15 U.S.C. § 80a–1 — Findings and declaration of policy

submitted 86 years ago by ch. 686 to r/title-15-COMMERCE-AND-TRADE · 656 words · no verdicts yet

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Congress found that investment companies affect the national public interest because they use interstate commerce heavily, dominate companies they invest in, channel much of the nation's savings, and are too spread out for individual states to regulate effectively. Congress declared that investors and the public are harmed when these companies are run without proper disclosure, in the interest of insiders rather than all investors, or with unsound accounting or excessive borrowing. This law's purpose is to reduce or eliminate those harms.

(a) Based on facts from SEC records and reports and other sources, Congress found that investment companies affect the national public interest because: (1) the securities they issue are a large share of all securities sold to the public, and are bought, sold, exchanged, and redeemed continuously using the mail and interstate commerce; (2) their main business — investing and trading securities — is also done through the mail and interstate commerce, including stock exchanges, and makes up a large share of all securities-market activity in the country; (3) they routinely invest in, and can end up controlling or influencing, other companies doing business across state lines; (4) they channel a large part of the nation's savings into the economy and can strongly affect how that money flows into capital markets; and (5) because they operate across many states, use interstate commerce, and have investors spread across the country, it is hard or impossible for individual states to regulate them effectively on their own. (b) Based on the same kinds of facts, Congress declared that the national public interest and investors' interests are harmed: (1) when investors buy, pay for, exchange, get dividends on, vote on, decline to vote on, sell, or give up these securities without full, accurate, clear information about what the securities are and about the company's situation, policies, and financial responsibility; (2) when investment companies are organized, run, or managed — or their investments chosen — to benefit directors, officers, advisers, underwriters, brokers, dealers, special groups of investors, or other businesses, instead of benefiting all of the company's investors fairly; (3) when investment companies issue securities with unfair or unequal terms, or fail to protect the rights of investors who already hold their securities; (4) when control of these companies is too concentrated through pyramid-style ownership or unfair control methods, is spread unfairly, or is run by irresponsible people; (5) when these companies use unsound or misleading accounting, reserves, or valuation methods, or aren't properly checked by independent reviewers; (6) when these companies are reorganized, become inactive, change their business, or change who controls or manages them, without their investors' consent; (7) when these companies borrow too much or issue too many senior securities, making their other securities too risky; or (8) when these companies operate without enough assets or reserves. Congress declares that the purpose of this law, and the lens through which it should be read, is to reduce and, as much as possible, eliminate the harmful conditions just listed.

the actual law source: uscode.house.gov ↗public domain

(a) Findings

Upon the basis of facts disclosed by the record and reports of the Securities and Exchange Commission made pursuant to section 79z–4 1 of this title, and facts otherwise disclosed and ascertained, it is found that investment companies are affected with a national public interest in that, among other things—

(1)

the securities issued by such companies, which constitute a substantial part of all securities publicly offered, are distributed, purchased, paid for, exchanged, transferred, redeemed, and repurchased by use of the mails and means and instrumentalities of interstate commerce, and in the case of the numerous companies which issue redeemable securities this process of distribution and redemption is continuous;

(2)

the principal activities of such companies—investing, reinvesting, and trading in securities—are conducted by use of the mails and means and instrumentalities of interstate commerce, including the facilities of national securities exchanges, and constitute a substantial part of all transactions effected in the securities markets of the Nation;

(3)

such companies customarily invest and trade in securities issued by, and may dominate and control or otherwise affect the policies and management of, companies engaged in business in interstate commerce;

(4)

such companies are media for the investment in the national economy of a substantial part of the national savings and may have a vital effect upon the flow of such savings into the capital markets; and

(5)

the activities of such companies, extending over many States, their use of the instrumentalities of interstate commerce and the wide geographic distribution of their security holders, make difficult, if not impossible, effective State regulation of such companies in the interest of investors.

(b) Policy

Upon the basis of facts disclosed by the record and reports of the Securities and Exchange Commission made pursuant to section 79z–4 ¹ of this title, and facts otherwise disclosed and ascertained, it is declared that the national public interest and the interest of investors are adversely affected—

(1)

when investors purchase, pay for, exchange, receive dividends upon, vote, refrain from voting, sell, or surrender securities issued by investment companies without adequate, accurate, and explicit information, fairly presented, concerning the character of such securities and the circumstances, policies, and financial responsibility of such companies and their management;

(2)

when investment companies are organized, operated, managed, or their portfolio securities are selected, in the interest of directors, officers, investment advisers, depositors, or other affiliated persons thereof, in the interest of underwriters, brokers, or dealers, in the interest of special classes of their security holders, or in the interest of other investment companies or persons engaged in other lines of business, rather than in the interest of all classes of such companies’ security holders;

(3)

when investment companies issue securities containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding securities;

(4)

when the control of investment companies is unduly concentrated through pyramiding or inequitable methods of control, or is inequitably distributed, or when investment companies are managed by irresponsible persons;

(5)

when investment companies, in keeping their accounts, in maintaining reserves, and in computing their earnings and the asset value of their outstanding securities, employ unsound or misleading methods, or are not subjected to adequate independent scrutiny;

(6)

when investment companies are reorganized, become inactive, or change the character of their business, or when the control or management thereof is transferred, without the consent of their security holders;

(7)

when investment companies by excessive borrowing and the issuance of excessive amounts of senior securities increase unduly the speculative character of their junior securities; or

(8)

when investment companies operate without adequate assets or reserves.

It is declared that the policy and purposes of this subchapter, in accordance with which the provisions of this subchapter shall be interpreted, are to mitigate and, so far as is feasible, to eliminate the conditions enumerated in this section which adversely affect the national public interest and the interest of investors.

Source credit: (Aug. 22, 1940, ch. 686, title I, § 1, 54 Stat. 789.)

history & why it existsrecord from the source credit

1940Enacted · Act of Aug. 22, 1940, ch. 686 · 54 Stat. 789

A history note hasn’t been published yet. The record shows enactment by ch. 686 on 1940-08-22.

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