The Securities Act of 1933: Arming Investors with Information
The Securities Act of 1933 is sometimes referred to as the “truth in securities” law, because it requires that investors receive adequate and thorough financial information about significant aspects of securities being offered for public sale. It expressly prohibits deceit, misrepresentation, and other fraud in the sale of securities.
The 1933 Act contains a detailed registration process that companies must comply with before they can offer securities to the public. The burden and expense of completing the forms is the responsibility of the registering company, which is referred to as the issuer.
The SEC examines all registration documents for compliance with the 1933 Act. If the SEC determines that information is missing or inaccurate, the issuer may be denied registration and may lose its right to sell its securities in the United States. (Section 5(a) of the 1933 Act provides that it’s “unlawful” to offer to sell a security to the public unless a registration statement is in effect.)
Companies undergoing the registration process are required to provide information about:
The company’s properties and business
The types of securities to be offered for sale, such as stocks, bonds, and partnership interests
Background on the management of the company
The registration statement must also include financial statements certified by independent accountants.
In order to comply with disclosure requirements, companies generally distribute a document called a prospectus to potential investors. The content of the prospectus is governed by the 1933 Act, which provides that “a prospectus shall contain the information contained in the registration statement.”
This instruction is somewhat misleading because companies usually create these documents in reverse — drafting a prospectus prior to preparing a registration statement and then including a copy of the prospectus in the registration statement filing.