“You’re supposed to stand for somethin’! You’re supposed to protect people!” [1]
Once upon a time, investment companies (“funds”) were only subject to the laws of the state in which they were registered. In a report to Congress, the SEC identified a number of abuses and evils, including funds taking advantage of lax state laws to issue securities with inequitable or discriminatory provisions.
After extensive hearings, Congress concluded that the individual states had failed to protect investors from the sort of abuses the SEC had documented. (Section 1(a)(5).) Consequently, Congress adopted the Investment Company Act of 1940 (the “ICA”). Unlike other federal securities laws that focused on disclosure and fraud, the ICA required funds to adopt certain governance practices and prohibited others. Commissioner Robert E. Healy and Chief Counsel David Schenker [2] were the primary architects of what was to become the ICA. In a prepared statement to the Senate Subcommittee on Banking and Currency on April 2, 1940, Commissioner Healy said this:
