Securities Litigation FAQs
Ed Korsinsky, Securities Class Action Attorney.
What do securities litigators do?
The short answer is that they help to enforce the federal securities laws.
Securities litigators represent individuals and corporations in securities class actions, stock-drop cases, and derivative actions. The work is in some ways similar to criminal defense work, determining what your client has done, whether it violates securities regulations, and how to defend the case.
The federal securities laws, which include the Securities Act of 1933 and the Securities Exchange Act of 1934 (and their amendments and regulations), are intended to protect investors from fraud and other misconduct by those who buy and sell securities. The laws also regulate disclosure, and other conduct by companies whose securities are publicly traded. The laws seek to ensure that investors, have access to information about a company’s business, finances, and management so that they can make informed investment decisions.
The federal securities laws give rise to two types of lawsuits, private and government. Private lawsuits are brought on behalf of an injured party (or parties) seeking damages or other relief. Government lawsuits, which are brought by the Securities and Exchange Commission or ah U S Attorney’s Office, are typically intended to punish wrongdoing, and prevent future violations.
Although securities litigation has traditionally, involved alleged misconduct in connection with a public offering or trading of a company’s shares, today it also covers a variety of other contexts. For example, litigations may involve allegations of insider trading; violations of the Foreign Corrupt Practices Act; and so on.
What are the securities laws?
Let me start by explaining what I mean by “securities laws.” There is a whole body of law regulating how stocks and other investments can be traded, and how companies can issue them. But there are two key principles behind the laws.
First, if you sell something to someone it has to do what you say it will do. If you sell someone a stock or a bond, you have to tell them the relevant facts about your company’s health, so they can make an informed decision about whether to buy. Otherwise you’re committing fraud.
Second, if you buy a security from someone, it should be because you trust them. You should know who they are and know that they’re not selling you something fraudulent. And if something goes wrong, there should be some way to get your money back from the seller.
The classic example of this kind of crime in the past was insider trading: where someone would trade based on secret information that wasn’t available to public investors. The fact that such people could make a lot of money doing this obviously created incentives for them to act on their non-public information rather than disclose it; which in turn made markets less efficient and created opportunities for crime.
Securities laws are the laws that govern the issuance of securities and trading securities. These laws regulate the “who, what, when and how” of raising capital from investors by companies that need funds to grow.
The Securities Exchange Commission is a federal commission created by the Congress in 1934 to enforce these securities laws. The S E C administers public company accounting standards, regulates all registered broker-dealers, and regulates the securities exchanges where stocks, bonds and other securities are traded.
How long does SEC litigation take?
This is a question that is not easily answered, and depends on many variables.
As an example, cases filed by the SEC in federal court in Financial year 2010. This includes civil injunctive actions, administrative proceedings, and denials of registration applications. 14 cases were dismissed within 3 months of filing while 7 were pending between 3-6 months.
The average time to conclusion is 237 days.
Of course, that includes both trials and settlements so it will be much longer for trials. But either way, it is a very long process, which may make you wonder why anyone would settle with the Securities and Exchange Commission to begin with.
If you are curious as to know how long it takes the S E C to resolve securities litigation. A look into the EDGAR database to look up all the complaints they filed in fiscal year 2001, and found that the median time from filing to disposition was 7 months.
This is a faster rate than most complex civil litigation, the median time from filing to trial in federal district courts is currently 14 months.
The Securities and Exchange Commission says it is a lot faster than it used to be.
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