Administrative Agencies

Administrative agencies are government entities that are housed in the executive branch. They make rules, investigate violations, enforce rules. Every administrative agency only has power because Congress passed some statute (called enabling legislation) that gave it power.

Executive agenciesFirmly housed within the executive branch, do what the president says.
E.g.: FBI.
Independent agenciesGoverned by a board (typically bipartisan).
E.g.: FTC (Federal Trade Commission).
Hybrid agenciesWith characters from both executive and independent agencies.
E.g.: EPA (Environmental Protection Agency).

The Rule-Making Process

Administrative agencies are empowered by Congress to make rules to interpret and enforce various statutes. The rule-making process commonly uses “Notice and Comment”, also called informal rule-making:

  1. The agency provides notice to the public of their proposed rules (in Federal Register, a daily newspaper).
  2. There is a comment period in which the public is able to submit comments.
  3. The adoption of the final rule. Initially published in Federal Register with justification, eventually codified in Code of Federal Regulations (CFR).

Another type is called “Formal”, which only happens if the enabling legislation also specifically requires the use of formal rule-making. Formal rule-making requires a formal hearing.

Some rules are actually exempt from the rule making process entirely. For example: rules that impact the operations of the military, rules that impact foreign affairs, etc. A agency can adopt a rule that governs one of those things without any comment from the public whatsoever.

Agency Investigation & Courts

Agencies have the power to investigate violations of their own rules. Agencies also often have authority to investigate without allegations of violations. Agencies have subpoena power, which is the authority that a body has to force somebody to come and testify or for somebody to turn over some documents.

Administrative Courts are not like regular court. They are presided by person called Administrator Law Judge, who are actually the employees of the agency. This is one reason why administrative courts decisions are actually subject to judicial review. A regular court can take a look at the ALJ’s decisions to ensure that bias wasn’t a factor.

Negotiated settlements are really common in an administrative court setting. If there is no settlement, they move to administrative hearing (similar to trial in a regular court). ALJ is much more participatory than a regular judge, can ask questions and seek out further information. After the hearing, ALJ will issue the initial order (similar to a verdict in a regular lawsuit). If one of the parties appeals that order to regular courts and the regular court decide that the ALJ was wrong; otherwise, the initial order will be come final order, and the parties are required to abide by it.

FTC: Federal Trade Commission

FTC has the broadest set of tasks:

False / deceptive advertisingSubstantiate claims
Misleading statements to a reasonable consumer
Mere puffery is allowed.
SalesMail or telephone order merchandise rule
Door-to-door sales and cooling off rule
Major, infrequent purchases
Telemarketing / SpamDo not call registry
Telemarketing sales rule

CFPB: Consumer Financial Protection Bureau

It was intended as a response to a lot of the financial problems that had plagued the economy, especially after the recession of 2008. It has very board authority to regulate basically every consumer financial transaction ever.

  1. Mortgage Reform and Anti-Predatory Lending Act
  2. Truth-in-Lending Act
  3. Fair Debt Collection Practices Act
  4. Fair Credit Reporting Act
  5. Fair and Accurate Credit Transactions Act
  6. Fair Credit Billing Act
  7. Equal Credit Opportunity Act
  8. Fair Credit and Charge Card Disclosure Act
  9. Credit Card Accountability and Disclosure Act

FDA: Food and Drugs Administration

Nowadays, the Food, Drug and Cosmetic Act is the main enabling legislation of the FDA. It regulates food safety, drugs and medical devices, cosmetics and beauty products.

Food safetyProhibition on sale of adulterated foods.
Food labeling requirements.
Drugs and medical devicesExtensive drug trial process
Categorization of drugs
Restrictions on drug adverting
Cosmetics and beauty productsRequired to list ingredients
Notice of harmful ingredients
Prohibition of mislabeled / misleading / adulterated products

EPA: Environmental Protection Agency

It basically has authority to enforce all of the country’s environmental laws. It regulates air, water, and land pollution.

  1. National Environmental Policy Act
  2. Clean Air Act
  3. Federal Water Pollution Control Act aka Clean Water Act
  4. Toxic Substances Control Act
  5. Resource Conservation and Recovery Act
  6. Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)


There is a strong policy in favor of increased competition. The more competition in the market place, the better for consumers. The US Congress has adopted a series of laws called antitrust laws that try to promote competition and prohibit companies from dominating markets too much or harming competition.

  1. Sherman Act
  2. Clayton Act

One key prohibition in US antitrust laws have to do with restraining trade, there are 2 ways trade can be restrained: by one company acting alone, or by multiple companies acting in concert with one another.

Unilateral Restraints of Trade

One company can act alone to violate antitrust laws:

MonopolyWhen one company dominates an industry.
Innocent and natural monopolies are OK, others are prohibited by antitrust laws.
There criteria for an illegal monopoly:
1. Monopoly power
2. A defined market
3. A willful act of monopolization
Price DiscriminationWhen one company charges different prices for the same products to different customers who are similarly situated.
1. Meeting the competition
2. Cost justification
3. Changed conditions
Tying ArrangementProhibited unless reasonably required.

Horizontal and Vertical Restraints of Trade

Multiple companies can come together to violate antitrust laws:

HorizontalWhen two competitors in the same industry act together to somehow harm consumers.
– Price fixing
– Division of market
– Bid rigging
– Group boycotts
VerticalAn agreement between parties on different levels in the chain of production agreeing to take action that harms competition.
– Resale price maintenance
– Exclusive dealing agreements
– Territory restrictions


When two companies merge, you are taking competition out of marketplace. The government may have more or less in scrutinizing the merger and sometimes even blocking the merger.

HorizontalWhen 2 companies that are direct competitors in a marketplace agrees to merge with one another.
Highest level of scrutiny
VerticalWhen 2 companies on different levels in the same supply chain.
Less scrutiny, but other competitors might be harmed.
Market extension2 companies have complimentary products or compete in different geographic locations.
Much less scrutiny.
Conglomerate2 companies have nothing to do with each other.
No scrutiny at all.

Defenses to government attempts to block mergers:

  1. Small company doctrine
  2. Going out of business

Enforcement and Exemptions

Generally antitrust laws can be enforced by either government or private individuals. It is usually done by the FTC and Department of Justice. The consequence of violating antitrust laws can be pretty serious.

  1. Treble damages (you can be forced to pay up to 3 times the actual amount of damages that people suffer as a result of your antitrust activities.
  2. Divestment

Some industries in the US are actually exempt from antitrust laws:

Statutory exemptionsFor example: labor union.
Implied exemptionsRailroad have a statutory antitrust exemptions, courts have decided that airlines are kind of like railroads, so airlines have implied exemptions.
State action exemptionsWhen an industry is basically forced to engage in anti-competitive behavior because of some law in its state.


A security is equity and debt interests in a company. Stocks are equity interest. Bonds are debt interest. Congress regulates securities through a whole series of statues.

  1. Securities Act of 1933
  2. Securities Exchange Act of 1934
  3. Sarbanes-Oxley Act of 2002
  4. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

SEC is the big governmental agency that is tasked with applying these laws. Reporting companies are the companies that SEC regulates, they either:

  1. are publicly traded
  2. have made registered offering, if not publicly traded, or
  3. have more than $10 million in assets and more than 2000 shareholders.


IssuerA company that sells stock to the public
Initial public offeringWhen an issuer sells new stock to the public.
UnderwriterAn organization (investment bank) that create a market for the stock.
Underwriter goes to road show and markets my stock to institutional investors, pension funds, retirement funds, etc.

IPO process:

  1. Prefilling period (you can not sell any stocks)
  2. Registration statement filing with SEC
  3. Quiet period (waiting for approves, you are not allowed to communicate certain info to the public)
  4. Post-effective period

If a registration statement is false or misleading, usually the issuer and the underwriter and anybody else involved in the sale of that stock can be held liable. But they also have some defenses in some instances:

  1. Plaintiff knew statement was false / misleading
  2. Statement did not concern a material fact
  3. Due diligence and reasonable belief of accuracy (only available to parties other than the issuer)

Shortcuts are processes by which a company can engage in a stock offering or other securities offering, without having to do the full blown registration statement:

  1. Regulation A allows an issuer of stock to file an “offering statement” instead of “registration statement”, and sells no more than $50 million worth of stock.
  2. Well-Known Seasoned Issuer Offering. Either you have sold at least $1 billion dollars in securities in the previous 3 years, or you have to have at least $700 million in equity securities in the hands of investors who are unaffiliated with your company.

What is even better than a shortcut is a full blown exemption – you don’t have to file anything with SEC at all.

Exempt securitiesA type of security that is exempt from registration statements because of the nature of the security.
For example:
securities issued by government,
non-profit organizations,
stock split.
Exempt transactionsRegular securities that are exempt because the buyer or the nature of transaction.
For example:
small offering exemption,
private placement exemption,
intrastate offering exemption,
non-issuer exemption.

Insider Trading

Insider trading is a crime, whenever non-public information leads to someone to profit on a stock transaction. Insiders include:

  1. all directors and officers of a corporation
  2. any outside advisors (accountants, consultants, etc)
  3. anyone who owes any fiduciary duties
  4. anyone who wrongfully acquires and profits from non-public info

Short-Swing Profits

This is when a statutory insider profits on the sale of stock of their own company within a 6 month period. Statutory inside is a director or an executive officer, or anyone who hold 10% of stock.

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