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431 Days: Joseph P. Kennedy and the Creation of the SEC

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Progressive Reform and the Securities Act

Roosevelt understood that he faced two tasks: reform the way securities were sold, and reform the stock exchanges themselves. He began with the first task, introducing a bill written by FTC Commissioner Houston Thompson modeled on the blue sky laws. "It puts the burden of telling the whole truth on the seller," FDR announced. (Seligman, 54)

This Brandeisian approach, the idea that the way to reform the securities market was to shine light and learn the truth, was soon all that remained of the Thompson bill--Congress found it too stringent in some areas and too lenient in others. Texas Congressman Sam Rayburn asked FDR aide Raymond Moley for an alternative. Moley contacted Harvard Law professor Felix Frankfurter, a disciple of Louis Brandeis, whose influence with FDR was unparalleled.

To draft the bill, Frankfurter tapped a determined and tense young Harvard Law professor named James M. Landis and a brilliant but retiring lawyer named Benjamin Cohen. Frankfurter believed that Thomas "Tommy" Corcoran, a sharp, extroverted crusader already working in government, would be a good foil for the two. In April the trio holed up in Washington's Carlton Hotel and drafted the bill.

Under Rayburn's expert stewardship, the momentum gained by the ongoing Pecora Committee hearings, and the sheer confusion of FDR's "First Hundred Days" in which fifteen other statutes covering banking, agriculture, and national recovery were passed, the Securities Act of 1933 glided through Congress with ease.

Landis wrote a distinctive idea into this bill. He believed that effective regulation demanded more than simply a new law. That, he realized, could be defeated by subterfuge and technicalities. Instead, Landis envisioned a regulatory agency that could focus narrowly on one objective and apply the necessary expertise to get the job done.

Under the Securities Act, that responsibility went to the Federal Trade Commission, a Progressive Era agency. Roosevelt appointed James Landis to run the FTC's new Securities Division. Landis, committed to full disclosure, may have let principles get in the way of practicality. The FTC's "Schedule A" required detailed current and historical corporate financial information from corporations issuing securities. Critics raised the question: even if sunlight could clean up the markets, could too much sunlight--by making it difficult for corporations to issue securities--impede recovery? Neither Pecora nor Landis thought so, but business was convinced it could.

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Related Museum Resources

Papers

May 5, 1933

Letter from Benjamin Cohen to James Landis

[transcript] (pdf) (Courtesy of the Library of Congress)

May 8, 1933

Excerpt from Diary of Felix Frankfurter

[image] (pdf) (Courtesy of the Library of Congress)

May 27, 1933

The Securities Act of 1933

[document] (pdf) (Government Records)

June 7, 1933

Letter from Benjamin Cohen to James Landis

[image] (pdf) (Courtesy of the Library of Congress)

July 6, 1933

Rules and Regulations Under the Securities Act of 1933

[document] (pdf) (Courtesy of David Ratner)

August 31, 1933

Letter from J.C. Muirhead, Inc. to President Roosevelt protesting regulation

[image] (pdf) (Courtesy of the Library of Congress)

September 15, 1933

Letter from E.G. Parsly, Parsly Bros. & Co., to Baldwin Bane

[transcript] (pdf) (Courtesy of the Library of Congress)

September 25, 1933

Telegrams to George Mathews from President Roosevelt on appointment to Federal Trade Commission Securities Division, along with acceptance of James Landis

[image] (pdf) (with permission of the Franklin Delano Roosevelt Library and Museum)

Photos

1934

James Landis and Felix Frankfurter

(Courtesy of the Library of Congress )

1939

Frankfurter, Felix

(Courtesy of the New York World-Telegram and Sun Newspaper Photograph Collection, Library of Congress )

1969

Benjamin Cohen and Thomas Corcoran

(Courtesy of the Library of Congress )