Securities and Financial Regulation
What is Securities Law?
A security is an investment in a business.It can take the form of shares of stock, bonds, a package of loans or mortgages offered for sale by a financial institution or a financial instrument representing investment in a company or an international project. Securities law is part transactional (i.e., if a bunch of loans are grouped together and then sold as a security to a financial institution or investor group), part regulatory (i.e., the issuance of securities is heavily regulated by the SEC) and part litigation (i.e., when investors file a lawsuit against an issuer of a security alleging fraud in connection with its purchase or sale).
Both state and federal laws regulate the issuance of securities. The Securities Act of 1933 is the federal law that requires that securities sold to the public be registered with the SEC and that complete information about the seller and the stock offering is made available to investors. The Securities Act of 1934 regulates the operation of stock exchanges and trading.One major responsibility of Securities lawyers is helping their clients navigate these complicated federal and state regulations.
Most financial transactions (other than a loan from a bank or a group of banks) requires the issuance of securities (some of which need to be registered under federal and state laws or shown to be exempt from those laws). In these cases, lawyers determine whether the transaction should be structured to include securities that must be registered; consider the tax implications of the transaction; negotiate the term of the security; negotiate agreements with possible third parties who are involved in the financing (e.g., brokers and underwriters); prepare disclosure documents; and take whatever other steps are necessary to close the transaction.
There are both public and private offerings of securities. A public offering is when the security is offered to the public – usually in the context of a bank acting as an underwriter and purchasing the entire security issue for a specified price for resale to the public. This requires a letter of agreement and the filing of a disclosure statement with the SEC. Disclosure statements can be very complicated (and may include information about the stock issuer’s business, liabilities, financial condition and future business prospects), but through completing the statement, lawyers become very familiar with the company, its staff and its operations. Usually the offering requires an SEC review and extensive conversations between the SEC and the lawyer representing the offering organization. Once the SEC is satisfied that disclosure has been appropriately made, the registration statement is effective and the sale of securities may begin.
On the other hand, a private security offering is just the sale of equity or debt to a limited group of investors. A private offering does not require that the issuing company file a disclosure statement with the SEC, but it does require that a private statement of disclosure is distributed to potential investors.
Once a registration statement is effective, compliance with the Securities Acts of 1933 and 1934 kicks in. The Acts require the filing of regular reports to keep the public security holders informed about the state of the organization. Issuers must also file quarterly and annual reports which describe the organization’s operational and financial condition. If there is a “voting class” of stock, the organization must prepare and distribute proxy statements that allow shareholders to vote at the annual meeting. There are also requirements about what directors, officers and significant shareholders must disclose about their ownership interest. If the stock is traded on a stock exchange, the organization must also comply with the rules that govern that exchange.
What do Securities Lawyers do?
A lot of a securities lawyer’s practice revolves around counseling clients (which may be public or private corporations, brokerage houses or small businesses) who are trying to raise capital, or individual investors who believe that their investment was mishandled or that they were misled during the investment process. It also involves gathering the disclosure documents and ensuring their compliance with SEC regulations. If you’re at a larger firm dealing with larger clients, you might advise them on how to “go public,” ensure that they are complying with relevant securities laws, and aid them with issues related to expansion and ongoing capital requirements.
A lot of a securities lawyer’s time is spent on the phone and in conferences with clients. The time spent not on the phone or in meetings may be spent handling litigation or assembling documents needed for public offerings. Securities litigation work is much like other types of litigation – drafting documents, conducting discovery, doing legal research and preparing materials for hearings. Because brokerage accounts often require that disputes be handled in arbitration, rather than through the court system, a lawyer may spend quite a bit of time preparing for arbitration before the National Association of Securities Dealers. The public offering work that a securities lawyer might do requires a lot of data gathering – information about the company, its officers and directors, history, etc.
Securities Law Resources
Relevant Bar Associations
- Securities Litigation Section of the ABA
- ABA Federal Regulation of Securities Committee
- Securities Law Section of the Federal Bar Association
- Public Investors Arbitration Bar Association
- Corporate Finance and Securities Section of the DC Bar
Where it’s Hot
Because a securities lawyer’s client base is largely investors, brokerage houses, financial institutions and corporations, a lot of securities work is done in New York. It’s also hot in Washington, DC because of the presence of the SEC. But there are firms – usually large ones – who have securities practices outside of these two main cities.
- Government: U.S. Securities & Exchange Commission; U.S. Commodity Futures Trading Commission; state commissions on securities regulation (Guide to State Securities Administrators and OPICS Guide to the U.S. Financial Regulatory Industry)
- Large Law Firms (Chambers & Partners List of Top Securities Regulation Firms)
- Small/Medium Boutique Firms
- Trade Associations: National Association of Securities Dealers