Securities Law in the New Millennium
D'Alimonte, John S., Carty, Mary C., Finkelstein, Thomas, St. John's Law Review
Remarkable changes have occurred in the capital markets and capital raising process since the passage of the Securities Act of 1933,1 (the "1933 Act"), and the Securities and Exchange Act of 1934,2 (the "1934 Act" and, together with the 1933 Act, the "Securities Acts"). Perhaps the most striking changes have been the recent, unprecedented rise in the use and impact of modern technology by investors and issuers, the escalation in speed and volume of capital raising, and the increasing globalization of the markets. Over the years, the primary responses to changes have been piecemeal revisions to either or both of the Securities Acts. Proposals designed to revamp the Securities Acts, particularly the 1933 Act, have been put forward from time to time with, in some instances, attendant hearings and voluminous documentation. None, however, have resulted in the sort of wholesale changes that many believe, and have proposed, are necessary.
The most recent attempt to make changes was the ill-fated "Aircraft Carrier"3 launched by the Securities and Exchange Commission (the "SEC") in November 1998. The SEC removed the "Aircraft Carrier" from consideration, at least in its current form, due to the negative responses of attorneys and the securities industry.4 Despite the urgent need to modernize securities
regulations that were designed for the capital markets of seventy years ago, ideally in the form of a paradigmatic statutory shift, there is currently no proposal from the SEC that would result in such legislative changes. What regulatory changes can we nevertheless expect (or hope) to see in the next few years that will adapt the federal securities regulatory scheme to the everchanging capital markets?
This article is divided into three parts. Part I contains a brief overview of the history of the events which gave rise to the enactment of the 1933 Act, and subsequent attempts by the SEC to respond to later changes in the capital markets. Part II discusses recent and dramatic transformations in those markets. It focuses on changes in capital formation, including types of securities and financing techniques, the increased frequency and speed at which offerings are made in the capital markets, and the rise in the number of institutional investors actively participating in the capital markets. It details the advances in information technology leading to the availability of greater amounts of investor information, securities offerings on the Internet, the international scope of companies and economic activity that has led to increased globalization, and the need for more consistency in disclosure across national borders. Part III makes some modest predictions about what changes in federal securities regulations we may see in the near future. The issues surrounding modernization of the Securities Acts are complex and numerous. This article is not intended to examine all the issues or offer a forum for anything more than a selective discussion.
I. HISTORICAL PERSPECTIVE
A. The Enactment of the Securities Act of 1933
The principal impetus for the drafting and enactment of the 1933 Act5 was the stock market crash of 1929 and the concomitant economic depression and securities sales abuses occurring at that times The 1929 stock market crash resulted in a two and a half-- year loss of over eighty percent of the total value of all stocks listed on the New York Stock Exchange.7 It was believed that investor fraud was one of the main causes of the crash. Caught up in a heady period of booming prosperity and without the protection of federal disclosure requirements, investors during the 1920s purchased securities with little knowledge about the nature of the securities or the companies issuing them. This willingness
of investors to throw caution to the wind in their quest for handsome profits brought out the worst in human nature. Highly questionable enterprises and securities with little more behind them than the paper they were printed on were marketed with relative ease. …