Fraud | Securities Law and the SEC | Futures
Fraud
Fraud is defined to be "an intentional perversion of truth" or
a "false misrepresentation of a matter of fact" which induces
another person to "part with some valuable thing belonging to
him or to surrender a legal right".
In addition to the traditional criminal definition of fraud,
there are many regulatory laws that have very specific rules
that must be complied with. If you do not follow these rules
to the letter, you could be charged with and convicted of fraud.
Federal Securities
Law cover a broad scope of possible types of fraud. Fraud is not limited
to the selling of bogus securities. Securities fraud also involves the sale of
legitimate securities for illegal purposes. The laws also make "insider
trading" illegal. "Insider trading" generally refers to the purchasing or
selling of securities of a company while in possession of material information
that has not been generally disclosed in the marketplace.
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Securities Law and the SEC
The Securities exist in form of notes, stocks, treasury stocks,
bonds, certificates of interest or participation in profit sharing
agreements, collateral trust certificates, preorganization certificates
or subscriptions, transferable shares, investment contracts,
voting trust certificates, certificates of deposit for a security,
and a fractional undivided interest in gas, oil, or other mineral
rights. Certain types of notes, such as a note secured by a home
mortgage or a note secured by accounts receivable or other business
assets are not securities.
There are two principle settings for buying and selling securities:
issuer transactions and trading transactions. Issuer transactions
are the means by which businessmen raise capital and involve
the sale of securities by the issuer to investor. Trading transactions
are the purchasing and selling of outstanding securities among
investors. Outstanding securities are traded through securities
markets that can be either stock exchanges or "over-the-counter".
A stock exchange provides a place, rules, and procedures for
buying and selling securities. Generally,
to have their securities sold and bought on a stock exchange,
a company must list its securities on a given exchange. Stock
exchange rules are subject to approval by the Securities
and Exchange Commission (SEC) . All transactions that do
not take place on a stock exchange are said to be executed in
the over-the-counter market, which is the residual securities
market. Only dealers and brokers who are registered with the
SEC may engage in securities business both on stock exchanges
and over-the-couner market. Most of the broker-dealers serving
the public are members of the National Association of Securities
Dealers (NASD), a national securities association registered
with SEC.
Securities regulations focus mainly on the market for common
stocks. Both federal and state laws regulate securities. Federal
securities laws are generally administrated by the Security and
Exchange Commission which was established by the Securities Exchange
act of 1934. The first of the federal securities laws enacted
was the Federal Securities Act of 1933, which regulates the public
offering and sale of securities in interstate commerce. The 1933
Act prohibits the offer or sale of a security not registered
with the Securities Exchange Commission and requires the disclosure
of certain information to the prospective security's purchaser.
The objective of the 1933 Act's registration requirements is
to enable a purchaser to make a reasoned decision based on reliable
information.
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Futures
Futures contracts and options on futures contracts exist for a wide range of
products, including agricultural products such as coffee and soybeans, livestock
such as pork bellies and cattle, natural resources such as oil and gas, precious
metal such as gold and platinum, financial instruments such as bonds and stock
indices, and currencies such as the British pound and the Japanese yen.
A futures contract is a legally binding agreement between two parties to buy
or sell in the at a specified date in the future a specific quantity of a commodity
(such as wheat, pork bellies, gold, oil, orange juice, etc.) at a specific
price, on a designated exchange. When the futures contract is entered into
the buyer and seller are agreeing on the price for a product to be delivered
or paid for, and the date for delivery and payment is known as the "settlement date." Although
actual delivery of the commodity can take place in fulfillment of the contract,
most futures contracts are actually closed out or "offset" prior to delivery.
