This paper examines the intersection of strict liability and securities law, focusing on the challenges business owners face when navigating poorly defined legal frameworks governing investment contracts. It surveys key federal securities statutes — including the Securities Acts of 1933 and 1934, the Investment Advisers Act, Sarbanes-Oxley, and Dodd-Frank — and highlights the lack of clear definitions for "investment contract." The paper also explores the elements of strict liability, the moral and accountability dimensions of harm caused by careless business decisions, and the distinction between legal-but-failed investments and white collar crime, using a hypothetical case study to illustrate these principles.
Congress defined security laws to include investment contracts, but "investment contract" is not itself defined in the law (Condominiums as Investment Contracts under the Security Laws, 2011). An Eleventh Circuit court decision indicated that "the test for an investment contract is whether the contract is (1) an investment of money (2) in a common enterprise (3) made with expectation of profits to be derived solely from efforts of others" (Condominiums as Investment Contracts under the Security Laws, 2011). Because the law lacks adequate definitions, it is entirely possible for a business owner to operate a business without fully understanding the laws that govern its individual practices.
The Trust Indenture Act of 1939 applies to debt securities such as bonds, debentures, and notes offered for public sale (The Laws That Govern the Securities Industry). The Securities Acts of 1933 and 1934 govern the disclosure of financial information through the registration of securities. The Investment Company Act of 1940 requires disclosure of financial condition and investment policies when stock is initially sold. The Investment Advisers Act of 1940 regulates investment advisors. The Sarbanes-Oxley Act of 2002 governs corporate responsibility, financial disclosures, and corporate and accounting fraud. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 governs consumer protection, trading restrictions, credit ratings, regulation of financial products, corporate governance and disclosure, and transparency.
In all of these laws, there is little or no mention of investment contracts or definitions of what constitutes an investment contract as a security. This makes it very difficult for business owners to ensure they comply with the law. The definitions within these statutes are not sufficiently clear to give business owners the understanding they need to know exactly what the law requires.
Strict liability makes a person or company responsible for harm to others regardless of whether they were negligent (What is a strict liability cause of action?). It is based on the principle that an act plus harm equals liability. The elements required to establish strict liability are: (1) the defendant did something that was inherently dangerous and unreasonable under the circumstances, (2) the act caused a harmful outcome, and (3) the plaintiff must demonstrate actual harm from the injury.
"How careless decisions create legal and moral liability"
"Distinguishing lawful investments from criminal conduct"
"White collar crime classification and the Blinton case"
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