Securities and Exchange Commission Historical Society

The Mechanics of Legislation: Congress, the SEC and Financial Regulation

Rolling Thunder of Insider Trading: ITSFEA of 1988

Crisis Mentality

“Ivan Boesky is not only guilty of simple insider trading, but the scope of his offenses is substantially enlarged, as he himself concedes, by engaging in many transactions at the behest of others on a scale so substantial as to represent a systemic problem in the financial market. On the other hand, as the United States Attorney’s sentencing memorandum points out: ‘Mr. Boesky’s cooperation with the government has been unprecedented. Not since the legislative hearings leading to the passage of the 1933 and 1934 Securities Act has the government learned so much at one time about securities law violations.’”

December 18, 1987 Draft sentencing statement of Judge Morris Lasker in United States of America v. Ivan Boesky

In the 1980s, economic crises and scandals, coupled with a new ethos that challenged assumptions about the need for increased regulation, created problems for the SEC. Members of Congress, responding to increasing anxiety among their constituencies, continually demanded more from the SEC. While the SEC never held an absolute monopoly on informational expertise, Congressional expertise began to shift the view away from SEC dominance. While the SEC continued to be a significant player in advising Congress on securities legislation, other groups, whether they were independent ad hoc committees of private experts or individual Representatives and Senators, began to aggressively assert their own role in drafting legislation.

During the early 1980s, the SEC prosecuted a spate of insider trading cases using its existing statutory authority. Initially, the SEC brought insider trading cases against corporate employees, attorneys, securities industry professionals and others who earned relatively small amounts of illegal profits. Those prosecutions failed to capture the public’s and Congress’s attention. 18

All of that changed with the stunning revelations about the prosecution of Dennis Levine, who was forced to disgorge millions in profits, and even more dramatically, with the SEC’s announcement of the settlement of its enforcement action against Ivan Boesky. The announcement that Boesky agreed to pay the equivalent of $100 million in cash and assets and accept other penalties, in addition to assisting with even more SEC investigations, shook public confidence in the fairness of the market system. 19  In 1987, reacting to the news that insiders could reap immense profits from information not available to ordinary investors, Congress held hearings to address the corrosive role insider trading played in the national markets.


Previous Next

Footnotes:

(18) Stuart J. Kaswell, “An Insider’s View of the Insider Trading and Securities Fraud Enforcement Act of 1988,” 45 The Business Lawyer 1 (November 1989): 145-180.

(19) James B. Stewart, Den of Thieves (Simon and Schuster: New York, 1991).

Related Museum Resources

Oral Histories

12 July 2006

Paul Gonson - Part I

Galleries

Wrestling with Reform: Financial Scandals and the Legislation They Inspire

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.