Transcript LAP: QS-050 Objectives Explain how legislation protects investors and promotes market stability. Describe common investment scams.

LAP: QS-050
Objectives
Explain how legislation protects investors
and promotes market stability.
Describe common investment scams.
Objective
Explain how legislation protects
investors and promotes market stability.
The Stock Market Crash of 1929
• October 29—Black Tuesday
• Millions lost life savings.
• Country sank into
depression.
• People lost faith in the
stock market.
The Securities Act of 1933
• The government’s response to the
crash and lack of investor
confidence
• Sometimes called the “truth in
securities” law
• Basic premises:
 Public companies must tell the
truth about their finances.
 Anyone who sells securities
must behave honestly.
The Securities Exchange Act of 1934
• Created the Securities and
Exchange Commission (SEC)
 To monitor and enforce
the Securities Act
 To promote stability in
the market
 To protect investors
 Operates on the belief that all
investors should have access
to certain facts about potential
investments
Insider Trading
• Occurs when a company’s
“insiders” (such as officers and
board members) trade its
securities
• Legal when reported to the SEC
• Illegal when trades are made with
information that is not disclosed
to the public
Corporate Scandals
• Enron
• Worldcom
• Martha Stewart
• Tyco
• Once again, investor
confidence was eroded.
MARTHA
STEWART
The Sarbanes-Oxley Act of 2002
• The government’s response to the corporate
scandals and lack of investor confidence
• Also known as the Public Company Accounting
Reform and Investor Protection Act
• Highlights:
 CEOs and CFOs must certify financial reports.
 Compensation and profits must be made public.
 Stiffer penalties and jail time for violations
 Internal controls for financial reporting
Objective
Describe common investment scams.
Investment Scams
• Pump and dump
• Pyramid scheme
• Ponzi scheme
• Affinity fraud
• Phishing
SEC Recommendations
for Investor Protection
• Be skeptical.
• Consider the source.
• Independently verify claims.
• Beware of high-pressure
pitches.
• Research the company.
• Confirm registration
(on EDGAR).
Quick Case
Stick With the Facts!
• A single investor can
manipulate market
sentiment.
• 15-year-old Jonathan Lebed
did so.
• He ran a pump-and-dump
scheme over the Internet.
• The youngest person to be
charged with securities
fraud
MarkED
Acknowledgments
Original Developers
Christopher C. Burke,
Janet Coulon and Sarah Bartlett Borich, MarkED
Version 1.0
Copyright © 2006
MarkED Resource Center
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