United States Congress
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 securities laws ("blue sky 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. Recently, however, the National
* 1 Purpose * 2 Registration process * 3 Rule 144 * 4 Regulation S * 5 Civil liability * 6 See also * 7 References * 8 Further reading * 9 External links
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
Unless they qualify for an exemption, securities offered or sold to a
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:
* a description of the securities to be offered for sale; * information about the management of the issuer; * information about the securities (if other than common stock); and * financial statements certified by independent accountants.
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
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; * offerings of limited size; * intrastate offerings; and * securities of municipal, state, and federal governments.
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, permits, 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. Often, the issuer requires that a legal opinion be given indicating that the resale complies with the rule. The amount of securities sold during any subsequent 3-month period generally does not exceed any of the following limitations:
* 1% of the stock outstanding * the average weekly reported volume of trading in the securities on all national securities exchanges for the preceding 4 weeks * the average weekly volume of trading of the securities reported through the consolidated transactions reporting system (NASDAQ)
Notice of resale is provided to the SEC if the amount of securities sold in reliance on Rule 144 in any 3-month period exceeds 5,000 shares or if they have an aggregate sales price in excess of $50,000. After one year, Rule 144(k) allows for the permanent removal of the restriction except as to 'insiders '.
In cases of mergers, buyouts or takeovers, owners of securities who had previously filed Form 144 and still wish to sell restricted and controlled securities must refile Form 144 once the merger, buyout, or takeover has been completed.
Rule 144 is not to be confused with
Rule 144A which provides a safe
harbor from the registration requirements of the
REGULATION S is a "safe harbor " that defines when an offering of
securities is deemed to be executed in another country and therefore
not be subject to the registration requirement under section 5 of the
1933 Act. The regulation includes two safe harbor provisions: an
issuer safe harbor and a resale safe harbor. In each case, the
regulation demands that offers and sales of the securities be made
Section 5 of the 1933 Act is meant primarily as protection for United
States investors . As such, the U.S.
This law applies to its own unique definition of
Violation of the registration requirements can lead to civil
liability for the issuer and underwriters sections under §§ 11,
12(a)(1) or 12(a)(2) of the 1933 Act. Additional liability may be
imposed under the
* 1934 –
* ^ A Behavioral Framework for
* Douglas, William O. ; Bates, George E. (1933). "The Federal
* Introduction to