What it means
The US Securities and Exchange Commission says the Act has two basic objectives: investors must receive financial and other significant information about securities offered for public sale, and deceit, misrepresentation and other fraud in the sale of securities are prohibited. The main tool is registration.
A company files a registration statement and a prospectus, which describe its properties and business, the security offered and its management, along with financial statements certified by independent accountants. The SEC says the information lets investors, not the government, judge whether to buy.
The SEC requires the information to be accurate, but it does not guarantee it, and investors who suffer losses have recovery rights if they can prove disclosure was incomplete or inaccurate. Registration statements and prospectuses become public shortly after filing, are examined for compliance with disclosure rules, and for US domestic companies are available on the SEC's EDGAR database.
Not every offering must be registered. The SEC lists exemptions for private offerings to a limited number of persons or institutions, offerings of limited size, intrastate offerings, and securities of municipal, state and federal governments.
These exemptions aim to lower the cost of raising capital for smaller offerings. Investopedia notes the law followed the 1929 stock market crash and was part of the New Deal, and the SEC itself was created a year later by the Securities Exchange Act of 1934.
The 1933 Act covers the first sale of securities, while the 1934 Act covers trading afterward. The Act has been amended many times, so check current rules before relying on any detail.
For an ordinary investor, the practical value is access to facts. Before buying shares in a new offering, you can read the prospectus on EDGAR and compare the business description, the terms of the security and the audited accounts.
The filing is a starting point for questions, not a recommendation. For a company, the cost matters.
Registration takes time, legal work and audited statements, which is why many small firms look at exemptions first. The SEC says exemptions for small offerings aim to foster capital formation by lowering that cost.
In practice
Real-world examples.
Example
A fictional company plans to sell shares to the public for the first time. It files a registration statement with a prospectus that describes its business, risks and audited accounts. Buyers can read the public filing before they invest.
Example
A fictional startup raises money from 12 sophisticated investors in a private offering. It may rely on an exemption and skip full registration. It still must not make false statements to those buyers, because the anti-fraud rules apply.
Example
A fictional city sells bonds to build a bridge. Securities of municipal governments are exempt from registration under the Act. The city still cannot lie about the project to bond buyers.
Formula
Calculation
There is no formula. A simple test is: Public offering + No exemption = Registration needed.
For example, a fictional offering of 1,000,000 shares at $10 each to members of the public would raise $1,000,000 x $10 = $10,000,000 gross, and with no exemption it needs a registration statement and prospectus.
A fictional offering of 12 investors at $50,000 each would raise 12 x $50,000 = $600,000, and as a small private group it may qualify for an exemption. Anti-fraud rules still apply to both offerings.Case study
Seen in the real world.
This case study is fictional and illustrative. Sofia, 33, in Boston, runs a software company and plans to raise money. Her lawyer explains that selling shares to the public needs registration unless an exemption applies. She weighs two paths: a public offering needs a registration statement, audited accounts and a prospectus, while a small private round may qualify for an exemption and costs less.
She chooses the private round for now, raising $600,000 from 12 investors. She keeps a record of what she told each investor, because false statements are still banned even where registration is not required. Two years later the company is larger and she reviews a public offering. Her lawyer prepares the registration statement and checks each disclosure, so that the prospectus describes the business, the risks and the audited accounts accurately.
Watch out
Common mistakes.
- Assuming SEC review means the investment is safe, when the SEC does not guarantee the information.
- Thinking exemptions allow false statements, when anti-fraud rules still apply.
- Confusing the 1933 Act, which covers first offerings, with the 1934 Act, which covers later trading.
Questions
People also ask.
What is the Securities Act of 1933?
It is the US law that requires disclosure when securities are offered to the public and bans fraud in their sale.
Why is it called truth in securities?
Because its aim is to make sellers tell investors the facts. The SEC says it requires significant information and bans deceit.
Are all offerings registered?
No. Exemptions include private offerings, limited-size offerings, intrastate offerings and government securities.
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