While securities laws may not be applicable in all situations, a company, including its officers and directors, that fails to comply with securities laws when they do apply may suffer severe consequences. This article provides a general overview of this complex, often overlooked, area of the law. Whenever a company offers or sells a security, regardless of whether the company is closely or publicly held, the offer and sale must be registered under applicable federal and state law unless an exemption is available. Due to the prohibitively high cost of registration, issuers of securities usually try to fit their offerings within one or more exemptions.
Securities laws apply to any offer or sale of a security.
Each of these cases involved a passive investor whose investment was at risk and who relied on the efforts of others, rather than the investor's own efforts, to make a profit. Another trap for the unwary are the antifraud prohibitions of the securities laws. A failure to comply with the disclosure and registration requirements under applicable securities laws may result in monetary fines, rescission and restitution to those who purchased the subject securities. Monetary fines may be levied upon those persons assisting the issuer in offering and selling securities who were required to, but did not, register as a broker, dealer or salesperson, as the case may be. Additionally, a Rule 10b-5 violation can result in rescission of a contact or sale and restitution, civil damages and, in certain circumstances, criminal prosecution for those individuals involved in the fraudulent act or acts.