Securities and Exchange Commission Historical Society

Wrestling with Reform: Financial Scandals and the Legislation They Inspired

Robert K.D. Colby, Curator
Opened May 1, 2013

- April 21, 1985 “Invasion of the Corporate Body Snatchers,” Herblock; copyright Herb Block Foundation


In November 1910, federal investigators and detectives swarmed New York’s newly-constructed Flatiron Building and hauled off the Burr Brothers, stock traders who specialized in selling fraudulent issues to gullible buyers.  The Burrs were notable for the size of their crimes, but typical of the nearly eighty cases brought by the government at the time for mail fraud. 

The wave of securities fraud demonstrated the downside of the surging markets of the early twentieth century.  As the tools for personal enrichment grew more abundant, so did opportunities for exploitation.  These scandals also came about at a time when Americans increasingly held the government responsible for the public well-being.  The results were the nation’s first significant securities laws, and scandals have been leading to new laws ever since.

Scandals expose abuses, identify gaps in existing laws and rally public opinion behind otherwise arcane or controversial measures.  But they create other opportunities.  Scandals open legislative windows, but seldom indicate straightforward responses.  Differing interests, opinions and experiences often lead lawmakers in unexpected directions.  Self-interest and ingenuity will always lead to new crimes and fuel debates regarding the appropriate remedies. 

Each scandal and corresponding legislative window is shaped by its historical moment; context becomes critical in understanding scandals and responsive legislation. The presence of a powerful advocate, the existence of an uncontroversial core around which a consensus can cohere, the severity of the scandal, the prevailing political climate and the strength of opposition also play major roles.

The Gallery will focus on five scandals and their legislative reactions, ranging from 1910 to 2002.  Wildcat securities sales in Kansas alerted a leader in the waxing Progressive movement of the need for consumer protection.  Forty years later, a lone swindler exposed gaping holes in Arizona law, leading the state to bolster its securities regime with help from national regulators.  The foreign payments scandals of the mid-1970s, the insider trading scandals of the late 1980s, and the accounting scandals of the early 2000s each demonstrated how, in the presence of powerful momentum provided by scandal, legislative, regulatory and executive forces may conflict, cancel each other out, or even cooperate to produce legislation, either predictable or surprising.


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