Securities Act of 1933
The Securities Act of 1933 is the foundational federal statute governing the offer and sale of securities in the United States, requiring issuers to register new offerings with the SEC and provide investors with material disclosure through a prospectus.
The Securities Act of 1933, often called the Truth in Securities Act or simply the 1933 Act, was the first major piece of federal securities legislation in American history. It was enacted in the aftermath of the 1929 stock market crash and the collapse of thousands of companies that had issued securities to the public with little or no meaningful disclosure. Congress designed the Act around two core principles: that investors deserve to receive significant information about securities being offered for public sale, and that those who sell securities to the public may not deceive or defraud investors.
The primary mechanism the Act uses to achieve these goals is the registration statement. Before offering or selling securities to the public, issuers must file a registration statement with the SEC that includes financial statements audited by an independent certified public accountant, a description of the company's business and properties, the identities and backgrounds of key management and directors, material risk factors, the intended use of proceeds, and a description of the securities being offered. Once the SEC has reviewed the registration statement and it becomes effective, the issuer must deliver a prospectus — derived from the registration statement — to investors before or at the time of sale.
The Act provides investors with a powerful remedy for material misstatements or omissions in a registration statement. Under Section 11 of the Act, investors who suffer losses can sue the issuer and virtually every party involved in the offering — including underwriters, accountants, lawyers, and company directors — without needing to prove that they relied on or even read the prospectus. The burden shifts to defendants to prove they conducted adequate due diligence. This strict liability regime has historically made Section 11 litigation among the most feared by participants in the capital markets.
Not all securities offerings require registration under the Act. Congress created and the SEC has elaborated a system of exemptions for offerings that carry lower investor protection risks. Regulation D exempts private placements to accredited investors. Regulation A and Regulation A+ create streamlined registration paths for smaller public offerings. Securities offered by federal and state governments are exempt, as are transactions on secondary markets. The distinction between registered and exempt offerings is foundational to understanding how U.S. capital markets function.
The Act works in tandem with the Securities Exchange Act of 1934, which governs trading in already-issued securities and created the SEC itself. Together, these two statutes define the disclosure and anti-fraud framework that underpins virtually all U.S. public capital markets activity.