The Securities and Exchange Commission (SEC) is a regulatory agency in charge of enforcing federal securities laws. These laws are put into place to protect investors and ensure that the markets function fairly. The SEC oversees a wide range of activities in the securities industry, from the registration of securities firms and brokers to the regulation of stock exchanges and insider trading. In this article, we will take a closer look at some of the types of violations involving equities that can occur under the jurisdiction of the SEC, as well as how the agency pursues action against lawbreakers.
One of the most common types of violations involving equities is insider trading. This occurs when someone uses material, non-public information to make trades in securities. For example, if a company is planning to announce a new product, an employee with knowledge of this information could buy shares of the company before the news is made public, in anticipation of the stock price going up once the news is announced. Insider trading is illegal because it gives some investors an unfair advantage over others who do not have access to this type of information.
Another type of violation that can occur in the securities industry is market manipulation. This happens when someone tries to artificially inflate or deflate prices in the market by buying or selling large amounts of securities. Market manipulation can be done for a variety of reasons, such as to artificially increase the price of security so that it can be sold at a profit, or driving down the price of a security so that it can be bought at a lower price. Market manipulation is illegal because it creates an unfair and manipulated market which is not indicative of true supply and demand.
Other types of securities violations include spoofing, front-running, and fraud. Spoofing is when someone places an order for security with the intention of canceling it before the trade is executed, in order to create the illusion of demand and drive up prices. Front-running is when a trader buys or sells securities based on information that they have about another person's pending trade, in order to get ahead of that trade and make a profit. Fraud occurs when someone makes false or misleading statements in order to convince others to buy or sell securities.
The SEC pursues action against violators of federal securities laws through a variety of methods, including civil enforcement actions, administrative proceedings, and criminal charges. Civil enforcement actions are brought by the SEC in federal court and can result in penalties such as fines, disgorgement of ill-gotten profits, and bars from serving in certain roles in the securities industry. Administrative proceedings are handled by an SEC administrative law judge and can also result in penalties such as fines and bars from serving in certain roles in the securities industry. Criminal charges are brought by the Department of Justice and can result in imprisonment and/or criminal fines.
Whether you are a professional trader or an individual investor, it is important to be aware of the types of securities violations that can occur in the market. The SEC has broad powers to investigate and pursue enforcement actions against individuals and entities suspected of breaking the law. If you are convicted of violating federal securities laws, you could face severe penalties including imprisonment, fines, and disgorgement (giving up ill-gotten gains).