State corporate law is very closely intertwined with federal securities law. The link is so close that it is worth giving you a very brief introduction of some elements that will come up again and again in this course. (In other countries, these elements might be included in “corporate law.” The distinction is artificial.)
Securities are, roughly, tradable investments such as shares and bonds (tradable debt claims). For our purposes, the relevant statutes are the Securities Act of 1933, and the Securities Exchange Act of 1934 (“Exchange Act”). Both grant broad powers to the U.S. Securities and Exchange Commission (SEC). In particular, the SEC has promulgated very detailed rules implementing the securities laws.
The Securities Act is chiefly concerned with the initial disclosure upon a first sale of a security to the public in a so-called registration statement. We will therefore encounter it less often.
The Exchange Act, on the other hand, is ubiquitous. Among other things, it regulates ongoing corporate disclosure, and trading in corporate securities. Most provisions of the Exchange Act apply only to “registered securities,” which include all securities that are publicly traded on a stock exchange or elsewhere. This excludes securities of private companies, i.e., companies whose securities are not marketed to the public, and in particular not traded on a stock exchange. Private companies include not only small firms but also some large ones like Uber (as of December 2017).
In terms of disclosure, the Exchange Act requires, inter alia, the following filings with the SEC, who makes them publicly available on EDGAR:
Since 2000, SEC Regulation FD (for "fair disclosure") additionally provides, in the SEC's own words, that "when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must make public disclosure of that information."
The Securities Laws and the SEC’s rules thereunder also provide private and public remedies for false or misleading statements. The most important provision is SEC rule 10b-5, a broad anti-fraud rule implementing section 10(b) of the Exchange Act. Courts have implied a private right of action under this and similar rules, which sustain an industry of securities class action lawyers. We will deal with rule 10b-5 and others when we cover insider trading towards the end of the course.
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