US Securities Law

Historical and Statutory Framework

US securities law is principally governed by two landmark New Deal statutes. The Securities Act of 1933 (the “Securities Act”) regulates primary offerings of securities, mandating registration with the Securities and Exchange Commission (SEC) unless an exemption applies. The Securities Exchange Act of 1934 (the “Exchange Act”) governs secondary trading, ongoing reporting obligations, and anti-fraud enforcement, and created the SEC itself as the primary federal regulator.

Registration Under the Securities Act 1933

Section 5 of the Securities Act prohibits the offer or sale of any security unless a registration statement has been filed and declared effective by the SEC. The registration statement comprises a prospectus (Parts I and II) and exhibits. The SEC reviews for completeness and adequacy but does not pass on the merits of the investment. The statutory prospectus delivery requirements mandate that investors receive a final prospectus confirming the offering price.

Exempt Offerings

The Securities Act provides several important exemptions. Section 4(a)(2) exempts transactions by an issuer not involving any public offering. Regulation D contains safe harbors: Rule 506(b) permits an unlimited amount of capital raised from an unlimited number of accredited investors and up to 35 non-accredited sophisticated investors, with no general solicitation permitted. Rule 506(c) permits general solicitation but requires all purchasers to be accredited investors and the issuer to take reasonable steps to verify accredited status. Regulation A+ (Title IV of the JOBS Act) creates two tiers of exempt offerings: Tier 1 (up to $20 million) and Tier 2 (up to $75 million), requiring a qualified offering circular reviewed by the SEC. Regulation Crowdfunding (Reg CF) under Title III of the JOBS Act permits issuers to raise up to $5 million annually through SEC-registered intermediaries, with investment limits scaled to investor income and net worth.

Section 11 Liability

Section 11 of the Securities Act imposes strict-liability-like exposure on issuers, underwriters, directors, and experts (accountants, engineers) for material misstatements or omissions in a registration statement. A plaintiff need only prove that the registration statement contained a material misstatement or omission; reliance is not required. The sole defense is the due diligence defense: a defendant other than the issuer must prove that after reasonable investigation they had reasonable grounds to believe the statements were true. The landmark case Escott v. BarChris Construction Corp. (1968) set the standard of care for underwriters and directors, requiring active participation and independent verification.

Exchange Act Obligations

The Exchange Act imposes ongoing reporting requirements on issuers with securities registered under Section 12 or subject to Section 15(d). These include Form 10-K (annual report), Form 10-Q (quarterly report), and Form 8-K (current report on specified material events). Section 10(b) of the Exchange Act and SEC Rule 10b-5 are the principal anti-fraud provisions, prohibiting any manipulative or deceptive device in connection with the purchase or sale of any security. Rule 10b-5 creates an implied private right of action, requiring proof of (1) a material misstatement or omission, (2) scienter, (3) reliance (presumed under the fraud-on-the-market theory from Basic Inc. v. Levinson), (4) economic loss, and (5) loss causation. Insider trading is prosecuted under Rule 10b-5 and specifically under Rule 10b5-1 (trading plans) and Rule 10b5-2 (duty of trust or confidence). The SEC also enforces insider trading under Section 17(a) of the Securities Act and Section 14(e) of the Exchange Act (tender offers).

Sarbanes-Oxley Act 2002

Enacted in response to Enron, WorldCom, and other corporate scandals, the Sarbanes-Oxley Act of 2002 (“SOX”) fundamentally altered corporate governance and accountability. Section 302 requires principal executive and financial officers to certify quarterly and annual reports. Section 404 mandates management’s assessment of internal controls over financial reporting, with an attestation by the outside auditor. Section 906 imposes criminal penalties for false certifications. Section 402 bans personal loans to executive officers and directors. SOX created the Public Company Accounting Oversight Board (PCAOB) to oversee audit firms.

Dodd-Frank Wall Street Reform and Consumer Protection Act 2010

The Dodd-Frank Act introduced sweeping reforms in response to the 2008 financial crisis. Title VII (the Volcker Rule) restricts proprietary trading by banking entities and limits investments in hedge funds and private equity funds. Title IX enhanced investor protection, including whistleblower bounty provisions (Section 922) administered by the SEC, which awards 10–30% of monetary sanctions exceeding $1 million. Section 1502 imposes due diligence and disclosure obligations regarding conflict minerals. Section 1503 requires mine safety disclosure. The Act also expanded SEC authority to require clawback of executive compensation.

Blue Sky Laws and State Regulation

In addition to federal regulation, each state maintains its own securities laws—known as Blue Sky laws—which generally require registration of securities offerings and broker-dealers. The National Securities Markets Improvement Act of 1996 (NSMIA) preempted state registration for “covered securities,” including those listed on national exchanges and those offered under Rule 506, leaving states with fraud enforcement authority and notice-filing requirements.

Reform and Modernisation

The JOBS Act of 2012 dramatically eased capital formation for emerging growth companies (EGCs), permitting confidential SEC filing review, reduced executive compensation disclosure, and exemptions from certain SOX and Dodd-Frank requirements. The FAST Act Modernization (2015) extended some benefits. Current policy debates centre on expanding accredited investor definitions, digital asset classification, and the scope of SEC enforcement in the cryptocurrency markets.

Key Legislation Table