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Securities Act of 1933

Franklin D Roosevelt

Securities Act of 1933: Franklin D Roosevelt (FDR) was the 32nd American President who served in office from March 4, 1933 to April 12, 1945. The law was passed as part of FDR's New Deal Programs that encompassed his strategies of Relief, Recovery and Reform to combat the problems and effects of the Great Depression.

Definition and Summary of the Securities Act of 1933
Summary and definition:
The Securities Act of 1933 was passed by Congress on May 27, 1933 in the wake of the 1929 Stock Market Crash and the ensuing Great Depression.

The law required companies that sold bonds and stocks to provide full, complete and truthful information to investors. The main features of the bill were to implement registration requirements, allow time for investors to study the registration statement (a 20 day cooling off period) and give the buyer power to sue for losses due to  "omissions of fact" or "misleading" statements. The Securities and Exchange Commission (SEC) was established on June 6, 1934 to enforce federal securities laws to regulate the Stock Market and prevent fraud.

Facts about Securities Act of 1933
The following fact sheet contains interesting facts and information on Securities Act of 1933.

Definition of Securities: Securities are tradable financial assets such as bonds, options and shares (stocks) that are bought and sold in financial markets by traders.

Definition of Stocks and Shares: Stocks are shares of ownership of a public corporation that are sold to investors through broker dealers. Shares are the equal portions into which the capital stock of a corporation is divided and ownership of which is evidenced by a stock certificate

The purpose of the Securities Act of 1933 required companies that sold bonds and stocks to provide full and truthful information to investors.

Before the law was passed the regulation of securities was chiefly governed by state laws, commonly referred to as "Blue Sky Laws"

The term "Blue Sky" was a phrase used by Supreme Court Justice McKenna to characterize speculative schemes "which have no more basis than so many feet of blue sky" and used in reference to the belief that Stock Market that investors had been misled by exaggerated claims and inadequate disclosure of the true financial position of corporations.

Definition of "Blue Sky Laws": The "Blue Sky Laws" were passed by individual states to regulate the sale of securities (Stocks and Shares) and to prevent unscrupulous sales agents from promising unrealistic returns and misinforming investors about the investment risks. Between 1911 and 1933, 47 states adopted blue-sky laws, Nevada was the only exception

The 1933 Securities law was the first major federal legislation to regulate the offer and sale of securities. The "Blue Sky Laws" of the individual states were left in place.

The law aspired to "provide full and fair disclosure of the character of securities sold in interstate commerce" and fixed penalties against anyone failing to make full disclosure

The legislation was drafted by Thomas Corcoran, Benjamin V. Cohen, and James M. Landis and signed into law by President Franklin D. Roosevelt on May 27, 1933.

The law responded to the belief that the lack of information and exaggerated claims had encouraged speculative purchases of stock, which fueled the 1929 Wall Street Crash.

The bill had three major goals:
  • To implement registration requirements for companies wishing to sell securities
  • To allow time for investors to study the registration statement (a 20 day cooling off period) and give the buyer power
  • To sue for losses due to "misleading" statements or "omissions of fact"
The establishment of the Registration process was the key factor to accomplish the goals of the new federal law. The registration of securities was required containing facts about the securities and the company issuing to enable investors to make informed judgments about whether to purchase a company's securities. The information required for the registration of securities included:
  • A description of the security being offered for sale
  • A description of the company, its business and properties together with financial statements certified by independent accountants
Congress later created an independent government agency called the U.S. Securities and Exchange Commission (SEC) on June 6, 1934 to enforce federal securities laws to regulate the Stock Market and prevent fraud
US American History
1929-1945: Depression & WW2

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