Violation of Federal Security Law - Assignment Example

Midterm Examination I. Definition of Terms a. The Registration Process (Securities Law) This is the process of registering securities sold or offered in the US, which starts with the formal filing of a registration certificate with the US Security Exchange Commission (SEC). The registration forms used describe the business and its properties, the security the company seeks to offer, information about the company’s management, and financial statements duly certified by independent auditors (SEC, “Laws that Govern”). b. Formal vs. Informal Rule Making (Administrative Law) Using the Supreme Court’s definition, formal rule making requirements only take place in instances that the Congress required ‘on the record’ procedures during the rulemaking process. On the other hand, informal rule making procedures occur in instances whereby an agency publishes legislative procedures or rule making is consistent with the authority delegated by the Congress (Burrows and Garvey). c. Ad Substantial Rule vs. Corrective Advertising Rule (Federal Trade Advertising Rules) According to the Federal Trade Commission (FTC), the ad substantial rule seeks to maintain a marketplace that was free of any unfair and deceptive practices or acts in which advertisement of products was factual and truthful. Conversely, the corrective advertising rule is a remedy to prevent future misleading beliefs existing in the public due to past deceptive advertisements (Pelgro 938). d. The Environmental Impact Statement, and the threshold thereof. (Environmental Law) Known as EIS, this document provides for the description of the impacts on the environment because of a proposed action. It also provides for the impacts of alternative impacts and plans to make the alternative impacts less severe or remove the negative impacts. In order to meet the threshold of an EIS, the National Environmental Policy Act of 1969 (NEPA) regulations require a detailed discussion of the proposed action and provision of a range of alternatives that were reasonable (Depleted UF). e. Commercial vs. Noncommercial Speech (Constitutional Law) Companies and individuals will engage in speech with intent of making a profit. This speech is commercial speech, and it is economic in nature with an intention of convincing people to participate a particular action. Conversely, the intent of noncommercial speech is not economical. In effect, the commercial speech has a limited measure of protection in comparison to noncommercial speech (Delta and Matsuura). II. General Essays a. Constitutional Law The commercial clause, which is a definite article in the constitution of the US, confers the Congress with the power to regulate commercial activities with foreign countries, between several states, and with the Indian Tribes (“The Commercial Clause”). The main advantage of the commercial clause was its nature in ensuring that Congress regulated trade and commerce, which was not the case prior to the clause since states had interfered with Articles of the Confederate. In fact, Webster argued in Gibbons v. Ogden that the commercial clause brought uniformity amongst states in the country, which rescued trade and commercial activities from embarrassing and catastrophic consequences (The Commercial Clause). In addition, the commercial clause checks on the taxes states imposed on trade and commerce, while at the same time acts to regulate interstate commerce, which ensured that states did not engage in unfair practices (“The Commercial Clause”). b. Consumer Credit Protection With the advent of credit cards, various problems arose from their continual use although a number of acts were enacted to protect consumers. First, the consumers were not aware of the terms and conditions associated with a credit card since the credit card issuers were not open with this information. In order to protect the consumers, the truth-in-lending act (1968) requires the creditors to inform potential consumers about the terms, charges, and any other information so that the consumer can make an informed decision regarding the service (Score Info). Another problem that arose with the use of credit cards regarded the failure of credit agencies to have accurate information regarding the consumers use of the card. In order to protect the consumers, the fair credit-reporting act (1970) regulated the use of a consumer’s personal information by consumer reporting agencies. In effect, this protects consumers from inaccurate and misleading information, which also provides for the need of a consumer to correct the information (Score Info). The third major problem related to the unfair approaches that companies and agencies used when collecting debts from consumers. Hence, the fair debt collection act (1977) details the regulations that an agency must follow while collecting its debts. Overall, the act prohibits the lenders from using abusive tactics while collecting the debts (Score Info). Finally, there was a problem related to the discrimination of people in obtaining credit cards by virtue of color, sex, race, sex, age, nationality, economic status, and other factors. However, the equal credit opportunity act (1974) prohibits credit agencies from discriminating against an individual based on these aspects (Score Info). c. Administrative Law Regulatory agencies have become an important part of the governance structure not only in America, but also in many other parts of the world. However, while these agencies are supposedly independent, there are suggestions that this might not be the case as there are incidents of interference from the main branches of the government. To beginning with, it is evident that the heads of these agencies are political appointees. In effect, these political appointees play the role of implementing the policies of the executive, which appointed them to these offices. In addition, it is evident that the funding of these agencies is from the exchequer, which requires the input of the legislative arm of the government to ratify the budget. In effect, the legislature might stall in passing the budget of an agency in order to arm twist an agency change its operations, which affects the operations of an agency. III. Case Problem Every individual who bought the shares, and only sold them later after the merger, should face charges of violating federal securities laws. On the other hand, Ira Waldbaum and Judy are also in violation of federal security laws and should be charged. While all these people participated in an illegality, the violations were different since some participated in the actual buying and selling of the shares with Ira and Judy providing information that led to the violation. First, as an individual involved in the merger negotiations, Ira Waldbaum should be the first person charged with violating federal security laws. In this regard, his actions amounted to selective disclosure, which necessitated his sisters buying of the shares, which is a decision that she only made after the information she received from her brother, who was one of the people spearheading the merger negotiations. According to SEC, the rule that addresses the selective disclosure “provides that when an issuer, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons, it must make public disclosure of that information” (“Final Rule”). However, it is evident that Ira failed to disclose this information to the public fairly, and selective disclosed the merger details to her sister who went ahead to buy the shares. In effect, Ira violated this law and should face the law. Helen bought the shares after the information she received from her brother. In effect, this amounts to insider trading, which is a violation of the law governing selective disclosure and insider trading law. According to SEC, insider trading is the “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security” (“Final Rule”). In this case, Helen bought the shares after receiving nonpublic information from his brother. In addition, Keith and his broker Robert violated the same law since they bought the shares after receiving information that was nonpublic. It is important to point out that violation of federal security law is not limited to buying and selling of securities. However, tipping the information to an individual who participates in buying or selling of securities amounts to a violation of federal securities laws (SEC, “Final Rule”). For this reason, Judy, Keith, and Robert are responsible for tipping this information since the tipped people participated in the purchase of the securities. Hence, these individuals violated federal securities laws. On the other hand, insider trading also applies to tipped individuals participating in buying or selling of the securities (SEC, “Final Rule”). Therefore, all the people who bought the shares violated federal securities laws since they only bought the shares following the nonpublic information they accessed. These people include those on the elevator with Keith and Robert, and those advised by Robert since this amounts to tipping. Work Cited Burrows, Vanessa K., and Todd Garvey. “A Brief Overview of Rulemaking and Judicial Review.” Congressional Research Services. 4 January 2011. Web. 11 October 2012. . Delta, George B., and Jeffrey H. Matsuura. Law of the Internet. 3rd ed. New York Aspen Publishers, 2008. Print. Depleted UF. “What Is an Environmental Impact Statement (EIS)?” aed. n.d. Web. 11 October. . Pelgro, Michael J. The Authority of the Federal Trade Commission to Order Corrective Advertising. Boston College Law Review 19.5(1978): 888-938. Print. Score Info. “Consumer Credit Laws.” n.d. Web.11 October 2012. . The Commercial Clause as a Restraint on State Powers. FINDLaw. n.d. Web. 11 October 2012. . US Securities Exchange Commission (SEC). “Final Rule: Selective Disclosure and Insider Trading.” 21 August 2012. Web. 11 October 2012. < http://www.sec.gov/rules/final/33-7881.htm>. US Securities Exchange Commission (SEC). “The Laws That Govern the Securities Industry.” Sec.gov. 30 August 2012. Web. 11 October 2012. . Read More