The Arizona Securities Act was passed two years after its State Securities Commission, headed by future SEC Commissioner Earl Hastings, was founded. The Act was in response to the 1940s mining frauds perpetrated by Constantino Riccardi, and among the first state laws to explicitly coordinate with the SEC on enforcement and exemptions.
In SEC v. Ralston Purina, the Supreme Court laid down the critical tests for the availability of the “private offering” exemption under what is now Section 4(2) of the ’33 Act.
The Supreme Court’s decision in Wilko v. Swan established that a pre-dispute agreement to arbitrate claims under the ’33 Act was unenforceable. The ruling stood until 1989.
The Committee on Accounting Procedure of the American Institute of Accountants codified all its pronouncements on generally accepted accounting principles in Accounting Research Bulletin 43.
The SEC amended proxy rules to restrict the type of shareholder proposals that were required to be included in company proxy statements. Some argued that this curtailed shareholder democracy.
In early 1950s, many SEC positions were eliminated due to budget cuts; by 1955, the SEC had just under 700 employees. Such reductions curtailed the SEC’s effectiveness, and SEC Commissioners and senior personnel warned that the SEC could not fully perform its job.
The SEC regional offices were encouraged to rely on state authorities to investigate and prosecute securities cases, due to staff shortages.
TIME magazine published “Protection for Investors: The SEC is Unequal to the Job,” criticizing the SEC for being dominated by the financial industry that it was charged with regulating. The SEC was also faulted for choosing to prosecute small brokerage firms, rather than the dominant Wall Street firms.
The Uniform Securities Act was adopted either in whole or in part in 37 states. It attempted to balance the need to protect investors from fraud with the need of states and businesses to raise capital efficiently. One significant innovation was a provision for “registration by coordination,” which allowed securities already registered under the federal securities laws to be exempt from further registration requirements, unless they were subject to a stop order by federal regulators.
The New York Stock Exchange established Rule 394, forbidding its members from making transactions in NYSE stocks off the exchange.
In Accounting Research Bulletin 48, the AICPA Committee on Accounting Procedure allowed for pooling-of-interests accounting for business combinations in the presence of certain attendant circumstances. The criteria were often ignored or weakly enforced by the SEC.
Utility companies sought to enjoin the AICPA Committee on Accounting Procedure from issuing a requirement that deferred taxes be included among liabilities, at variance with industry practice of including them in equity. After the U.S. Supreme Court denied certiorari, the committee clarified that deferred taxes should be shown as a liability or deferred credit. The SEC confirmed this requirement in Accounting Standards Release No. 85.
In 1957, the SEC brought Crowell-Collier, an administrative action against American Stock Exchange members, but failed to uncover the breadth of fraudulent activity in which these AMEX members engaged. In 1959, the House Special Sub-committee on Legislative Oversight issued a report criticizing the SEC for its delay in investigating investor complaints and imposing minimal penalties in the AMEX case.
Facing criticism for failing to reduce the number of acceptable accounting alternatives, the AICPA replaced the Committee on Accounting Procedure (CAP) with the Accounting Principles Board (APB). The APB was intended to develop conceptual context from which would flow specific applications, then choose between alternate rules and procedures to narrow differences. The APB soon turned from conceptual context to solving specific problems, as had the former CAP.
