Series 52: 8.4.1.2. SEC Antifraud Rules

8.4.1.2.  SEC Antifraud Rules

The Securities Acts contain several rules that address fraudulent acts. These rules apply to registered securities, but also to exempt securities, including municipal securities. The rules are summarized in the following list. These prohibitions apply to transactions conducted in both the primary and secondary markets. The exam may ask about any of these and it is important to learn them.

• • It is unlawful to use any “manipulative or deceptive” device when offering or selling a security.
• • It is unlawful to profit from untrue statements or by omitting material facts. Material facts are any information that would be relevant to an investor when making an investment decision about a security.

Example: A municipal dealer notices that the official statement for a Popperville GO bond does not contain information about a large lawsuit that could bankrupt the municipality. The dealer still distributes the official statement while trying to sell the security. This action would be unlawful.

• • It is unlawful to engage in any transaction that would defraud or deceive the purchaser of the security.
• • It is unlawful to create a false or misleading impression of active trading in a security through conduct that makes investors think a stock is doing better or worse than it actually is, or is traded more frequently than it actually is, or that creat