Securities Act of 1933

The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression, after the stock market crash of 1929. Legislated pursuant to the Interstate Commerce Clause of the Constitution, it requires every offer or sale of securities that uses the means and instrumentalities of interstate commerce to be registered with the SEC pursuant to the 1933 Act, unless an exemption from registration exists under the law. The term 'means and instrumentalities of interstate commerce' is extremely broad and it is virtually impossible to avoid the operation of the statute by attempting to offer or sell a security without using an 'instrumentality' of interstate commerce. Any use of a telephone, for example, or the mails would probably be enough to subject the transaction to the statute. The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression, after the stock market crash of 1929. Legislated pursuant to the Interstate Commerce Clause of the Constitution, it requires every offer or sale of securities that uses the means and instrumentalities of interstate commerce to be registered with the SEC pursuant to the 1933 Act, unless an exemption from registration exists under the law. The term 'means and instrumentalities of interstate commerce' is extremely broad and it is virtually impossible to avoid the operation of the statute by attempting to offer or sell a security without using an 'instrumentality' of interstate commerce. Any use of a telephone, for example, or the mails would probably be enough to subject the transaction to the statute. The 1933 Act was the first major federal legislation to regulate the offer and sale of securities. Prior to the Act, regulation of securities was chiefly governed by state laws, commonly referred to as blue sky laws. When Congress enacted the 1933 Act, it left existing state blue sky securities laws in place. The '33 Act is based upon a philosophy of disclosure, meaning that the goal of the law is to require issuers to fully disclose all material information that a reasonable shareholder would require in order to make up his or her mind about the potential investment. This is very different from the philosophy of the blue sky laws, which generally impose so-called 'merit reviews.' Blue sky laws often impose very specific, qualitative requirements on offerings, and if a company does not meet the requirements in that state then it simply will not be allowed to do a registered offering there, no matter how fully its faults are disclosed in the prospectus. The National Securities Markets Improvement Act of 1996 added a new Section 18 to the '33 Act which preempts blue sky law merit review of certain kinds of offerings. Part of the New Deal, the Act was drafted by Benjamin V. Cohen, Thomas Corcoran, and James M. Landis, and signed into law by President Franklin D. Roosevelt. The primary purpose of the '33 Act is to ensure that buyers of securities receive complete and accurate information before they invest in securities. Unlike state blue sky laws, which impose merit reviews, the '33 Act embraces a disclosure philosophy, meaning that in theory, it is not illegal to sell a bad investment, as long as all the facts are accurately disclosed. A company that is required to register under the '33 act must create a registration statement, which includes a prospectus, with copious information about the security, the company, the business, including audited financial statements. The company, the underwriter and other individuals signing the registration statement are strictly liable for any inaccurate statements in the document. This extremely high level of liability exposure drives an enormous effort, known as 'due diligence', to ensure that the document is complete and accurate. The law bolsters and helps to maintain investor confidence which in turn supports the stock market. Unless they qualify for an exemption, securities offered or sold to a United States Person must be registered by filing a registration statement with the SEC. Although the law is written to require registration of securities, it is more useful as a practical matter to consider the requirement to be that of registering offers and sales. If person A registers a sale of securities to person B, and then person B seeks to resell those securities, person B must still either file a registration statement or find an available exemption. The prospectus, which is the document through which an issuer's securities are marketed to a potential investor, is included as part of the registration statement. The SEC prescribes the relevant forms on which an issuer's securities must be registered. Among other things, registration forms call for: Registration statements and the incorporated prospectuses become public shortly after they are filed with the SEC. The statements can be obtained from the SEC's website using EDGAR. Registration statements are subject to SEC examination for compliance with disclosure requirements. It is illegal for an issuer to lie in, or to omit material facts from, a registration statement or prospectus. Furthermore, when some true fact is disclosed, even if disclosing the fact would not have been required, it is illegal to not provide all other information required to make the fact not misleading.