Action Needed To Better Protect Investors From Fraud in Purchasing Privately Placed Securities

Under the Securities Act of 1933, a securities issue must be registered with the Securities and Exchange Commission (SEC) unless the issue is exempt from registration. Section 4(2) of the Act, the private placement exemption for issues sold to investors in private transactions, states that registration requirements shall not apply to "transactions by an issuer not involving any public offering." In its study, GAO reviewed the legislative history of the Act, SEC rules and releases, and court decisions regarding the private placement exemption. Information on violations of the private placement exemption was obtained from 142 investigations conducted by the SEC during a 3-year period ending September 30, 1978.