Consumer Protection Laws Research Paper Examples

Type of paper: Research Paper

Topic: Law, Investment, Security, Stock Market, White Collar Crime, Business, Bad Faith, Fraud

Pages: 3

Words: 825

Published: 2021/02/09


The term consumer protection refers to a combination of rules, regulations, and organizations whose core aims are to safeguard consumer rights and ensure that there is accurate information in the marketplace for the users. Consumer protection laws were set up to protect customers from unscrupulous business practices and shield clients from the unfair market practices. Additionally, the law provides protection to consumers from fraudsters, scammers and identity thieves. The paper will focus on the Securities laws under the consumer protection laws.

The Securities Laws

The Security laws are very sensitive in the USA since it covers the investment of investors. The financial system in the US provides securities for citizens to invest their lifelong savings. According to the Securities Act of 1993, “the term ‘security’ means any note, stock, treasury stock, security feature, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement (The Securities and Exchange Commission).” Hence, a security involves any financial instrument that has some monetary value. The Act was put up with two core goals: to compel investors to acquire significant financial information regarding securities available public sale. Also, the Act seeks to limit deception, fraud, and misrepresentations, in the securities sale.
The Securities Industry is mostly regulated by the Federal Securities laws consisting of the Securities Act of 1933, whose principal objectives have been discussed above and the Securities Exchange Act of 1934 that regulate the securities’ purchase, trading, and sale. The federal government bureau involved in providing oversight roles in the securities industry is called Securities and Exchange Commission (SEC). Other Acts that are closely related to this industry include the Sarbanes-Oxley Act of 2002 and the Private Securities Litigation Reform Act.
The primary focus of the securities regulations is the common stocks markets. The Federal Securities Act of 1933 took effect after the Great Depression to regulate both federal and state security laws. Over time, the Act has proved to be indispensable in controlling the sale of securities and public offering among different states involved in trade. The Act stipulates that all securities for sale or offer must be registered with the Securities Exchange Commission. The Act also provides a provision for the disclosure of all essential information to the prospective buyers of the securities. Each state has the State Securities Commissioner, a body that regulates the securities industry. The state Securities Commissioner work directly with SEC to enforce the federal securities laws at the state level. Moreover, there are anti-fraud laws in most states. Also, each state has its Securities Act that governs the securities industry in each state. However, the states lack authority and power to prosecute security violators under the state laws (FindLaw).

Common Types of Securities Violations

The most common form of securities violation is referred to as Securities fraud. Securities fraud takes place when during the sale of a security; the seller uses fraud, misrepresentation or provides false statements regarding the securities offered for public sale (FindLaw). The fraud can also occur when there is theft resulting from market manipulation and theft from accounts of securities’ investors. Investment scams are also a common example of securities fraud. Investment scams involves fraudulent investors who create fraudulent investment schemes. The continuous progress of the internet and telecommunication has enabled such fraudsters to use emerging technologies to defraud gullible investors.
Another widespread form of violation of security laws involves the conduct of trustees. Trustees refers to the people an investor appoints to manage his/her securities. The laws and regulations in place provide that people entrusted to manage the securities by the investors should conduct themselves in a prudent manner (FindLaw). Any breach of duty or failure to observe due diligence can lead to the mismanagement of the securities resulting in losses for the investor.
Further, insider trading is also another common securities violation (FindLaw). Contrastingly, the term has been known by most investors to entail illegal behavior. On the other hand, there exists a legal version of the term. Legally, the term is used when directors, employees and officers of a firm that has offered its securities up for sale buy and sell the securities within their firm. Occurrences of such nature must be reported to SEC by the involved parties. The illegal version of insider trading known by investors entails buying and selling securities while possessing nonpublic information and materials directly related to the security. SEC has recognized that insider trading damages the confidence of investors in the reliability and fairness of the securities markets. As a result, SEC has put in place stringent detection and prosecution measures to deal with the vice. Other types of securities laws violations include misrepresentation and omissions, market manipulation, churning, and misappropriations.

Penalties for Securities Violations

The laws used for each particular security violation varies depending on the security being traded. For example, the regulations governing the trade of stocks may differ from the laws regulating the trade of other securities. Each security violation is punishable by law and can lead to criminal charges punishable by a jail term or fine. Some breaches can result to more serious charges like felony, especially in cases involving fabricating information about tax. Furthermore, some violations can lead civil litigations, especially those involving mismanagement by trustees. Hence, it is vital for key players in the securities industry to observe due diligence and honest to ensure just and fair operations in the industry.

Works Cited

FindLaw. "Securities Law: An Overview - FindLaw." Findlaw. N.p., 2014. Web. 10 Apr. 2015. <>.
The Securities and Exchange Commision. SECURITIES ACT OF 1933. The US Government Publishing Office, 2012. Web. 10 Apr. 2015. <>.

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Consumer Protection Laws Research Paper Examples. Free Essay Examples - Published Feb 09, 2021. Accessed August 12, 2022.

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