Types of Financial and Security Regulations
The activities of companies that hold or trade on securities engage in various activities while adhering to the law. The Securities Act of 1933, states that securities are any stock, bond, treasury stock, note, debenture, fractional undivided interest in gas, oil, or other mineral rights, collateral-trust certificate, evidence of indebtedness, certificate of participation or interest in any profit-sharing agreement, transferable share, investment contract, preorganization certificate or subscription, certificate of deposit for a security, or voting-trust certificate. A variety of financial and security regulations are discussed below.
Federal law determines insider trading as illegal because it leaves those who do not have inside information at a disadvantage. The company grants its officers, directors, or important shareholders ease access to its vital private information which makes then to have more advantages than other stakeholders. They can sell their shares to avoid losses from future price fall if they learn about losses or the company has lost key contracts while others are still in the dark. The law’s penalty for insider trading is to allow the corporation or a shareholder to sue the person who is part of the insider trading in the capacity of the organization to recover the short-swing profits.
The foreign corrupt practices act (FCPA) of 1997 was incorporated into the securities exchange act that was formed in 1934. FCPA curbs falsity of the financial statements by companies. The 1970s investigations by Watergate Special Prosecutor and Securities and Exchange Commission (SEC) found out that many companies that were getting US licenses or signing contracts with foreign official were bribing these officials. These companies manipulated their financial statements to hide the bribe payments to save their images. Congress had to do mitigate abuses of financial reporting by creating the FCPA that prevents the issuer, “any director, employee, officer, or agent” of an issuer or a stockholder acting as a legal representative of the issuer from using either their interstate commerce or mails corruptly to offer, promise or pay anything of value to foreign political parties, foreign officials, or candidates with the aim of convincing the official to influence the government to favor the US corporation.
The federal government of the US amended the financial regulation and created the dodd-frank act that Obama signed in 2010. The amendment improves transparency and accountability financial system hence it promotes the financial stability in the US. It also protects US taxpayer through ending bailouts, protects consumers from experiencing abusive financial services practices and ends institutions that feel that they cannot end no matter how they treat consumers.