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The Securities Act of 1933 is an important restriction on capital markets in the United States. Unless an exemption is available, the Act requires companies selling securities to the public first to file with the Securities and Exchange Commission (SEC) a registration statement containing detailed information about the company, its business, its finances, and the contemplated offering. Offers cannot be made (except to underwriters) until the registration statement is filed, and the securities can be sold only after the registration statement survives the sometimes lengthy SEC review process and becomes effective. In addition, the securities seller must at some point furnish investors with a prospectus, which contains much of the information in the registration statement.
Economic analysis of the Securities Act, both theoretical and empirical, has focused on the desirability of the registration requirement. Some scholars have questioned whether the registration requirement is economically sound; others have argued that mandatory disclosure is necessary to correct market failures in the securities markets.
Lost in the debate on the economic merits of the registration requirement are the exemptions from that requirement-the offerings for which registration is not required. This Article fills the gap in the economic analysis of the Securities Act by examining the economics of the exemptions from registration. I will assume for the purpose of analysis that, in at least some cases, the registration requirement is economically sound: its benefits exceed its costs. I will then review the exemptions to see why that conclusion might not hold for particular types of exempted offerings. For the reader who believes the registration requirement is economically efficient, my analysis of the exemptions will highlight offerings in which that efficiency is less likely. For the reader who believes the registration requirement is economically inefficient, my analysis of the exemptions will highlight offerings for which the inefficiency is greatest.
I begin in Part II with a brief focus on the registration requirement itself. Part II summarizes the economic debate concerning registration and, as a prelude to an economic analysis of the exemptions, discusses the costs and benefits of registration.
In Part III, I turn to the exemptions from registration and ask why, if the benefits of registration generally exceed the costs, that might not be true for these exempted offerings. The transaction exemptions are extraordinarily different from each other. Some exemptions limit the dollar amount of the offering; others limit the number or types of purchasers to whom securities can be sold; others are contingent on oversight by some authority other than the SEC. I show that the exemptions can be placed into three categories, each with a slightly different economic justification. After establishing an economic model for each type of exemption, I explore some of the requirements of the current exemptions to see if they are economically sound. In Part IV, I focus on one particular feature of some of the exemptions-limits on the number of purchasers in an offering.
Finally, in Part V, I examine an issue that has caused great difficulty for scholars, practitioners, the courts, and the SEC: What should happen when a single issuer makes two ostensibly separate, but roughly contemporaneous offerings and claims a different exemption for each? In determining whether an exemption is available, should the offerings be combined and treated as a single offering, or should their separation be respected? I explore how well the integration doctrine and the safe-harbor regulations that the SEC and the courts have developed to deal with this problem fit the economic model.