PART I. SECURITIES REGISTRATIONS

SECURITIES ACT OF 1933

This law constitutes title I of Public No. 22, approved May 27, 1933. It was one of the most important pieces of legislation passed by the Seventy-third Congress. It is not an emergency measure but a permanent addition to our regulatory legislation. The purpose of the act is to "provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof." The underlying aim of the act is, therefore, to offer protection to the public purchasing securities. This protection is sought to be achieved by requiring full disclosure of the facts pertinent to the formation of an intelligent appraisal of the value of a security, and by affording sanctions, civil and criminal, against the parties failing to make such fair disclosures. The applicability of the act is limited to securities entering interstate or foreign commerce or the mails as being within the province of the Federal regulatory legislation. The act does not permit judgment by the Federal Trade Commission, which is charged with its administration, of the value or soundness of any security. The function of the Commission is to see that full and accurate information is made available to purchasers and the public, and that no fraud is practiced, in connection with the sale of securities.

The essential features of this legislation may be reduced broadly to the following three heads: (1) Full information concerning new issues of securities entering interstate or foreign commerce or the mails on or after July 27, 1933, must be filed with the Federal Trade Commission by means of a registration statement; (2) civil and criminal liability is imposed for failure to file such information, or the careless filing of misleading or inadequate information; (3) the Commission is given administrative authority to prevent fraud in the distribution of old and new issues of securities in interstate or foreign commerce, or through the mails, and civil and criminal liabilities are imposed in regard to such distribution.

It will be the purpose of the Federal Trade Commission, under authority of this act, to prevent further exploitation of the public by the sale of fraudulent and worthless securities through misrepresentation, to cause to be placed adequate and true information before investors, and to protect honest enterprise seeking capital by honest representations against the competition made by securities offered through dishonest promotion and misrepresentation. While the

Commission intends to administer the act so as to give purchasers of securities full and accurate information, at the same time neither the act nor its administration will offer any serious obstacle to the legitimate financing of legitimate business. Even speculative securities may still be offered, and the public will be as free as ever to buy them, since this act is meant in no way to substitute the judgment of the Government for that of the individual investor as to the wisdom or advisability of making any particular investment.

CORPORATION OF FOREIGN BONDHOLDERS ACT, 1933

This act is title II of Public No. 22, approved May 27, 1933. The purpose of the act is that of "protecting, conserving, and advancing the interests of the holders of foreign securities in default." This title, however, is not in effect, since, in accordance with section 211, its becoming effective is contingent upon a proclamation by the President.

LEGISLATIVE HISTORY

The Democratic platform of 1932 provided as follows:

We advocate protection of the investing public by requiring to be filed with the Government and carried in advertisements of all offerings of foreign and domestic stocks and bonds true information as to bonuses, commissions, principal invested, and interests of the sellers.

On March 29, 1933, the President requested legislation on the subject by the following special message to the Congress:

To the Congress.

I recommend to the Congress legislation for Federal supervision of traffic in investment securities in interstate commerce.

In spite of many State statutes the public in the past has sustained severe losses through practices neither ethical nor honest on the part of many persons and corporations selling securities.

Of course, the Federal Government cannot and should not take any action which might be construed as approving or guaranteeing that newly issued securities are sound in the sense that their value will be maintained or that the properties which they represent will earn profit.

There is, however, an obligation upon us to insist that every issue of new securities to be sold in interstate commerce shall be accompanied by full publicity and information, and that no essentially important element attending the issue shall be concealed from the buying public.

This proposal adds to the ancient rule of caveat emptor, the further doctrine, "Let the seller also beware." It puts the burden of telling the whole truth on the seller. It should give impetus to honest dealing in securities and thereby bring back public confidence.

The purpose of the legislation I suggest is to protect the public with the least possible interference to honest business.

This is but one step in our broad purpose of protecting investors and depositors. It should be followed by legislation relating to the better supervision of the purchase and sale of all property dealt in on exchanges, and by legislation to correct unethical and unsafe practices on the part of officers and directors of banks and other corporations.

What we seek is a return to a clearer understanding of the ancient truth that those who manage banks, corporations, and other agencies handling or using other people's money are trustees acting for others.

Simultaneously, there were introduced in the House and Senate identical bills, H.R. 4314 and S. 875, covering the proposed legislation. Public hearings were held in March and April 1933, before the House Committee on Interstate and Foreign Commerce and before the Senate Committee on Banking and Currency, to which committees the respective bills had been referred.

The House committee thereafter prepared a new bill, which on May 3, 1933, was introduced by its chairman as H.R. 5480. The following day, May 4, the House committee favorably reported H.R. 5480 and recommended its passage with certain minor amendments. (H.Rept. 85, 73d Cong., 1st Sess.) On May 5, 1933, the bill (H. R. 5480) was considered as in Committee of the Whole, and passed by the House as reported, with the committee amendments. The bill was then messaged to the Senate on May 8, 1933.

In the meantime the Senate committee, April 27, 1933, had favorably reported its bill S. 875, with an emendment in the nature of a substitute, and recommended that the bill as amended be passed. (S.Rept. 47, 73d Cong., 1st Sess.)

On May 8 the Senate considered its bill (S. 875), agreed to the language as reported with certain amendments, including title II which was added on the floor of the Senate, and thereupon passed the House bill (H.R. 5480) with the Senate measure attached as an amendment in the nature of a substitute. The legislation was then committed to conference between the two Houses. After deliberation the conference agreed upon and reported to their respective Houses the language as it now appears in the statute. The conference report was agreed to by the House, May 22, 1933 (H.Rept. 152, 73d Cong., 1st Sess.), and by the Senate, May 23, 1933. The bill thus passed was approved by the President, May 27, 1933.

ADMINISTRATION OF THE SECURITIES ACT

To administer the law the Commission has organized a securities division, and has published rules, regulations and forms as required by the act. An interim rule regarding registration was issued by the Commission, June 29, 1933, followed on July 6 by the promulgation of the first set of general rules and regulations, and a form of registration statement. Additional or supplemental rules have since been issued, and it is anticipated that others will be promulgated from time to time as a result of experience in the operation of the law.