Investment Companies - Securities Act of 1933: Definitions

The Securities Act of 1933 was passed to ensure that all new securities offered to the public are described in adequate detail in the registration statement and prospectus. The Securities and Exchange Commission (SEC) is the federal regulatory agency responsible for enforcing the act. To prevent fraud in the sale of securities, the SEC designed the act to provide full disclosure to the public in the interstate sale of securities so that any potential investor may make fully informed buying decisions. The following definitions will be helpful in preparing for the exam:

  • The 1933 Act defines an issuer as any person who issues or proposes to issue a security. An issuer may include a corporation, federal government, state or local government or a church or charitable organization.
  • An underwriter is defined as any person who offers or sells for an issuer in connection with the distribution of a security. An underwriter typically assists the issuer with the registration of a new security.
  • An offer to sell includes every attempt or offer to dispose of or any solicitation of an offer to buy a security, or interest in a security, for value.
  • Registration statement means the statement provided for under the Securities Act of 1933; it includes any amendment, report, document or memo filed as part of this statement.
  • Dealer refers to any person who engages (directly or indirectly) as agent, broker or principal in the business of offering, buying, selling or otherwise dealing or trading in securities issued by another.
  • Insurance company is a company that is organized as an insurance company and whose primary business activity is the writing of insurance, or reinsuring risks underwritten by other insurance companies.
  • A separate account refers to an account established by an insurance company under which income, gains and losses are held separately from the general account of the insurance company.
  • Prospectus refers to any prospectus or other publication, letter or communication that offers any security for sale or confirms the sale of any security.

Any legitimate prospectus issued by a company must have the SEC's no approval clause on the front page. It is important to note that the SEC does not pass on the merits of the security or the adequacy of the information in the prospectus. The SEC only reviews the prospectus to make sure that it contains no misleading information and that the registration of the new issue is complete.

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