“Securities,” which are governed and enforced by the Securities and Exchange Commission, include stocks, bonds, options, and futures that are the core of most investment portfolios. We counsel our clients on the complex legal framework that the Securities Act of 1933 and the Securities Exchange Act of 1934 created for both the registration and initial sale of securities, and their purchase and sale in the aftermarket by members of the public.
The securities laws are enforced by the Securities and Exchange Commission as well as by state securities commissions, who initiate investigations and bring suit against individuals and companies deemed not to be in compliance with the securities laws. Much litigation under the securities laws, however, occurs between private parties. Thus, a shareholder who has overpaid for his or her stock — typically evinced by a sudden drop in price, often accompanied by outsized trading volume — may sue the issuer and its officers and directors to recover the overcharge. Cases against stockbrokers for violation of the rules that govern their conduct towards their customers (e.g., “churning,” or excessive trading for the primary purpose of realizing excess commissions) are often adjudicated by arbitration. Where a public company’s officers or directors have engaged in conduct that has damaged the company (e.g., subjecting the enterprise to criminal or regulatory charges that result in the payment of substantial fines or monetary penalties), a shareholder may under appropriate circumstances institute a shareholder derivative action on the company’s behalf to recover the damages sustained as a result of the officers’ and directors’ conduct. Where a large-scale corporate transaction (frequently a merger or acquisition) occurs, a shareholder of the target company may bring suit alleging inadequacy of the proposed acquisition. Where a corporation elicits proxies from its shareholders in order to embark on a course of action, an individual may bring suit to force the company to correct misleading statements that appear in the proxy statement.
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