§ 2.3

• Jurisdiction: Arizona

§ 2.3 Interest in Securities Regulation Develops: 1900-1910

As previously discussed, securities law as a field did not exist in the nineteenth century.¹⁷¹ Cases involving securities were litigated,¹⁷² but statutory securities law had yet to develop in any significant way.¹⁷³ It was not until the turn of the century that interest in statutory-securities law developed.¹⁷⁴

The administrative platform for Arizona's first blue-sky law grew out of delegate concerns about fraudulent stock promotion during the 1910 Constitutional Convention.¹⁷⁵ Outside Arizona, interest in securities legislation had developed in several ways during the decade before the Convention.¹⁷⁶ Articles by progressive reformers began to appear that attacked the concentration of money power and financial control in Wall Street circles.¹⁷⁷ A 1905 financial scandal involving Equitable Life Assurance Society, a major life insurance company, was widely publicized and investigated by a committee established by the New York legislature.¹⁷⁸ The publicity and committee findings led to legislation in New York and 16 other states.¹⁷⁹ These laws, enacted in 1906 and 1907, prohibited life insurance companies from underwriting stock offerings or owning stock or trust bonds.¹⁸⁰ At about the same time, the first laws banning bucket shops appeared.¹⁸¹ Bank failures and the stock-market crash that occurred in the Panic of 1907 were followed by a severe recession.¹⁸² Public sentiment largely blamed the financial crisis on manipulative trading on the New York Stock Exchange (NYSE).¹⁸³ In 1909, New York began what became known as the Hughes investigation of the NYSE's practices.¹⁸⁴ A year earlier, President Roosevelt had suggested that Congress consider federal securities legislation,¹⁸⁵ and during 1908-09, a number of securities-reform bills were unsuccessfully introduced in Congress.¹⁸⁶

Against this backdrop of interest in securities legislation, delegates were elected and convened in Arizona's 1910 Constitutional Convention. Not surprisingly, stock fraud became an issue during the Convention debates.¹⁸⁷

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Notes:

^[171]See supra §§ 1.1, 2.1.1 (discussing the emergence of securities law as a legal field and the absence of securities regulation in the nineteenth century).

^[172]See Friedman, History, supra note 4, at 498-99 (describing nineteenth-century case law permitting suits by stockholders and using fiduciary concepts from the law of trusts to regulate promoters, officers, and directors); see also ...