Securities

P R A C T I C E A R E A S - S e c u r i t i e s

Our firm represents selected individuals and businesses involving claims of securities fraud and misconduct in the sale of securities and in public and private placements under federal and state statutes and regulations.

What is Securities Law?
Securities Law involves the rules and regulations that regulate the issuance and the sales of securities. In addition, the law also regulates securities professionals and the organized stock markets. The Securities and Exchange Commission regulates the securities industry on the federal level. Two federal rules largely regulate the entire industry, the Securities Act of 1933, and the Securities Exchange Act of 1934. There are also state laws that are generally administered by the Office of the Secretary of State.

The Securities Act of 1933, through a complex regulatory scheme, ensures adequate disclosure by corporations when they offer their securities. The Securities Exchange Act of 1934 deals primarily with stock trading, that is, the buying and selling of securities after their original issuance.

What is a security?
Securities are any note, stock, bond, interest in or participation in a profit-sharing agreement, investment contract, voting trust certificate, fractional undivided interest in oil, gas or other mineral rights, or any warrant, pre-emptive right, or option to subscribe to, or purchase, any of the foregoing. This also includes annuities and other products. This sounds difficult, but in its most basic form, a security is a monetary interest in a corporation.

How is a security purchased?
You can buy a security directly from the issuing company; however, few corporations offer this service. Most purchasers go through a brokerage firm, which will locate a seller or a buyer for your stock. In addition, securities in a company may be purchased through a mutual fund. This is beneficial if you are not certain of your investment decisions. A mutual fund is an investment company that will invest your money in numerous stocks, and a professional manager determines which companies to buy and to sell.

What are the rights of a shareholder's?
The Corporation?s articles of incorporation define the rights of the individual shareholders. Three basic rights are usually granted: (1) voting rights for the election of the board of directors and on all major structural changes (amendment of the articles, sale of substantially all of the corporate assets not in the regular course of business, and voluntary dissolution), (2) rights to dividends if declared by the board of directors, and (3) monetary liquidation rights at liquidation after all creditors are paid.

What is insider trading?
As the term is used in everyday conversation, a person engages in "insider trading" if he buys or sells stock in a publicly traded company based on material, non-public information about that company. The classic example of insider trading occurs when a high ranking official of a company learns of some favorable development concerning his company, and buys stock in the company before the good news is disclosed to the public.

Example: Mr. Big is the president of Big Oil Co., whose business is exploring for and then drilling for oil. Oil Company?s stock is publicly traded. Investors interested in the company know that Big Oil has been exploring a tract of land located on a small island in eastern Asia that most geologists consider unpromising.

On January 1, Mr. Big learns that his exploration team has made a major development. It appears that his team has located a major oil well on the island. Mr. Big immediately orders his team to be quiet and buys 20,000 shares of Big Oil Co. on the New York Stock Exchange at $20 dollars a share. The next day, Mr. Big orders a press release announcing "We hit it big, major gusher found!" The stock immediately jumps to $30 dollars a share. Mr. Big then sells 10,000 shares for a profit of 100,000 dollars. Not only has Mr. Big traded on material non-public information, but his trading is illegal. As a result of his actions, Mr. Big may face both criminal and civil liability.

How does a securities broker get paid?
If you buy stock, you will most likely go through a stockbroker at a brokerage firm. This broker will earn his income based on a commission. This commission is intended to compensate the broker for finding a buyer for your stock if you intend to sell, or a seller if you are buying.

What are the duties of a broker?
In return for their commission, brokers are expected to provide the client with full disclosure of the stock, the financial background of the company, the rate of commission, and other important facts that a client should know before buying or selling that stock.

This is a very complex area of law. Be sure to consult carefully with your attorney.

OSHEROW, SHINER & ASSOCIATES, P.A., BOCA CORPORATE PLAZA, SUITE 650, 7900 GLADES ROAD, BOCA RATON, FLORIDA 33434
TELEPHONE: (561) 477-5054 FACSIMILE: (561) 477-3661 www.osherowlaw.com E-MAIL: mrosh@osherowlaw.com