Back to Philadelphia

As if the U.S. were back in 1937, Wall Street and SEC last week belabored each other with adjectives. A lawyer named Twombly said SEC was "unjust, unfair, un-American." SEC replied by exhuming the ghost of Dick Whitney. A new war had started over how to keep the peace.

Why Now? The House Interstate Commerce Committee last week concluded hearings on proposed amendments to SEC's two basic acts, the Securities Act of 1933 and the Securities Exchange Act of 1934. Wall Streeters were more hopeful of winning an SEC fight than in many a moon. Some even thought that SEC, not a war agency, was no longer even a White House favorite. Would it perhaps spend the war--then the peace--in limbo?

It would certainly spend the war in Philadelphia. Next week SEC takes possession of new quarters: the Penn Athletic Club, in the quiet elegance of Philadelphia's Rittenhouse Square. In Washington, SEC's offices were infested with cockroaches, but they were only two blocks from the White House. In Philadelphia, its new quarters has a swimming pool (to be boarded over), but among its nearest neighbors are several antique shops.

Where Does the SEC Stand? In its eighth year, under its sixth chairman, Ganson Purcell (TIME, Jan. 26), SEC is not the thrill-a-minute New Deal star wagon it once was. For one thing, defense and war have drawn heavily upon its brilliant staff. OPA took not only ex-Commissioner Leon Henderson, but Utilities Expert Joe Weiner, Legal Eagle Dave Ginsburg; many a lesser technician has gone to defense work. Betting is that only 750 of its 1,250 employes will follow SEC to Rittenhouse Square.

But the chief cause for SEC's loss of glamor is not directly connected with war. It is the simple fact that maturity, as it must to all enduring Government commissions, has come to SEC. Its main policy fights are over. Its job now is the technical one of carrying out the basic policies already determined. On the utilities front, the outlines of holding-company "disintegration" were established in the months before Jerome Frank became a judge (TIME, April 14). Even before that, the SEC-Wall Street fight had degenerated into skirmishes over "attitude," red tape, technical details.

What Are They Fighting For? For over a year, SEC and four Wall Street committees hashed over changes in the two Securities acts. Last August they tossed 86 suggestions into the Congressional hopper. Fifty-five of them--mostly designed to increase efficiency, cut red tape and unnecessary expense--carried a joint SEC-Wall Street blessing. But there is still real disagreement over at least three things :

P:Wall Street wants repeal of the provisions for penalizing executives (and large stockholders) who trade in their company's securities. It claims that publicity on such "insider" trading is enough. SEC says no.

P:Wall Street wants SEC to renounce, by okaying repeal of the pertinent clauses, its never-used power to segregate broker and dealer functions. SEC wants to "continue to study" this problem.

P:What makes Wall Street most nervous is that SEC wants a new power. It wants to be able to revoke an exchange's license (or punish its members) for failure to enforce (or live up to) the exchange's own rules. It can now do so only for failure to obey SEC rules.

Both sides went to town on this last point. New York Stock Exchange President Emil Schram protested that it would kill self-regulation of the Stock Exchange just when the Exchange had reorganized for that very purpose. SEC in turn not only dragged out Dick Whitney, but also the more recent Cuppia case. Jerome Chester Cuppia, a former partner of E. A. Pierce and ex-governor of the N.Y. Curb Exchange, exiled himself to South America in 1940 after engaging in fee-splitting and kickbacks totaling over $1,000,000 in eight years (an infraction of the Curb's constitution). Six other Curb members involved were finally expelled after SEC began its own hearings on the mess. But Ringleader Cuppia himself got off with a penitent letter and a long, long trip.

With only two horror cases in six years to cite, SEC's testimony before Congress made Wall Street scream about manufactured bids for more power. Ganson Purcell calls this charge "the obvious resort of anybody who wants to undermine our efforts to perfect the powers we have."

Yet even SEC's pet securities body, the National Association of Securities Dealers, was furious last week. Reason: an SEC lawyer, investigating disciplinary action by N.A.S.D. upon some of its members (who had breached a typical underwriting agreement) came up with the startling theory that such agreements might be in violation of Maloney Act provisions similar to the anti-trust laws. N.A.S.D., along with the rest of the Street, regards these underwriting and selling group agreements as the very heart of the investment banking business.

Where Now? Not for several months will the House Committee report out a bill on securities-acts amendments. When it does, it is not likely to shear away any real powers SEC now has.

Yet not even Congress can bring back the heady policy-making SEC of Kennedy, Landis, Douglas, Frank. Career Man Purcell envisions a few war-policy jobs: he hopes to sit on whatever interdepartmental committee takes formal control of priorities on capital funds. After the war, he foresees a major readjustment job for SEC, administering capital priorities in reverse. But the Commission's chief job, now and henceforward, is less exciting. Keeping the U.S. financial stables clean is no longer an Augean task. It requires, not a Hercules, but a smart and well-trained staff of janitors.

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