The Creation of the Securities and Exchange Commission

For more than a decade, Kate Merli has held leadership positions as an accountant, controller, and chief financial officer (CFO). Currently leading as CFO with New 2nd Capital in New York City, Kate Merli maintains strong professional interests in private equity, auditing, the Securities and Exchange Commission (SEC), and other industry topics.

For much of America's early history, the federal government provided little to no oversight of the securities industry. After World War I, however, the securities market exploded, bringing with it both tremendous wealth for financiers and tremendous opportunities for fraud by the unscrupulous. This came to a head in the 1920s when widespread fraud, weak investor-protection laws, and unregulated investment vehicles helped fuel a stock market craze that ultimately crashed in 1929 and led to the Great Depression.

Recognizing the dangers of an unregulated securities market, the federal government passed several laws in the early 1930s to restore investor confidence, including the Glass-Steagall Act, the Securities Act of 1933, and the Securities Act of 1934. The last of these acts called for the creation of the Securities and Exchange Commission to enforce these laws. 

The first commissioner of the SEC was Joseph Kennedy, father of President John F. Kennedy. Throughout the rest of the 1930s and early 1940s, Congress passed several more acts, including the Investment Company Act of 1940, designed to reduce fraud and strengthen public trust in the securities markets. Together, these laws gave the SEC much of the power and responsibility it holds today.