Business Regulation

Government Regulation

Government Regulation is needed in the U.S. to keep scandals from ruining our businesses livelihood and the financial futures of all Americans.

Introduction

"With the avalanche of corporate accounting scandals that have rocked the markets recently, it's getting hard to keep track of them all" (Patsuris, 2002). There have been numerous acts created by the government because of controversy and scandals that have happened in the United States. These acts were introduced to prevent individuals and businesses from losing everything and to help the government to keep individuals and businesses safe from scams. Without these regulations there would be no standards and companies and corporations could do as they please. These regulations also help to monitor the accounting of companies, keep the scandals at a minimum, and watch for trends so we don't have another stock market crash.

As we take a look back over the years at our corporate issues it should give us an idea of the state of our accounting industry. We should start seeing more open positions in the accounting career field. Employers are broadening their requirements to get well rounded people into positions which mean they can do more things. They want qualified people that will help get them through the down turn. They hope to get people into these jobs that have accounting experience and won't have to spend as much on training for them. So for now it looks like there will be less people doing more work.

The government is here to represent the people in this country. In order to do that, there needs to be regulations so that companies don't abuse the lack there of. It is also needed in the U.S. to keep scandals from ruining our businesses livelihood and the financial futures of all Americans. Many Americans have lost their retirements and futures when scandals have happened or the stock market crashes. Because of this, government regulation is needed in the U.S. to keep scandals from ruining our businesses livelihood and the financial futures of all Americans.

The Securities Acts of 1933 and 1934

The Securities Act of 1933 was enacted as a result of the market crash of 1929. It was the first major piece of federal legislation to apply to the sale of securities. The legislation was enacted as the need for more information within and about the securities markets was acknowledged. "Securities regulations has become increasingly complex since congress passed the first federal securities act in 1933"(Childers, 2001 ). Before this law was enacted the regulation of it was done by each state and their laws.

The 1933 Act was based on the idea that companies offering securities should provide potential investors with sufficient information about both the issuer and the securities to make an informed investment decision. The two objectives for this Act is that it requires investors to receive information concerning securities before it can be offered for public sale and it will prohibit misrepresentations and other fraud in the sale of these securities to the public. "A primary means of accomplishing these goals is the disclosure of important financial information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company's securities"

The Securities Act of 1934 established the Securities and Exchange Commission (SEC). The 1934 Act also gives the SEC power to police the sale of securities in the U.S. The SEC regulates and oversees brokerage firms and the New York Stock Exchange. This law prevents fraudulent activities of any kind. The SEC deals with things, such as, insider trading, tender offers, and corporate reporting.

These acts came about because of the Stock Market crash of 1929. It was the most devastating crash in United States history. It started a 12 year great depression and didn't end until the end of 1941. People who bought stocks in the mid 1920's and kept them were lucky to break even in their adult life. This crash devastated the economy and the faith that people had in banks. Many corporations were also ruined putting the United States in a deep depression. In the years after the crash, regulations covering buying stocks on margin and the roles of banks have added protections in the hopes that another severe crash could never happen again.

Analysis of related Fraud/Scandal

On January 11, 2011 The Securities and Exchange Commission charged Charles Schwab Investment Management and Charles Schwab & Co., Inc. with making misleading statements regarding the Schwab YieldPlus Fund and failing to establish, maintain and enforce policies and procedures to prevent the misuse of material. Charles Swab agreed to pay more than $118 million to settle the charges brought against them. According to the complaint, Charles Schwab & Co failed to inform investors of the major risks associated with the YieldPlus Fund. They described this fund as a cash alternative that only had a slightly higher risk than a money market fund. It was misleading because these funds were a lot riskier than a money market fund and investors didn't know that.

Charles Schwab should have had proper policies and procedures in place to govern the redemption of these funds. As a result, several Schwab-related funds and individuals were free to redeem their own investments in YieldPlus during the fund's decline. The company never admitted or denied the allegations against them but they did agree to pay $ 118,944,996 for fees and penalties. These payments were placed in a fair fund to help harmed investors and others related to this scandal. Some were able to redeem some of the money they had lost in this investment so it wasn't a total loss.

Another person who violated this act in a huge way was Bernie Madoff. The complaint that was filed in December 2008 shows that Madoff Investment Securities LLC committed a $50 billion dollar fraud. Madoff informed two of his senior employees that his investment advisory board was a fraud. Madoff himself estimated the losses for this fraud to be around $50 billion dollars. He had been paying returns to investors out of principal received from other investors. His Ponzi scheme he said started in the 90's but some believe it goes back even further than that. "It's all just one big lie," Madoff told his employees on Dec. 10, according to a statement by prosecutors. The firm, Madoff allegedly said, is "basically, a giant Ponzi scheme." He was also sued by the Securities and Exchange Commission" (Panzner, 2008). In 2009 he