What are the federal securities laws?

In the 1920s, companies often sold stocks and bonds on the basis of glittering promises of fantastic profits and without disclosing meaningful information to investors. Following the stock market crash of 1929, the U.S. Congress enacted the federal securities laws and created the SEC to administer them.

There are two primary sets of federal securities laws that come into play when a company wants to offer and sell its securities:

  • Securities Act of 1933 ("Securities Act")
  • Securities Exchange Act of 1934 ("Exchange Act")

Securities Act

The Securities Act regulates offers and sales of securities in the United States. Unless an offering qualifies for an exemption from registration, the Securities Act requires the company to file a registration statement containing information about itself, the securities it is offering, and the offering. While registration statements are selectively reviewed by SEC staff, the SEC does not evaluate the merits of securities offerings, or determine whether the securities offered are "good" investments or appropriate for a particular type of investor. A registration statement must be declared “effective” before it can be used to complete sales to investors. We describe this process in more detail under “Going Public.”

The Securities Act provides various exemptions that – when the specified conditions of those exemptions are met – permit offers and sales of securities to occur without SEC registration. We describe these “exemptions” from the registration requirements under “Exempt Offerings.”

Exchange Act

The Exchange Act requires companies that have an effective registration statement or meet certain thresholds to report information regularly about their business operations, financial condition, and management. These companies must file periodic reports or other information with the SEC. In some cases, the company must deliver the information directly to investors. We discuss these obligations under “Going Public.”