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What Does a Securities Attorney Do?

Sep 9, 2022 Articles

Securities attorneys specialize in laws that govern investments, brokers, brokerage firms, and financial advisors. Investors hire securities attorneys when they have suffered substantial losses, especially if they communicated to their broker that they exclusively wanted safe investments.

5 Things Securities Attorneys Do

  1. Research Investment Products. Often, when an investor has suffered tremendous losses with a financial product – such as GWG L Bonds, the Highlands REIT, or the alleged Ponzi scheme Horizon Private Equity – the investor is not alone. Your securities attorney will likely be familiar with the investment product, and which part of the investment strategy led to losses.
  2. Provide Expert Knowledge of the Field. Securities law is a relatively small field, and your securities attorney usually has insight into the brokerage firm and any history of misconduct. For example, FINRA is required to supervise its brokers to ensure they only recommend investments that suit their client’s needs, and many firms, unfortunately, have a history of failing to supervise. In some cases, brokerage firms have blatantly allowed fraud to occur.
  3. Research FINRA Arbitrators. When you enter into FINRA arbitration to recover losses, your securities attorney will guide you through the FINRA arbitrator selection process. A securities attorney can examine an arbitrator’s record to see how favorable their previous awards have been for investors. Some arbitrators are notoriously industry-friendly, and our securities attorneys will make sure to strike these from your list of possible arbitrators.
  4. Arbitration Discovery. The discovery process for FINRA arbitration is different from what you would encounter in a civil trial. Your securities litigation attorney will make sure you have all the documentation you need and will help you steer clear of any manipulation by the brokerage firm. Firms will often attempt to deny a claim or settle for far less than they rightfully owe the investor.
  5. Understand the Complexities of Securities Law. Securities laws and regulations are updated on a regular basis, and securities attorneys know the latest development in securities laws and regulations. For instance, FINRA began enforcing Regulation Best Interest in 2022, which requires brokerage firms to disclose any potential conflicts of interest, as well as any past disciplinary actions.

Because securities attorneys are experts in such a niche area of the law, they understand the complex rules and regulations, which have evolved over time. The Acts below provide a glimpse into some of the laws designed to help us help protect investors.

Securities Law: From the Stock Market Crash to Today

Regulation Best Interest is only the latest major change to securities law and regulations. Keep reading for more information on the securities laws meant to protect investors from misconduct by financial institutions. These niche rules and regulations make a securities attorney’s guidance extremely helpful when filing a complaint against your brokerage firm.

Glass-Steagall Act

Following the Wall Street crash of 1929, Congress passed the Glass-Steagall Act to separate investment banks from commercial banks. Before the crash, commercial banks invested their customers’ money in overly risky investments, which is one factor that drove the crash. Investing with leverage, a.k.a. borrowed money, was another factor. This type of investing is also known as margin investing.

The Glass-Steagall Act also created insurance for bank deposits, which is why banks today are backed by the Federal Deposit Insurance Incorporation (FDIC). If a bank goes out of business, the bank’s customers do not need to worry about losing the money in their accounts.

Securities Act of 1933

The Securities Act of 1933 was designed to restore American investors’ faith in the stock market. To prevent fraudulent offerings, The Securities Act prohibited the use of fraud or other manipulative devices to persuade investors to purchase securities. It also required issuers to register their offerings. To register, issuers had to submit a prospectus. A prospectus is a document that includes information about the issuing company’s financials, a description of the investment, and any potential risks to the investor.

Securities Act of 1934

The Securities Act of 1934 established the Securities Exchange Commission, the regulator that oversees security registration. This Exchange Act also introduced rules overseeing the sale of securities on the secondary market – i.e., financial products sold by a brokerage firm instead of directly to the consumer from the issuer.

Investment Company Act and Investment Advisers Act of 1940

The Investment Company Act regulates the formation of investment companies. Examples of investment companies include Business Development Companies (BDCs), mutual funds, closed-end funds, and unit investment trusts (UITs).

1975 Securities Act Amendment

This Act granted the SEC the authority to oversee other regulatory organizations, like FINRA. It also established statutory requirements for a stock exchange to establish itself as a national exchange.

2002 The Sarbanes-Oxley Act

This Act was a response to the Enron scandal where an energy company named Enron went bankrupt in 2001, following years of accounting fraud that allowed the company to conceal billions of dollars in debt. Following the bankruptcy, employees lost billions in pensions. The investigation revealed that executives had destroyed documents relevant to the SEC investigation. The Sarbanes-Oxley Act imposed stricter rules for corporate recordkeeping and harsher penalties for the destruction of financial records.

2002 Uniform Securities Act

Certain securities are overseen by state regulators, and the Uniform Securities Act serves as a guide for state securities regulations. These are also called “Blue Sky Laws.” The primary goal of this Act is to provide some uniformity between regulations throughout the country.

2008 Dodd-Frank Wall Street Reform and Consumer Protection

Dodd-Frank established the Financial Stability Oversight Council to oversee the major financial firms. This Act followed the Financial Crisis of 2007-2008 when the housing bubble burst and many financial firms were forced to reckon with the consequences of their predatory loans to unqualified homeowners. Once again, the use of leverage and overly risky investments by financial institutions preceded the crisis.

What Should I Do as a Victim of Fraud or Misconduct?

Your brokerage firm and broker or financial adviser are subject to federal and state securities laws. Speak to a securities attorney to find out if you have a case for FINRA arbitration. The sooner you file a claim, the sooner you will have your financial future back on track. Contact us at (877) 600-0098 or info@kurtalawfirm.com.