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Why are securities subject to strict governmental regulation?

On behalf of Law Office of Clifford J. Hunt, P.A. posted in regulatory compliance on Tuesday, October 2, 2018.

Past posts on this Florida securities and business law blog have discussed what a security is and what it offers to individuals who purchase them. A security is an investment tool that allows a person to acquire an interest in an entity with the opportunity to see their investment grow as the entity expands its operations and holdings. Getting in on the ground floor of a new securities offering can be a big deal for someone who believes that the entity the securities support will be the next Google or Apple.

However, entities generally only grow when investors continue to buy into them through the purchase of securities, and to this end entities may be compelled to make investment in their securities more attractive by falsifying information or perpetrating fraud on actual and potential investors. Because the potential for abuse is so high in the world of securities, government regulations apply to practically every aspect of offering securities on the market.

Regulation of a security begins with its initial offering. When a security is introduced to the market it must make available a wide array of information for potential investors to review. Such information can include but is not limited to the purpose of the entity, the structure of the entity’s management and hierarchy, and financial information about how the entity’s money is managed.

The potential for abuse in the securities market is high. Therefore, securities must meet certain and specific regulatory compliance requirements in order to stay out of legal scrutiny. Individual investors and business entities with regulatory compliance questions are encouraged to seek more specific information from their trusted securities attorneys.

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