Securities Act of 1933: Making Investors Confident

The U.S. stock market underwent rapid expansion during the 1920s. Post World War I, companies were thriving, as exports to Europe, were high and unemployment was low. Heavy economic growth created overconfidence in the stock market; most of the public was participating in stock valuation as a simple, pleasurable pastime. Stock purchasing was based on anticipated price increases instead of fundamentals, and individuals mistook stocks to be a doorway to easy money. Companies and brokers could easily persuade investors to buy into the bullish market with little to no substantial basis. The promises for profit were wholly fraudulent.

Heading into 1929, production slowed and unemployment was rising. Companies were left overvalued and large bank loans could not be liquidated. Individuals were forced to sell their life savings to pay back loans they had taken out to buy stocks, and businesses were closing. Confidence in the market was at an all-time low, and you cannot have a healthy economy without the confidence of consumers.

Following the biggest economic downturn of the century, the Securities Act of 1933 was created with the goal of ensuring more transparency in financial statements so investors can make informed decisions while also establishing laws against misrepresentation and fraudulent activities in the securities markets. This was the first major legislation regarding the sale of securities. The legislation addressed the need for better disclosure by requiring companies to register with the Securities and Exchange Commission. Registration ensures companies provide the SEC and potential investors with all relevant information by means of the prospectus and registration statement. Investors who purchase securities and suffer losses have important recovery rights if there was incomplete or inaccurate disclosure of important information.

Managed investment portfolios are governed by the Securities Act of 1933, whereas annuities are exempt from this law, also known as the “Truth of Securities Act.” It is actually against the Securities Act of 1933 for insurance companies to state that their annuity products are guaranteed. The guarantee that these companies state is based solely on the integrity of the individual company, and following the recession of 2008, these insurance companies are rated below an AAA rating of high credibility.

Fogel Capital Management, a Registered Investment Advisor, is held to the highest degree of integrity by the SEC and the Securities Act of 1933. Serving also as guardians and trustees on part 36 of the New York Supreme Court, our fiduciary responsibility to our clients falls in line with the same accountability we are held to with the Securities Act of 1933.