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The Bright Image: The SEC, 1961-1973

The "Go-Go" Years
Mutual Fund Reforms

“Finally, a breath of fresh air. After being clobbered by the press time and time again for seven or eight long years, your apparent reluctance to completely back the S.E.C. in its attack on planned ownership of American industry and business through mutual fund investment companies has restored our faith in our great society.”
- February 17, 1967 letter from William B. Rudd, Investment Planned
Corporation, to President Johnson

The reform of the mutual fund industry was another of Cohen's important objectives, albeit less successful.

The SEC had commissioned a study of the mutual fund industry in 1958 by the Wharton School of Finance and Commerce. The Wharton School Study of Mutual Funds examined the administration of the Investment Company Act, concluding that fees paid by the funds to investment advisors bore little relation to the cost of performance of their services or to investment results. The report, completed in 1962, made no legislative recommendations but suggested that the industry was in need of reform.

SEC Regional Administrators Conference O.H. Allred (standing - second from left); Alexander J. Brown, Jr. (standing - fourth from left); Hamer Budge (seated - far left); Manuel F. Cohen (seated - center); William Green (standing - third from right); Thomas B. Hart (standing - third from left); Philip E. Kendrick (standing - fourth from right); James E. Newton (standing - far left); Hugh F. Owens (seated - second from right); Arthur E. Pennekamp (standing - second from right); Donald J. Stocking (standing - far right); Francis M. Wheat (seated - far right); Byron D. Woodside (seated - second from left); Llewellyn P. Young (standing - center)

Under Cohen, the SEC took a hard look at problems in the mutual fund industry. Cohen noted that the mutual fund industry was beset with opportunities for self-dealing and conflicts of interest between fund management and shareholders, and that most mutual funds exhibited "the possible absence of arm's-length bargaining between fund management and investment advisers."(18)

In 1966, the SEC published the findings of an internal study entitled "Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth." The recommendations of the report, intended to be a springboard for legislation, instead attracted wide criticism about the SEC's competence in economic regulatory matters. The report, critics claimed, failed to make the case that sales loads and fees were higher than they should be if there was effective competition.

In several key areas, the SEC approach, still suffering from the lack of an overall theory of regulation, failed to address the cause of the non-competitiveness in the mutual fund market and the economic implications of proposed legislative changes to investors and the industry. The SEC, which had long and successful experience in regulating fraudulent practices, was less effective in addressing industry problems that arose from market structure.

The failure of the SEC legislative proposals to address the economic implications of regulation of the mutual fund industry, coupled with a strong lobbying effort against the mutual fund legislation, resulted in watered-down legislation which failed to include the SEC's reforms on excessive mutual funds fees charged to investors. The SEC did persist over time in addressing the issue of sales loads.

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Footnotes:

(18) Seligman, Transformation, 366.

Related Museum Resources
Papers
June 30, 1955
Confidential Letter from Lewis H. Kimmel, The Brookings Institution, to the SEC Division of Corporation Finance on criteria for study of share ownership
[image] (pdf) (Government Records)
May 29, 1958
Agreement between The Wharton School and the SEC for a study on investment companies
[image] (pdf) (Government Records)
April 25, 1962
Report on Conference on the Wharton School Study between the SEC and the Wharton School
[transcript] (pdf) (Government Records)
July 9, 1962
Letter from Irwin Friend, Securities Research Unit, The Wharton School to the SEC transmitting the mutual funds study
[image] (pdf) (Government Records)
July 25, 1962
Letter from Carl L. Shipley, Chairman of the Republican State Committee for the District of Columbia, to Timothy J. Reardon, Jr., The White House, in protest of the study of mutual funds
[image] (pdf) (Government Records)
August 1962
A Study of Mutual Funds, Prepared for the Securities and Exchange Commission by the Wharton School of Finance and Commerce (The Wharton Report)

(Government Records)

September 29, 1962
SEC Order directing investigation and study and designating officers to take testimony in the matter of investment companies registered under the Investment Company Act of 1940
[image] (pdf) (Government Records)
April 8, 1964
Letter from Robert H. Mundheim, Duke University, to Manuel F. Cohen
[image] (pdf) (Government Records)
June 1964
Mutual Fund Retailing: Aspects of Market Structure and Dealer Operations, by Meyer Eisenberg and Dennis J. Lehr
[document] (pdf) (Courtesy of Paul Gonson)
June 2, 1965
Letter and Statement from SEC Chairman Manuel F. Cohen to U.S. Representative Wright Patman on HR 7372
[image] (pdf) (Government Records)
November 23, 1965
Memo from Joe Califano to Henry Wilson and Mike Manatos on SEC Chairman Cohen's mutual funds legislative proposal
[transcript] (pdf) (Courtesy of the Lyndon B. Johnson Library and Museum)
December 17, 1965
Letter from Carl L. Shipley to SEC Chairman Manuel F. Cohen on S 2704
[image] (pdf) (Government Records)
December 30, 1965
Memorandum of Conference between Dorsey Richardson and Robert L. Augenblick, Investment Company Institute, and Manuel F. Cohen and Leonard M. Leiman, SEC
[image] (pdf) (Government Records)
May 17, 1966
Memo from Dorsey Richardson to ICI Board of Governors concerning New York Times articles
[image] (pdf) (Government Records)
November 17, 1966
Statement of NASD to the SEC regarding "Public Policy Implications of Investment Company Growth"
[image] (pdf) (Government Records)
November 18, 1966
Letter from Robert L. Augenblick and Statement of Francis S. Williams, Investment Company Institute, to the SEC regarding draft of report on mutual funds
[image] (pdf) (Government Records)
November 29, 1966
Memo from Joe Califano to President Johnson on the upcoming release of the SEC report on mutual fund regulation
[transcript] (pdf) (Courtesy of the Lyndon B. Johnson Library and Museum)
December 2, 1966
Report of the U.S. Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth; Report of the Committee on Interstate and Foreign Commerce, Pursuant to Section 136 of the Legislative Reorganization Act of 1946, Public

(Government Records)

December 20, 1966
Protest Letter from Jim Hammers to President Lyndon B. Johnson
[image] (pdf) (Government Records)
January 4, 1967
Letter from SEC Chairman Manuel F. Cohen to Malcolm S. Forbes
[image] (pdf) (Government Records)
January 23, 1967
Letter from Lewis D. Gilbert to U.S. Senator John J. Sparkman
[image] (pdf) (Government Records)
January 31, 1967
"The S.E.C. Investment Company Report: An Emphatic Rebuttal," by Vance, Sanders & Company, Inc.
[image] (pdf) (Government Records)
February 1, 1967
Letter from Hart Wood, Hawaii Mutual Fund Association, to U.S. Representative Spark M. Matsunaga protesting "Public Policy Implications of Investment Company Growth"
[image] (pdf) (Government Records)
February 4, 1967
Protest Graphic from Jim Hammers to Mr. Cohen
[image] (pdf) (Government Records)
February 17, 1967
Letter from William Rudd, Investment Planning Corporation, to President Johnson praising the White House for not backing the SEC report on mutual funds
[transcript] (pdf) (Courtesy of the Lyndon B. Johnson Library and Museum)
February 24, 1967
Protest Letter from John Y. Williamson to President Lyndon B. Johnson
[image] (pdf) (Government Records)
May 1, 1967
Investment Company Act Amendments of 1967
[image] (pdf) (Courtesy of the Library of Congress)
August 14, 1967
Protest Letter from Fred K. Kerpen to Francis X. Kelly, SEC
[image] (pdf) (Government Records)
October 17, 1967
Protest Letter from Robert H. MacCready to SEC Chairman Manuel F. Cohen
[image] (pdf) (Government Records)
March 1, 1968
"The 'Mutual' Fund" - Address by SEC Chairman Manuel F. Cohen before the 1968 Conference on Mutual Funds
[image] (pdf) (Courtesy of Stephen A. Zeff)
March 25, 1968
Letter from SEC Chairman Manuel Cohen to U.S. Representative W.S. Stuckey, Jr. responding to questions concerning mutual fund regulation
[transcript] (pdf) (Courtesy of the Lyndon B. Johnson Library and Museum)
July 28, 1968
Public Law 90-438: To amend the Securities Exchange Act of 1934 to authorize an investigation of the effect on the securities markets of the operation of institutional investors
[image] (pdf) (Government Records)
September 16, 1968
Letter and Press Release from Betty Furness, Special Assistant to the President for Consumer Affairs to SEC Chairman Manuel F. Cohen on defeat of Investment Company Amendments Act
[transcript] (pdf) (Government Records)
February 19, 1969
Memo from John C. Whitehead, Chairman, Institutional Investor Study Advisory Committee, to committee members
[image] (pdf) (Government Records)
Photos
October 1964
SEC Regional Administrators Conference

(standing, left to right) James E. Newton, O.H. Allred, Thomas B. Hart, Alexander J. Brown, Jr., Llewellyn P. Young, Philip E. Kendrick, William E. Green, Arthur E. Pennekamp and Donald J. Stocking; (seated) Hamer Budge, Byron D. Woodside, Manuel F. Cohen, Hugh F. Owens and Francis M. Wheat

Oral Histories
07 September 2003

Meyer Eisenberg

With Richard Phillips

12 June 2007

Alan Rosenblat

With Dr. Kenneth Durr

Programs
29 March 2005

Developments in the Mutual Fund Industry - Money Market Funds

Moderator: Martin Lybecker

Presenter(s): John McGonigle, Robert Plaze, David Silver

22 March 2005

Developments in the Mutual Fund Industry - Insurance Companies

Moderator: Richard Phillips

Presenter(s): Gary Cohen

08 March 2005

Developments in the Mutual Fund Industry - Banks

Moderator: Matthew Fink

Presenter(s): Michael Bleier, Martin Lybecker

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