MODULE 22 FEDERAL SECURITIES ACTS 91

FEDERAL SECURITIES ACTS AND ANTITRUST LAW

Overview the trading of securities subsequent to their original issu-
The bulk of the material tested on the exam from this ance. The basic scope of the 1934 Act is to require peri-
area comes from the Securities Act of 1933, as amended, odic reports offinancial and other information concerning
and the Securities Exchange Act of 1934, as amended. registered securities, and to prohibit manipulative and
Topics included under the scope of the 1933 Act are reg- deceptive devices in both the sale and purchase of securi-
istration requirements, exempt securities, and exempt , ties.
transactions. The purposes of the 1933 Act are to provide The exam often tests on the Federal Securities Acts;
investors with full a~d fair disclosure of a security offer-. . however, this is sometimes combined with accountant's
ing and to prevent fraud. The basic prohibition of the liability or is included within questions concerning corpo-
1933 Act is that no sale of a security shall occur in inter- rate or limited partnership law.
state commerce without registration and without furnish- Candidates should also understand the important
ing a prospectus to prospective purchasers unless the se- parts 'of the Sherman Act, the Clayton Act, the Robinson-
curity or the transaction is exempt from registration. Patman Act, and the Federal Trade Commission Act.
The purpose of the 1934 Act is the establishment of These laws as amended form the basis for Antitrust Law
the Securities Exchange Commission to assure fairness in which is now testable on the CPA exam.
1. Securities Act of 1933 (Generally applies to initial issuances [primary offerings] of securities)
2. Purposes of the Act are to provide potential investors with full and fair disclosure of all material
infor-
mation relating to issuance of securities (such that a prudent decision to invest or refrain from invest-
ing can be made) and to prevent fraud or misrepresentation -
3. Accomplished by
(1) Requiring a registration statement to be filed with Securities Exchange Commission (SEC) be-
fore either a public sale or an offer to sell securities in interstate commerce
(a) This is the fundamental thrust of the 1933 Act
(b) SEC is a governmentagency comprised of commissioners and its staff that was created to
administer and enforce the Federal Securities Laws. The Commission
interprets the acts,
conducts investigations, adjudicates violations, and performs a rule-making
function to
implement the acts.
1] Can subpoena witnesses
2] Can obtain injunction preventing sale of securities
3] Cannot assess monetary penalties without court proceedings
4] Cannot prosecute criminal acts
(2) Requiring prospectuses to be provided to investors with, or before, the sale or delivery of the
securities to provide public with information given to SEC in registration statement
(3) Providing civil and criminal liabilities for failure to comply with' these requirements and for
misrepresentation or fraud in the sale of securities even if not required to be
registered
4. SEC does not evaluate the merits or value of
securities
(1) SEC can only compel full and fair disclosure
(2) In theory, public can evaluate merit of security when provided with full and fair disclosure
(3) SEC's function is not to detect fraud or to stop offerings where fraud or unethical conduct is
suspected
(4) SEC's functions are also to
(a) Regulate securities markets !

(b) Maintain fair markets

(c) Protect investors
(d) Review corporate financial statements
(e) Enforce securities laws
(f) Provide guidance for accounting rules
5. The major items you need to know are
(1) That a registration statement and prospectus are usually required
(2) Which transactions are exempt from registration
(3) Which securities are exempt from registration
(4) What the liability is for false or misleading registration statements