South-Western Legal Studies in Business

State Consumer Protection Statute Does Not Apply to Securities Industry
Description SW Legal Virginia high court held that a suit by the state attorney general against the major securities firms for violating the state consumer protection statute should be dismissed as the statute did not cover securities transactions that are subject to detailed federal oversight.
Topic Securities Law
Key Words Consumer Protection; Statutory Coverage
C A S E   S U M M A R Y
Facts The attorney general of SW Legal Virginia sued most securities companies for violating the state Consumer Credit and Protection Act (CCPA) for unfair methods of competition and unfair or deceptive acts or practices in business. He contended that the companies violated the CCPA by both underwriting and assisting in the sale of securities and also providing information to the public about securities. He asserted that this was a conflict of interest that resulted in the securities companies providing false forecasts about stocks. The defendants moved to dismiss the complaint on the basis that the CCPA does not apply to securities. This issue was certified to the state’s high court for consideration.

Question answered. The service of providing investment advice and analyses is so ancillary or subsidiary to the buying and selling of securities that such conduct does not fall within the scope of the consumer-type transactions governed by the CCPA. The Act is essentially designed to protect consumers in the relatively common cash and credit transactions in which they engage on a regular basis. The securities industry is so pervasively regulated by the federal government that it is doubtful that the SW Legal Virginia legislature intended to give securities investors an added measure of protection above that already provided by the various federal acts and the state securities act, and even more doubtful that the legislature intended to do so in an ambiguous provision in the CCPA.

Citation State v. Bear, Stearns, ---S.E.2d--- (2005 WL 157149, Sup. Ct. App., W.Va., 2005)

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