John L. Carey TACONIC, CONNECTICUT
EARLY ENCOUNTERS BETWEEN CPAs AND THE SEC*
Abstract: The recollections of John L. Carey about the policies and politics in professional circles during the very important period when the Securities Exchange Commission first came into being. Mr. Carey served the American Institute of Certified Public Accountants in various capacities from 1925 to 1969, including editor of The Journal of Accountancy and Administrative Vice-president, and re-ceived the Institute's gold medal for distinguished service to the profession.
The stock market crash of 1929 ruined many investors, large and small. Thousands of people who had bought stocks on margin dur-ing the "New Era" boom of the late 1920's were completely wiped out. Some men who had thought they were wealthy jumped out of windows.
An angry public turned its wrath on the stock exchanges, the in-vestment bankers, the corporations whose stocks had lost much of their value, and to some extent the accountants who had audited the financial statements of those corporations. However, the account-ing profession had a lower profile then than now. Only the more knowledgeable observers were aware of the auditors' role, so they were not as visible a target as others. This dubious advantage was not to last long.
The Senate Committee on Banking and Currency launched an in-vestigation of the securities markets, with Ferdinand Pecora, a tough lawyer, as committee counsel. The findings were to result in the Securities Acts of 1933 and 1934.
In 1932 two events fanned the flames. The international empire of Kreuger and Toll collapsed when its head, Ivar Kreuger, known as the "Swedish match king", committed suicide. It was found that he had falsified accounts, forged documents, and concealed misappro-priation of funds on a massive scale. American investors in his com-panies lost heavily, and questions were raised about audits of the financial statements. American accountants who had any connec-
*Published first as Working Paper No. 33 by The Academy of Accounting His-torians.