Pecora Commission

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The Pecora Commission is the name commonly used to describe the commission established on March 4, 1932, by the United States Senate Committee on Banking, Housing, and Urban Affairs to investigate the causes of the Wall Street Crash of 1929. The name refers to the fourth and final Chief Counsel to the committee, Ferdinand Pecora.

Created by a majority-RepublicanSenate, its first Chairman was Republican Senator Peter Norbeck. Hearings began on April 11, 1932, but were criticized by Democratic Party members and their supporters as being little more than an attempt by the Republicans to appease the growing demands of an angry American public suffering through the Great Depression. Following the November 1932 election in which Democrat Franklin D. Roosevelt was elected President and Democrats gained majority control of the U.S. Senate, Senator Duncan U. Fletcher chaired the Committee. According to the U.S. National Archives and Records Administration, the Commission's first two counsels were fired and a third resigned after the committee refused to give him broad subpoena powers. Ferdinand Pecora, an assistant district attorney for New York County, discovered, upon taking the committee counsel position, that the investigation was incomplete.

Following the Wall Street Crash, the U.S. economy had gone into a depression, and a large number of banks failed. The Pecora Commission initiated major reform of the American financial system. As Chief Counsel, Ferdinand Pecora personally examined many high-profile witnesses that included some of the nation's most influential bankers and stockbrokers. As the Commission's first witness, Richard Whitney, president of the New York Stock Exchange, declared that "The Exchange's refusal to pay heed to popular demand for reform was simply a manifestation of courage to do those things which are right, regardless of how unpopular they may be for the time being." Other important members of the Wall Street financial community to give testimony before the Commission included investment bankers Otto H. Kahn, Charles E. Mitchell, Thomas W. Lamont, and Albert H. Wiggin, plus celebrated commodity market speculators such as Arthur W. Cutten. Given wide media coverage, the testimony of the powerful banker J.P. Morgan, Jr. caused a public outcry after he admitted under examination that he and many of his partners had not paid any income taxes in 1931 and 1932.

As reiterated by SEC Chairman Arthur Levitt during his 1995 testimony before the United States House of Representatives, the Pecora Commission uncovered a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest such as the underwriting of unsound securities in order to pay off bad bank loans as well as "pool operations" to support the price of bank stocks. The hearings galvanized broad public support for new securities laws. As a result of the Pecora Commission's findings, the United States Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, instituting disclosure laws for corporations seeking public financing, and in 1935 formed the SEC as a means to enforce the new Acts.

In 1939 Ferdinand Pecora published his memoirs that recounted details of the investigations. Titled "Wall Street Under Oath", Pecora wrote: "Bitterly hostile was Wall Street to the enactment of the regulatory legislation." As to disclosure rules, he stated that "Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker's stoutest allies."

The Pecora Commission hearings ended on May 4, 1934, and the Commission itself completed its work in 1936.

[edit] References

"The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered" - a retrospective of the Pecora Commission's conclusions by George J. Benston, Oxford University Press, 1990.