Securities Act of 1933
The Securities Act of 1933 known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, 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 broad and it is 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 be enough to subject the transaction to the statute; the 1933 Act was the first major federal legislation to regulate the sale of securities. Prior to the Act, regulation of securities was chiefly governed by state laws 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 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 different from the philosophy of the blue sky laws, which impose so-called "merit reviews." Blue sky laws impose specific, qualitative requirements on offerings, if a company does not meet the requirements in that state it will not be allowed to do a registered offering there, no matter how 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, James M. Landis, 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 disclosed. A company, 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 liable for any inaccurate statements in the document. This high level of liability exposure drives an enormous effort, known as "due diligence", to ensure that the document is complete and accurate; the law 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, person B seeks to resell those securities, person B must still either file a registration statement or find an available exemption; the prospectus, 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. Among other things, registration forms call for: a description of the securities to be offered for sale. 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 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. Not all offerings of securities must be registered with the SEC; some exemptions from the registration requirements include: private offerings to a specific type or limited number of persons or institutions. One of the key exceptions to the registration requirement, Rule 144, is discussed in greater detail below. Regardless of whether securities must be registered, the 1933 Act makes it illegal to commit fraud in conjunction with the offer or sale of securities. A defrauded investor can sue for recovery under the 1933 Act. Rule 144, promulgated by the SEC under the 1933 Act, under limited circumstances, the public resale of restricted and controlled securities without registration. In addition to restrictions on the minimum length of time for which such securities must be held and the maximum volume permitted to be sold, the issuer must agree to the sale.
If certain requirements are met, Form 144 must be filed with the SEC. The issuer req
U.S. Securities and Exchange Commission
The U. S. Securities and Exchange Commission is an independent agency of the United States federal government; the SEC holds primary responsibility for enforcing the federal securities laws, proposing securities rules, regulating the securities industry, the nation's stock and options exchanges, other activities and organizations, including the electronic securities markets in the United States. In addition to the Securities Exchange Act of 1934, which created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes–Oxley Act of 2002, other statutes; the SEC was created by Section 4 of the Securities Exchange Act of 1933. The SEC has a three-part mission: to protect investors. To achieve its mandate, the SEC enforces the statutory requirement that public companies and other regulated companies submit quarterly and annual reports, as well as other periodic reports. In addition to annual financial reports, company executives must provide a narrative account, called the "management discussion and analysis", that outlines the previous year of operations and explains how the company fared in that time period.
MD&A will also touch on the upcoming year, outlining future goals and approaches to new projects. In an attempt to level the playing field for all investors, the SEC maintains an online database called EDGAR online from which investors can access this and other information filed with the agency. Quarterly and semiannual reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike banking, investment in the capital markets is not guaranteed by the federal government; the potential for big gains needs to be weighed against that of sizable losses. Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same basic facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud; the SEC makes reports available to the public through the EDGAR system. The SEC offers publications on investment-related topics for public education.
The same online system takes tips and complaints from investors to help the SEC track down violators of the securities laws. The SEC adheres to a strict policy of never commenting on the existence or status of an ongoing investigation. Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called blue sky laws, they were enacted and enforced at the state level and regulated the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every U. S. stockbroker and brokerage firm. However, these blue sky laws were found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could "ignore" blue sky laws by making securities offerings across state lines through the mail. After holding hearings on abuses on interstate frauds, Congress passed the Securities Act of 1933, which regulates interstate sales of securities at the federal level.
The subsequent Securities Exchange Act of 1934 regulates sales of securities in the secondary market. Section 4 of the 1934 act created the U. S. Securities and Exchange Commission to enforce the federal securities laws; the Securities Act of 1933 is known as the "Truth in Securities Act" and the "Federal Securities Act", or just the "1933 Act". Its goal was to increase public trust in the capital markets by requiring uniform disclosure of information about public securities offerings; the primary drafters of 1933 Act were Huston Thompson, a former Federal Trade Commission chairman, Walter Miller and Ollie Butler, two attorneys in the Commerce Department's Foreign Service Division, with input from Supreme Court Justice Louis Brandeis. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission, but this power was transferred to the SEC following its creation in 1934. In 1934, Roosevelt named his friend Joseph P. Kennedy, a self-made multimillionaire financier and a leader among the Irish-American community, as the insider-as-chairman who knew Wall Street well enough to clean it up.
Two of the other five commissioners were Ferdinand Pecora. Kennedy added a number of intelligent young lawyers, including William O. Douglas and Abe Fortas, both of whom became Supreme Court justices. Kennedy's team defined the mission and operating mode for the SEC, making full use of its wide range of legal powers; the SEC had four missions. First and most important was to restore investor confidence in the securities market, which had collapsed because of doubts about its internal integrity, fears of the external threats posed by anti-business elements in the Roosevelt administration. Second, in terms of integrity, the SEC had to get rid of the penny-ante swindles based on fake i