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Securities Act of 1933

The Securities Act of 1933 was the first major federal securities law passed following the crash of 1929 and was Congress' initial effort to control securities fraud. The Securities Act is in essence a disclosure statute. It has two basic objectives:

  • Require that investors receive financial and other significant information concerning securities being offered for public sale; and
  • Prohibit deceit, misrepresentations, and other fraud in the sale of securities.

The Securities Act ensures that issuers selling securities to the public disclose material information (information likely to change a reasonable investor's evaluation of a company's stock), and that securities transactions aren't based on fraudulent information or practices. The goal of the Act is to provide investors with accurate information so they can make informed investment decisions.

Below is a more detailed explanation of the Securities Act of 1933. See FindLaw's Securities Law section for more articles and resources.

Mandatory Registration

In general, securities sold in the U.S. must be registered. The Act describes the procedures for registration and specifies the types of information that must be disclosed. In general, the registration forms companies file provide:

  • 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 soon after filing with the Securities Exchange Commission (SEC). Full disclosure includes the company's goals, the number of shares being sold, what the issuer intends to do with the money, the company's tax status, any lawsuits the company is subject to, and the company's risks. Statements, if filed by U.S. domestic companies, are available through the SEC. In addition, registration statements are subject to examination for compliance with disclosure requirements.

Registration Exemptions

Not all securities offerings must be registered with the SEC. 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.

SEC Actions

Federal securities laws are enforced through SEC actions. The SEC can prosecute issuers and sellers who sell unregistered securities, and can seek injunctions if the Act has been violated or if a violation is imminent. Issuers can be ordered to cease and desist from certain activities, and the SEC can seek civil penalties if a party has violated the Act, an SEC rule, or a cease-and-desist order. However, the SEC can't bring actions on behalf of individual investors.

Individual Investor Actions

Although the SEC can't bring actions on behalf of individual investors, the Securities Act allows for individual investors to file civil actions. Below are provisions of the Act allowing for individual suits.

Section 5 and Section 12(a)(1): Purchasers can sue sellers for offering or selling a non-exempt security without registering the security, as long as there's a direct link between the purchaser and the seller, and the suit is within the statute of limitations.

Section 11: Issuers are liable for registration statements that contain "an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading." Under Section 11, a purchaser of a security can bring suit even if he or she bought the security after the initial offering on a secondary market as long as the purchase can be traced back to the initial offering and is within the statute of limitations.

Section 12(a)(2): Any person who offers or sells a security through a prospectus or an oral communication containing a material misstatement or omission, is liable to the purchaser as long as the purchaser didn't know about the misstatement or omission at the time of the purchase.

Section 17(a): This section provides liability for fraudulent sales of securities and makes it unlawful "to employ any device, scheme, or artifice to defraud," "to obtain money or property by means of any untrue statement of material fact or any omission to state a material fact," and "to engage in any transaction, practice, or course of business by which operates or would operate as a fraud or deceit upon the purchaser."

Considerations

Securities law is complex. The Securities Act of 1933 is one piece of the federal law that applies to securities and protects investors. Additional information is provided in FindLaw's Securities Law Basics section. If you need assistance with a potential securities lawsuit, you should contact a securities attorney. A qualified securities law attorney can answer any other questions you may have and provide you with expert advice.

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