Risk of Investing in Stock SecuritiesIntroduction:The stories of people making fortunes from the stock market have inspired many others to engage in risky investments. Congress created the Securities & Exchange Commission (SEC) to protect investors. Many business leaders became greedy and made selfish decisions that created principle-agent problems. Solutions to these problems lead to even more unethical behavior from management. The creative use of financial statements has even fooled analysts and brokers. Public trust began to erode due to unethical corporate behavior. Analysts' suspicions that some companies were tampering with the accounts were confirmed by an announcement from WorldCom. Public distrust began to mount, accusing brokers of hyping stocks. People started investing without the advice of brokers. Faced with increased risks for individual investors, Congress passed the Sarbanes-Oxley Act and the SEC responded by passing the Reg AC Act. Ordinary Investors Enter the Market: Golden opportunities are available to those who invest well in stock 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 flooded stocks with money in the hope of getting rich. Many people have been told by investment brokers that stocks are safer than before. They were told that the Security and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) were the watchdog for small investors. Congress acts to protect investors: Congress created the SEC shortly after the stock market crash of 1929 to protect investors. Their goal was to restore investor confidence in the financial sector, known for fraudulent activities, easy credit and dangerous investments. (Investopedia). The NASD is the largest self-regulatory organization (SRO) in the United States securities industry. An SRO is a membership organization that creates and enforces rules for members based on the federal securities laws. SROs, which are 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 security offerings. (Finance). Even with these safeguards, many companies participated in fraudulent financial activities such as off-balance sheet reporting and deceived many brokers and analysts. make selfish decisions. Dishonest managers increased their reach with company-owned vacation villas, high salaries, and excessive perks for themselves..