recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.26 Limitation of Actions SEC. 13. No action shall be maintained to enforce any liability created under section 11 or section 12 (2) unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 12 (1), unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 11 or section 12 (1) more than three years after the security was bona fide offered to the public, or under section 12 (2) more than three years after the sale." [NOTE: See Appendix, II-B, 3, p. 25, for Contrary Stipulations Void SEC. 14 Any condition, scipulation, or provision binding any person acquiring any security to waive compliance with any provision of this title or of the rules and regulations of the Commission shall be void. Liability of Controlling Persons SEC. 15. Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under section 11 or 12, shall also be liable jointly and severally "The words "offers or" in (1) and (2) were added by Public No. 577, 834 Cong. Amended by Publie No. 291, 73d Cong. Prior to amendment section 13 read as follows: "SEC. 13. No action shall be maintained to enforce any liability created under section 11 or section 12 (2) unless brought within two years after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 12 (1), unless brought within two years after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 11 or section 12 (1) more than ten years after the security was bona fide offered to the public." with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.28 Additional Remedies SEC. 16. The rights and remedies provided by this title shall be in addition to any and all other rights and remedies that may exist at law or in equity. Fraudulent Interstate Transactions SEC. 17. (a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. (b) It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. (c) The exemptions provided in section 3 shall not apply to the provisions of this section. Public No. 291, 73d Cong. added the following: "unless the controlling person had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist." The words "offer or" were added by Public No. 577, 83d Cong. State Control of Securities SEC. 18. Nothing in this title shall affect the jurisdiction of the securities commission (or any agency or office performing like functions) of any State or Territory of the United States, or the District of Columbia, over any security or any person. Special Powers of Commission SEC. 19. (a) The Commission shall have authority from time to time to make, amend, and rescind such rules and regulations as may be necessary to carry out the provisions of this title, including rules and regulations governing registration statements and prospectuses for various classes of securities and issuers, and defining accounting, technical, and trade terms used in this title. Among other things, the Commission shall have authority, for the purposes of this title, to prescribe the form or forms in which required information shall be set forth, the items or details to be shown in the balance sheet and earning statement, and the methods to be followed in the preparation of accounts, in the appraisal or valuation of assets and liabilities, in the determination of depreciation and depletion, in the differentiation of recurring and nonrecurring income, in the differentiation of investment and operating income, and in the preparation, where the Commission deems it necessary or desirable, of consolidated balance sheets or income accounts of any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer; but insofar as they relate to any common carrier subject to the provisions of section 20 of the Interstate Commerce Act, as amended, the rules and regulations of the Commission with respect to accounts shall not be inconsistent with the requirements imposed by the Interstate Commerce Commission under authority of such section 20. The rules and regulations of the Commission shall be effective upon publication in the manner which the Commission shall prescribe. No provision of this title imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule or regulation of the Commission, notwithstanding that such rule or regulation may, after such act or omission, be amended or rescinded or be determined by judicial or other authority to be invalid for any reason. This sentence was added by Public No. 291, 73d Cong. (b) For the purpose of all investigations which, in the opinion of the Commission, are necessary and proper for the enforcement of this title, any member of the Commission or any officer or officers designated by it are empowered to administer oaths and affirmations, subpena witnesses, take evidence, and require the production of any books, papers, or other documents which the Commission deems relevant or material to the inquiry. Such attendance of witnesses and the production of such documentary evidence may be required from any place in the United States or any Territory at any designated place of hearing. Injunctions and Prosecution of Offenses SEC. 20. (a) Whenever it shall appear to the Commission, either upon complaint or otherwise, that the provisions of this title, or of any rule or regulation prescribed under authority thereof, have been or are about to be violated, it may, in its discretion, either require or permit such person to file with it a statement in writing, under oath, or otherwise, as to all the facts and circumstances concerning the subject matter which it believes to be in the public interest to investigate, and may investigate such facts. (b) Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this title, or of any rule or regulation prescribed under authority thereof, it may in its discretion, bring an action in any district court of the United States, United States court of any Territory, or the United States District Court for the District of Columbia to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond. The Commission may transmit such evidence as may be available concerning such acts or practices to the Attorney General who may, in his discretion, institute the necessary criminal proceedings under this title. Any such criminal proceeding may be brought either in the district wherein the transmittal of the prospectus or security complained of begins, or in the district wherein such prospectus or security is received. (c) Upon application of the Commission the district courts of the United States, the United States courts of any Territory, and the United States District Court for the District of Columbia, shall also have jurisdiction to issue writs of mandamus commanding any person to comply with the provisions of this title or any order of the Commission made in pursuance thereof." Hearings by Commission SEC. 21. All hearings shall be public and may be held before the Commission or an officer or officers of the Commission designated by it, and appropriate records thereof shall be kept. Jurisdiction of Offenses and Suits SEC. 22. (a) The district courts of the United States, the United States courts of any Territory, and the United States District Court for the District of Columbia " shall have jurisdiction of offenses and violations under this title and under the rules and regulations promulgated by the Commission in respect thereto, and concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this title. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in sections 128 and 240 of the Judicial Code, as amended (U. S. C., title 28, secs. 225 and 347). No case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court of the United States. No costs shall be assessed for or against the Commission in any proceeding under this title brought by or against it in the Supreme Court or such other courts. 33 (b) In case of contumacy or refusal to obey a subpena issued to any person, any of the said United States courts, within the jurisdiction of In subsections (b) and (e), "United States District Court for the District of Columbia" was substituted for "Supreme Court of the District of Columbia" by Sec. 127, Public No. 72, 81st Cong., approved May 24, 1949. "SEC. 127, Public No. 72, 81st Cong.. approved May 24, 1949. substituted "United States District Court for the District of Columbia" for "Supreme Court of the District of Columbia." "SECS. 225 and 347, title 28, U. S. C. were repealed by Sec. 39. Publie No. 773, 80th Cong., approved June 25, 1948. Section 225 is now covered by sections 1291-1294, and section 347 by section 1254, title 28, U. S. C. which said person guilty of contumacy or refusal to obey is found or resides, upon application by the Commission may issue to such person an order requiring such person to appear before the Commission, or one of its examiners designated by it, there to produce documentary evidence if so ordered, or there to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by said court as a contempt thereof. (c) No person shall be excused from attending and testifying or from producing books, papers, contracts, agreements, and other documents before the Commission, or in obedience to the subpena of the Commission or any member thereof or any officer designated by it, or in any cause, or proceeding instituted by the Commission, on the ground that the testimony or evidence, documentary or otherwise, required of him, may tend to incriminate him or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after having claimed his privilege against self-incrimination, to testify or produce evidence, documentary or otherwise, except that such individual so testifying shall not be exempt from prosecution and punishment for perjury committed in so testifying. Unlawful Representations SEC. 23. Neither the fact that the registration statement for a security has been filed or is in effect nor the fact that a stop order is not in effect with respect thereto shall be deemed a finding by the Commission that the registration statement is true and accurate on its face or that it does not contain an untrue statement of fact or omit to state a material fact, or be held to mean that the Commission has in any way passed upon the merits of, or given approval to, such security. It shall be unlawful to make, or cause to be made, to any prospective purchaser any representation contrary to the foregoing provisions of this section. Penalties SEC. 24. Any person who willfully violates any of the provisions of this title, or the rules and regulations promulgated by the Commission under authority thereof, or any person who willfully, in a registration statement filed under this title, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined not more than $5,000 or imprisoned not more than five years, or both. Jurisdiction of Other Government Agencies Over Securities SEC. 25. Nothing in this title shall relieve any person from submitting to the respective supervisory units of the Government of the United States information, reports, or other documents that are now or may hereafter be required by any provision of law. Separability of Provisions SEC. 26. If any provision of this Act, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Act, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. SEC. 27. Upon the expiration of sixty days after the date upon which a majority of the members of the Securities and Exchange Commission appointed under Section 4 of Title I of this act have qualified and taken office, all powers, duties and functions of the Federal Trade Commission under the Securities Act of 1933 shall be trans ferred to such Commission, together with all property, books, records and unexpended balances of appropriations used by or available to the Federal Trade Commission for carrying out its functions under the Securities Act of 1933. All proceedings, hearings or investigations commenced or pending before the Federal Trade Commission arising under the Securities Act of 1933 shall be continued by the Securities and Exchange Commission. All orders, rules and regulations which have been issued by the Federal Trade Commission under the Securities Act of 1933 and which are in effect shall continue in effect until modified, superseded, revoked, or repealed. All rights and interests accruing or to accrue under the Securities Act of 1933, or any provision of any regulation relating to, or out of action taken by, the Federal Trade Commission under such Act, shall be followed in all respects and may be exercised and enforced. SEC. 28. The Commission is authorized and directed to make a study and investigation of the work, activities, personnel and functions of protective and reorganization committees in connection with the reorganization, readjustment, rehabilitation, liquidation, or consolidation of persons and properties and to report the result of its studies and investigations and its recommendations to the Congress on or before January 3, 1936.** SECS. 27 and 28 are Secs. 210 and 211, Title II, of Securities Exchange Act of 1934, approved June 6, 1934, effective July 1, 1934. SECURITIES AND EXCHANGE COMMISSION-EXPLANATION OF AMENDMENTS TO THE SECURITIES ACT OF 1933 GENERAL OBJECTIVE OF STATUTE The general objective of the Securities Act of 1933 is to protect the public and investors against malpractice in the securities and financial markets. The statute provides for full disclosure of pertinent business and financial facts concerning new securities offerings to the public, and provides civil and criminal remedies for fraudulent and deceptive practices in the sale of securities. The statute contains provisions for enforcement by the Commission through administrative and injunctive actions and for the referral of evidence indicating violations to the Department of Justice for criminal prosecution. WHAT THE BILL WILL DO The amendments embodied in the bill are recommended by the Securities and Exchange Commission. A substantial number of the proposed amendments are designed to make the Commission's enforcement activities more effective by eliminating or minimizing various problems which have come to light in the course of Commission enforcement of the statute over the last several years. They do not alter the general purpose or effect of existing provisions. Some of the proposed amendments are designed simply to recognize changes that have taken place since the original adoption of the statute. In brief, the proposed amendments would (1) clarify the jurisdictional basis of the civil liability provisions of the statute; (2) provide specific civil and criminal liability with respect to documents filed with the Commission pursuant to Commission rules in connection with exempt offerings; (3) make it clear that a showing of past violations is a sufficient basis for injunctive relief and that aiders and abettors may be responsible in civil and administrative proceedings; and (4) increase from $300,000 to $500,000 the size of offerings which may be exempted from registration under section 3 (b) of the statute. EXPLANATION BY SECTIONS Section 1 would remove the obsolete reference in paragraph (5) of section 2 of the act to the Federal Trade Commission and substitute instead the Securities and Exchange Commission. Section 2: Elimination of reference to the Philippine Islands and Alaska in the definition of "Territory." Present law: Paragraph (6) of section 2 of the act defines the term "Territory" to include Alaska and the Philippine Islands. Problem: The Philippine Islands are no longer a possession and Alaska is now a State. Remedy in the bill: The amendment would delete the references. Section 3: Increasing from $300,000 to $500,000 the size of offerings which may be exempted from registration under section 3(b). Present law: Section 3(b) of the act provides that the Commission may by rule and regulation, and subject to such terms and conditions as may be prescribed, add any class of securities to the securities exempted by section 3 (a) if the Commission finds that enforcement of the registration provisions of the act with respect to such securities "is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering," provided no issue shall be exempted the aggregate offering price of which exceeds $300,000. Problem: When the statute was enacted in 1933, the figure specified in this subsection was $100,000. This amount was increased to the present figure of $300,000 by an amendment in 1945. One of the important purposes of this action was to provide small business with relatively simpler access to needed capital. The Commission has adopted various regulations governing the sale of securities within the prescribed limits. The most important of these is the general exemption provided by regulation A which is designed largely as a protection against fraud and which requires the use of an offering circular containing prescribed minimum disclosures of pertinent information about the business of the issuer. The requirements of the regulation can be met by filing with a regional office of the Commission a form of notification, copies of the offering circular, and certain specified exhibits. The regulation further pro |