The thesis of this Article is simple: the Securities Act of 1933 does not work very well for small issuers, a premise which the Securities and Exchange Commission appeared to tacitly recognize in a series of announcements released early this year. Because of a combination of exorbitant costs, unmanageable levels of ambiguity, unworkable resale provisions and contamination caused by prior illegal sales of stock, a small issuer often is unable to comply with the 1933 Act. As a result it may be difficult or even impossible for a small issuer to raise capital by selling stock.
There are obvious pernicious effects caused by this inability to exploit one form of financing. One such effect is that both the issuer and society may be denied the benefits of competition if the issuer is unable to secure the funds necessary for expansion. Although it cannot be seriously contended that alterations in the 1933 Act suddenly can turn around a faltering economy or interject meaningful competition in traditionally oligopolistic industries, the 1933 Act does unreasonably impede the capital formation that small businesses require in order to have any chance of competing with larger concerns.
It should be made clear at the outset that the thesis of this Article is not that the 1933 Act never works smoothly and rationally for the small issuer. Occasionally a small issuer is able to meet the requirements of the 1933 Act without undue burden and with a reasonable degree of safety. Unfortunately, however, that is the exception and not the rule. More typically a small issuer is confronted with hyper-technical rules and interpretations that seem to have lost all contact with legitimate policy. The small company may also be faced with required procedures to which he simply cannot conform, and with pervasive vagueness that boggles the keenest legal minds.
Rutheford B Campbell, Jr., The Plight of Small Issuers Under the Securities Act of 1933: Practical Foreclosure from the Capital Market, 1977 Duke L.J. 1139 (1977).