1938: Securities And Exchange Commission

The basic purpose of the Securities Act of 1933, originally administered by the Federal Trade Commission, is to furnish complete and accurate information to prospective investors regarding new issues of securities publicly offered for sale, and to afford protection against fraud and misrepresentation. With the enactment of the Securities Exchange Act of 1934, the Federal Government created the Securities and Exchange Commission, assumed jurisdiction over national securities exchanges, charged the newly created Commission with responsibility for supervising those markets, and transferred to it the administration of the Securities Act of 1933. The Public Utility Holding Company Act of 1935 enlarged the jurisdiction of the Commission to include the plenary regulation of gas and electric utility holding companies and their subsidiaries.

The year 1938 was marked by the passage of two acts of the Congress which broadened the scope of the Commission's work; one, the Chandler Act, empowered the Commission to assist the Federal courts in cases of corporate reorganization; the other, the Maloney Act, provided a broad program for supervision of the over-the-counter securities markets. Other outstanding events included the reorganization of the New York Stock Exchange along lines suggested by the Commission, and the decision of the United States Supreme Court in Electric Bond and Share Company v. Securities and Exchange Commission, 303 U.S. 419 (1938), upholding the constitutional validity of the registration provisions of the Public Utility Holding Company Act of 1935. In December 1938, Representative Edward C. Eicher of Iowa was appointed to the Commission, filling a vacancy created when former Commissioner John W. Hanes became Assistant Secretary of the Treasury.

The Chandler Act is a revision of the National Bankruptcy Act. It provides that the impartial and expert administrative assistance of the Commission shall be made available to the Courts in the solution of the complex legal, business and financial problems presented by corporate reorganizations under Chapter X of the Act. Upon its own motion if approved by the Court, or upon the request of the Court, the Commission may be made a party in any proceeding under that Chapter. In addition, if the liabilities of a corporation in reorganization exceed $3,000,000, plans of reorganization are automatically referred to the Commission for an advisory report; and in any case, irrespective of size, the Court is privileged to refer plans to the Commission for such report. In every instance, whether as a party to a proceeding or in connection with its reports, the Commission's functions are solely advisory. Reorganization history and the disclosures of the Commission's Protective Committee Study have established the need, now met by the Chandler Act, for such impartial, expert assistance by the Commission to the courts and to investors in these cases, to assure the presentation of adequate information and analysis by a qualified, disinterested source.

The Maloney Act amended the Securities Exchange Act of 1934 to provide for cooperative regulation of the over-the-counter market. This regulation is achieved by the formation of voluntary associations of investment bankers, dealers and brokers which are registered with the Commission and carry on their business under standards of good practice approved by it. The system is designed to give the over-the-counter investor protection comparable to that which the investor already receives on the national securities exchanges.

In March 1938, the New York Stock Exchange was reorganized in accordance with a program suggested by the Commission. The new constitution of the Stock Exchange provides for a salaried president, stipulates that three members from the general public should sit on the Governing Board, and revises the method of electing governors and the committee system of government. William McC. Martin became the first president under the new constitution. The Chicago Stock Exchange also reorganized in much the same manner as the New York Stock Exchange, and toward the end of the year it was expected that the New York Curb Exchange would shortly follow these examples.

The Supreme Court decision in the Electric Bond and Share case guarantees that the protection afforded by the Public Utility Holding Company Act of 1935 will not be weakened. The administration of this Act is dependent upon registration with the Commission; and in upholding the registration provisions of the Act, the Supreme Court thus also upheld the principle of Federal regulation of utility holding companies, making it impossible for any such company to refrain from registering on the ground that the Act was not constitutional. Since the decision on March 28, 1938, virtually every utility holding company which is subject to the provisions of the Act has registered with the Commission. And by the close of the year, all of the registered holding company systems had submitted to the Commission tentative plans for compliance with the integration and simplification provisions of the law.

The importance of these 1938 developments should not obscure the significance of the work which the Commission continued to perform under the Securities Act of 1933 and the Securities and Exchange Act of 1934. During the year, the Commission has intensified its prosecution of stock frauds, swindlers, bucket-shop operators and others who abuse the confidence of the investing public. A series of accounting releases was made public, and advisory assistance in the interpretation of both Acts was offered to all those who sought to comply with the law. The Commission also instituted a broad investigation of the circumstances surrounding the collapse of the Stock Exchange firm of Richard Whitney & Co. Following this investigation, the New York Stock Exchange established new safeguards for the protection of brokerage customers of member firms. The Investment Trust Study completed its public hearings and issued several parts of its final report.

For the fiscal year ended June 30, 1938, new securities having estimated gross proceeds of $1,641,582,000 were registered under the Securities Act of 1933. These securities included $462,775,000 of common stocks and $249,000,000 of preferred stocks. Secured bonds totaled $32,122,000 and debentures totaled $367,386,000. There were also $228,041,000 in certificates of participation, beneficial interest, etc.; and $12,735,000 in short term notes. Approximately 36 per cent of the new registrations were in manufacturing; 27 per cent in utilities; and another 27 per cent in financial and investment companies.

Registration statements and all other public information filed with the Commission are available for inspection at the Commission's Washington office. Photo copies of all public information on file with the Commission may also be obtained. The Commission maintains regional offices in New York City, Boston, Atlanta, Chicago, Cleveland, Fort Worth, Denver, San Francisco and Seattle.