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Securities Act § 5 — Registration Requirement (15 U.S.C. § 77e)

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Securities Act § 5 — Registration Requirement (15 U.S.C. § 77e)

Overview

Section 5 is the central prohibition of the Securities Act of 1933. It makes it unlawful to offer or sell any security through interstate commerce or the mails unless a registration statement is in effect (or the security/transaction is exempt under §§ 3 or 4). Violations are strict liability — no scienter required. Remedies lie under Securities Act § 12 — Civil Liability for Selling (15 U.S.C. § 77l).

The Three Prohibitions

§ 5(a) — Sale or Delivery Without Effective Registration

It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails, to sell such security through the use or medium of any prospectus or otherwise, unless a registration statement is in effect and a final prospectus meeting § 10(a) requirements is delivered.

  • Prohibits sales (and delivery of securities after a sale) when no effective registration statement exists
  • “Sale” = every contract of sale or disposition of a security or interest for value

§ 5(b)(1) — Offer Using Non-Conforming Prospectus

It shall be unlawful to transmit any prospectus relating to a registered security unless it meets the requirements of § 10.

  • Once a registration statement is filed, any written offer must be a lawful § 10 prospectus
  • Prohibits use of a “free writing prospectus” that does not comply with SEC rules

§ 5(b)(2) — Delivery Without Prospectus

It shall be unlawful to carry or deliver any security for the purpose of sale or delivery after sale unless accompanied or preceded by a final prospectus.

  • Requires delivery of a final § 10(a) prospectus with or before delivery of the security

The Three Time Periods

1. Pre-Filing Period

Before the registration statement is filed with the SEC:

  • No offers — any attempt to condition the market is “gun-jumping”
  • No sales
  • Permitted: Tombstone ads (very limited factual announcements under Rule 135), ordinary course communications, analyst reports unrelated to the offering

2. Waiting Period

After filing but before the registration statement becomes effective:

  • Offers permitted (with restrictions)
  • No sales — contracts of sale prohibited
  • Permitted: oral offers, preliminary prospectus (red herring), § 10(b) prospectus, certain electronic road shows
  • Written offers must be the preliminary prospectus or a free writing prospectus meeting Rule 433

3. Post-Effective Period

After the registration statement is declared effective by the SEC (or becomes effective automatically after 20 days):

  • Offers and sales both permitted
  • Must deliver final § 10(a) prospectus with or before delivery of securities
  • Dealers must deliver prospectus for 25 days (40 days for IPOs) after effective date for aftermarket transactions

Gun-Jumping

“Gun-jumping” refers to impermissible offers made before the filing (pre-filing period) or impermissible written offers during the waiting period that do not meet § 10 requirements.

Forms of Gun-Jumping

  • CEO interviews hyping a forthcoming offering
  • Press releases announcing terms of an unregistered offering
  • Free writing prospectuses that do not comply with Rule 433
  • Road show presentations not meeting safe harbor requirements

Consequences

  • Violation of § 5 → strict liability under § 12(a)(1)
  • SEC may issue a stop order or delay effectiveness
  • Rescission rights for purchasers

JOBS Act Modifications (2012)

The Jumpstart Our Business Startups Act modified § 5 for Emerging Growth Companies (EGCs):

  • EGCs may “test the waters” before or after filing by making oral or written communications to qualified institutional buyers (QIBs) and institutional accredited investors
  • EGCs may submit a confidential draft registration statement for SEC review
  • Reduced waiting period requirements

Well-Known Seasoned Issuers (WKSIs) (issuers with > 1B in debt offerings in last 3 years):

  • May use a shelf registration that becomes automatically effective
  • May use free writing prospectuses before filing
  • “Pay as you go” registration

Strict Liability

Section 5 imposes strict liability — there is no scienter (intent) requirement. A seller who violates § 5 is liable under § 12(a)(1) even if:

  • They believed the security was exempt
  • They had no intent to defraud
  • The buyer suffered no actual loss

Remedy under § 12(a)(1): rescission — buyer can recover the purchase price (plus interest) upon tender of the security, or damages if the buyer has already sold.

Jurisdictional Element

Section 5 applies when any person uses “any means or instruments of transportation or communication in interstate commerce or of the mails.” This is broadly interpreted — a single phone call or email satisfies the jurisdictional requirement.

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