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History of the SEC
October 12, 2007

During the United States' long history many legislative measures have been enacted to protect investors against corporate misbehavior. Long before the Sarbanes-Oxley Act Act of 2002, there was the Securities and Exchange Commission (SEC) Act.

Dating from 1934, the legislation created the SEC and endowed it with broad powers over the securities industry. Below is a brief timeline of the development of the SEC and other financial protections. Follow the links in the timeline to find more detailed information.

According to the Securities and Exchange Act of 1934, a security:

means any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a "security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.
Committed to preventing another "Great Crash of '29," the SEC's mission was to ensure the integrity of financial markets. Namely, the companies that issued the stock, and the brokers who sold the stock, had to disclose all relevant information to stock customers. By providing a watchful eye over the securities marketplace and placing investor interests first, the SEC revitalized investor confidence.

Other SEC powers include the ability to discipline securities businesses and their employees. The Act also requires firms with publicly traded securities to publish periodic reports. These timely quarterly and annual reports are compiled by the SEC and posted on their EDGAR Web site. In-depth description of SEC powers

1913In response to the 1907 financial panic, Congress passes the Federal Reserve Act, which divides the country into twelve districts, each with a Reserve Bank. The system is designed to regulate credit and monetary policies in the United States.
1929The Great Crash - World financial markets collapse due to speculation. The world slides into economic depression. In spite of the Federal Reserve System, thousands of banks fail and millions of dollars are lost for investors.
1933Securities Act - Requires the securities' industry to release all relevant information to investors and prohibited fraud in the sale of securities.
Glass-Steagall Act establishes the Federal Depositors Insurance Corporation (FDIC). The act separates commercial from investment banking and sets up the FDIC to guarantee bank deposits.
1934Securities Exchange Act - Creates the SEC which is invested with broad powers to ensure the integrity of financial markets and protect investor interests from scams.
1935Public Utility Holding Company Act - SEC broadens its regulatory power to cover interstate holding companies involved through subsidiaries in the electric, oil, and gas industries
1939Trust Indenture Act - Requires that bonds, debentures, and notes cannot be sold unless a formal agreement is reached between the bond issuer and the bond holder.
1940Investment Company Act - Regulates the organization of companies whose business deals significantly with investing, reinvesting, and trading in securities in the public sphere.
Investment Advisors Act - Requires that all investment advisors, whether institutional or individual, must register with and conform to SEC regulations.
1941-1947In the wake of U.S. entry into WWII, the SEC is labeled a "nonessential agency" and is relocated to Philadelphia.
The Economic Warfare Unit of the SEC, using enemy and American business records, provides a list of strategic targets for attack on the Axis powers' infrastructure (railroads, hydroelectric plants, etc.).
1954 - 1960A father and son team of stock specialists illegally sell more than $10 million at a personal profit of over $1 million at the American Stock Exchange. After the American Stock Exchange exonerates the father-son duo, the SEC steps in and successfully removes the pair from the American Stock Exchange and the securities business. The inability of American Stock Exchange to adequately police its own members also leads to a formal SEC investigation of the American Stock Exchange.
1986-1988The SEC charges leveraged buyout specialist Ivan Boesky with "insider trading."
Cooperating with the SEC, Boesky's knowledge of insider trading rocks Wall Street
Boesky's cooperation enables the SEC to prosecute Michael Milken, the "junk bond" wizard, for insider trading.
Late 1980'sThe Savings and Loan Scandal erupts. The General Accounting Office estimates that the crisis will cost taxpayers at least $325 billion dollars after the bail out.
2001-2002Numerous corporate corruption scandals plague the nation. In response, the Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002 (aka Sarbanes-Oxley) becomes law. The bill gives the SEC more government funding and greater powers including general oversight and enforcement authority over Public Company Accounting Oversight Board and requires the SEC to report to Congress "the extent of off-balance sheet transactions and the use of special purpose entities."
2005Numerous corporate corruption scandals plague the nation. In response, the SEC adopts controversial Regulation NMS, a group of rules and initiatives intended to "modernize and strengthen the national market system for equity securities." Some claim the rules protect investors from predatory brokers, while others argue that new inefficiencies will hurt investors by raising costs.

Sources: The Oxford Companion to American History; The Federal Depositors Insurance Company; The Securities and Exchange Commission; The U.S. Code Collection at Cornell University; PBS: The Great Depression; The Center for Corporate Law, University of Cincinnati; Securities and Exchange Commission Historical Museum

Published on October 12, 2007

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