Two years ago, I was asked to take on an unusual project: to write a history of the Securities and Exchange Commission’s (SEC) Enforcement Division for the SEC Historical Society. The Society is a private organization devoted to preserving the SEC’s legacy. The history would appear not in print, but as an online “gallery” hosted at the Society’s Virtual Museum. The heart of the history would be a written essay, but it would also include links to primary sources, and to prepare it I would need to conduct a series of oral histories with important figures from the Enforcement Division’s past, also to be available on the website. The Virtual Museum is deliberately aimed at a general audience; no doubt some professors would see the gallery, but the ideal reader of my essay would be a nonlawyer simply interested in how the securities laws are enforced. The Gallery went online last month; here’s a summary of what I learned:
Since its founding in 1934, the SEC has always been charged with enforcing the securities laws. Even before the establishment of a separate Enforcement Division in 1972, SEC lawyers based in Washington and in the Commission’s regional offices investigated market manipulation, accounting fraud, insider trading, and other underhanded activities in the securities markets. Starting in the early 1970s, such activities became national news, as one crisis after another thrust the SEC into the spotlight. In the 1970s it was illegal contributions and bribes that many U.S. companies had been paying to politicians in the US and overseas; in the 1980s insider trading occurring amidst the boom in hostile takeovers; at the turn of the century the collapse of Enron and other giant firms due to accounting fraud; and in 2008 the global financial crisis. Each called for, and received, a strong response from the SEC.
While there were new challenges every decade, parts of the story never changed. The SEC was always underfunded as compared to its opponents. In its early days, the Enforcement Division had barely 100 lawyers to police all of the world’s largest securities markets. Even today it has only a bit more than 1000. Its work always relied on attorneys willing to forego big law firm salaries to, at least for a few years, wear the “white hat” and go after wrongdoers. (Temple lawyers have played a big role in Enforcement over the years; of the dozen lawyers who have served as directors of Enforcement, three are graduates of Temple Law: Bill McLucas ’75, Dick Walker ’75, and Stephanie Avakian ’95.) And the Enforcement Division has always had its enemies in Congress and the corporate world. When corporate and economic crises have struck, its funding would sharply increase, but as soon as the crisis passed politicians, would forget the Division’s vital role, listen only to its critics, and cut its funding, sowing the seeds for the next crisis.
Harwell Wells is the I. Herman Stern Professor of Law Temple University’s Beasley School of Law. He writes extensively in the areas of corporations and legal history. His research areas include corporations and unincorporated business associations.