| Research Abstract |
Collective investment schemes are, in general terms, arrangements under which parties (investors) pool their money (contribution) so as to create a common fund for the purpose of investment. The scheme property is managed as a whole by a professional operator and the participants do not have day-to-day control over the management of the scheme property Though the significance of a collective investment scheme has enhanced, we have not had a comprehensive act or regulation thereon in Japan. In contrast with this, the U.S. has a comprehensive federal act for investment companies regardless of their legal forms. That is the Investment Company Act of 1940. In this research, it is attempted to show the historical background of the Investment Company Act of 1940, especially abuses and deficiencies of the investment companies before 1940, and the process of the enactment of the Investment Company Act by analysis of the original bill and the Act.
Investment companies are investment concerns who
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se business is to buy securities and issue securities of their own which reflect the earnings of their own portfolios of corporation stock. During 1920s, they appeared in the U.S. and got popularity as a means of the safety investment. Investment companies took some forms of legal structures which included some kinds of investment trusts, management contracts and management investment companies incorporated under state law.
The crash of 1929 found investment companies at their peak with a total of $ 8,000,000,000 assets at market value. From this height, the market value dropped to approximately $ 2,800,000,000 by the end of 1937. Prompted by these investor losses, Congress initiated the SEC study and report on the functions and activities of investment companies. The reports by the SEC in the late 1930s found widespread abuse in the investment company industry. These abuses include a complicated capital structure, pyramiding of investment companies, disregard of fiduciary standards, and incomplete disclosure of the management and organization of the conduct of investment trusts. Although there are certain common law remedies available to the investment public for some of these abuses, the SEC reported that these remedies were ineffectual in the great majority of cases.
As the results of these reports, the Wagner-Lea bill (the original bill of the Investment Company Act) was introduced in both Houses of Congress on March 1940. At the hearings of the Sub-Committee on Banking and Currency of the Senate, representatives of the investment company industries rose objection to the bill vigorously. At the end, the representatives collaborated with SEC in drafting a new bill. This bill was represented to the Sub-Committee, and after fixture brief hearings, it was enacted with minor changes on August 1940. It is said that the Actin itsfinal form removed the more important features of the original bill. However, the Act is still highly estimated as the first comprehensive legislation of the investment company. Less
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