Often referred to as the “truth in securities" law, the Federal Securities Act was signed into law in 1933 by President Franklin D. Roosevelt and was a direct result of the stock market crash of 1929. As the first major federal legislation to regulate the sale of securities, the act aimed to bring back some much-needed stability and investor confidence to the entire financial system.Continue Reading
In the aftermath of the market crash and the ensuing Great Depression, serious questions were raised about the effectiveness of governance policies in the securities market. Pre-1933, the offer and sale of securities was primarily governed by state laws. This new act left those existing state securities laws in place, but added another layer of oversight by the federal government.
The act’s two basic objectives are to ensure that investors receive all the information they need to help them make informed decisions about the purchase of a company’s securities, and to prohibit fraud and misrepresentation in the securities markets. Pursuant to the 1933 act, the Securities Exchange Act was enacted in 1934, which made it mandatory for all companies to register with the newly created Securities and Exchange Commission, or SEC, and provide potential investors with all relevant information, including a prospectus and statement of registration. The 1933 act also confers recovery rights on investors who suffer losses due to the provision of incomplete or incorrect information at the time of purchase.Learn more about Banks