3c hapter - Index of

22 Locavesting
A fl urry of legislation followed that would lay the groundwork
for our modern fi nancial system. The Banking Act of 1933, more
commonly known as the Glass- Steagall Act, insured commercial
bank deposits, but in return prohibited commercial banks from
speculating in securities—a prudent separation that was repealed
in 1999 under the Clinton administration. That was followed by the
Securities Act of 1933, the nation’s fi rst comprehensive legislation
regulating the offer and sale of securities. The law required full
disclosure of material facts so that investors could make informed
decisions. Next came the Securities Exchange Act of 1934, which
regulated secondary trading and established the Securities and
Exchange Commission (SEC) to oversee the securities industry.
Since then, disclosure has been at the heart of our regulatory
system. Any securities sold to the public——whether debt or
equity—must be registered with the SEC and a detailed prospectus
made available to investors. Once public, the issuer is subject
to regular fi ling of audited fi nancial statements, in the form of
10Qs and the like (and more recently, internal audits required
by the Sarbanes- Oxley Act). It was a logical system, but one that
has had unintended consequences for small businesses seeking to
raise capital.
When Congress passed the ’33 and ’34 Acts, it acknowledged
the state Blue Sky laws and let them stand, creating an even more
complex regulatory thicket. There have been efforts to make the
laws more uniform over the years, and the SEC has deemed certain
offerings exempt from state regulations. But for the most
part, companies that want to offer shares to the public must comply
with SEC regulations as well as the unique regulations of each
and every state they want to offer securities in.
The Securities Act of 1933 created another lasting legacy: the
creation of a fi nancial elite. The ’33 Act distinguished between
sophisticated investors, such as company insiders and institutions
who could “fend for themselves” (as a later legal case put it), and
ordinary individual investors. That concept was further expanded
and codifi ed in 1982 in the form of Regulation D. Reg D was
intended to ease the regulatory burden on private placements and
certain smaller, more limited public offerings by exempting them