The United States Securities and Exchange Commission: 1942–1946
| Date | 01 July 1947 |
| DOI | http://doi.org/10.1111/j.1468-2230.1947.tb00051.x |
| Published date | 01 July 1947 |
| Author | E. Merrick Dodd |
THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
:
1942-1946
IN
July,
1942,
The
Modern
Law
Review
published an article
by the present writer which attempted to summarise the
powers which the Congress
of
the United States has vested in
the Securities and Exchange Commission under
a
series of
enactments and to indicate the policies which the Commission
had adopted in carrying out those powers and the results
which
it
had achieved-particularly in the field of investor
protection. That article covered the period from the enactment
of the
fist
of
the statutes in question, the Securities Act, in
1933,
to approximately the close of the year
1941.
The present
article
is
concerned with the activities of the Commission since
1942
and with the extent to which those activities have been
approved
or
disapproved by the courts.’ The Commission has
been vested with administrative functions by six different
statutes, and with important advisory functions by
a
seventh.’
THE
SECURITIES
ACT
The primary purpose of the first statute, the Securities Act of
1933,3
is
to give purchasers of new issues of securities full
information about the issue and the issuer. Although the Act
is modelled to some extent on those sections of the British
Companies Act which relate to prospectuses,
it
differs widely
from its British prototype in requiring that the statements
which are to be made in the prospectus be incorporated also
in
a
registration statement, which must be filed with an
administrative agency, and by giving that agency power to
issue stop-orders suspending the right to sell securities, if
it
finds that the registration statement fails to comply with the
Act
or
with regulations made pursuant to the Act.
An important development since
1941
with respect to
registration
of
security issues under this Act has been the
1
The Commission’s Tenth Annual Report (hereinafter referred
to
as
Tenth
Report) is
a
survey of its activities for the ten-year period
1934-1944.
For
an account of some of its recent acpvities, written by its then Chairman and
two members
of
its legal staff, see Enforcing the Accountability
of
Corporate
Management and Related Activities
of
the
S.E.C.’,
(1946) 32
Va.
Law
Rev.
497.
2
A comparison between certain
of
the provisions of these statutes and recent
recommendations for amendment of the British Companies Act may ,be found in
Dodd, ‘Report
8f
the Committee on Company Law Amendment
,
(1945)
58
Ham.
Law
Rev.
1258.
3
15
U.S.C.
$5
77a
et
seq.
255
256
MODERN
LAW
REVIEW
VOL.
10
Commission's success in preventing evasion through the sale
of
what are in substance investment securities masquerading
as mere assignments of interests in tangible property. The
most noteworthy of these successes was scored in
S.E.C.
v.
Joiner,"
in which the Supreme Court accepted the Commission's
view that what purported to be assignments of leases of parcels
of
land which might possibly contain oil were within the Act
since they were represented by the assignors to be, in effect,
investments in an oil-drilling project.
Some idea of the volume of work performed by the Com-
mission and its staff in connection with registration may be
obtained from the fact that during the period from the enact-
ment
of
the law through June
30,
1944, 5,420
registration
statements were filed with the Commi~sion.~ These statements
are given very thorough scrutiny. During the same period that
scrutiny resulted in the issue of
182
stop
or
refusal6 orders,
as
well as an unstated but undoubtedly very much greater
number of letters of deficiency.'
In an effort to leave no loophole for concealment of material
facts, the Securities Act calls for a much more elaborate
registration statement and prospectus than
is
required by the
British Companies Act. The Commission is, however, given a
considerable amount of discretion with respect to these require-
ments,*
a
discretion which it is currently using for the purpose
of simplifying both registration statements and the subsequent
periodic reports which are required
of
registrants. Congress
has recently taken cognisance of criticisms that registration
requirements are unduly expensive in the case of issues of
4
320 U.S. 344 (1943).
5
Tenth Report, p.
18.
The total face value of new corporate securities registered
under the Act during the ten-year period ending June 30, 1944, was over
$14,000,000,000. This was approximately two-thirds
of
the total volume of
such securities issued in the United States during the period. Most
of
the
balance were either securities of railroad companies, the issue
of
which is
regulated by the Interstate Commerce Commission, or securities which were
exempt from registration because they were not publicly offered but were
privately placed, mostly with insurance companies and other institutional buyers.
Tenth Report,
p.
19.
0
A refusal order
is
substantially like
a
stop order, but may be issued only where
the registration statement is incomplete
or
inaccurate
on
its face and
only
within ten days a€ter the filing of the statement. A stop order may be issued
at any time.
7
The
'
letter of deficiency
',
a
letter which informally advises registrants of
misstatements or omissions which must be corrected
or
supplemented before the
registration statement becomes effective, has substantially superseded the stop
order
as
a
method
of
enforcement.
fi
Securities Act,
5
7,
15
U.S.C.
5
77g.
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