Just as time extends infinitely into the past and future, place may be anything from a point with no dimensions to the infinity of space in all directions. As the content of a segment of time is called the history of Utah, a small area–84,990 square miles–of the earth’s surface is arbitrarily named Utah. Viewed from space there is no change from red to blue at its border as on the map in the atlas. Yet place may be defined, and Utah may be distinguished from all other places. Place may be an office occupied by Brigham Young and defined in terms of furniture, size of room and other such details, or the entire building, or the political unit–a city–where it is found, or a range of mountains next to which it stands. The physical characteristics of each place differentiate it and have some impact upon the events that occur through time in its location.

Upon hearing the word Utah the average American usually thinks of the Mormons who first migrated to the Salt Lake Valley in 1847, conducted a remarkable colonization program during the next several decades, and went on to make Salt Lake City the headquarters and center of the worldwide Church of Jesus Christ of Latter-day Saints. But there’s a lot more to today’s Utah. Utah is booming with business. Each day new businesses of varied sizes are being set up in Utah. To assist such businesses, there are many corporate attorneys. However if you are based in Midvale, Utah and your business is having to deal with the SEC, seek the assistance of an experienced Midvale Utah Corporate Attorney.

Security Regulations

The United States regulates a variety of securities activities conducted within its borders. Distributions of securities, the activities of broker-dealers and investment advisers, the operation of stock exchanges, the conduct of investment companies and a variety of other securities-related activities are subject to a comprehensive body of regulation. The US domestic regulatory standards apply to non-US market participants to the extent their activities directly affect the United States, which raises the possibility that the non-US market participants will be subject to inconsistent regulation. This problem is especially prevalent in the area of the disclosure required in connection with securities distributions, because the United States has a comprehensive set of requirements. The US accounting standards, in particular, cause difficulties for non-US issuers. The US requirements for financial intermediaries, such as broker dealers, impose significant US regulation on non-US market participants. If your business needs assistance with securities regulations and disclosures, speak to an experienced Midvale Utah Corporate lawyer.

Disclosure

The US regulatory system generally works well in facilitating the smooth and efficient operation of the US domestic market and in providing protection to US investors. A fundamental tenet of the US regulatory system is that the market must be kept fully informed about companies whose securities are offered and traded. There was a strong sense that a significant cause of the crash of 1929 was that investors were not adequately informed about the financial condition and business affairs of the companies whose securities they were buying. As a result, investors, particularly retail investors, were making inappropriate investment decisions.

As part of the radical overhaul of US securities regulation in the wake of the market crash, a comprehensive disclosure system was implemented requiring any issuer wishing to sell securities to the public in the United States to register those securities with the SEC and to provide prospective investors with detailed information regarding its business and financial situation. Moreover, an issuer that registers securities with the SEC, or whose securities are widely held in the United States, is obligated to provide ongoing disclosure.

The rationale behind this disclosure requirements is that retail investors must have sufficient information on which to base their investment decisions. The view was taken that market forces alone were not enough to compel issuers to provide adequate information so the disclosure was made mandatory. The requirements are substantially the same for all issuers, to ensure that investors will be able to compare different companies.
The same considerations do not apply to certain institutional investors, who are deemed capable of looking after their own interests. It is thought they are better equipped both to know what information is important to their investment decisions and to obtain that information. However, offerings that are made only to institutional investors seldom attract the same level of regulation.

In order fully to protect US retail investors, the disclosure requirements apply to all offerings that include such investors. Thus, a non-US issuer that wants to make a US public offering must provide disclosure that is, with limited exceptions, identical to that which a US issuer must provide. In addition, a non-US issuer that conducts a public offering, or lists its securities on a US stock exchange (or obtains a NASDAQ quotation), becomes subject to the ongoing periodic disclosure requirements of the Exchange Act.

SEC

The SEC regulates corporate and individual disclosure in connection with the purchase and sale of securities, and in regard to the governance of the publicly held corporation. Under the Securities Act of 1933 the commission has established a structure of mandatory disclosure for the offer and sale of securities by corporations and controlling shareholders. Pursuant to that regulatory system, corporations prepare elaborate disclosure documents called prospectuses and registration statements. The Securities Exchange Act of 1934 requires the commission to establish a system of mandatory disclosure for proxy statements in connection with meetings of shareholders. Requirements are established for routine meetings as well as extraordinary meetings that involve proxy contests and major mergers and reorganizations. The commission also has established a complex system of mandatory financial and accounting disclosure for various classes of publicly held corporations. Pursuant to this structure, corporations prepare annual reports on Form 10K and periodic reports on Forms 8K and 10Q. The purpose of mandatory disclosure is to winnow out the false from the true. A related purpose is to produce a complete and informative description of the business. It is a modern form of censorship designed by a concerned entity.

The SEC regulates corporate and individual disclosure in connection with the purchase and sale of securities, and in regard government to protect the investor from misrepresentation and lies. It differs from older forms of censorship that flatly banned publication in the important sense that mandatory disclosure requires the dissemination of information, sometimes more information than would be disclosed in the absence of the regulation.

Fraud Protection

Another central element in the disclosure system is civil and criminal fraud prosecution. The commission has the power under a number of antifraud rules and statutes, such as Rule 10b-5 and Rule 14a-9, to seek an injunction and ancillary equitable relief in court against corporations and individuals who have committed fraud in connection with proxy voting or the purchase and sale of securities. The commission, as discussed below in some-detail, has the power to require registration and disclosure by investment advisors. In certain cases the commission has administrative powers to punish transgressors. In virtually all cases the Justice Department may pursue egregious cases criminally. The essential difference between the two regulatory structures is that mandatory disclosure rules specify the information that must be disclosed. The antifraud statutes and regulations permit the government to prosecute lies and misrepresentation wherever it finds them, even in the absence of a particular disclosure rule mandating a specific disclosure. The government also is empowered to seek civil and criminal penalties against people who have violated the mandatory disclosure rules.

The question in SEC regulation is whether some or all of speech governed by the SEC is speech that receives some First Amendment protection. It is now traditional doctrine that commercial speech (at least truthful commercial speech) receives such protection. Commercial speech, as we have seen, is the advertisement of particular products or services for business gain.
Fraud prosecution involves a kind of after-the-fact-of-publication litigation. It can operate without the presence of mandatory disclosure rules. A “simple” form of fraud prosecution would involve a suit by, let us say, an aggrieved buyer against a seller of securities to her. She would allege deceit, materiality of the lie, reliance, and harm. Is the misrepresentation commercial speech?

A somewhat more complicated fraud case might be involved when a publicly held corporation, not engaged in buying or selling its securities, issues a misleading press release, an area not necessarily covered by specific disclosure rules. It runs the risk that the commission may seek to enjoin the statement on grounds of fraud. The court may add ancillary remedies to the naked injunction. Such forms of relief may involve, for example, replacement of the old board with a new board acceptable to the SEC. The Justice Department may pursue the corporation and offending officers criminally.

A famous branch of fraud prosecution involves insider trading. The paradigm case is a transaction in which a corporate insider trades in corporate stock without disclosure of material facts. The insider does not lie or mis represent. It is a silence case in which the courts generally hold that the insider has a duty to disclose to the shareholders, or refrain from trading.

Broker-dealer Regulation

Brokers and dealers play a significant role in the smooth operation of the securities markets. They act as agents in the purchase and sale of securities by retail and institutional investors and conduct significant proprietary trading. Brokers and dealers played a major role in the 1929 stock market crash. Brokers had extended a large amount of credit to investors for the purchase of securities and many were undercapitalized. When stock prices started to fall, investors were unable to repay the loans and were forced to sell their securities at’ a loss, forcing prices down even further. A combination of incompetence, malfeasance, bad luck and bad judgment meant that the entire system was overextended and could not withstand the shock of falling stock prices.

Because of the importance of broker-dealers to the market, regulation of their activities was another major element of the regulatory reform after the crash. Key areas where more rigorous standards were introduced included capital adequacy requirements, limits on the amount of credit that can be extended for the purchase of securities and supervisory and recordkeeping requirements. To ensure that US investors benefit from these protections, it is a requirement of the US regulatory system that only broker-dealers that are registered with the SEC, and are therefore subject to the regulations, can deal with US investors. Whereas distinctions were made in the Securities Act based on whether distributions were made to the public or only to sophisticated institutions, no such distinctions were initially made under the Exchange Act; broker dealer registration is required in order to do business with any customer in the United States. If you are a broker in the securities market, an experienced Midvale corporate lawyer can assist you comply with the regulations and ensure that you are not subject to any penalties or criminal prosecution.

Commercial Speech

If you are a business owner you should be aware of commercial speech and the First Amendment. Until fairly recently, in constitutional jurisprudence, what has come to be known as commercial speech had been excluded from the coverage of the First Amendment. Commercial speech, most narrowly construed, is any speech or publication that advertises a product or service for profit or business purposes. Some authorities, however, assert a considerably broader definition of the concept. Commercial speech has been extensively regulated at the state and federal levels. For example, food and drug ads are subject to extensive regulation. The states and the federal government extensively regulate the speech and publications of corporations and other business entities. Remember the government through various agencies enforce these regulations. If your business violates any of these regulations, it could spell trouble for you. Your business may have to pay penalties. Violations of some of these regulations can result in criminal prosecution. Be safe. Seek the assistance of an experienced Midvale Utah corporate lawyer.

Free Consultation With A Corporate Lawyer in Midvale Utah

When you need legal help with your business in Midvale Utah, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.

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