Tuesday, September 26, 2023

Teaching the Core of the Securities Act of 1933

It was so much find to have our business law prof colleague Erik Gerding and two fabulous key members of his staff here in Knoxville yesterday.  I had posted on this visit last week.  Our visitors regaled us on the role of the U.S. Securities and Exchange Commission ("SEC") Division of Corporation Finance, the registration requirements and exemptions under the Securities Act of 1933, as amended ("1933 Act"), and the rule-making part of the Division's (and SEC's) mission.

Erik explained how, when he is teaching Securities Regulation, he spends two classes at the beginning of the semester putting the "fear of God" into his students about the registration requirement in Section 5 of the 1933 Act.  (His point is to make the dangers clear up front, since students tend to drop the class who should take it, given that they plan to practice business law in one way or another.)  Erik's colleague, Jennifer Zepralka, Chief of the SEC's Office of Small Business Policy, similarly noted in her remarks that there are only three kinds of securities offerings: registered, exempt from registration, and illegal.  Erik's Counsel, Jeb Byrne, echoed this.  And in the session at lunch time, one of my students (bless him!) was able to articulate my way of teaching this concept, through what I call the commandment of Section 5: "Thou shalt not offer or sell securities with out registration absent an exemption."  I used forced repetition of that commandment in teaching my Securities regulation course to refocus students as we move through the material.

Teachers of Business Associations and Securities Regulation all must contend with this central premise of the 1933 Act.  Its importance truly cannot be overstated.  So, how do you teach it to your students and make it stick?  And if you do not teach, what made the core value of Section 5 salient for you?  Share your wisdom in the comments.


Corporate Finance, Joan Heminway, Securities Regulation | Permalink


I haven't taught Securities Regulation in many years, but I agree with Erik's emphasis on the gun-jumping rules and, in particular, the primacy of Section 5. (The trick was not getting too bogged down in the regulations.) I always paired Section 5 with what I referred to as the in terrorem civil liability provision in Section 12(a)(1) - that if you sold securities without registration or exemption, you were giving your investors a put for return of the purchase price if things went south. But the highlight of my class was my song about Pinter v. Dahl, which I sung to the tune of "The Beverly Hillbillies" theme song.

Come and listen to my story bout a guy Maurice,
California boy just a-waitin’ to be fleeced.
Then one day put some money in with Bill
Out in Oklahoma where the wildcatters drill.
Oil, that is, black gold. Texas tea.
Well, the next thing you know Maurice is on the dole,
Askin’ lots of friends he knows to throw cash down the hole
Said Beej Pinter is the guy you wanna see
And they each put some money in without an SEC
Filing, that is. Form S-1.

Well, now it’s time to figure out if anyone can claim
That someone not the issuer can bear part of the blame
For selling shares unregistered with no gratuity,
To share a heapin’ helpin’ of some liability.

Section 12(a)(1) that is. 33 Act. Write a check.

Posted by: Jeff Lipshaw | Oct 1, 2023 8:42:43 AM

That song, Jeff! So good. Thanks for sharing it and also the commentary on teaching Section 5 of the Securities Act of 1933, as amended.

Posted by: joanheminway | Oct 1, 2023 4:36:04 PM

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