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What is SEC Litigation?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 28 November 2016
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SEC litigation refers to lawsuits that relate to the regulations of the U.S. Securities and Exchange Commission (SEC). The SEC is the governmental agency tasked with regulating the stock market and other kinds of investments. Different kinds of lawsuits use Securities and Exchange Commission regulations to sue other parties when events lead to adverse financial outcomes.

One kind of SEC litigation is called material litigation. These kinds of lawsuits generally involve an exchange listed company as a defendant, with investors or others as plaintiffs. The Securities and Exchange Commission defines “material” as an issue that investors should reasonably be expected to have access to in order to make informed decisions about a company and its stock offering. Material litigation may require filing with the SEC.

The U.S. government has created the Securities and Exchange Commission in order to protect stock market investors and others by controlling how publicly traded stocks are advertised, and how information about them is presented to the public. Over the years, many companies have been found to be in violation of Securities and Exchange Commission rules and requirements. SEC litigation enables those who are hurt by negligence or violation of SEC rules to sue for damages.

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A lot of Securities and Exchange Commission violations involve “reporting the numbers.” Companies that offer stock on major exchanges are required to periodically report their earnings and other statistics. Often, top company leaders do things that experts sometimes call “creative accounting” that may be deceptive in terms of reporting accurate revenues to investors. This kind of event can trigger an SEC related lawsuit. Investors often sue when stock prices go down, as well, where specific data about a case will reveal whether the SEC litigation is credible and well founded, or a baseless attempt to recover money after a loss.

Some litigation related to the Securities and Exchange Commission might also revolve around insider trading. Insider trading occurs when a party trades stock while holding privileged information. Many kinds of insider trading are illegal, and the SEC is on the hunt for this kind of activity.

In general, lawyers with experience in financial regulation can assist their clients in figuring out whether there is an SEC litigation benefit in a specific situation. Investors often rely on legal representation, either to bring a single plaintiff, or a class action suit. Learning more about the SEC and its rules helps investors not to be taken advantage of in complex markets where some shady deals may sometimes appear.

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