Securities Act Of 1933
Categories: Stocks, Managed Funds, IPO, Ethics/Morals
Before this law, securities trading was the Wild West. Companies could lie about their shares and financials, and do all kinds of other unethical things. This was the first major securities law, and it required companies to register before their shares could be sold to the public.
For a lonnnnng time, the little guy had, well, not really much more than a prayer when it came to investing his money. Like, investing it…well. The stock market appeared to be this mysterious thing, with few rules and a whole lot of insider trading information driving the bus. Or carriage...whatever they had back then.
In fact, before 1933, securities laws were a state thing. Each state had its own view as to how much the poor uneducated farmer should be protected by the government. And, in fact, most really weren’t protected at all.
Making matters even worse, states’ citizens invested in each other all the time. So what would then happen when one set of laws applied to one side of the trade and one state then was conjoined to another set of laws applied to the other in a different state? Yeah, that was a problem.
Clearly, we needed national laws. And that’s when the 1933 Securities Act was born, setting federal law above state laws, but keeping state laws generally intact.
What did that mean?
It meant that the default laws generally revolved around whatever the state had in place, except in the case where transactions required a federal purview, or look-see, because the transactions happened among two or more states.
The notion here was that farmers were being sold acres of "Blue Sky" instead of things of real value, solely because they did not possess the education to determine the difference between a real investment opportunity and a fake one.
Finally, the government had to step in and protect the average joe from the average, uh…shmo.
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Finance: What is the Securities Act of 1...60 Views
Finance a la Shmoop! What is the Securities Act of 1933? Hey, is it these
axes? No, it's a different act, or a whole bunch of Acts in the 30s and the
40s. All right, well for a long time the
little guy had, well not really much more than a prayer, when it came to investing [man praying in church]
his money. Like investing it well. The stock market appeared to be this wild,
wild, Westy thing, with few rules and a whole lot of insider trading information,
driving the bus, or carriage, or whatever they had back then. In fact before 1933,
securities laws were a, state thing. Each state had its own view as to how much
the poor uneducated farmer should be protected by the government. In fact
most really weren't protected at all. Making matters even worse, States [man and woman trading on map]
citizens, invested in each other all the time. Like across the state border. So
what would then happen when one set of state's laws, applied to one side of the
trade and one state set of laws, was conjoined to another set of laws, applied
to the other in a different state. Yeah that was a problem. Clearly we needed,
national laws and that's when the 1933 Securities Act was born, setting federal
law above state law. But keeping state laws generally intact when the [Uncle Sam]
intrastate activities were happening. What did all that mean? Well it
meant that the default laws generally revolved around whatever the state had
already in place. Except in the case where transactions, required a federal
purview, or look-see. Because the transactions happened among, two or more
states, or that they violated some major federal law. Like discrimination or
something like that down the line. Well the notion here, was that, farmers were
being sold acres of, quote, Blue Sky, unquote. Like you had to pay for the blue [two men in field]
sky and we're not talking about smog here. Instead of things of real value.
Right, like farmers would believe that they could buy an acre of blue sky.
Sorry, farmer Joe, we're just keeping it real there, you really did try to buy
acres of blue sky. Was solely because, farmer Joe, did not possess the education, [squirrels in head]
to determine the difference between a real investment opportunity and a fake
one. Finally the government, well they just had to step in and protect the
average Joe, from the average, you know Schmo.[man talking in front of parchment]