Securities Law by sofiaie


									Securities Law

Breena Meng

Enron, WorldCom, Quest, Parmalat, Martha Stewart—securities
litigation has been at the forefront of American consciousness
(and often the leading news story) for the past two years. At a
time when more Americans than ever before have had access to
investment opportunities, the future of securities law finds itself at
a cross-road. Gone are the heady dot-com days in which people eagerly checked the stock market
every morning, if only to view their overnight double-digit gains. Now, the securities industry
has been rocked by waves of scandal, some so infamous that the company name has a place of
dubious honor on the Securities and Exchange Commission‟s homepage (look for Enron on the
lower left hand corner of the screen).

Securities scandals have left many investors feeling misled and betrayed, and the number of
potential plaintiffs increases everyday. For the seasoned securities lawyer, this presents a large
yet manageable workload. For the new securities lawyer, it can be a daunting nightmare. Because
the scope of securities law is extremely large, this presentation has been tailored to provide a guide
to plaintiff‟s council. This presentation is not intended to be exhaustive; however, it is intended to
give the new securities lawyer an easy to read resource and starting point.

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               Important Note
The primary basis for claims will either be a federal statutory
violation or a common law claim. Although many states have
“blue sky” laws (state securities laws) which closely follow
federal statues and allow a private right of action, some
states do not allow their citizens a private right of action
against securities brokers/firms. It is imperative that
every securities lawyer check their particular jurisdiction
before filing a claim to ensure that the claim and case
theory are both valid.

Therefore, a prudent securities lawyer could utilize the following research strategy:
1. Evaluate the applicable state statutes
2. Evaluate the applicable federal statutes
3. Decide on a common law or federal claim
4. For background reading, consult a looseleaf service or legal encyclopedia
5. Search the federal and state agency websites for other regulations (for a listing of all
        state agency sites, please refer to the „Government Websites‟ section on the Internet
6. Find applicable case law (ideally) within your jurisdiction
7. Research broker obligations by utilizing industry websites
8. Create a strategic case theory
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Securities Acronyms…Learning the
   ADR—American Depository Receipt
   AMEX—American Stock Exchange
   Board—Federal Reserve Board
   Dow—Dow Jones Industrial
   FRB—Federal Reserve Board
   Fed—chair of the Federal Reserve Board
   IPO—initial public offering
   MIDAS--Market Information Data Access System
   NYSE—New York Stock Exchange
   OTC—over-the counter securities
   PSLRA—the Private Securities Litigation Reform Act of 1995
   SEC—Securities and Exchange Commission

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          Commonly Used Securities Terms

   Aftermarket—Trading a security immediately following its initial offering to the public.
   Ask price—The price at which the firm will sell a share of its stock.
   Bear market—A market in which securities prices are low or declining.
   Bid/ask spread—The difference between the price a seller will pay (bid price) and the price
    the firm will sell (ask price) a stock. The difference (spread) increases or decreases
    according to the supply and demand for the stock offered.
   Bid price (also called buy price)—The price at which the seller will buy a share of stock.
   Bull market—A market in which securities prices are high or rising.
   Commodity—a generic, largely unprocessed good. Commodities are frequently grains,
    livestock, or metals.
   Dividend—Payment of cash or stock given to shareholders at the direction of the board of
   Market order—An order to buy or sell a stock at the best possible price at the time the order
    was received.
   Out-of-pocket loss--The difference between the value of what the purchaser parted with, and
    the value of what he or she has received.
   Secondary offering (also called secondary distribution)—An offering of a stock that has
    already been issued to the public. The stock may have been held by large investors or
    institutions. Proceeds from the sale go to these holders.
   Security—evidence of a debt or property ownership
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Practice Materials

                         What are they?
  Practice materials are resources for practicing attorneys.
Often these materials are written by an expert in the particular
     field of law. The aim of practice materials is to give
            practitioners a “real life” view of the law.
Looseleaf Services

Securities Litigation: Damages.                    Chapter 5A—The Sarbanes-Oxley Act of
Michael J. Kaufman.                                2002
West Group—KF 1439. K38 v. 26                      Chapter 5B—The Sarbanes-Oxley Act‟s
Volume 26                                          unnoticed enhancement of private civil
Chapter 1—Overview                                 liability under the Securities Law
Chapter 2—Regulation of Limited                    Chapter 6—Section 11, Securities Act of
Liability Companies under the Federal              1933
Securities Laws                                    Chapter 7—Damages for Violations of
Chapter 3—The Private Securities                   Section 12, Securities Act of 1933
Litigation Reform Act of 1995                      Chapter 8—Sections 9(c), 16(b), and 18
Chapter 4—Empirical Analysis of Class              Damages
Action Securities Litigation under the             Chapter 9—Nature of Implied Remedies
Private Securities Litigation Reform Act           Chapter 10—Rule 10b-5
Chapter 5—The Scope of Federal                     Chapter 11—Loss Causation in Rule
Securities Regulation                              10b-5 Cases
                                                   Chapter 12—Statutory Guidance for Rule
                                                   10b-5 Damages

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Federal Materials

American Jurisprudence Trials:
   Broker-Dealer Fraud: Churning, 36
    Am. Jur. Trials 1.
   Stockbroker Liability Litigation, 88
    Am. Jur. Trials 1
American Jurisprudence Proof of
   Legal Malpractice In A Securities
    Offering, 22 Am. Jur. POF 3d 559.
   Participation By Corporate
    Participation By Corporate Officer In
    Illegal Issuance of Securities, 9 Am.
    Jur. POF 2d 577.
   Proof of A “Security” Under Federal
    and State Statutes, 22 Am. Jur. POF
    3d 485.
   Proof of Unsuitable and Unsuitable
    and Unauthorized Trading by
    Securities Brokers, 28 Am. Jur. POF
    3d 87.

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Am. Jur. Pleadings and Practice:                       Causes of Action:
  22 Am Jur Pl & Pr Forms, Securities                   Securities Fraud Under § 10(b) of
   Regulation—Complaint in federal court—                 the 1934 Securities Exchange Act
   Action based on violation of Securities and            and/or Rule 10b-5
   Exchange Act—Allegations—Claim for
   declaratory relief—Validity of contract, §                Expert proof, 9 COA 2d 271 §
   13, Volume 22, KF 8836. A45 v. 22 2001,                     73
   2001.                                                     Misrepresentation or omission,
  22 Am Jur Pl & Pr Forms, Securities                         9 COA 2d 271 §§ 5, 16-18, 31
   Regulation—Complaint in federal court—                    Statute of Limitations, 9 COA
   By client against brokerage firm and
   broker—Fraudulent mismanagement of                          2d 271 § 38
   short and margin accounts, § 27, Volume
   22A, KF 8836. A45 v. 22 2001, 2001.
  22 Am Jur Pl & Pr Forms, Securities
   Regulation—Complaint in federal court—
   By stockholders—For accounting and
   Damages for insider trading, § 51, Volume
   22A, KF 8836. A45 v. 22A 2001, 2001.

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Moore’s Federal Practice                         Wright’s Federal Practice
KF8840 .M633                                     and Procedure
  Securities Laws                               KF8840 .W68
      Discovery in securities actions,             Securities
         scope of…26.46[14]                            Discovery, relevancy of
      Pleading requirements under                         material sought, Civ § 2009
         Private Securities Litigation                 Limitation of actions, federal
         Reform Act for alleging                           common law, Juris § 4519
         securities fraud…8.04[8][b];                  Sales, fraud, pleading, Civ §
         9.03[6][a]; 9.10[1]                               1297
      Rule 11 Sanctions under

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Applicable Forms
Examples of forms required by the
Securities and Exchange Commission:
   Insiders (Officers, Directors & Significant Shareholders)
   Proxy Statements & Tender Offer and Acquisition Statements
   Investment Adviser Forms
   Broker-Dealer Registration & Reporting
   SROs, Exchanges & Alternate Trading Systems

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State Materials

West’s Colorado Law Finder
   Securities
      Investor protection U.S.C.A. 15
          § 78aaa et seq.
      Secured Transactions C.J.S.
          Secured Transactions § 1 et
      Whistleblowers U.S.C.A. 18 §
West’s Colorado Practice
   Part I. Business Organizations
      § 1.41 Issuance of Stock—
          Securities Law Requirements
      § 3.61 Securities

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Colorado Law Annotated:
   Securities
      § 32.1. Liability for Misrepresentations and Omissions by Seller of Securities
        Under the Colorado Securities Act
           • A. Statutory Scheme
           • B. Definition of a Security—Generally, investment contracts
           • C. Elements of claim—Generally
           • D. Elements of claim—State of mind
           • E. Elements of claim—Materiality
           • F. Statute of Limitations
           • G. Arbitration
           • H. Attorney fees
           • I. Claims under Securities Act in federal court
           • J. Collateral references
Applicable Forms:
   Please see previous reference to the required SEC forms, Colorado forms, and Am Jur
    Pleading and Practice.
   American Jurisprudence Legal Forms, KF170 .A542
   Form Drafting Checklist: Am Jur Practice Guide, KF170 .F67

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         Other Materials

Jury Instructions:
   Colo. Jury Instr., Civil 9:1 (4th ed.)
    (negligence—general concepts)
   Colo. Jury Instr., Civil 19:2 (4th ed.)
    (nondisclosure or concealment—elements of
   Colo. Jury Instr., Civil 19:4 (4th ed.) (material
   Colo. Jury Instr., Civil 19:5 (4th ed.)
    (nondisclosure—duty to disclose)
Self Help Books:
   Federal Securities Laws: Selected Statutes,
    Rules and Forms, 2004 Edition by John C.
    Coffee Jr. and Joel Seligman, ISBN—
   Securities Offerings, magazine subscription,
   United States Securities Law: A Practical
    Guide by James M. Bartos, ISBN—

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    Securities litigation is a complex, rapidly changing, and
   engaging field of law. Although “securities law” is a broad
 term encompassing many concepts, it is important to narrow
the scope of the search to the particular legal question before
 you. Utilizing this strategy, securities law research becomes
                        more manageable.
The End

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