The United States Congress put the Securities Act of 1933 in to affect in response to the aftermath of the stock market crash of 1929 and the ensuing Great Depression. Legislated pursuant to the interstate commerce clause of the Constitution, it requires that any offer or sale of securities using any means of interstate commerce be registered with the SEC pursuant to the 1933 Act, unless an exemption from registration exists under the law. This legislation is extremely broad, and it is virtually impossible to avoid the operation of this statute by attempting to offer or sell a security without using some sort of interstate commerce. Any use of a telephone, for example, or the mails, would probably be enough to subject the transaction to the statute.
The primary purpose of the Securities Act of 1933 is to ensure that members of the public receive complete and accurate information prior to them making the actual investment. The ’33 Act is based on a disclosure philosophy, which in simple terms means 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 extensive information about the security or actual investment itself. This prospectus must also include detailed information on the company and the business, along with audited financial statements. The company officers, the underwriter/investment banker, 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 is intended to in this way help bolster and maintain investor confidence in order to support the market.