1939: Securities And Exchange Commission

History.

More than $14,000,000,000 worth of new securities which have been proposed for sale by issuers — securities of companies ranging from a small gold mine venture with its ten cent shares to the $100,000,000 issues of the greatest corporations in the country — have complied with the truth provisions of the Securities Act since its passage in 1933.

Originally administered by the Federal Trade Commission, the administration of the Securities Act was transferred to the Securities and Exchange Commission upon its creation in 1934, as a result of the passage of the Securities Exchange Act. Thus, the Commission began its career with the administration of two major laws: (a) the Securities Act of 1933, designed to furnish complete and accurate information that an investor ought to have before buying a new issue of securities and to afford protection against fraud and misrepresentation; and (b) the Securities Exchange Act of 1934, devised to prevent unfair practices in the securities markets, to make available currently to the public sufficient information concerning the management and financial condition of corporations whose securities are traded in the securities markets so as to enable the investor to act intelligently in handling his investments, and to regulate the use of the national credit to finance trading in securities.

The work of the Commission was augmented greatly a year later with the passage of the Public Utility Holding Company Act of 1935. This Act was designed to eliminate abuses and to provide a greater degree of protection for investors and consumers in the field of public utility holding company finance and operation through the plenary regulation of electric and gas utility holding companies and their subsidiaries. In 1938 Congress revised the National Bankruptcy Act to provide the Federal Courts with the impartial and expert administrative assistance of the Securities and Exchange Commission in corporate reorganizations. The duties of the Commission were further increased by the enactment in 1939 of the Trust Indenture Act, providing for independent trustees and setting up minimum standards of qualification for trust indentures used in new securities financing under the Securities Act.

The Year 1939.

The year 1939 was marked by the registration of The National Association of Security Dealers, Inc., an association of investment bankers, brokers and dealers with more than 2,300 members. Thus became effective the registration of the first national association of brokers and dealers under the Maloney Act, passed in 1938 to provide a cooperative system of regulation of the vast unorganized over-the-counter markets.

Investigations.

An exhaustive investigation was made by the Commission of the accounting falsifications in the accounts of McKesson & Robbins, Inc. Although the Commission was in the process of preparing its conclusions at the close of 1939 several important accounting changes already have evolved from the investigation. The Commission probed certain accounting falsifications in the accounts of Interstate Hosiery Mills, Inc. These falsifications were made by a representative of an accounting firm without the knowledge of his superiors or the officials of Interstate. The Commission criticized the officers of Interstate for their failure to discover the falsifications of the financial statements. The Commission has concluded the taking of testimony in proceedings brought against Associated Gas and Electric Company to determine whether the registration of certain of its securities should be suspended or withdrawn because of allegedly misleading and inaccurate statements made in reports filed with the Commission.

Appointments.

Jerome N. Frank became the fourth Chairman of the Securities and Exchange Commission in May, succeeding William O. Douglas, who resigned to become a Justice of the Supreme Court of the United States. Leon Henderson, of New Jersey, was appointed to the Commission to fill the Douglas vacancy.

Prosecutions.

The Commission generally intensified its prosecution of fraudulent promoters and securities salesmen, swindlers, bucket shop operators and others who abuse the confidence of the investing public. In the 1939 fiscal year, the Commission initiated 87 proceedings with respect to the enforcement of the Securities Act of 1933 and the Securities Exchange Act of 1934. Several important manipulation proceedings were disposed of during the year: three-month and one-month suspensions, respectively, from membership on stock exchanges for William E. Hutton, 2nd, and H. H Michels resulted from the manipulation proceedings brought against W. E. Hutton & Company and others; a ten-day suspension from membership on seven exchanges was given Junius A. Richards; and G. L. Ohrstrom & Company, Inc. consented to the revocation of their registration as over-the-counter brokers and dealers because of violations of the 1934 Act.

Effects of the 1935 Act.

Perhaps the most important single effect of the Public Utility Holding Company Act has been on the security issues of the utility companies. Since Dec. 1, 1935, when the Act went into effect, considerably over $3,000,000,000 of utility securities have been issued, all of them sufficiently in harmony with the spirit of the new law to permit their issuance. Important strides were made by the Commission in the corporate simplification and geographical integration of public utility holding company systems. A survey of a dozen systems, representing the backbone of the industry, showed definite progress toward establishment of single integrated public utility systems, with several systems already meeting this requirement.

Registered Securities and Registration Statements.

There were 2,449 issuers having securities effectively registered on one or more of the twenty national securities exchanges as of June 30, 1939. These issuers included most of the nationally known companies in the United States, many with activities of a sectional or local character, and many foreign private issuers, as well as foreign governments and their political subdivisions. There were 2,798 stock issues and 1,450 bond issues registered on national securities exchanges, while 1,225 stock issues and 416 bond issues were admitted to unlisted trading privileges. Sales of stocks and bonds on the twenty exchanges amounted to $14,213,133,000 during the 1939 fiscal year.

Registration statements becoming effective under the Securities Act of 1933, during the year ended June 30, 1939, aggregated approximately $2,494,240,000. The number of registration statements in effect on June 30, 1939, was 3,249. In addition, the Commission examined, 1,607 offering sheets relating to oil royalties, involving an aggregate offering price of around $25,000,000. The Commission examined 517 prospectuses or letters of notification covering securities totaling more than $37,857,000, which were exempted from registration under rules of the Commission covering certain issues not in excess of $100,000.

Investment Trust Study Report.

The Investment Trust Study transmitted reports to Congress throughout the year based on its two-year study of the $5,000,000,000 investment trust industry.

Facilities for Public Information.

Registration statements and all other public information filed with the Commission are available for inspection at the Commission's Washington office. Photocopies may be purchased of all public information on file with the Commission. The regional offices of the Commission at New York, Boston, Chicago, San Francisco, Denver, Atlanta, Fort Worth, Seattle and Cleveland and its public Reference Room in Washington, D. C., have been equipped with a system of reference cards cataloguing the registration statements filed under the Securities Act of 1933. These cards serve both as a history of and index to the registration statements. They are available for public use and photocopies of the reference cards for any registration statement may be obtained from the Washington office of the Commission for 25 cents per statement.