• October 2019
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Securities Act of 1933

Federal legislation passed after the 1929 market crash to: (1) ensure transparency of a company’s financial statements to enable investors to make informed decisions about investments, and (2) establish laws against misrepresentation and fraud in securities markets. It is commonly referred to as the “Truth in Securities” law.

 

One of the ways that this regulation accomplishes its aims involves a mandate that public companies register their securities with the U.S. Securities and Exchange Commission. This registration process is extensive and involves the public disclosure of many material aspects of a petitioning company’s business and financial situation. Failure to ensure accuracy when filing securities registrations can result in significant consequences for companies. The SEC aims to strictly enforce regulations passed under the umbrella of the Securities Act of 1933 because doing so helps to ensure the integrity of securities markets and both public and investor confidence in the system itself. This aim is taken so seriously that if investors can prove that a company filed inaccurate or incomplete information when submitting required disclosures, they may exercise significant recovery rights.

 

Public registration statements and prospectuses (yep… totally a word) must be filed unless an explicit exception applies. Exceptions include intrastate offerings, government and municipal securities and offerings that meet certain size requirements. When registration is required, companies must generally disclose descriptions of the securities being sold, company management, business and property information and independently certified financial statements. Despite the fact that The Securities Act of 1933 was the first significant legislation governing the sale of securities, the original legislation (along with many amendments passed over the years) remains a powerful force within the marketplace today. Much of Franklin D. Roosevelt’s New Deal still shapes American life and the Truth in Securities law is just a single example of this legacy.

 

EXAMPLE:

Executive: “I’m worried that investors will be scared off by how much we spent acquiring that business that provides butler and maid service for pets. Maybe we should just leave that information off our latest SEC filing.”

Attorney: “For better or worse, The Securities Act of 1933 means that you need to be honest about that pet thing.”