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
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 certificateThe 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 exceptionThe 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 disclosureThe 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:
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