Investment Company Act of 1940
The Investment Company Act of 1940 is an Act of Congress. It was passed as a United States Public Law and is also known as 15 U.S.C. 77 et seq. in the United States Code.
Background and Purpose
After the first mutual fund was created in 1924, the concept took off and investors flocked to the new investment vehicle. Five and a half years later, on October 24, 1929, Black Thursday took the thrill out of the stock market and led to the Great Depression. Learning from the mistakes of the past, Congress wrote into law the Securities Act of 1933 and the Securities Exchange Act of 1934 in order to regulate trade in the interest of the public.
Investment companies were still a new idea in 1940. In order to instill investors' confidence in these companies and to protect the public interest from this unique type of federal law, rather than leaving the matter up to the individual states, it justified its action by including in the text of the bill the reasoning behind the decision:
- ?The activities of such companies, extending over many states, their use of the instrumentalities of interstate commerce and the wide geographic distribution of their security holders, make difficult, if not impossible, effective trust indenture, contract of custodianship or agency, or similar instrument, does not have a board of directors, and issues only Management Company: any investment company other than a face-amount certificate company or a unit investment trust. The most well-known type of management company is the mutual fund.
