William Cary was a Columbia Law professor and the author of one of the most widely-used law school casebooks on corporations. When he became SEC Chairman, his agenda included overturning the Massachusetts Supreme Court's decision in Goodwin v. Agassiz, which held that insider trading was not actionable as common law fraud in open-market trading.(14) Cary was convinced that the states were not effective regulators of insider trading abuses in the national markets. He believed that the SEC was the only institution that could effectively regulate the abuses, and he was determined to see qualified staff members appointed to the Commission.
Cary succeeded in having President Kennedy name Manuel Cohen and Byron Woodside to the Commission, along with former Cary law student Jack Whitney, all of whom supported Cary's more activist enforcement policies. But Kennedy's close election made broad new enabling legislation for the SEC politically impossible. Faced with that limitation, Cary sought to model the Kennedy-era SEC after the reformist, yet pragmatic, SEC chaired in the late 1930s by William O. Douglas. Aware of the demands for market reform and the necessity for a strong administrative agency to implement those reforms, Cary staffed the SEC with the best lawyers available in America. As a general commitment, Cary wanted the SEC to reestablish the balance between market vitality and investor confidence, seeking to raise fiduciary standards and to reduce the "opportunities for Exchange floor members or corporate insiders to take advantage of their positions."(15)
The intellectual battle lines would finally be drawn with the approval of the first full-scale investigation of the stock markets in twenty-five years. In 1963, the SEC conducted its Special Study of the Securities Markets. The study concluded that, from 1959 to 1962, "activity in new issues took place in a climate of general optimism and speculative interest" but as a result of agency understaffing, the SEC extended the average review of registration statements from twenty-two days in 1955 to fifty-five days in 1961. The Special Study led to a host of other investigations into the policy-making role and responsibility of the SEC in regulating national securities exchanges, associations and practices. The study underscored that the understaffing of SEC enforcement and a lack of a consistent legal theory to regulate insider trading left wide gaps in the Commission's enforcement effort.
(Courtesy of Stuart Kaswell; made possible through a gift from the family of Milton H. Cohen)
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