Risk of Investing in Stock Market SecuritiesIntroduction:Stories of people making fortunes from the securities market have led many others into risky investments. Congress created the Securities & Exchange Commission (SEC) to protect investors. Many corporate managers have become greedy and made selfish decisions that have created principle-agent problems. Solutions to these problems lead to more unethical behavior from management. The creative use of financial statements has also fooled analysts and brokers. Public trust began to erode due to companies' unethical behavior. Analysts' suspicions that some companies are falsifying their accounts were confirmed by an announcement from WorldCom. Public distrust began to grow as it accused brokers of overhyping stocks. People started investing without the advice of brokers. As risks for individual investors increased, Congress passed the Sarbanes-Oxley Act and the SEC responded by passing the Reg AC act. Ordinary investors enter the market: Golden opportunities lie ahead for those who invest well in stock market securities. “The stock market, once the preserve of the very wealthy, is now easily accessible to millions of ordinary investors.” (Ethical issues in financial services). Ordinary investors have flooded stock market stocks with money in hopes of getting rich. Many people have been told by investment brokers that stock market securities are safer than they used to be. They were informed that the Security and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) are the watchdogs for small investors. Acts of Congress to Protect Investors: Congress created the SEC shortly after the 1929 stock market crash in order to protect investors. Their goal was to restore investor confidence in the financial sector, known for fraudulent activities, easy credit and risky investments. (Investopedia). The NASD is the largest self-regulatory organization (SRO) in the securities industry in the United States. An SRO is a member-based organization that creates and enforces rules for members under federal securities laws. SROs, overseen by the SEC, are at the forefront of regulating broker-dealers. (Investopedia). In addition to federal regulations, most states have created “blue sky” laws to protect investors from fraudulent securities offerings. (Finance). Despite these security measures, many companies have participated in fraudulent financial activities such as off-balance sheet reporting and have deceived many brokers and analysts. Conflicts Between Shareholders and Corporate Management: In the mid-to-late 1990s, many corporate shareholders were discovering that management and executives were making selfish decisions. Dishonest managers were boosting their pockets with corporate-owned vacation villas, high salaries, and excessive perks for themselves.