1.1 Key Laws That Govern the Securities Industry

The first major federal securities regulation passed was the Securities Act of 1933 (the “Securities Act” or the “1933 Act”). According to the SEC’s Web site, the two main goals of the Securities Act are to (1) “require that investors receive financial and other significant information concerning securities being offered for public sale” and (2) “prohibit deceit, misrepresentations, and other fraud in the sale of securities.” To accomplish those objectives, the 1933 Act addresses the registration requirements for securities and required disclosures in registration statements. Generally, an entity must register with the SEC all securities offered in the United States (i.e., a public offering) or “must qualify for an exemption from the registration requirements” (i.e., a private offering). Under the Securities Act, essential information must be provided to investors in a public offering. Such information includes (1) descriptions of “the company’s properties and business” and of “the security to be offered for sale” and (2) the company’s management and financial information (e.g., financial statements certified by an independent registered public accounting firm). The Securities Act also establishes a legal liability framework to protect investors from losses when there is “incomplete or inaccurate disclosure” of material information.

Shortly after the 1933 Act was signed into law, Congress passed the 1934 Act. The Exchange Act resulted in the creation of the SEC, an independent body whose mission, as stated on its Web site, is (1) “protecting investors”; (2) “maintaining fair, orderly, and efficient markets”; and (3) “facilitating capital formation.” The SEC is responsible for overseeing the U.S. securities markets and certain primary participants. Further, under the Exchange Act, the SEC has the power to enact and enforce securities regulations, including disciplinary rights (e.g., prosecution of insider trading), as well as to require that companies with publicly traded securities periodically report certain information.

Sarbanes-Oxley was passed in the wake of a number of large, public financial scandals, including those at Enron and WorldCom. On its Web site, the SEC states that Sarbanes-Oxley “mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud.” Among the most significant changes were mandating personal liability for certain executive officers; implementing protections for whistleblowers; and requiring management — and, in many circumstances, the external auditor — to report on the adequacy of a company’s ICFR. Sarbanes-Oxley also established the PCAOB to oversee and regulate the activities of the auditing profession.

Dodd-Frank was enacted in response to a financial crisis that culminated in 2008. As discussed on the SEC’s Web site, the purpose of Dodd-Frank is to protect consumers from abusive financial services practices by reshaping various aspects of the U.S. regulatory system, including, but not limited to, “consumer protection, trading restrictions, credit ratings, regulation of financial products, corporate governance and disclosure, and transparency.”

The JOBS Act, signed into law on April 5, 2012, significantly affects the financial markets and IPOs. The act indicates that its objective is to “increase American job creation and economic growth by improving access to the public capital markets for [EGCs].” The most notable change brought about by the JOBS Act is the creation of the EGC, a new type of issuer that may take advantage of numerous regulatory and reporting accommodations. The JOBS Act was subsequently amended by the Fixing America’s Surface Transportation (FAST) Act of 2015, which, among other provisions, expanded the accommodations given to EGCs. See Section 1.6 for more information about EGCs and Appendix C for a summary of key accommodations available to EGCs.