Congress enacted the Securities Act of 1933 (act of 33) in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression. Prior to the act of 33 securities were regulated by state laws referred to as the blue sky laws. These blue sky laws imposed merit reviews of securities prior to being allowed to trade in that state. These merit reviews were generally very specific, qualitative requirements on offerings, and if a company does not meet the requirements in that state then it simply will not be allowed to do a registered offering there, no matter how fully its faults are disclosed in the prospectus. The act of 33 was a departure in philosophy from the Blue Sky laws in that it is not illegal to sell a bad investment, as long as all the facts are accurately disclosed.
The Act of 33 contains two basic objectives. They “require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities.” (http://www.sec.gov/about/laws/sa33.pdf) In order to meet these two objectives a company must disclose important financial information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company's securities. While the SEC requires that the information provided be accurate, it does not guarantee it. Investors who purchase securities and suffer losses have important recovery rights if they can prove that there was incomplete or inaccurate disclosure of important information.
Through the registration process, the registration forms that companies file provide essential facts while minimizing the burden and expense of complying with the law. In general, registration forms call for a description of the company's properties and business; a description of the security to be offered for sale; information about the...