Securities and Exchange Commission Historical Society

Fair To All People: The SEC and the Regulation of Insider Trading

Foundations of Fairness: The SEC Develops Theories and Rules on Corporate Disclosure

Before 1940, the SEC was primarily concerned with regulating holding companies and asserting itself over the national stock exchanges. The agency spent much of its time and energy building the administrative capacity to regulate the national markets in order to build investor confidence. Yet partly due to the budget cuts during the Eisenhower Administration, the SEC faced growing pressures to maintain its disclosure and antifraud enforcement programs to sustain market confidence.

The SEC's goals clashed with the Eisenhower Administration's desire to cut federal budget expenses, which caused severe cuts in the agency's staffing. In 1941, the SEC employed 1723 persons; by 1953, the SEC staff had been reduced to 773. Throughout the early 1950s, the SEC struggled to administer the increasing volume of filings required by the law. At the same time, the stock markets rebounded; mutual funds values increased eighteen fold from 1945 to 1961. SEC Commissioner Richard McEntire openly questioned whether the Commission could "adequately administer the seven statutes entrusted to it."(11)

The SEC's role in the enforcement of rules against insider trading was sporadic and limited to those cases falling under Section 16(c) and enforcing the reporting provisions of Section 16(a). While active enforcement of insider trading cases by the SEC was minimal throughout the 1940s and early 1950s, the SEC developed rules on corporate proxy solicitation and stock trading that constantly promoted broad values of informational disclosure as the best way to insure investor confidence in the markets.(12) Providing information to investors about company assets, director and officers' compensation; setting procedures for accounting practices; and promoting stockholder rights to company information remained part of the SEC agenda, as they had from the passage of the Exchange Act.

But the investment climate was changing and the late 1950s bull market was driven by a speculative climate in which securities fraud thrived. In its report on stock market activities, the Senate Banking Committee criticized the administrative effectiveness of the SEC. The report decried the lax regulations on floor trading, the lack of division between broker-dealer functions, and an increase in insider trading.(13) With the election of President John F. Kennedy and his 1961 appointment of SEC Chairman William L. Cary, the SEC boldly stepped into that breach.

<< Previous Next >>


Footnotes:

(11) Joel Seligman, The Transformation of Wall Street (Aspen Publishers: 2003), 266-7.

(12)"Company Regains Schulte's Profits," New York Times, August 31, 1944, 22.

(13) "Text of the Senate Banking Committee's Report on Its Stock Market Survey," The New York Times, May 27, 1955, 8-9


Related Museum Resources

Papers

February 13, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
August 11, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
August 14, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
September 2, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
September 9, 1942
image pdf (Courtesy of the National Archives and Records Administration)
September 12, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
September 14, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
September 14, 1942
image pdf (Courtesy of the National Archives and Records Administration)
September 14, 1942
image pdf (Courtesy of the National Archives and Records Administration)
September 14, 1942
image pdf (Courtesy of the National Archives and Records Administration)
September 21, 1942
image pdf (Courtesy of the National Archives and Records Administration)
September 23, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
September 23, 1942
image pdf (Courtesy of the National Archives and Records Administration)
October 1, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
October 2, 1942
image pdf (Courtesy of the National Archives and Records Administration)
October 10, 1942
image pdf (Courtesy of the National Archives and Records Administration)
October 15, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
November 10, 1942
transcript pdf (Courtesy of the National Archives and Records Administration)
December 12, 1942
image pdf (Courtesy of the National Archives and Records Administration)
December 18, 1942
image pdf (Courtesy of the National Archives and Records Administration)
March 2, 1943
image pdf (Courtesy of the National Archives and Records Administration)
March 13, 1943
image pdf (Courtesy of the National Archives and Records Administration)
May 20, 1947
transcript pdf (Courtesy of the National Archives and Records Administration)
February 4, 1948
image pdf (Courtesy of the National Archives and Records Administration)
February 23, 1950
transcript pdf (Courtesy of the National Archives and Records Administration)
May 1, 1950
transcript pdf (Courtesy of the National Archives and Records Administration)
March 30, 1951
transcript pdf (Courtesy of the National Archives and Records Administration)
July 10, 1952
transcript pdf (Courtesy of the National Archives and Records Administration)
February 21, 1955
image pdf (Courtesy of the National Archives and Records Administration)
April 26, 1955
transcript pdf (Courtesy of the National Archives and Records Administration)
March 26, 1956
transcript pdf (Courtesy of the National Archives and Records Administration)
December 19, 1957
image pdf (Courtesy of the National Archives and Records Administration)
January 3, 1958
transcript pdf (Courtesy of the National Archives and Records Administration)
October 15, 1958
transcript pdf (Courtesy of the National Archives and Records Administration)
March 18, 1959
image pdf (Courtesy of the National Archives and Records Administration)
March 28, 1959
transcript pdf (Courtesy of the National Archives and Records Administration)
September 21, 1959
transcript pdf (Courtesy of the National Archives and Records Administration)

Photos

March 24, 1942
(With permission of AP/Wide World Photos )
April 5, 1942
(With permission of AP/Wide World Photos )
1947

Edmond M. Hanrahan, Robert K. McConnaughey, James J. Caffrey, Richard B. McEntire and Harry A. McDonald

Permission for Use

The virtual museum and archive is copyrighted by the SEC Historical Society. The Society reserves the right to restrict access to or use of the museum by any user at any time.

Users are prohibited from sharing or downloading any material for publication or commercial purposes without written permission from the Executive Director. Requests for permission must be submitted by email and specify the material requested and for what purpose.

Material used with the Society's permission should be credited to: www.sechistorical.org.