 in cash equity and
up to $500,000 overall per customer
Self-Regulatory Organizations
Although the SEC plays a major role in
regulating the securities industry, regulation
responsibilities also exist for self-regulatory
organizations These organizations are private
associations to which Congress has delegated
the authority to devise and enforce rules for the
conduct of an association’s members Before
1934, stock exchanges had regulated themselves
for well over a century The 1934 act required
every national security exchange to register with
the SEC An exchange cannot be registered
unless the SEC determines that its rules are
designed to prevent fraud and manipulative acts
and practices and that the exchange provides
appropriate discipline for its members
Congress extended federal registration to
non-exchange, or OTC, markets in 1938 and
authorized the establishment of national
securi-ties associations and their registration with
the SEC Only one association, the National
Association of Securities Dealers, had been established as of the mid 1990s
In 1975 Congress expanded and consoli-dated SEC authority over all self-regulatory organizations The SEC must give prior ap-proval for any exchange rule changes, and it has review power over exchange disciplinary actions
Investment Companies
Under the Investment Company Act of 1940 (15 U.S.C.A § 80a et seq.), investment compa-nies must register with the SEC unless they qualify for a specific exception Investment companies are companies engaged primarily in the business of investing, reinvesting, or trading
in securities They may also be companies with more than 40 percent of their assets consisting
of investment securities (securities other than securities of majority-owned subsidiaries and government securities) Investment companies include open-end companies, commonly known
as mutual funds The SEC regulatory responsi-bilities under this act encompass sales load, management contracts, the composition of boards of directors, capital structure of invest-ment companies, approval of adviser contracts, and changes in investment policy In addition, a
1970 amendment imposed restrictions on management compensation and sales charges
Every investment company must register with the SEC Registration includes a statement
of the company’s investment policy Moreover,
an investment company must file annual reports with the SEC and maintain certain accounts and records Strict procedures safe-guard against looting of investment company assets Officers and employees with access to the company’s cash and securities must be bonded,
invest-ment company is a federal crime In addition, the Investment Company Act of 1940 imposes substantive restrictions on the activities of registered investment companies and persons connected with them and provides for a variety
of SEC and private sanctions
State Regulation
State securities laws are commonly known as blue sky laws because of an early judicial opinion that described the purpose of the laws as preventing “speculative schemes which have
no more basis than so many feet of blue sky”
SECURITIES 79
Trang 3(Hall v Geiger-Jones, 242 U.S 539, 372 S Ct.
217, 61 L Ed 480[1917])
In 1956 the COMMISSIONERS ON UNIFORM LAWS
approved the first Uniform Securities Act A total of 37 states adopted the uniform law, though states frequently diverted from some of its provisions The commissioners approved a second version of the act in 1985, but only six states adopted the revised version A third version was approved in 2002 As of 2009, a total of 18 states and territories had adopted the
2002 version, and two other state legislatures were considering its adoption Changes in the
2002 Uniform Securities Act include a simpli-fied process for registering securities; more regulation of investment professionals; ex-panded enforcement powers of administrative agencies; new penalties for violations of the act;
and several other changes
Despite the existence of the various versions
of the Uniform Securities Act, much diversity among state securities laws still exists Typical provisions include prohibitions against fraud in the sale of securities, registration requirements for brokers and dealers, registration requirements for securities to be sold within the state, and sanctions and civil liability under certain circum-stances In addition to complying with the registration requirements of the 1933 act, a nationwide distribution of a new issue requires compliance with state blue sky provisions as well
A majority of states have laws regulating takeovers of companies incorporated or doing business within the state Although the courts have invalidated some of these statutes, these laws tend to aid in preserving theSTATUS QUOof management
Securities Scandals
During the early 2000s, a number of high-profile companies became embroiled in major scandals that adversely affected consumer confidence in the companies and led to a number of investigations by the SEC The most notorious of these scandals involved Houston-based Enron Corporation, once one of the world’s largest energy, commodities, and service companies The company suffered a collapse in
2001 that resulted in the largest bankruptcy at that time in U.S history and numerous lawsuits alleging violations of federal securities laws
As of December 2000, Enron’s stock sold for $84.87 per share However, stock prices fell
throughout 2001 On October 16, 2001, the company reported losses of $638 million in the third quarter of 2001 alone It also announced that it was reducing shareholder equity by
$1.2 billion The SEC began a formal investiga-tion shortly thereafter regarding potential conflicts of interest within the company re-garding outside partnerships Many of the pro-blems centered on flawed accounting practices
by Enron and its accounting firm, Arthur Andersen, L.L.P In 2002 Arthur Andersen was found guilty of obstructing justice by destroying thousands of Enron documents, but the conviction was overturned on appeal The top officials of Enron either pleaded guilty
or were convicted on numerous counts of fraud,
MONEY LAUNDERING, and criminalCONSPIRACY The collapse of the U.S financial markets in September 2008 led the U.S government to inject hundreds of billions of dollars into banks and other financial institutions on Wall Street The U.S real estate boom that had fueled economic expansion in the early 2000s had enticed banks to repackage home mortgages as securities Almost 80 percent of these mortgages were adjustable rate, which meant that after an initial period the lender could raise the interest rate Many borrowers had agreed to subprime mortgages, which are adjustable rate contracts in which the interest rates are higher Banks and mortgage companies offered subprime mort-gages to people with poor credit and incomes that were too low to meet increase interest rate hikes As home foreclosures mounted, the value
of the securitized mortgages plummeted, putting
in peril those who held these investments The U.S government stepped in and provided funds
to recapitalize banks and to allow healthier banks to acquire those banks with so-called toxic assets In return, the government became a major shareholder in many of the banks By mid-2009, congressional committees were well underway investigating the behavior of the banks, the federal banking regulatory agencies, and the SEC It seemed likely that Congress would enact laws that curtailed risky and speculative behavior in the securities market
FURTHER READINGS Hazen, Thomas, and David Ratner 2006 Securities Regula-tions in a Nutshell 9th ed St Paul Minn.: West Group Soderquist, Larry D and Theresa A Gabaldon 2007 Securities Law New York: Foundation Press Steinberg, Marc I 2007 Understanding Securities Law, 4th ed Newark, N.J.: LexisNexis.
80 SECURITIES
Trang 4Western, David 2004 Booms, Bubbles and Busts in the U.S.
Stock Market New York: Routledge.
Zandi, Mark 2008 Financial Shock: A 360-degree Look at the
Subprime Mortgage Implosion, and How to Avoid the
Next Financial Crisis New York: FT Press.
CROSS REFERENCES
Accounting; Mergers and Acquisitions; Risk Arbitrage;
Stock Market; Stockholder ’s Derivative Suit.
SECURITIES AND EXCHANGE
COMMISSION
The Securities and Exchange Commission (SEC)
is the federal agency primarily responsible for
administering and enforcing federal securities
laws The SEC strives to protect investors by
ensuring that the securities markets are honest
and fair When necessary, the SEC enforces
securities laws through a variety of means,
including fines, referral for criminal
prosecu-tion, revocation or suspension of licenses, and
injunctions
Headquartered in Washington, D.C., the
Securities and Exchange Commission itself is
comprised of five members appointed by the
president; one position expires each year No
more than three members may be from one
political party With more than 900 employees,
the agency has five regional and six district
offices throughout the country and enjoys a
generally favorable reputation
Securities Laws
Before the October 29, 1929,STOCK MARKETcrash
on Wall Street, a company could issue stock
without disclosing its financial status Many
bogus or severely undercapitalized corporations
sold stock, eventually leading to the disastrous
plunge in the market and an ensuing panic
From the havoc wreaked by the crash came the
first major piece of federal securities legislation,
the Securities Act of 1933 (15 U.S.C.A § 77a
et seq.) The act regulates the primary, or new
issue, market The following year, Congress
provided for the creation of the Securities
and Exchange Commission when it enacted
far-reaching securities legislation in the
Securi-ties Exchange Act of 1934 (15 U.S.C.A § 78a
et seq.) These two laws, along with the Trust
77bbbb), the Investment Company Act of 1940
(15 U.S.C.A §§ 80-1–80a-64), the Investment
Advisers Act of 1940 (15 U.S.C.A §§ 80b-1–
80b-21), and the Public UtilityHOLDING COMPANY
Act of 1935 (15 U.S.C.A §§ 79a–79z-6) make
up the bulk of federal securities laws under the jurisdiction of the SEC
In addition to federal statutory authority, the SEC has broad rule-making authority It has used this power to fashion procedural and technical rules, define terms used in the laws, and make substantive rules implementing the laws The SEC also devises forms that must be used to fulfill various requirements in the statutes and rules
Moreover, the SEC engages in a significant amount of informal lawmaking through the distribution of SEC releases containing its opinions on questions of current concern These releases are disseminated to the press, companies and firms registered with the SEC, and other interested persons In addition to these general public statements of policy, the SEC also responds to individual private inquiries
Securities Act of 1933 The Securities Act of
1933 regulates thePUBLIC OFFERINGof new issues
All public offerings of securities in interstate commerce or through the mails must be registered with the SEC before they can be offered and sold, subject to exemptions for specifically enumerated types of securities, such
as government securities, nonpublic offerings, offerings below a certain dollar amount, and intrastate offerings The registration provisions apply to issuers of securities or others acting on their behalf Issuers must file a registration statement with the SEC containing financial and other pertinent data about the issuer and the securities that are being offered The Securities Act of 1933 also prohibits fraudulent or deceptive practices in the offer or sale of securities, whether
or not the securities are required to be registered
U.S Securities and Exchange Commission Chairman Mary Shapiro testifies at a hearing held to discuss the SEC’s response to the 2009 financial crisis.
ALEX WONG/GETTY IMAGES
SECURITIES AND EXCHANGE COMMISSION 81
Trang 5A major part of the SEC work is reviewing the registration documents required by the 1933 act and determining when registration is re-quired Registration with the SEC is intended to allow potential investors to make an informed evaluation regarding the worth of securities
Registration does not mean that the commission approves of the issue or that the disclosures in the registration are accurate, nor does it insure
an investor against loss in the purchase
Registration requires extensive disclosure on behalf of a corporation For example, full dis-closure includes management’s aims and goals;
the number of shares the company is selling; what the issuer intends to do with the money; the company’s tax status; contingent plans if pro-blems arise; legal standing, such as pending lawsuits; income and expenses; and inherent risks of the enterprise Registration consists of two parts: a prospectus, which must be furnished
to every purchaser of the security, and other information and attachments that need not be furnished to purchasers but are available in SEC files for public inspection A registration state-ment is generally effective 20 days after filing, but the SEC has the power to delay or suspend the effectiveness of the registration statement When
a disclosure or registration statement becomes effective, it is called a prospectus and is used to solicit orders for the security
Securities Exchange Act of 1934 The Securi-ties Exchange Act of 1934 transferred responsi-bility for administration of the 1933 act from theFEDERAL TRADE COMMISSIONto the newly created SEC The 1934 act also provided for federal regulation of trading in already issued and outstanding securities Other provisions include disclosure requirements for publicly held cor-porations; prohibitions on various manipulative
or deceptive devices or contrivances; SEC regis-tration and regulation of brokers and dealers; and registration, oversight, and regulation of national securities exchanges, associations, clearing agen-cies, transfer agents, and securities information processors
The SEC has broad oversight responsibilities for the self-regulatory organizations within the securities industry For approximately 140 years prior to 1934, stock exchanges regulated their own members Self-regulation continues to be an important component of the industry, but as of
2003 the SEC provides additional regulation, including authority to review disciplinary actions
taken by a self-regulatory organization The 1934 act also established the Municipal Securities Rulemaking Board and conferred oversight power upon the commission The Municipal Securities Rulemaking Board formulates rules for the municipal securities industry The commis-sion has the authority to approve or disapprove most proposed rules of the board
The 1934 act seeks to provide the public with adequate information about companies with publicly traded securities Subject to certain exemptions, disclosure requirements apply not only to companies with securities listed on national securities exchanges but to all companies with more than 500 shareholders and more than $5,000,000 in assets Companies must file detailed statements with the SEC when first registering under the 1934 act and must provide periodic reports as prescribed by the commission Under the 1934 act, the SEC also regulates the solicitation of proxies Proxies are voting solicitations allowing stockholders to participate
in the annual or special meetings of stock-holders without actually attending the meeting;
behalf of the shareholder Detailed SEC regula-tions delineate the form of proxies and the information that must be furnished to stock-holders A registered company must furnish each stockholder, before every stockholder meeting, a proxy statement and a proxy form
on which he or she can indicate approval or disapproval of each proposal expected to be introduced at the meeting Companies must file with the commission copies of the proxy statement and the proxy form The SEC may comment on the proxy statement and insist on changes before it is mailed to security holders TheWILLIAMS ACTof 1968 (Pub L No 90-439,
82 Stat 454) amended the 1934 act to ad-dress recurring problems arising in tender offers and corporate takeovers A tender offer
is a formal request that stockholders sell their shares in response to a large purchase bid; the buyer reserves the right to accept all, none, or a certain number of shares tendered for sale A takeover occurs when a corporation assumes control of another corporation through an acquisition or merger Pursuant to the law as amended, any person or group that takes ownership of more than 5 percent of any class
of specific registered securities must file a statement within 10 days with the issuer of the
82 SECURITIES AND EXCHANGE COMMISSION
Trang 6security and with the SEC This statement
provides the background of the purchaser, the
source of funds used in the purchase, the
purpose of the purchase, the number of shares
owned, and any relevant contracts,
arrange-ments, or understandings In addition, no person
may make a TENDER OFFER unless he or she has
first filed with the SEC and provided certain
specific information to each offeree A tender
offer must remain open for a minimum of 20
days and at least 10 days after any change in the
terms of the offer
The Securities Act of 1934 also requires any
person who beneficially owns, whether directly or
indirectly, more than 10 percent of a class of
certain registered securities and every officer or
director of every company with specific registered
securities to report to the SEC Reports must be
filed at the time the status is acquired and at the
end of any month in which such a person
acquires or disposes of any equity securities of
that company This provision is designed to
discourage short-term trading by preventing
corporate insiders from unfairly using nonpublic
information
Investment Company Act of 1940 Pursuant
to the Investment Company Act of 1940,
invest-ment companies must register with the SEC
Investment companies are companies engaged
primarily in the business of investing, reinvesting,
or trading in securities They may also be
companies with more than 40 percent of their
assets consisting of investment securities, that is,
securities other than those of majority-owned
subsidiaries and government securities Among
other types of companies, this act covers open-end
companies, commonly known as mutual funds
The SEC regulatory responsibilities under this act
encompass sales load, management contracts, the
composition of boards of directors, capital
structure of investment companies, approval of
adviser contracts, and changes in investment
policy In addition, a 1970 amendment imposed
restrictions on management compensation and
sales charges
The act prohibits various transactions
by investment companies, unless the
com-mission has first made a determination that
the transaction is fair Moreover, the act permits
the SEC to bring a court action to enjoin the
execution of mergers and other reorganization
plans of investment companies if the plans are
unfair to security holders The SEC also has the
power to impose sanctions pursuant to admin-istrative proceedings for violation of this act and may file suit to enjoin the acts of management officials involving breaches of FIDUCIARY duties
or personal misconduct and may bar such officials from office
Investment Advisers Act of 1940 The Invest-ment Advisers Act of 1940 provides for SEC regulation and registration of investment advi-sers The act is comparable to provisions of the
1934 act with respect to broker-dealers but is not
as comprehensive Generally speaking, an invest-ment adviser is a person who engages in the business of advising others with respect to securities and does so for compensation Certain fee arrangements are prohibited; adverse per-sonal interests in a transaction must be disclosed
Moreover, the SEC may define and prohibit certain fraudulent and deceptive practices
Other Securities Laws The Trust Indenture Act of 1939 applies to public issues of debt securities in excess of a certain amount This law prescribes requirements to ensure the indepen-dence of indenture trustees It also requires the exclusion of certain types of exculpatory clauses and the inclusion of certain protective clauses
in indentures In addition, the Public Utility Holding Company Act of 1935 (15 U.S.C.A
§§ 79a–79z-6) was enacted to correct abuses in the financing and operation of electric and gas public utility holding companies; SEC functions under these provisions were substantially com-pleted by the 1950s
After the disclosure of major corporate scandals involving the Enron Corporation and the Arthur Andersen accounting firm, Congress enacted the SARBANES-OXLEY ACT OF 2002 (also known as the Public Company Accounting Reform and Investor Protection Act) The act imposes new disclosure requirements when companies file financial reports It mandates that the SEC, by rule, requires the principal executive officer and principal financial officer
to certify in each annual or quarterly report the accuracy and completeness of the information contained in the report A knowing violation of this section is punishable by up to 10 years in jail and a $1 million fine A willful violation
is punishable by up to 20 years in jail and a $5 million fine The act authorizes the establish-ment of a Public Company Accounting Oversight Board to oversee the accounting profession
The SEC appoints the five-person board The SECURITIES AND EXCHANGE COMMISSION 83
Trang 7board is charged with developing standards and enforcing them with appropriate sanctions
It must file an annual report with the SEC
SEC Enforcement Authority
The commission enforces the myriad laws and regulations under its jurisdiction in a number of ways The SEC may seek a court INJUNCTION
against acts and practices that deceive investors
or otherwise violate securities laws; suspend or revoke the registration of brokers, dealers, investment companies, and advisers who have violated securities laws; refer persons to the
JUSTICE DEPARTMENT for criminal prosecution in situations involving criminal FRAUD or other willful violation of securities laws; and bar attorneys, accountants, and other professionals from practicing before the commission
The SEC may conduct investigations to deter-mine whether a violation of federal securities laws has occurred The SEC has the power toSUBPOENA
witnesses, administer oaths, and compel the production of records anywhere in the United States Generally, the SEC initially conducts an informal inquiry, including interviewing wit-nesses This stage does not usually involve sworn statements or compulsory testimony If it appears that a violation has occurred, SEC staff members request an order from the commission delineat-ing the scope of a formal inquiry
Witnesses may be subpoenaed in a formal investigation A witness compelled to testify or produce evidence is entitled to see a copy of the order of investigation and be accompanied, represented, and advised by counsel A witness also has the absolute right to inspect the transcript of his or her testimony Typically the same privileges one could assert in a judicial proceeding, such as the Constitution’s FOURTH
searches and seizures and the Fifth Amendment’s
PRIVILEGE AGAINST SELF-INCRIMINATION, apply in an SEC investigation Proceedings are usually con-ducted privately to protect all parties involved, but the commission may publish information regarding violations uncovered in the investiga-tion In a private investigation, a targeted person has no right to appear to rebut charges In a public investigation, however, a person must be afforded a reasonable opportunity to cross-examine witnesses and to produce rebuttal testimony or evidence, if the record contains implications of wrongdoing
When an SEC investigation unearths evi-dence of wrongdoing, the commission may order an administrative hearing to determine responsibility for the violation and impose sanctions Administrative proceedings are only brought against a person or firm registered with the SEC or with respect to a security registered with the commission Offers of settlement are common In these cases the commission often insists upon publishing its findings regarding violations
An administrative hearing is held before an administrative law judge who is actually an independent SEC employee The hearing is similar to that of a nonjury trial and may be either public or private After the hearing the judge makes an initial written decision contain-ing findcontain-ings of fact and conclusions of law If either party requests or if the commission itself chooses, the commission may review the decision The SEC must review cases involving
a suspension, denial, or revocation of registra-tion The commission may request oral argu-ment, will study briefs, and may modify the decision, including increasing the sanctions imposed Possible sanctions in administrative proceedings include censure, limitations on the registrant’s activities, or revocation of registra-tion In 1990 SEC powers were expanded to include the authority to impose civil penalties of
up to $500,000, to order disgorgement of profits, and to issue cease-and-desist orders against persons violating or about to violate securities laws, whether or not the persons are registered with the SEC
The U.S Court of Appeals for the District of Columbia or another applicable circuit court of appeals has jurisdiction to review most final orders from an SEC administrative proceeding Certain actions by the commission are not reviewable
The SEC may request an injunction from a federal district court if future securities law violations are likely or if a person poses a continuing menace to the public An injunction may include a provision that any future violation of law constitutesCONTEMPTof court The SEC may request further relief, such as turning over profits or making an offer to rescind the profits gained from an INSIDER
corporate mismanagement, the SEC may obtain appointment of a receiver or of independent
84 SECURITIES AND EXCHANGE COMMISSION
Trang 8directors and special counsel to pursue claims
on behalf of the corporation
Willful violations may be punished by fines
and imprisonment The SEC refers such cases to
theDEPARTMENT OF JUSTICEfor criminal
prosecu-tion Willfulness means only that the DEFENDANT
intended the act, not that he knew that it was a
violation of securities laws
FURTHER READINGS
Larimore, James N., ed 2008 Securities and Exchange
Commission: Programs and Operations New York: Nova
Science.
Securities and Exchange Commission Available online at
www.sec.gov (accessed July 28, 2009).
Seligman, Joel 2003 The Transformation of Wall Street: A
History of the Securities and Exchange Commission and
Modern Corporate Finance 3d ed New York: Aspen.
Western, David 2004 Booms, Bubbles, and Busts in the U.S.
Stock Market New York: Routledge.
Winer, Kenneth B., and Samuel J Winer 2004 Securities
Enforcement: Counseling & Defense Newark, N.J.:
LexisNexis.
CROSS REFERENCES
Administrative Law and Procedure; Bonds; Mergers and
Acquisitions; Securities.
SECURITY
Protection; assurance; indemnification
The term security is usually applied to a
deposit, lien, or mortgage voluntarily given by
a debtor to a creditor to guarantee payment of
a debt Security furnishes the creditor with a
resource to be sold or possessed in case of the
debtor’s failure to meet his or her financial
obligation In addition, a person who becomes a
surety for another is sometimes referred to as a
“security.”
SECURITY COUNCIL
See UNITED NATIONS
SECURITY DEPOSIT
Money aside from the payment of rent that a
landlord requires a tenant to pay to be kept separately
in a fund for use should the tenant cause damage to
the premises or otherwise violate terms of the lease
A security deposit is usually in the amount
of one or two months’ rent It usually must be
paid at the time that the LANDLORD AND TENANT
sign the lease The landlord must place the
funds in an escrow account and give the tenant
any interest generated by such funds Upon the
termination of the lease, the landlord must return the security deposit to the tenant if no violations of the lease occurred He or she may keep the security deposit or portion thereof for the amount of any damages, which can be proven, pursuant to the terms of the lease
CROSS REFERENCE Landlord and Tenant.
SEDITION Sedition is a revolt or an incitement to revolt against established authority, usually in the form
of treason or defamation against government
Sedition is the crime of revolting or inciting revolt against government However, because of the broad protection of free speech under the
FIRST AMENDMENT, prosecutions for sedition are rare Nevertheless, sedition remains a crime in the United States under 18 U.S.C.A § 2384 (2000), a federal statute that punishes seditious
which outlaws advocating the overthrow of the federal government by force Generally, a person may be punished for sedition only when he or she makes statements that create a CLEAR AND
may lawfully protect (Schenck v United States,
249 U.S 47, 39 S Ct 247, 63 L Ed 470[1919])
The crime of seditious conspiracy is com-mitted when two or more persons in any state
or U.S territory conspire to levy war against the U.S government A person commits the crime of advocating the violent overthrow of the federal government when she willfully advocates
or teaches the overthrow of the government by force, publishes material that advocates the overthrow of the government by force, or organizes persons to overthrow the government
by force A person found guilty of seditious conspiracy or advocating the overthrow of the government may be fined and sentenced to up
to 20 years in prison States also maintain laws that punish similar advocacy and conspiracy against the state government
Governments have made sedition illegal since time immemorial The precise acts that constitute sedition have varied In the United States, Congress in the late eighteenth century believed that government should be protected from“false, scandalous and malicious” criticisms Toward this end, Congress passed the Sedition Act of
SEDITION 85
Trang 9A sample security
agreement Security Agreement
CALIFORNIA ENERGY COMMISSION SECURITY AGREEMENT AND ASSIGNMENT OF CERTIFICATE OF DEPOSIT
_ (“Debtor”), and the State Energy Resources Conservation and Development Commission (“Secured Party”) agree as follows:
A Debtor has executed a Promissory Note payable to Secured Party in the original principal amount of Dollars ($ ) (“Promissory Note”) The Loan Agreement, Promissory Note, Work Statement, Budget, as well as this Security Agreement and Assignment of Certificate of Deposit (“Security Agreement”), together are referred to as the Loan Documents (“Loan Documents”).
B To secure Debtor’s obligations under the Promissory Note and Debtor’s obligations under this Security Agreement, Debtor has agreed to grant Secured Party a security interest as provided below
2 EFFECTIVE DATE OF AGREEMENT
This Security Agreement shall become effective on the date it is executed and approved by Secured Party in Sacramento, California (the “Effective Date”)
To secure Debtor’s Obligations (as defined below), Debtor grants to Secured Party a continuing first priority security interest in all of its right, title and interest in, to and under the Collateral described hereinafter
For purposes of this Security Agreement, “Obligations” means any and all debts, obligations, and liabilities of Debtor to Secured Party arising out of, or relating in any way to the Promissory Note, Loan Agreement and other Loan Documents, and any obligations of Debtor to Secured Party pursuant to this Security Agreement, whether existing or arising after the Effective Date; whether voluntary
or involuntary; whether jointly owned with others; whether direct or indirect; or whether absolute or contingent; and whether or not from time to time increased, decreased, extinguished, created, or incurred
“Collateral” means all of Debtor’s right, title and interest in a certificate of deposit in the amount of $ _, including earned interest, from , a nationally or state chartered, FDIC-insured financial institution (“Certificate of Deposit”) Debtor represents and warrants to Secured Party that such Certificate of Deposit is true and genuine and that Debtor is the sole owner of the Certificate of Deposit Debtor represents that no other person or entity has any rights in the Collateral that have priority over the rights assigned pursuant to this Security Agreement Debtor represents that no part of the Collateral is exempt or protected by law from this Security Agreement
1 BACKGROUND AND PURPOSE
3 GRANT OF SECURITY INTEREST
4 OBLIGATIONS
5 COLLATERAL
6 ASSIGNMENT
For value received, Debtor assigns and transfers to Secured Party all of its rights, title, and interest in the Certificate of Deposit, including all renewals or substitutions, pledged as security for the Obligations Debtor authorizes the financial institution to release all information relating to this account to Secured Party Debtor shall direct the financial institution to maintain the account on behalf of, and for the exclusive benefit of, Secured Party Debtor specifically requests and directs the financial institution to honor and accept this Security Agreement as evidence of Secured Party’s priority interest in the Collateral, and to maintain the account in accordance with its terms and conditions
7 WITHDRAWALS
8 TERMINATION
Debtor shall request and direct the financial institution to provide no less than five days notice to Secured Party prior to honoring instructions to release or withdraw funds from, or to cash out or redeem, the Certificate of Deposit Debtor shall ensure that the financial institution will not release or permit withdrawal of funds from the Certificate of Deposit that would reduce the cash balance below $ , without prior written consent from Secured Party In the event of default under the Promissory Note, Secured Party shall have the right to withdraw all or any part of the Collateral and apply the withdrawal toward payment of the Obligations, even if such withdrawal results in a penalty If the Obligations are in default, Secured Party can exercise this right without notice to Debtor Debtor agrees to appoint Secured Party as its attorney in fact to redeem or cash out the Certificate of Deposit in the event of default under the Loan Documents
This Security Agreement shall not terminate until Debtor’s Obligations are paid in full, at which time Debtor may request Secured Party to release this Security Agreement given as Collateral for the Loan Upon such request, Secured Party will deliver a release to the financial institution holding the Collateral within ten business days of receipt by Secured Party of the Debtor’s written request
[continued]
86 SECURITY
Trang 101798, which authorized the criminal prosecution
of persons who wrote or spoke falsehoods about
the government, Congress, the president, or the
VICE PRESIDENT The act was to expire with the term
of PresidentJOHN ADAMS
The Sedition Act failed miserably THOMAS
narrowly elected president in 1800, public
opposition to the act grew The act expired in
1801, but not before it was used by President
Adams to prosecute numerous public
suppor-ters of Jefferson, his challenger in the
presiden-tial election of 1800 One writer, Matthew Lyon,
a congressman from Vermont, was found guilty
of SEDITIOUS LIBEL for stating, in part, that he
would not be the “humble advocate” of the
Adams administration when he saw “every
consideration of the public welfare swallowed
up in a continual grasp for power, in an
unbounded thirst for ridiculous pomp, foolish
adulation, and selfish avarice” (Lyon’s Case, 15
F Cas 1183 [D Vermont 1798] [No 8646])
Vermont voters reelected Lyon while he was in
jail Jefferson, after winning the election and
assuming office, pardoned all persons convicted
under the act
In the 1820s and 1830s, as the movement to
abolish SLAVERY grew in size and force in the
South, Southern states began to enact seditious
libel laws Most of these laws were used to
prosecute persons critical of slavery, and they
were abolished after the Civil War The federal government was no less defensive; Congress enacted seditious conspiracy laws before the Civil War aimed at persons advocating secession from the United States These laws were the precursors to the present-day federal seditious conspiracy statutes
In the late nineteenth century, Congress and the states began to enact new limits on speech, most notably statutes prohibiting OBSCENITY At the outset of WORLD WAR I, Congress passed legislation designed to suppress antiwar speech
TheESPIONAGE ACT OF1917 (ch 30, tit 1, § 3, 40 Stat 219), as amended by ch 75, § 1, 40 Stat 553, put a number of pacifists into prison Socialist leaderEUGENE V.DEBSwas convicted for making an antiwar speech in Canton, Ohio (Debs v United States, 249 U.S 211, 39 S Ct 252, 63 L Ed 566 [1919]) Charles T Schenck and Elizabeth Baer were convicted for circulating to military recruits
a leaflet that advocated opposition to the draft and suggested that the draft violated the Thir-teenth Amendment’s ban onINVOLUNTARY SERVI-TUDE(Schenck v United States, 249 U.S 47, 39 S
Ct 247, 63 L Ed 470[1919])
The U.S.SUPREME COURT did little to protect the right to criticize the government until after
1927 That year, JusticeLOUIS D.BRANDEISwrote an influential concurring opinion in Whitney v
California, 274 U.S 357, 47 S Ct 641, 71 L Ed
1095 (1927), that was to guide First Amendment
IN WITNESS WHEREOF, this Security Agreement and Assignment of Certificate of Deposit has been executed by the parties hereto
NAME NAME
ADDRESS ADDRESS
Security Agreement
A sample security agreement (continued)
ILLUSTRATION BY GGS CREATIVE RESOURCES REPRODUCED BY PERMISSION OF GALE, A PART OF CENGAGE LEARNING.
SEDITION 87