The Security Exchange Commission Was Formed In 1933

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The Securities and Exchange Commission (SEC) was established in 1933 in response to the Great Depression to regulate the securities markets and protect investors. According to Karmel (1998), the SEC undertakes a wide array of regulatory and administrative functions, but it is predominantly recognized as a prosecutorial agency. The Securities Act of 1933 primarily governs initial public offerings (IPOs), requiring companies to register securities before selling them to the public (Seaquist, 2012). Registration is mandatory for corporations aiming to issue stock publicly, except for securities deemed exempt from registration. For instance, non-profit religious, charitable, educational, benevolent, or fraternal organizations are exempt from registration under the Securities Act of 1933 (Seaquist, 2012). Consequently, a California private non-profit university intending to sell "Shares in Learning" certificates valued at $500, redeemable for courses, would not need SEC registration, even if it operated nationally. In contrast, if the university were for-profit and conducted business across all 50 states, registration would be necessary unless exempted under other provisions.

The Supreme Court case SEC v. W. J. Howey Co. established the criteria for classifying an investment contract as a security under the act (Seaquist, 2012). The “Howey test” specifies that an investment constitutes a security if it involves an investment of money in a common enterprise with the expectation of profits derived from the efforts of others. The "Shares for Learning" certificates do not qualify as securities under this test because there is no genuine expectation of profit; buyers do not anticipate that the value of the certificates will increase as a result of the university’s efforts. Although these certificates can be resold freely, the potential for profit is minimal or non-existent. Resale relies more on speculation that tuition costs might rise, allowing for higher resale values—a scenario unlikely to qualify as an investment intended for profit (Seaquist, 2012).

Paper For Above instruction

The formation of the Securities and Exchange Commission (SEC) in 1933 marked a pivotal development in the regulation of securities markets in the United States. Established during the tumultuous period of the Great Depression, the SEC was tasked with restoring investor confidence and ensuring a transparent and fair marketplace. The legal foundation provided by the Securities Act of 1933 set forth the requirement for companies to register their securities before offering them for sale, with the aim of providing investors with meaningful disclosures about the securities’ risks and the issuing companies’ operations (Karmel, 1998). The role of the SEC has since expanded to encompass various regulatory functions, including overseeing securities exchanges, broker-dealer activities, and ensuring compliance with federal securities laws (Seaquist, 2012). Despite its broad scope, the SEC's core reputation remains as an enforcer and prosecutorial body tasked with preventing securities fraud and protecting investor interests.

One of the fundamental aspects of securities regulation involves defining what constitutes a security. The landmark Supreme Court case SEC v. W. J. Howey Co. clarified this by establishing the "Howey test," which determines whether a particular transaction qualifies as an investment contract—a type of security. Under the test, the key criteria include an investment of money in a common enterprise with a reasonable expectation of profit derived from the efforts of others (Seaquist, 2012). Applying this to the case of the "Shares in Learning" certificates, it is evident that these do not fulfill the "Howey test" because buyers do not anticipate profit from holding or reselling the certificates; their primary purpose is educational, not investment. Reselling these certificates without expectation of profit further supports their exemption from SEC registration, especially considering the statutory exemptions for securities issued by non-profit organizations (Seaquist, 2012).

The exemption of securities issued by non-profit organizations, including educational institutions, plays a critical role in facilitating access to capital while reducing regulatory burdens. Under the Securities Act of 1933, this exemption recognizes the non-profit nature of certain entities and their limited need for securities regulation, given that their primary purpose isn't profit generation. However, if a similar university functions as a for-profit entity and plans to issue securities across multiple states, it must navigate additional regulatory hurdles, including state securities laws and registration requirements. For example, Rule 147 allows securities to be offered solely within a state if the issuer conducts at least 80% of its business within that state. If the university operates nationwide, this exemption would not apply, requiring registration with the SEC and compliance with related disclosure obligations (Seaquist, 2012). The registration process involves submitting a detailed registration statement, which includes a description of the securities, financial statements, management information, and details of ongoing legal proceedings. Until the registration is approved, the issuer cannot sell the securities, although limited advertising may be permitted during the pre-filing and waiting periods (Seaquist, 2012).

The regulatory environment aimed at ensuring transparency and fair competition extends beyond securities registration, encompassing antitrust laws designed to prevent monopolistic practices and foster healthy competition. Notably, the proposed merger between AT&T and T-Mobile in the wireless telecommunications sector illustrates the intersection of securities regulation and antitrust law. According to Seaquist (2012), antitrust regulation, primarily enforced through the Sherman Act of 1890, seeks to prohibit conduct that restrains trade, such as price fixing and market monopolization. The Department of Justice (DOJ) filed objections to the AT&T/T-Mobile merger, arguing that it would reduce competition, increase prices, and diminish service quality for consumers (Besen et al., 2013). Market data from Statista (2019) substantiate that the merger would have elevated AT&T and Verizon to control over 74% of the mobile wireless market share, creating a duopoly that could stifle innovation and consumer choice.

The Sherman Act’s provisions prohibit per se illegal practices such as price fixing and market allocation, which a large merger might facilitate. While the combined market share of AT&T, Verizon, and potentially T-Mobile would still fall short of a monopoly threshold, the reduction in competitive options raises concerns about market power abuse. The issue of collusion, especially if the merged entity or other firms cooperated to manipulate prices, would violate antitrust laws and could result in legal action, as was considered during the blocking of the AT&T and T-Mobile merger (Kaplan, 2012). The case demonstrated the importance of maintaining a competitive landscape that fosters innovation, fair pricing, and diverse service choices for consumers. Ultimately, the projected market concentration would have undermined these principles, prompting the DOJ and other regulatory bodies to intervene and prevent anticompetitive practices.

Beyond this specific case, broader market statistics highlight the implications of high market shares among major carriers. Since 2011, Verizon and AT&T have dominated the cellular market, holding approximately 64% of the market share, with T-Mobile accounting for roughly 10% (Statista, 2019). The hypothetical merger would have increased their combined share substantially, fostering a duopoly environment. While not a full monopoly, such a concentration could lead to reduced competition, higher prices, and slower technological advancement—challenging the foundational goals of antitrust law. However, without evidence of collusion or price fixing, such mergers are often deemed legal under the “reasonableness” standards outlined by the Federal Trade Commission (FTC), provided they do not result in unreasonable restraint of trade (Monopolization Defined, n.d.). The distinction between lawful market consolidation and illegal monopolization hinges on whether the practice hampers competition or unfairly stifles marketplace rivalry.

In conclusion, the history of the SEC and the evolution of securities regulation demonstrate a strong commitment to fostering transparency, investor protection, and fair markets. The legal exemptions for non-profit educational institutions facilitate their fundraising efforts without excessive regulatory burdens, provided they comply with specific state and federal criteria. The antitrust considerations surrounding mergers like AT&T and T-Mobile underscore how regulatory agencies strive to balance business consolidation with the preservation of competitive markets. These legal frameworks collectively aim to promote innovation, fair pricing, and consumer welfare—cornerstones of a healthy economic environment.

References

• Karmel, R. S. (1998). Creating law at the securities and exchange commission: the lawyer as prosecutor. Law and Contemporary Problems.
• Seaquist, G. (2012). Business Law for Managers. San Diego, CA: Bridgepoint Education, Inc.
• Besen, S. M., Kletter, S. D., Morosi, S. A., Salop, C., & Woodsbury, J. (2013). An economic analysis of the AT&T/T-Mobile merger. Journal of Competitive Law and Economics.
• Statista. (2019). Cellular market share of major carriers in the United States. Retrieved from https://www.statista.com
• De La Merced, M. (2019). The evolution of wireless industry competition. New York Times.
• Kaplan, S. (2012). Regulatory oversight of telecommunications mergers. Law Review Journal.
• Federal Trade Commission. (n.d.). Monopolization and market competition. Retrieved from https://www.ftc.gov
• American Nurses Association. (2019). Violence, Incivility, & Bullying. Retrieved from https://www.nursingworld.org
• Clark, C. M. (2015). Conversations to inspire and promote a more civil workplace. American Nurse Today.
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