What Are Company Abuses Under Securities Law?
One of the main reasons security laws exist is to prevent abuses by company officers and employees. Abuses don't necessarily have to arise from deliberate actions, and that's why it's wise for every business that issues securities to hire a corporate lawyer. Let's look at three common problems you might need to discuss with a securities law attorney.
Insider Trading
Modern companies, especially stockholding ones, produce impressive amounts of data. Unsurprisingly, a lot of that data can drive reactions in the stock market. People with inside information, if they were to trade on such information, would have an advantage compared to everyone else in the market. For this reason, it is illegal to utilize this information in making trades and to provide it to others.
There are processes in place for insiders to buy and sell shares. Usually, there is a window of time during which insiders can trade, but you should always consult with your company's corporate lawyer before you make a trade.
Fraud
As bad as it might be to move the market based on accurate information, it's arguably scarier if someone pushes false. This is especially the case when it comes to driving the valuation of securities. A firm holding an IPO, for example, has to be careful how it represents its assets, debts, profits, losses and long-term prospects. Any questionable statements put out to the public runs the risk of moving the market, and the law allows these claims to be prosecuted as fraud.
Punishments for fraud usually include jail time and fines. More importantly, at least from the viewpoints of many traders and company officers, they may be prevented from trading in securities either for limited periods or even for the rest of their lives.
Market Manipulation
You don't have to trade securities very long to learn that the markets can be spooked, and that has become a bigger problem in the age of trading algorithms. Price movements, even ones that are driven by information whether it's true or false, can also cause market swings. Deliberately driving this sort of activity to push prices up or down or to drive volume is considered a form of market manipulation, and it can be treated as a crime. As with virtually all corporate activities relating to securities, make sure you seek counsel before making any buying or selling moves that might be seen as manipulating the market.
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