Mandatory Disclosure and the Protection of Investors

Abstract

IT HE Securities Act of 1933 and the Securities Exchange Act of 1934 have escaped the fate of many other early New Deal programs. Some of their companions, such as the National Industrial Recovery Act, were declared unconstitutional; others such as the Robinson-Patman Act, have fallen into desuetude; still others, such as Social Security, have been so changed that they would be unrecognizable to their creators. Many of the New Deal programs of regulation lost their political support and were replaced by deregulation; communications and transportation are prime examples. The securities laws, however, have retained not only their support but also their structure. They had and still have two basic components: a prohibition against fraud, and requirements of when securities are issued and periodically thereafter. The notorious complexities of securities practice arise from defining the details of and ascertaining which transactions are covered by the requirements. There is very little substantive regulation of investments. To be sure, the Securities and Exchange Commission (SEC) occasionally uses the rubric of to affect substance, as when it demands that insiders not trade without making disclosures that would make trading pointless, when it requires that a going private deal disclose that the price is fair, and when it insists that the price of accelerated registration of a prospectus is disclosure that directors will not be indemnified for certain wrongs.