Securities and Exchange Commission Historical Society

The Imperial SEC? - Foreign Policy and the Internationalization of the Securities Markets, 1934-1990

The War Years

SEC War Efforts

When the United States entered World War II, the SEC took on new roles and, at certain moments, looked more like an intelligence agency than a financial regulator. Although it is generally believed that the SEC was essentially inactive during the war, especially as its offices were moved from Washington D.C. to Philadelphia, it actually engaged in significant wartime activities.

The day after the Japanese bombed Pearl Harbor, the national securities exchanges, led by the SEC, suspended trading in all German, Italian, and Japanese securities. The SEC was also designated a defense agency on the basis that it had significant regulatory power over the many corporations that produced weapons and goods for the war. More specifically, under the Public Utility Holding Company Act, "the Commission regulated nearly every financial transaction of two-thirds of the electric power industry of the country."(23) Adequate power was central to the war effort.

Shortly after U.S. entry into the war, the SEC began tracking Britain's sales of U.S. securities. In need of money, Britain was liquidating securities and the SEC feared that this would create significant volatility in the U.S. markets. Setting up a highly confidential program, the British government provided the Treasury Department with a list of its daily sales of U.S. securities. The Treasury Department then provided SEC Chairman Jerome Frank with these numbers.(24)

In addition to its regulatory power, the SEC undertook numerous special projects related to the war effort. In connection with the Office of Price Administration, the SEC monitored transactions on commodities exchanges. It also assisted the Treasury Department in drafting Executive Orders freezing foreign funds and bringing enforcement actions in connection with such orders.(25)

Working with the Anti-Trust Division of the Justice Department, the SEC conducted investigations for the Board of Economic Warfare. Such work was broad in scope and included collecting information regarding the economic power of Axis and occupied countries, and conducting economic espionage.(26) The SEC believed that it had such important information and knowledge that it created its own Economic Warfare Unit within the SEC, which primarily worked on spot intelligence and more long-term studies.

As the United States began its war offensive, one of the SEC's most important roles was identifying bombing targets within enemy territories. The SEC provided a vast amount of information related to the Japanese machine tool industry; the location of water works in Japanese cities; the location of German chemical, rubber, and food plants; and target objectives in Nuremberg and Hamburg. The SEC also produced more quotidian information such as maps of various occupied and enemy cities; photographs of bridges, ports and harbors; and train schedules. It reviewed seized documents and files from Japanese companies, negotiated various trade agreements for necessary supplies with neutral nations, engaged in a study of the ownership and control of foreign corporations, and conducted a study of air frame manufacturers for the War Department.(27)

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March 28, 1940
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