4/

area of written information, but in other media, such as

film and slides

5/

which explain the objectives of the

Commission's work and how it goes about fulfilling those objectives. These preliminary efforts should be continued and expanded.

Finally, the Committee also considered recommendations for substantially expanding the Commission's educational functions, but rejected them. The decision reflects the belief that the private sector presently provides a range of educational materials far in excess of what the Commission might provide within the confines of its limited resources.

4/

5/

Cf. The Work of the SEC; Investigate Before You Invest;
and How to Avoid Pyramid and Ponzi Schemes;

Because of the Commission's regulatory responsiblities,
there are understandable difficulties in the preparation
of such materials, not the least of which is the
problem of preparing material that is truly informative
without being overly complicated. The Committee
believes that these problems can be overcome

and that, equally important, investors promised Commission
assistance in such publications in fact find such
assistance.

In 1975, in cooperation with the Practicing Law Institute,
the Commission prepared an edited film of an actual Com-
mission meeting. The following year, it created a
synchronized slide and tape program explaining the basic
functions of the Commission. Neither of these efforts
have received the marketing and distribution efforts
they require to bring them to public attention, despite
the favorable reception by users who have viewed them.

PART IV

THE DISCLOSURE ENVIRONMENT

CHAPTER XIX

CORPORATE DISCLOSURE UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934: A HISTORICAL PERSPECTIVE*

After the 1929 crash, and in the midst of the ensuing depression, President Roosevelt requested Congress to enact legislation regulating transactions in securities. In his message of March 29, 1933, the President outlined his

legislative proposal as follows:

I recommend to the Congress legislation

for Federal supervision of traffic in investment securities in interstate commerce.

In spite of many State statutes the public

in the past has sustained severe losses through practices neither ethical nor honest on the part of many persons and corporations selling securities.

Of course, the Federal Government cannot and should not take any action which might be construed as approving or guaranteeing that newly issued securities are sound in the sense that their value will be maintained or that the properties which they represent will earn profit.

William E. Van Valkenberg, the author of this chapter,
was formerly a staff attorney with the Securities and
Exchange Commission and is currently associated with
Messrs. Bogle & Gates in Seattle, Washington.

There is, however, an obligation upon us
to insist that every issue of new securities
to be sold in interstate commerce shall
be accompanied by full publicity and informa-
tion and that no essentially important element
attending the issue shall be concealed from
the buying public. This proposal adds to
the ancient rule of caveat emptor, the further
doctrine let the seller also beware." It
puts the burden of telling the whole truth
on the seller. It should give impetus to
honest dealing in securities and thereby
bring back public confidence.

It

The purpose of the legislation I suggest
is to protect the public with the least pos-
sible interference to honest business.
This is but one step in our broad purpose
of protecting investors and depositors.
should be followed by legislation relating
to the better supervision of the purchase
and sale of all property dealt with on ex-
changes, and by legislation to correct unethical
and unsafe practices on the part of officers
and directors of banks and other corporations.

What we seek is a return to a clearer
understanding of the ancient truth that those
who manage banks, corporations, and other
agencies handling or using other people's money
are trustees acting for others. 1/

The President anticipated comprehensive reform of the securities industry and his message, which reflected the influence of Louis D. Brandeis' philosophy for controlling 2/ those who manage other people's money, expressed

four principles that subsequently became themes of federal securities regulation. First, the public should be protected

1/

2/

S. Rep. No. 47, 73d Cong., 1st Sess. 6-7 (1933); H. R.
Rep. No. 85, 73d Cong., 1st Sess. 1-2 (1933).

L. Brandeis, Other People's Money and How the Bankers
Use It (1914).