The Securities Exchange Act of 1934 was arguably one of the most important pieces of legislation enacted by the United States government. The engagement of this act established the Securities Exchange Commision, widely known as the SEC (Block, 2017). This establishment was put to power to regulate the securities market and the companies listed on the exchange (Block, 2017). This legislation also set the guidelines for insider trading. That is having information not available to the public which could lead to an unfair advantage in the short term market (Block, 2017). This legislation required insiders to hold securities for at least six months. To cut down on the profit generated on insider trading they made all short term profits payable to the corporation, and later in the 1980s, the SEC and Congress increased the penalty to be three times the profit generated if accused of insider trading (Block, 2017). The Board of Governors at the Federal Reserve had to set how much credit would be available for the purchases of securities on the market (Block, 2017). Also the SEC required that all corporations had to register with them if they wanted to exchange securities on the open market. They also made manipulation of stock prices prohibited (Block, 2017). The main goal of this act was to create an equal playing field for those who invest. Meaning that all public information was accurate and released at a constant manner. Before the enactment of the legislation, the market had just went through one of the worst failures in its history.
In the time of the enactment of this legislation Franklin D. Roosevelt was the president of the United States (Staff, 2018). Also during this time he and Congress passed many legislative acts and other important laws. This dire state of the United States government was partial due to the fact that the United States just experienced the market crash of 1929 and are currently in the Great Depression. Roosevelt had to act to try and turn the United States, especially the economy, around and regrow the economy. A common thought among Americans during the time after the crash of 1929 was they lost the faith of the United States economy. A thing that would create more trust in the economy would be more guidelines and restrictions. This lead to the Securities Exchange Act of 1934. It was one of the acts that Roosevelt enacted as his time of chief and commander. A predominant role in the strengthening of the economy was the SEC. It also could not have been as powerful without previous legislation, the Securities Act of 1933. This required that corporations kept record of their stock sales and who were the holders of stock in their company (Amadeo, 2018). The strength of the SEC was seen through the Act of 1934. It explains that any corporation that wants to exchange their securities has to register through the SEC (LLI Staff, 2018). This gave more trust to the investing public, it made reassured all investors that they are buying and selling real stock and securities. With this regained trust and reassurance, investors would be able to start trading safely and try to regrow the economy. With these regulations there are bound to be violators and consequences.
The majority of violations of the Securities Exchange Act of 1934 are those relating to insider trading. The one penalty for insider trading is any profits made within the time the offense are payable to the company and during later legislation passed made the penalty three times the profit generated from the illegal trading (TherapeuticsMD, 2013). Also for violating the legislation, there can be prison sentences and civil and criminal fines against the violators (TherapeuticsMD, 2013). The longest sentence in prison for insider trading is twenty years. The fines for individuals have a maximum of five million dollars and for larger entities the penalty could be up to twenty-five million dollars (TherapeuticsMD, 2013). With these penalties there are a few individuals who violated this piece of legislation.
One of the most famous cases of violating insider trading, was one individual known as Martha Stewart. At the time Martha Stewart was the Chairman and Chief Executive Officer of Martha Stewart Living Omnimedia, Inc (SEC, 2003). In the early 2000s, there was a biopharmaceutical company known as ImClone System Inc. This company put a lot of their time and resources into making a cancer drug known as “Erbituxâ€. After finishing their project and the Food and Drug Administration denied their application, the company’s stock price plummeted. Stewart’s broker, Peter Bacanovic, knew information that was not known by the public yet. He had an inside source of this company who let him know that the FDA would reject their application, and he and Stewart sold Stewart’s near four thousand shares while the price was in the fifty dollar range. During the investigation by the SEC, Stewart and Bacanovic both tampered with evidence of the sell of securities. The main penalty was that Stewart and Bacanovic pay the losses that Stewart saved with the illegal information, pay other fines and penalties, and also Stewart had limited access on being in office for a company (SEC, 2003). This is one of the most high profile cases of insider trading in history.
I believe that the Securities Exchange Act of 1934 was successful in the eyes of the government. I feel that this legislation worked the way the government imagined because of a few factors. I feel that during the time of the initiation of the legislation the United States was in a dire time. They were going through one of the worst economic disasters of all time and it does not help that they did not have the trust of the investing public. The only way to grow trust would be to increase regulations and increase discipline. I feel that the enactment of the Securities Exchange Commision was the correct move for the United States. The SEC eliminates most of the problems with investors trust. They create more safety by requiring all firms to register with the SEC and also requiring all corporations, that exchange their securities, to fill out forms periodically to ensure that all information vital for investors, were public (Block, 2017). The idea of having all of the important information available also gains trust within the investing public as well. The SEC also reviews these forms to ensure that corporations are staying lawful and recording correct information (Block, 2017). Another large part of this legislation was to set the guidelines for insider trading (Block, 2017). I feel that this worked effectively for what the United States wanted to do. It creates shared opportunity for all investors. It does not allow unlawful advantages for those that know private information. I feel that this creates less displacement between the wealthy investors and the less profitable investors. I feel this way because if an individual is the head of a corporation and network between other firms and businesses, they know more information about other corporations they could have an unfair advantage if they want to unlawfully use this information to trade securities. This is seen with the information that Martha Stewart knew and the people her broker knew. I feel that what she did was not correct and was punishable for having an unfair advantage. I believe that the punishments are also fair for violating the legislation. It is logical that you must pay either your gains or your losses that you did not receive if you are found to have private information. With researching and reviewing information I feel that this legislation did what congress wanted to accomplish. There are a few drawbacks with this legislation. Even though there are negatives in this legislation I feel that the positives outweigh the negatives in this situation. In my opinion, I feel that the Securities Exchange Act of 1934 accomplished exactly what the United States wanted it to do.