The Securities Act of 1933 is a significant piece of legislation, 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 Act, although there are exemptions. This piece of legislation should not be confused with the Exchange Act 1934. Often referred to as the “truth in securities” law.
It is often referred to as the “truth in securities” law, but also referred to as the 1933 Act, the Securities Act, the Federal Securities Act, and the ’33 Act. It was enacted by the United States Congress on May 27, 1933, during the Great Depression and after the stock market crash of 1929 with two basic objectives
- require that investors receive financial and other significant information concerning securities being offered for public sale
- prohibit deceit, misrepresentations, and other fraud in the sale of securities
Securities Act Purpose and Registration
The purpose of registration of securities and the process of accomplishing this are best described by the SEC
A primary means of accomplishing these goals is the disclosure of important financial information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company’s securities. While the SEC requires that the information provided be accurate, it does not guarantee it. Investors who purchase securities and suffer losses have important recovery rights if they can prove that there was incomplete or inaccurate disclosure of important information.
In general, securities sold in the U.S. must be registered. The registration forms companies file provide essential facts while minimizing the burden and expense of complying with the law. In general, registration forms call for:
- a description of the company’s properties and business;
- a description of the security to be offered for sale;
- information about the management of the company;
- and financial statements certified by independent accountants.
Registration statements and prospectuses become public shortly after filing with the SEC. If filed by U.S. domestic companies, the statements are available on the EDGAR database accessible at www.sec.gov. Registration statements are subject to examination for compliance with disclosure requirements.
Not all offerings of securities must be registered with the Commission. Some exemptions from the registration requirement include:
- private offerings to a limited number of persons or institutions;
- offerings of limited size;
- intrastate offerings;
- and securities of municipal, state, and federal governments.
By exempting many small offerings from the registration process, the SEC seeks to foster capital formation by lowering the cost of offering securities to the public.
The full text of the act can be in a 366 page PDF document is available for download.
