Definition of Securities Law

A security can be a: stock, which represents part ownership of a company; bond, which is like an “IOU” from a company to an individual; or an option, which is the right to buy something in the future at a predetermined price. Corporations, governments, and individuals buy and sell securities as a way of investing and growing their money.

Deciding which kind of security to buy and from which company requires a good deal of research and analysis. Since so many people rely on securities investments to save money, the federal government has a set of laws which require companies who sell securities to truthfully report their assets, liabilities, and other accounting facts on a regular basis. These ensure that people do not use their hard earned cash buying securities that are doomed to fail. The federal government also has laws preventing securities buyers from “gaming the system” by using secret information to buy or sell stock. Finally, there are also laws about what stockbrokers may do on behalf of their clients. These groups of laws comprise securities law.

Terms to Know

• Unauthorized Trading: A trade a broker makes without specific permission from his client.
• Churning: Churning occurs when a broker makes multiple trades without his client’s permission for the sole purpose of boosting commissions.
• Insider Trading: If a corporate executive or another person with confidential information trades stock on the basis of that confidential information, that person is guilty of insider trading.
• Class Action Lawsuit: A lawsuit with a great many plaintiffs who all have the same or substantially similar complaints.

Practice Area Notes

Securities lawyers work in many different areas. Often, these lawyers work for big corporations to help these corporations comply with securities laws. They may also work as litigators in both civil and criminal courts to help enforce securities laws. Finally, the Securities and Exchange Commission, which administers federal securities laws, employs a good deal of attorneys to make sure companies and traders are following securities law.

Learn more about this area of law on our securities law legal answers page.

Related Practice Areas

• Civil Litigation: Much of the securities law enforcement takes place in the civil court.
• White Collar Crime: Many of the white collar crimes involve securities law. violations.
• Consumer Protection: Securities law exists, in part, to protect everyday consumers of the banking system.
• Retirement Planning: Everyday people rely on their investments in securities to ensure their financial well-being into retirement.