Historical Context: Alabama Securities Commission

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The Historical Context for the Alabama Securities Commission has been posted from the Records Disposition Authority (RDA) approved by the State Records Commission on April 16, 2025. The RDA establishes disposition requirements by designating records as either temporary records which may be destroyed after a specified retention period, or permanent records, which must be preserved in perpetuity. The complete RDAs for close to 175 agencies can be found on the Alabama Department of Archives and History website.

Days before Governor Thomas Kilby’s inauguration in January 1919, outgoing Governor Charles Henderson addressed the Legislature for a final time. Among other recommendations, Governor Henderson exhorted lawmakers to pass legislation that protected Alabamians “from investing in stocks and bonds which have no real foundation of value[,] but which hold out to the unwary investor the hope of impossible returns.”[1]

Governor Henderson’s remarks reflected a growing public awareness of bad actors in the securities market, a financial industry that encompasses the purchase, sale, and trade of stocks, bonds, certificates of deposit, investment contracts, and derivatives.[2] After widespread financial fraud devastated Kansas’s rural communities in the early 1900s, Kansas Banking Commissioner Joseph Norman Dolley recommended that the state’s legislature “pass a law compelling all parties who offer stocks and bonds for sale in Kansas to register with some department… and to submit to a full examination of their affairs” if deemed necessary.[3]

The “blue sky law” model, as Dolley called it, inspired dozens of U.S. states, along with several Canadian provinces, to enact similar legislation during the early decades of the twentieth century.[4] In Alabama, Act 1919-660 established a State Securities Commission within the office of the State Superintendent of Banks shortly after Governor Henderson’s address.

Alabama legislators empowered the Commission to regulate the industry by permitting securities issuers, conducting business records examinations, and investigating complaints and violations.[5] The Commission’s location within state government underwent multiple changes in the early years, shifting first to the Public Service Commission, then back to the State Superintendent of Banks.[6]

Amid these changes in legislation, an unprecedented economic crisis heightened scrutiny of the American financial industry at large. The New York Stock Exchange crash of October 1929 signaled the onslaught of the devastating Great Depression. Economists observed that the financial boom preceding the crash had been characterized by widespread stock-market speculation, risky borrowing, and the proliferation of underregulated brokerage firms.[7]

Intending to prevent a recurrence of the market conditions that led to the 1929 crash, Congress enacted a series of laws to regulate the securities industry and safeguard investors.[8] The newly created U.S. Securities and Exchange Commission (SEC) became responsible for securities market regulation and enforcement at the federal level. Crucially, however, the Securities Act of 1933 exempted intrastate securities from its provisions; as a result, state governments retained oversight for a significant portion of the securities market.[9]

In 1935, a major organizational change to the Alabama Securities Commission occurred when lawmakers transferred the agency’s functions to the Attorney General’s Office.[10] Placing the Office of Security Commissioner with Alabama’s chief law enforcement officer underscored the Commission’s authority, but lawmakers ultimately sought agency independence. After a former Attorney General’s 1969 conviction for involvement in a stock-related conspiracy, the Legislative Council endorsed a proposal to reconstitute the Securities Commission as a fully autonomous state agency.[11]

The present-day Securities Commission traces its origins to Alabama Act 1969-740, which enshrined the Commission’s statutory independence and made it responsible “for the enforcement of laws governing the issuance, sale and other transactions relative to securities” in the state.[12] Rather than empowering a single Securities Commissioner, legislators expanded the Commission’s membership to include the Attorney General, State Superintendent of Banks, and State Superintendent of Insurance. The Governor had the authority to appoint additional members with the advice and consent of the Senate.[13] Lawmakers entrusted the Securities Commission’s day-to-day management to a director who, in turn, had the ability to select and appoint personnel to assist in agency operations.

From the Commission’s establishment to the present, securities regulation in Alabama has entailed a two-pronged registration process. All securities offered or sold within the state must be registered with the Securities Commission, unless either the security or transaction has been statutorily exempted from registration.[14] With certain exceptions, all persons engaged in the securities business must also register with the agency. In essence, the Securities Commission serves as a nexus point between the securities industry and the public, ensuring that Alabamians have all the resources necessary to make informed financial decisions.

Perhaps unsurprisingly, the Commission’s registration responsibilities evolved over the last half-century alongside rapid transformations in the global economy. For instance, Alabama Act 1961 Special Session No. 177 required that all parties engaged “in the business of selling, issuing or otherwise dispensing checks” obtain a license from the Securities Commission. Checks lost popularity during subsequent decades, however, becoming increasingly displaced by innovative payment methods like the revolving credit card and digital wallet.[15] In 2017, legislators repealed the Sale of Checks Act in favor of the Alabama Monetary Transmissions Act, which imposes licensure requirements, more broadly, on parties engaged in “selling or issuing payment instruments [or] stored value, or receiving money or monetary value for transmission.”[16]

The respective scopes of state and federal jurisdiction have likewise undergone several transformations. For instance, Congress enacted the National Securities Markets Improvement Act of 1996 to reduce regulatory overlap between the state and federal levels and thereby increase efficiency in the securities market.[17] Among other provisions, the Act separated investment advisers into two major categories based on their total assets under management.[18] Investment advisers with portfolios totaling less than an amount specified by federal law or regulation register with the Securities Commission, while those with larger portfolios registered with the SEC.

As a result, the Securities Commission increased its oversight of small investment advisers, many of which had previously been registered at both the state and federal levels. The landscape changed again in the aftermath of the Great Recession, when the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibited investment advisers whose portfolios totaled less than approximately $100 million from registering with the SEC.[19] The result was that many “mid-sized” investment advisers withdrew their federal registration and re-registered under state jurisdiction.[20] The change in federal law redefined the Securities Commission’s role in regulating these mid-size investment advisers.

Recently, the Securities Commission’s position of public trust has led to its involvement in broader consumer protection and criminal justice initiatives. Starting in 2016, the Protection of Vulnerable Adults from Financial Exploitation Act mandated reporting to the Securities Commission and the Alabama Department of Human Resources by qualified individuals who believed that financial exploitation of a vulnerable adult may have occurred or been attempted.[21]

Alabama Act 2019-538, also known as Lisa’s Law, ensures that victims of crime receive the restitution to which they are entitled.[22] The law requires Alabama Department of Corrections and local jail operators to notify the Securities Commission when an inmate or prison account balance exceeds $5,000. The Securities Commission, other prosecuting authorities, or victims may then initiate civil proceeding to redirect these inmate funds toward restitution.[23]

Over more than a century of service, the Alabama Securities Commission’s comprehensive registration and monitoring has been paired with aggressive enforcement and vigorous legal action against any firm or individual who has violated state or federal securities laws.[24] Additionally, the Commission distributes educational content as part of its work to promote financial literacy to all Alabamians. Through these efforts, the agency has upheld its mission to protect investors from securities fraud and preserve legitimate capital markets in the state.

[1] “Message of Governor Charles Henderson,” in General Laws (and Joint Resolutions) of the Legislature of Alabama Passed at the Session of 1919 (Montgomery, AL: The Brown Printing Company, 1919), LXXXIX.

[2] Will Kenton, “What are Financial Securities?,” Investopedia, May 31, 2024, https://www.investopedia.com/terms/ s/security.asp.

[3] Rick A. Fleming and Bob Webster, “A Century of Investor Protection,” North American Securities Administrators Association, July 2011, https://www.nasaa.org/wp-content/uploads/2011/07/100_Years_Commemorative_FINAL. pdf.

[4] Ibid.; The etymology of the term “blue sky law” has not been conclusively determined by scholars. It first appeared in print in 1910, when Joseph Norman Dolley issued a press release denouncing “fakers and ‘blue-sky merchants’’ in the financial industry. Jonathan R. Macey and Geoffrey P. Miller, “Origin of the Blue Sky Laws,” Texas Law Review 70 no. 2 (1991): 359-360. https://openyls.law.yale.edu/bitstream/handle/20.500.13051/884/Origin_of_ the_Blue_Sky_Laws.pdf.

[5] Alabama Act 1919-660.

[6] Alabama Act 1920-38 and 1932-271.

[7] Gary Richardson et al., “Stock Market Crash of 1929,” Federal Reserve History,November 22, 2013, https://www.federalreservehistory.org/essays/stock-market-crash-of-1929.

[8] These laws included the Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust Indenture Act of 1939.

[9] Section 3(a)(11) of “Securities Act of 1933,” Pub. L. 73-22.

[10] Alabama Act 1935-509.

[11] James Bennett, “Senate Seeks Overhaul,” Birmingham Post-Herald, May 28, 1969.

[12] Alabama Act 1969-740.

[13] The 1969 Act allowed the Governor to appoint two additional members, one from the Alabama Bar Association and another from the Alabama Society of Certified Public Accountants. Alabama Act 1996-749 expanded the membership further, allowing the Governor to appoint four members (two from each category).

[14] Examples of securities include, but are not limited to, stocks, bonds, certificates of deposit, investment contracts, and derivatives. This broad definition, shaped by state and federal law statute and case law, makes the Securities Commission’s purview expansive and difficult to demarcate. The Code of Alabama 1975 § 8-6-10 outlines the types of exempted securities, while the Code of Alabama 1975 § 8-6-11 describes exempted transactions.

[15] Revolving credit allows consumers to borrow funds up to a predetermined limit while simultaneously making payments on the outstanding balance. Digital wallets are financial transaction applications that can store payment information for multiple credit cards and bank accounts in the cloud.

[16] Alabama Act 2017-389, currently codified as the Code of Alabama 1975 Title 8 Chapter 7A.

[17] “National Securities Markets Improvement Act of 1996,” Pub. L. 104-290.

[18] Assets under management (AUM) is a measurement of the value of assets an investment adviser manages on behalf of its customers; James Chen, “Assets Under Management (AUM): Definition, Calculation, and Example,” Investopedia, June 1, 2024, https://www.investopedia.com/terms/a/aum.asp.

[19] The Great Recession was a global economic downturn that lasted from December 2007 through June 2009; Robert Rich, “The Great Recession,” Federal Reserve History. November 22, 2013, https://www.federalreservehistory. org/essays/great-recession-of-200709; “Dodd–Frank Wall Street Reform and Consumer Protection Act,” Pub. L. 111-203.

[20] U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, “Investor Bulletin: Transition of Mid-Sized Investment Advisers from Federal to State Registration,” U.S. Securities and Exchange Commission, November 30, 2011, https://www.sec.gov/files/transition-mid-sized-investment-advisers.pdf.

[21] The Code of Alabama 1975 § 8-6-171 defines “qualified individuals” as agents; investment adviser representatives; and persons who serve in a supervisory, compliance, legal, or member capacity of a broker-dealer or investment adviser; Alabama Securities Commission, “Alabama Securities Commission Annual Report 2020,” https://asc.alabama. gov/wp-content/uploads/2023/11/FY2020-Annual-Report.pdf.

[22] The name “Lisa’s Law” honors Lisa Ann Millican, a thirteen-year-old murder victim whose remains were found at Little River Canyon in DeKalb County, AL; Donna Thornton, “Lisa’s Law blocks profits from crimes,” The Gadsden Times, June 18, 2019, https://www.gadsdentimes.com/story/news/ crime/2019/06/18/lisas-law-blocks-felons-profiting-from-crime-shows/4880563007/.

[23] Code of Alabama 1975 § 41-9-85.2 to § 41-9-85.3.

[24] Alabama Securities Commission, “Alabama Securities Commission FY 2022-2023 Annual Report,” https://asc.alabama.gov/wp-content/uploads/2024/07/FY-2023-Annual-Report.pdf.

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