1.1. The Securities Act of 1933

One of the first pieces of legislation to come out of the most devastating U.S. stock market crash of all time was the Securities Act of 1933. You may also see it referred to as the 1933 Act, the Securities Act, or the Paper Act (a nickname it acquired because paper stock certificates were the norm in 1933). At the core of this act is the belief that investors have a right to make informed decisions about the securities they are purchasing or own. To that end, the Securities Act of 1933 requires the vast majority of securities offered to U.S. investors to go through a registration and disclosure process. The next several paragraphs are a brief overview of this process, which will be discussed in greater detail in Chapter 6.

A company that offers, or plans to offer, securities for sale is called an issuer. Before an issuer can sell securities, it must file a registration statement, which contains key information about the issuer, the securities, and how the planned offering will be conducted. The form for submitting the registration statement is structured so that Part I of the form, when completed, is a preliminary prospectus that may be distributed to potential investors. The preliminary prospectus is one of the main marketing documents for a registered offering.

Usually, the registration statement is prepared and filed with the help of an investment bank, which is a special type of broker-dealer that focuses on helping companies issue their securities to the public. An investment bank that has been hired to shepherd a securities offering is commonly referred to as the offering’s underwriter.

When the registration statement is filed, the security begins a 20-day cooling-off period. During this period, re