All companies must comply with laws and regulations, whether public or private. That is why effective compliance programs are crucial to business.
Legal malpractice claims and sanctions resulting from regulatory violations can devastate a company’s reputation and financial health. It makes sense that senior leaders promote best practices and encourage ethical behavior.
Federal and State Securities Laws
The Securities Act of 1933 and the Securities Exchange Act of 1934 are among the primary federal laws governing the sale or transfer of ownership interests in businesses (securities). In addition, state law — often called blue sky laws — imposes additional requirements.
Federal laws and regulations protect investors through extensive disclosures of relevant information about companies offering securities. These disclosures are mandated by the SEC and, in some cases, by state regulators. The 1933 and 1934 Acts also imposed numerous governance requirements on corporate stakeholders during the initial issuance of securities, placing substantial reporting obligations on publicly traded companies.
In addition, the SEC promulgates various rules and regulations to protect against fraud and promote investor education and protection. Specifically, the SEC’s rules prevent unfair and deceptive practices in selling securities, prohibit false and misleading statements, and ban insider trading. Private individuals can bring civil lawsuits against fraud perpetrators, resulting in their financial injury.
Securities and corporate law practice continuously evolve, often impacted by economic changes, legal/regulatory developments, or new business opportunities. The VitalLaw Securities & Corporate Law suite of online resources provides access to comprehensive and up-to-date content covering these key topics. In particular, the collections cover SEC Industry Guides; regulations under each of the 33 and 34 Acts, including Regulation S-K and Regulation S-X; and no-action and interpretive letters issued by the SEC.
Business Ethics
Business ethics is a field that explores moral and ethical problems in the workplace. It has much in common with personal ethics, but business decisions have a far more significant impact because of the number of affected people. A company’s reputation can rise or fall based on its ethical standards and it may be sued for violating laws.
Businesses must adhere to legal codes, industry regulations, marketplace standards, and a firm’s code of conduct. In addition, many other business areas require ethics, including hiring practices, environmental concerns, and corporate culture. These issues can be complex and vary widely from one company to the next.
For instance, a company that dumps chemical waste on vacant land purchased in a community will have legal and ethical implications. A company’s ethics can also be impacted by the decisions of its executives and managers, who must ensure that their actions align with the company’s stated values.
The emergence of the cooperation revolution in criminal law over the past 20 years has changed the landscape for corporations and the individuals who run them. It has made it more difficult to bring criminal charges against entities and their employees, creating a need for them to develop their internal protection programs. This puts business lawyers like Kurta Law in a position where the interests of their clients and those who seek to use their services can conflict.
FINRA
FINRA oversees the securities markets of its member broker-dealers and those of NASDAQ stock market companies and American Stock Exchange members. It also administers a dispute resolution forum and conducts and governs arbitration. The organization has several programs for members, including education and training, licensing and testing for brokers, compliance resources, and research and analysis.
Regulatory compliance focuses on ensuring that broker-dealers comply with federal laws and regulations, such as those governing sales practice supervision, anti-money laundering (AML), investment product regulation, cybersecurity, and customer information protection. Firms must also have a program for identifying and monitoring potentially suspicious transactions, adhere to Know Your Customer (KYC) requirements and maintain records of these activities.
The organization’s enforcement division investigates potential securities law violations and shares its findings with prosecutorial authorities, such as the SEC for civil actions or the Department of Justice or state attorney for criminal offenses. FINRA has also established procedures for allowing its members to self-report issues that might violate laws.
FINRA has several educational programs for its members and staff, including Virtual Compliance Boot Camps that help participants develop essential skills and knowledge for working in the field. The organization also offers a Senior Investor Protection Conference, which brings together regulatory information and effective strategies for protecting seniors and other vulnerable investors from exploitation and scams.
SEC Enforcement
The Securities and Exchange Commission’s Enforcement Division investigates violations of federal securities laws to bring legal action against alleged violators. Its resources have expanded significantly since the financial crisis, and it is one of the most specialized and sophisticated SEC units. Enforcement uses various tools to generate and advance investigations, including sophisticated analytic capabilities and cooperation with other SEC units. It also runs a whistleblower program that rewards individuals who provide information to the SEC about possible securities law violations.
In 2022, the SEC took several high-profile enforcement actions, such as cases against broker-dealers for allowing “off-channel” communications (e.g., text messages) on work-related devices, resulting in more than $1 billion in penalties; and cases against audit firms for failing to comply with professional standards on engagements for public companies. The SEC also continues to prioritize individual accountability, bringing many stand-alone actions against senior public company executives, such as Dennis Muilenburg, Boeing’s former CEO, who was charged with making materially misleading statements about the safety of the airliner’s new 737 MAX airplanes; and Ronald D. Paul, Eagle Bancorp’s former CEO, who was charged with misreporting related party loans to family trusts.
Those cases often require substantial monetary remedies, such as civil money penalties and disgorgement of illegal profits. In addition, the SEC frequently seeks and secures tailored undertakings in settled administrative proceedings that require entities to remediate problems, review policies and procedures, and enhance compliance.
