In recent years, the Securities and Exchange Commission has increasingly relied on Section 17(a) of the 1933 Securities Act. Indeed, many of the cases the SEC has brought in the wake of the recent financial crisis have been charged solely under Section 17(a). While Section 17(a) shares the same basic structure as the more familiar Rule 10b-5, it is different in important ways. However, because courts often analyze Section 17(a) and Rule 10b-5 together, the unique provisions of Section 17(a) have received less attention over the years. There are thus a number of important questions regarding the application of Section 17(a) that have not yet been resolved. Below, we provide a brief overview of Section 17(a) and discuss the key differences between Section 17(a) and Rule 10b-5, then discuss several significant unanswered questions regarding Section 17(a).
Overview of Section 17(a) and Its Relationship to Rule 10b-5 -
Congress passed the 1933 Securities Act in the wake of the market crash of 1929, to ‘‘provide investors with full disclosure of material information concerning public offerings of securities in commerce, to protect investors against fraud and, through the imposition of specified civil liabilities, to promote ethical standards of honesty and fair dealing.’’ As the key enforcement provision of the 1933 Act, Section 17(a) prohibits fraud and misrepresentations in the offer or sale of securities.
Originally published in Securities Regulation & Law Report, 45 SRLR 1265, 07/08/2013.
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