What Is the Securities Act of 1933?
The Securities Act of 1933 was created and passed into law to protect investors after the stock market crash of 1929. The legislation had two main goals: to ensure more transparency in financial statements so investors could make informed decisions about investments; and to establish laws against misrepresentation and fraudulent activities in the securities markets.
How the Securities Act of 1933 Works
The Securities Act of 1933 was the first major legislation regarding the sale of securities. Prior to this legislation, the sales of securities were primarily governed by state laws. The legislation addressed the need for better disclosure by requiring companies to register with the Securities and Exchange Commission. Registration ensures that companies provide the SEC and potential investors with all relevant information by means of a prospectus and registration statement.
The act—also known as the "Truth in Securities" law, the 1933 Act, and the Federal Securities Act—requires that investors receive financial information from securities being offered for public sale. This means that prior to going public, companies have to submit information that is readily available to investors. (The required prospectus now has to be available on the SEC website.) The prospectus has to include a description of the company’s properties and business; a description of the security being offered; information about the management running the company; and financial statements that have been certified by independent accountants.
End:
