An introduction to the intricacies of federal securities law. The author examines the statutory framework for the issues that federal judges are most likely to encounter in securities litigation: basic registration, disclosure, and antifraud. The monograph also covers class actions under the Private Securities Litigation Reform Act of 1995 and the Securities Litigation Uniform Standards Act of 1998.

I. INTRODUCTION
A. The Federal Securities Laws

Shortly after the Wall Street crash of 1929, Congress entered the securities regulatory arena with the Securities Act of 1933. When Franklin Roosevelt signed that act into law, he announced that securities law was to be changed from a system of caveat emptor to one of caveat vendor.

As such, the Securities Act was the first federal consumer protection statute relating to securities. Currently, there are seven statutes in this area: the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Securities Investor Protection Act of 1970.

The 1933 Act was, and still is, directed primarily at public offerings of securities. Subject to certain exemptions, the 1933 Act requires the registration of all securities when first made publicly available. Many states had already adopted their own securities laws (so-called “blue sky” laws), which contained a merit approach under which the state securities commissioner could examine the merits of the investment and then decide if the securities were suitable for a public offering.

After considerable debate, Congress decided not to adopt the merit regulatory approach of the state acts, opting instead for a system of full disclosure. The theory behind the federal regulatory framework is that investors are adequately protected if all aspects of the securities being marketed are fully and fairly disclosed, leaving no need for the more time-consuming merit analysis.

The 1933 Act contains a number of private remedies for investors who are injured because of violations of the Act. There are also antifraud provisions that bar material omissions and misrepresentations in connection with the sale of securities. However, the scope of the 1933 Act is limited. The 1933 Act covers only distributions (both primary and secondary) of securities, whereas the 1934 Act addresses all types of securities transactions. Additionally, the 1933 Act’s investor protection extends only to purchasers (not sellers) of securities.

Download Federal Securities Law, Second Edition

PDF format, 443KB, 175Pages.

Thomas Lee Hazen
Cary C. Boshamer Distinguished Professor of Law
The University of North Carolina at Chapel Hill School of Law
Federal Judicial Center 2003

This Federal Judicial Center publication was undertaken in furtherance of the Center’s statutory mission to develop and conduct education programs for judicial branch employees.

CONTENTS
Preface v
Acknowledgments vii
I. Introduction 1
A. The Federal Securities Laws 1
B. The Securities and Exchange Commission 4
C. Sources of Litigation 6
D. Self-Regulation 7
E. Private Remedies 9
II. Scope and Reach of the Securities Laws 11
A. Definition of Security 11
B. Jurisdictional Provisions 15
C. SEC Enforcement Powers 17
D. Relation to Other Federal Laws 19
E. Relation to State Laws 21
III. Regulating the Distribution of Securities—The Securities Act of 1933 25
A. Structure of the 1933 Act 25
B. Registration Process Under the 1933 Act 26
1. Prefiling Period 26
2. Waiting Period 29
3. Post-Effective Period 31
4. Shelf Registration (Rule 415) 32
C. Disclosure Requirements in Securities Offerings 32
1. Registration Forms 32
2. Adequacy of Registration Statement Disclosures 35
D. Exemptions from Registration Under the 1933 Act 38
1. Exempt Securities 38
2. Exempt Transactions 43
3. General Exemptive Authority 57
4. Integration of Transactions 57
E. Liabilities Under the 1933 Act 59
1. SEC Administrative Remedies 59
2. Private Rights of Action 60
3. SEC Actions and Criminal Prosecutions: Section 17 70
4. Secondary Liability Under the 1933 Act 72
F. Securities Class Actions 75
1. Private Securities Litigation Reform Act 75
2. Securities Litigation Uniform Standards Act 83
IV. Regulating Issuers, Securities Professionals, and the Securities Markets—The Securities Exchange Act of 1934 87
A. Scope of the 1934 Act 87
B. Prohibition of Manipulative Activities 89
C. Shareholder Voting: Federal Regulation of Proxies and Proxy Solicitation 91
D. Tender Offers and Takeover Bids: The Williams Act 98
E. Liabilities Under the 1934 Act 108
1. Wrongdoing Related to Tender Offers: Section 14(e) 108
2. Manipulation of Exchange-Traded Securities: Section 9(e) 109
3. Insider Reporting and Short-Swing Profits: Section 16 110
4. False Filings 111
F. Insider Trading 126
1. Rule 10b-5 126
2. Insider Trading Sanctions: SEC Actions 133
3. Private Rights of Action for Insider Trading 136
4. Insider Transactions and Section 16 138
G. Regulation of the Marketplace and Securities Professionals 145
Appendix: Statutory Conversion Charts 151
For Further Reference 155
Table of Cases 157

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