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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.

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Related Museum Resources

Papers

February 13, 1942

Memo from Raymond Vernon to James A. Treanor, Jr. on summary of transactions in American Telephone and Telegraph Co. common stock in selected periods

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

August 11, 1942

Memo from Woolvin Patten to James A. Treanor, Jr. on insider trades

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

August 14, 1942

Memo from Mr. Keenan to Mr. Treanor, Miss Stieg, Mr. Knudsen and Mr. Vernon on market disclosure rule

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

September 2, 1942

Letter from Henry R. Stern to SEC on proxy rules

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

September 9, 1942

Letter from M.J. Keena, New York Curb Exchange, to Milton V. Freeman, SEC, regarding suggested amendments to proxy rules (Regulation X-14)

[image] (pdf) (Courtesy of the National Archives and Records Administration)

September 12, 1942

Letter from Milton V. Freeman to M.J. Keena, New York Curb Exchange

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

September 14, 1942

Letter from Edward A. LeRoy, Jr., Phoenix Securities Corporation, to Milton V. Freeman on proxy rules

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

September 14, 1942

Letter from Edward B. Twombly, Putney Twombly & Hall, to SEC General Counsel regarding amendments to proxy rules

[image] (pdf) (Courtesy of the National Archives and Records Administration)

September 14, 1942

Letter from Overseas Securities Co., Inc. to SEC, attention of Milton V. Freeman, regarding proposed draft of amendments to SEC proxy rules

[image] (pdf) (Courtesy of the National Archives and Records Administration)

September 14, 1942

Letter from Pullman Incorporated to Milton V. Freeman, SEC, regarding proposed draft of amendments to SEC proxy rules

[image] (pdf) (Courtesy of the National Archives and Records Administration)

September 21, 1942

Letter from Harry M. Wolfe to SEC, supporting amendments to SEC proxy rules

[image] (pdf) (Courtesy of the National Archives and Records Administration)

September 23, 1942

Letter from Calvin Philips, Jr. to SEC on proxy rules

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

September 23, 1942

Letter from U.S. Representative Lyle H. Boren to SEC Chairman Ganson Purcell on proposed Rule X-15C1-10

[image] (pdf) (Courtesy of the National Archives and Records Administration)

October 1, 1942

Letter from James A. Treanor, Jr. to Senator Tom Connolly

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

October 2, 1942

Telegram from SEC Chairman Ganson Purcell to Emil Schram, New York Stock Exchange

[image] (pdf) (Courtesy of the National Archives and Records Administration)

October 10, 1942

Letter from Emil Schram, President, New York Stock Exchange, to SEC Chairman Ganson Purcell regarding proposed changes to proxy rules

[image] (pdf) (Courtesy of the National Archives and Records Administration)

October 15, 1942

Letter from SEC Chairman Ganson Purcell to Emil Schram, New York Stock Exchange

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

November 10, 1942

Letter from SEC Chairman Ganson Purcell to U.S. Representative Lyle Boren on SEC jurisdiction to regulate fraudulent trades

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

December 12, 1942

Letter from U.S. Representative Lyle H. Boren to SEC Chairman Ganson Purcell on proposed Rule X-15C1-10

[image] (pdf) (Courtesy of the National Archives and Records Administration)

December 18, 1942

SEC Release on Adoption of Revisions to Proxy Rules

[image] (pdf) (Courtesy of the National Archives and Records Administration)

March 2, 1943

Letter from Sidney L. Schwartz, San Francisco Stock Exchange, to SEC Chairman Ganson Purcell regarding proxy regulation

[image] (pdf) (Courtesy of the National Archives and Records Administration)

March 13, 1943

Telegram to SEC Chairman Ganson Purcell

[image] (pdf) (Courtesy of the National Archives and Records Administration)

May 20, 1947

Letter from SEC Chairman James J. Caffrey to Senator Charles W. Tobey on S.1099 revisions

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

February 4, 1948

Memo from Gerald W. Siegel to Louis Loss regarding legislative history of subsection 17(b), Securities Act of 1933

[image] (pdf) (Courtesy of the National Archives and Records Administration)

February 23, 1950

Letter from Baldwin B. Bane to Charles J. Odenweller, Jr. regarding David Colby v. Raymond Klune and 20th Century Fox Film Corporation

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

May 1, 1950

Letter from Richard B. McEntire, SEC Acting Chairman, to Senator Burnet R. Maybank regarding S.2765

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

March 30, 1951

Letter from Richard B. McEntire to John T. Callahan, with March 22, 1951 article from "The Northern Miner"

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

July 10, 1952

Letter from SEC Chairman Donald C. Cook to Joseph P. McMurray, Senate Committee on Banking and Currency, regarding S.3427

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

February 21, 1955

S.Res. 59 - Resolution to make a study of the issuance of uranium mining stocks, by Mr. Chavez, to the U.S. Senate, 84th Congress, 1st Session

[image] (pdf) (Courtesy of the National Archives and Records Administration)

April 26, 1955

Letter from Senator Dennis Chavez to SEC Chairman Ralph Demmler for information for Senate Resolution 59

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

March 26, 1956

Letter from Lewis L. Baxter to SEC regarding solicitation of proxies by corporation management

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

December 19, 1957

Letter from Philip E. Kendrick to Philip A. Loomis, Jr. regarding Rule 10b-6

[image] (pdf) (Courtesy of the National Archives and Records Administration)

January 3, 1958

Letter from Philip A. Loomis, Jr. to Philip E. Kendrick

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

October 15, 1958

Memo from Thomas Meeker to SEC Chairman Edward Gadsby on Commission endorsement of the Uniform Securities Act

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

March 18, 1959

Letter from Henry H. Pierce, Jr., Connecticut Bank Commissioner, to Paul Windels, Jr. regarding Connecticut Bill No. 2715

[image] (pdf) (Courtesy of the National Archives and Records Administration)

March 28, 1959

Letter from Thomas Meeker to Henry H. Pierce, Jr., Connecticut Bank Commissioner

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

September 21, 1959

Memo of Closed "SEC" Session at the Convention of the North American Securities Administrators

[transcript] (pdf) (Courtesy of the National Archives and Records Administration)

Photos

March 24, 1942

SEC Staff in Philadelphia

(With permission of AP/Wide World Photos )

April 5, 1942

SEC Headquarters in Philadelphia

(With permission of AP/Wide World Photos )

1947

SEC Commission

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