Securities and Exchange Commission Historical Society

William O. Douglas and the Growing Power of the SEC

Douglas and the Protective Committee Investigation

Douglas began in his SEC work to implement the realist ideology that he had developed at Columbia and Yale. He believed that administrative agencies like the SEC were "but a higher form of business management" that implemented broad national policies embodied in statutory law. With the implementation of those policies, the "business-government relationship move[d] out of the realm of controversy and debate" of politics and into the province of technicians who manned the agencies.

The key task of the SEC, Douglas believed, was to provide technical assistance "designed to improve the operations of individual constituents and resolve amicably conflicts between constituents." Douglas and the realist administrators preferred the quiet negotiations, dialogue and rational discussion with the affected industries to the turmoil of the legislative process. "Legal mandate," Douglas reasoned, "is an inferior method of getting the work of the world done" and the support of business was essential to a functioning government. (1)

In the early years of the New Deal, many federal administrative agencies were created with limited power and capability to perform their functions. The 1934 Act granted the SEC the power to regulate capital markets, and left the development of rules and regulations to the agency. One important way that the SEC developed the administrative capacity to accomplish its legislative function was through a thorough investigation of the problem that involved taking testimony at hearings and writing a report which proposed legislative solutions. While Section 211 of the 1934 Act gave the SEC authority to study the problems of corporate bankruptcies and reorganizations, Douglas and his staff had to interpret those Congressional proposals "on the fly."

The Protective Committee investigation led by Douglas began in May 1934. For fifteen months, Douglas held hearings and established a reputation as an unyielding, indefatigable staff investigator of the problems and abuses that occurred during corporate bankruptcies and reorganizations. Using the subpoena and investigative powers granted in the 1934 Act to compel testimony, the Protective Committee uncovered and exposed many abuses in the corporate reorganization process.

The Committee called hundreds of witnesses to public hearings where they detailed the unscrupulous and unethical ways in which inside groups worked with bankrupt corporations to the detriment of numerous creditors. Inside arrangements, unfair committee representation, lack of oversight, and outright fraud often cheated investors in financially troubled or bankrupt companies out of their investments.

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(1) Michael E. Parrish, Securities Regulation and the New Deal (New Haven: Yale University Press, 1970), 181-182.

Related Museum Resources


February 24, 1934
document pdf (Courtesy of the Library of Congress)
January 14, 1935
transcript pdf (with permission of the John F. Kennedy Library Foundation)
April 26, 1935
document pdf (Courtesy of the National Archives)
April 26, 1935
document pdf (Courtesy of the National Archives)
June 5, 1935
transcript pdf (with permission of the John F. Kennedy Library Foundation)
May 10, 1937
document pdf (Courtesy of the National Archives)
June 8, 1937
document pdf (with permission of the Yale University Press)
February 21, 1938
transcript pdf (Courtesy of the National Archives)

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