Chapter 1 - § 1.1 • THE SECURITIES ACT OF 1933


The Securities Act of 1933 (the 1933 Act), 15 U.S.C. §§ 77a, et seq., is principally designed to control the issuance of securities. This is contrasted with the Securities Exchange Act of 1934 (the 1934 Act), 15 U.S.C. §§ 78a, et seq., which is principally designed to regulate the market for securities after issuance. Section 5 of the 1933 Act is the section designed to give meaning to the entire 1933 Act. Paraphrased, § 5 provides as follows:

It is unlawful for any person to use the jurisdictional means to offer any security for sale unless a registration statement relating to the security has been filed with the Securities and Exchange Commission (the Commission or the SEC) (§ 5(c));1

It is unlawful for any person to use the jurisdictional means to sell any security unless a registration statement relating to the security is in effect (§ 5(a));2

§ 5(b) makes it unlawful to use a "prospectus" in the offer or sale of securities unless the prospectus meets the requirements of § 10 of the 1933 Act.

The term "prospectus" includes substantially any written or spoken communication that might have the effect of creating an interest in a security being or about to be offered in a public offering.3 Thus, a press release may be deemed to be a prospectus if it appears to be calculated to encourage people to investigate a public offering when it is announced.

If a communication is deemed to be a prospectus, then it must meet the requirements of § 10(a) of the 1933 Act or else the person issuing the prospectus will be in violation of the law. Only prospectuses included within a registration statement meet the requirements of § 10(a), although the SEC has published some rules to allow "Tombstone Ads" for a proposed offering (Rule 135) and "Summary Prospectuses" (Rules 134 and 431). Certain other types of materials are similarly excluded from the definition of "prospectus."4

The prospectus, when properly prepared, will provide protection for the persons selling the securities against purchasers' unjustifiable reliance on other statements inconsistent with the prospectus (see Zobrist v. Coal-X, Inc.,5 where knowledge of the information contained in the prospectus was imputed to the plaintiff even though he testified that he never read the prospectus). In a 2003 case, however, the Third Circuit said that the inclusion of a non-reliance clause in a securities transaction does not necessarily bar a securities fraud claim based on...

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