The Securities and Exchange Commission does not understand the difference between types of swaps. Confused definitions of security-based swaps have encouraged blanket decisions that could renew market turmoil, say lawyers.
In a recent Alabama fraud case, the SEC categorised four swaps as security-based. Swaps must be security-based to be considered as part of a fraud case under rule 10b-5 of the Exchange Act. But the SEC's definition of security-based was very broad:
"This complaint says some...