The Pecora Hearings

Posted: 1 May 2012

See all articles by David A. Moss

David A. Moss

Harvard Business School - Business, Government and the International Economy Unit

Cole X. Bolton

affiliation not provided to SSRN

Eugene Kintgen

affiliation not provided to SSRN

Date Written: December 10, 2010

Abstract

In 1932, in the depths of the Great Depression, the Senate Banking Committee began a much-publicized investigation of the nation's financial sector. The hearings, which came to be known as the Pecora hearings after the Banking Committee's lead counsel Ferdinand Pecora, revealed how the country's most respected financial institutions knowingly misled investors as to the desirability of certain securities, engaged in irresponsible investment behavior, and offered privileges to insiders not afforded to ordinary investors. During the famous "Hundred Day" congressional session that began his presidency, Roosevelt signed two bills meant to prevent some of these abuses, but he also believed that the government should play a more active role in the financial system by regulating national securities exchanges. In February 1934, the president urged Congress to enact such legislation, prompting the introduction of a bill entitled the Securities Exchange Act, which would force all securities exchanges to register with the Federal Trade Commission, would curtail the size of loans that could be advanced to securities investors, and would ban a number of practices (such as short-selling) that were thought to facilitate stock manipulation. Additionally, the legislation would require that all companies with exchange-listed securities publish detailed business reports as frequently as the FTC desired. Wall Street, represented in particular by New York Stock Exchange (NYSE) President Richard Whitney, took a strong position against the Securities Exchange Act. Whitney was ultimately summoned to testify during the congressional hearings on the Securities Exchange Act in late February 1934. Would he be able to convince lawmakers to take a different course, or would his arguments fail to win over those who believed that strict regulations were exactly what financial markets required following the Great Crash?

Learning Objective: To explore the financial crisis and financial regulation of the 1930s through the lens of the Pecora Investigation

Suggested Citation

Moss, David A. and Bolton, Cole X. and Kintgen, Eugene, The Pecora Hearings (December 10, 2010). Harvard Business School General Management Unit Case No. 711-046. Available at SSRN: https://ssrn.com/abstract=2048500

David A. Moss (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States

Cole X. Bolton

affiliation not provided to SSRN ( email )

Eugene Kintgen

affiliation not provided to SSRN ( email )

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