Investing your hard-earned cash can be a daunting experience but it can be worth it if you take the time to learn about it. The world of stock market investing is highly regimented and stringent laws have been put in place over the years to protect both the investor and the investee.
There have been many instances where unscrupulous people have found loopholes in the system to swindle unsuspecting people out of their money without facing repercussions. Luckily, lawmakers have worked and continue to work hard to close up these loopholes to make the investment game a more transparent and honest venture for all those concerned.
Securities Act of 1933
Otherwise known as the “truth in securities” law, the Securities Act of 1933 was initially created to essentially protect investors from fraud and deceit and to make sure that there is open financial information given to anyone who is investing in bonds and shares, which are known as securities.
The law states that any securities sold in the United States must be registered and that any business that is selling shares on the market gives full disclosure to potential investors. This includes the nature and purpose of the business and independently certified financial statements.
Trust Indenture Act of 1939
Certain debt securities that are registered under the Securities Act may have to have an agreement with the bondholder and the issuer of bonds if the latter wishes to venture into public sale. This is the Trust Indenture Act and it is required to be adhered to. If you were to buy Australian shares, for example, then under this act there has to be a formal agreement between both parties in order to do so.
Securities Exchange Act of 1934
The Securities and Exchange Commission (SEC) was created because of this Act to oversee all aspects of the financial world be it clearing agencies, transfer agents, or brokerages firms. The SEC has the authority to be given regular financial information from publicly trading companies, which is also freely available to the public.
This law allows the SEC to recommend and even administer punitive actions to any regulated active companies and any liable people within them. The history of public trading has been fraught with insider trading and the SEC was formed to counteract dodgy dealings in the trading world.
Sarbanes-Oxley Act of 2002
This Act was signed into law in 2002 to promote even further transparency from corporations in order to continue to dissuade individuals from perpetrating fraud. It was mainly created to mandate the financial record keeping and reporting for major corporations. It was named after two politicians, Democrat senator Paul Sarbanes and republican U.S. representative Michael G.Oxley.
President George W Bush signed the Act in July 2002 and considered it a major step in corporation culpability reforms. He even considered one of the most important reforms since the tenure of Franklin D. Roosevelt and he said, quote, “The era of low standards and false profits is over; no boardroom in America is above or beyond the law.” This is a great help for U.S. investors as it gives them more confidence when it comes to deciding where and with who to invest their money.
Though these are the main federal US laws in regards to investing, each state will also have its own laws regarding taxation and other important aspects of investing so it is advised to do your research thoroughly if you are considering creating a portfolio.