United States Securities and Exchange Commission
Encyclopedia
The U.S. Securities and Exchange Commission (frequently abbreviated SEC) is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities
industry, the nation's stock and options exchanges, and other electronic securities markets in the United States. In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933
, the Trust Indenture Act of 1939
, the Investment Company Act of 1940
, the Investment Advisers Act of 1940
, the Sarbanes-Oxley Act of 2002
and other statutes. The SEC was created by section 4 of the Securities Exchange Act of 1934
(now codified as and commonly referred to as the 1934 Act).
The vacated Republican spot was held by Kathleen L. Casey
, who served from July 17, 2006 to August 5, 2011. Her five-year term expired on June 5, 2011.
in 1934 as an independent, quasi-judicial
regulatory agency
during the Great Depression
that followed the Crash of 1929
. The main reason for the creation of the SEC was to regulate the stock market
and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges, the companies whose securities traded on them, and the brokers and dealers who conducted the trading.
Currently, the SEC is responsible for administering seven major laws that govern the securities industry. They are: the Securities Act of 1933
, the Securities Exchange Act of 1934
, the Trust Indenture Act of 1939
, the Investment Company Act of 1940
, the Investment Advisers Act of 1940
, the Sarbanes-Oxley Act of 2002
and most recently, the Credit Rating Agency Reform Act of 2006.
The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies
alleged to have committed accounting fraud
, provided false information, or engaged in insider trading
or other violations of the securities law
. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses which include a criminal violation.
To achieve its mandate, the SEC enforces the statutory requirement that public companies
submit quarterly and annual report
s, as well as other periodic reports. In addition to annual financial report
s, company executives must provide a narrative
account, called the "management discussion and analysis" (MD&A), that outlines the previous year of operations and explains how the company fared in that time period. Management will usually also touch on the upcoming year, outlining future goals and approaches to new projects. In an attempt to level the playing field for all investors, the SEC maintains an online database called EDGAR
(the Electronic Data Gathering, Analysis, and Retrieval system) online from which investors can access this and other information filed with the agency.
Quarterly and annual reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike bank
ing, investment
in the capital markets is not guaranteed
by the federal government. The potential for big gains needs to be weighed against equally likely losses. Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same basic facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.
The SEC makes reports available to the public via the EDGAR system. SEC also offers publications on investment-related topics for public education. The same online system also takes tips and complaints from investors to help the SEC track down violators of the securities laws. The SEC adheres to a strict policy that it never comments on the existence or status of an ongoing investigation.
that were enacted and enforced at the state level and regulated the offering and sale of securities
to protect the public from fraud
. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every US stock broker
and brokerage firm.
However, these Blue Sky laws were generally found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could "ignore" Blue Sky Laws by making securities offerings across state lines through the mail. After holding hearings
on abuses on interstate frauds (commonly known as the Pecora Commission
), Congress passed the Securities Act of 1933
which regulates interstate sales of securities (original issues
) at the federal level. The subsequent Securities Exchange Act of 1934
regulates sales of securities in the secondary market
. Section 4 of the 1934 Act created the U.S. Securities and Exchange Commission to enforce the federal securities laws. Both laws are considered part of Franklin Roosevelt's "New Deal
" raft of legislation.
The Securities Act of 1933 is also known as the "Truth in Securities Act" or the "Federal Securities Act” or just the "1933 Act." Its goal is to increase public trust in the capital markets by requiring uniform disclosure of information about public securities offerings. The primary drafters of 1933 Act were Huston Thompson, a former Federal Trade Commission
chairman, and Walter Miller and Ollie Butler, two attorneys in the Commerce Department
's Foreign Service Division, with input from Supreme Court Justice Louis Brandeis
. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission, but this power was transferred to the SEC following its creation in 1934. (Interestingly, the first, rejected draft of the Securities Act written by Samuel Untermyer
vested these powers in the U.S. Post Office
, because Untermyer believed that only by vesting enforcement powers with the postal service could the constitutionality of the act be assured.) The law requires that issuing companies register distributions of securities with the SEC prior to interstate sales of these securities, so that investors may have access to basic financial information about issuing companies and risks involved in investing in the securities in question. Since 1996, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC’s online system, EDGAR
.
The Securities Exchange Act of 1934 is also known as "the Exchange Act" or "the 1934 Act". This act regulates secondary trading between individuals and companies which are often unrelated to the original issuers of securities. Entities under the SEC’s authority include securities exchanges with physical trading floors such as the New York Stock Exchange
(NYSE), self-regulatory organizations such as the National Association of Securities Dealers
(NASD), the Municipal Securities Rulemaking Board
(MSRB), online trading platforms such as NASDAQ
and ATS, and any other persons (e.g., securities brokers) engaged in transactions for the accounts of others.
President Franklin D. Roosevelt
appointed Joseph P. Kennedy, Sr.
, father of President John F. Kennedy
, to serve as the first Chairman of the SEC, along with James M. Landis
(one of the architects of the 1934 Act and other New Deal legislation) and Ferdinand Pecora
(Chief Counsel to the United States Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices). Other prominent SEC commissioners and chairmen include William O. Douglas
(who went on to be a U.S. Supreme Court
justice), Jerome Frank (one of the leaders of the legal realism
movement) and William J. Casey
(who would later head the Central Intelligence Agency
under President Ronald Reagan
).
As part of the continuing investigation in 1974–75, Watergate scandal
prosecutors offered companies that had given illegal campaign contributions to Richard Nixon
's re-election campaign lenient sentences if they came forward. Many companies complied, including Northrop Grumman
, 3M
, American Airlines
and Braniff International Airways
. By 1976, prosecutors had convicted 18 American corporations of contributing illegally to Nixon's campaign. The SEC, in a state of flux after its chairman was forced to resign his post, began to audit all the political activities of publicly traded companies. The SEC's subsequent investigation found that many American companies were making vast political contributions abroad.
Or for alphabetized list of members who have articles written about them, see :Category:Members of the United States Securities and Exchange Commission.
with the advice and consent of the United States Senate
. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. To ensure that the SEC remains non-partisan
, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive. However, the President does not possess the power to fire the appointed commissioners, a provision that was made to ensure the independence of the SEC. This issue arose during the 2008 Presidential Election
in connection with the ensuing Financial Crises.
Within the SEC, there are five divisions. Headquartered in Washington, D.C.
, the SEC has 11 regional offices throughout the United States.
The SEC's five main divisions are: Corporation Finance, Trading and Markets, Investment Management, Enforcement, and Risk, Strategy, and Financial Innovation.
Corporation Finance is the division that oversees the disclosure made by public companies as well as the registration of transactions, such as mergers, made by companies. The division is also responsible for operating EDGAR.
The Trading and Markets division oversees self-regulatory organization
s (SROs) such as FINRA
and MSRB
, and all broker-dealer
firms and investment houses
. This division also interprets proposed changes to regulations and monitors operations of the industry. In practice, the SEC delegates most of its enforcement and rulemaking authority to FINRA. In fact, all trading firms not regulated by other SROs must register as a member of FINRA. Individuals trading securities must pass exams administered by FINRA to become registered representatives
.
The Investment Management Division oversees investment companies including mutual fund
s and investment advisor
s. This division administers federal securities laws, in particular the Investment Company Act of 1940 and Investment Advisers Act of 1940. This Division's responsibilities include:
The Enforcement Division works with the other three divisions, and other Commission offices, to investigate violations of the securities laws and regulations and to bring actions against alleged violators. The SEC generally conducts investigations in private. The SEC's staff may seek voluntary production of documents and testimony, or may seek a formal order of investigation from the SEC, which allows the staff to compel the production of documents and witness testimony. The SEC can bring a civil action
in a U.S. District Court
or an administrative proceeding
which is heard by an independent administrative law judge
(ALJ). The SEC does not have criminal authority, but may refer matters to state and federal prosecutors. The current director of the SEC's Enforcement Division is Robert Khuzami
, a former federal prosecutor.
Among the SEC's offices are:
s such as NYSE and FINRA, the Securities and Exchange Commission also works with other federal agencies
, state securities regulators, international securities agencies and law enforcement agencies.
In 1988 Executive Order 12631
established the President's Working Group on Financial Markets
. The Working Group is chaired by the Secretary of the Treasury
and includes the Chairman of the SEC, the Chairman of the Federal Reserve
and the Chairman of the Commodity Futures Trading Commission
. The goal of the Working Group is to enhance the integrity, efficiency, orderliness and competitiveness of the financial markets while maintaining investor confidence.
The Securities Act of 1933
was originally administered by the Federal Trade Commission
(FTC). The Securities Exchange Act of 1934
transferred this responsibility from FTC to the SEC. The main mission of the FTC is to promote consumer protection and to eradicate anticompetitive business practices
. The FTC regulates general business practices, while the SEC focuses on the securities markets.
The Temporary National Economic Committee
was established by joint resolution of Congress 52 Stat. 705 on June 16, 1938. It was in charge of reporting to the Congress on abuses of monopoly power. The committee was defunded in 1941, but its records are still under seal by order of the SEC.
The Municipal Securities Rulemaking Board
(MSRB) was established in 1975 by Congress to develop rules for companies involved in underwriting
and trading municipal securities
. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules.
While most violations of securities laws are enforced by the SEC and the various SROs it monitors, state securities regulators can also enforce state-wide securities laws known colloquially as Blue sky law
s. States may require securities to be registered in the state before they can be sold there. National Securities Markets Improvement Act of 1996 (NSMIA) addresses this dual system of federal-state regulation by amending Section 18 of the 1933 Act to exempt nationally traded securities from state registration, thereby pre-empting state law in this area. However, NSMIA preserves the states' anti-fraud authority over all securities traded in the state.
The SEC also works with federal and state law enforcement agencies to carry out actions against actors alleged to be in violation of the securities laws.
The SEC is a member of International Organization of Securities Commissions
(IOSCO) and uses the IOSCO Multilateral Memorandum of Understanding as well as direct bilateral agreements with other countries Securities Commission
s to deal with cross border misconduct in securities markets.
of CA, to whom the letter was addressed, pleaded guilty to fraud at CA in 2004.
In June 2004, the SEC announced that it would publicly post all comment letters, to give investors access to the information in them. In mid-2005, Allan Beller, former head of the SEC's Division of Corporation Finance, said that the SEC believed that "it is appropriate to expand the transparency of our comment process by making this information available to an unlimited audience."
An analysis in May 2006 of regulatory filings over the prior 12 months indicates, however, that the SEC has not accomplished what it said it would do. The analysis found 212 companies that had reported receiving comment letters from the SEC, but only 21 letters (for these companies) were posted on the SEC's website. John W. White, the current head of the Division of Corporation Finance, told the New York Times: "We have now resolved the hurdles of posting the information.... We expect a significant number of new postings in the coming months."
" as a measure to reduce volatility in turbulent markets.
The SEC investigated into cases involving individuals attempting to manipulate the market by passing false rumors about certain financial institutions. The commission has also investigated into trading irregularities and abusive short selling practices. Hedge fund managers, broker-dealers, and institutional investors were also asked to disclose under oath, certain information pertaining to their positions in credit default swap
s. The commission also brought about the largest settlements in the history of the SEC (approximately $51 billion in all) on behalf of investors who purchased auction rate securities
from six different financial institutions.
An internal investigation which was completed in 2010 found that, starting in 2008 at the beginning of the crisis, 17 senior SEC officials who receive 6-figure salaries used SEC computers to access pornography
on the internet, in one case up to 8 hours per day.
fraud. Starting with an investigation in 1992 into a Madoff feeder fund which only invested with Madoff, and which, according to the SEC, promised "curiously steady" returns, the SEC did not investigate indications that something was amiss in Madoff's investment firm. The SEC has therefore been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud. As a result, Cox has said that an investigation will ensue into "all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm." Approximately 45 per cent of institutional investors felt that better oversight by the SEC could have prevented the Madoff fraud. Harry Markopolos
complained to the SEC's Boston
office in May 1999, telling the SEC staff they should investigate Madoff because it was impossible to legally make the profits Madoff claimed using the investment strategies that he claimed to use.
In June 2010, the SEC settled a wrongful termination lawsuit with former SEC enforcement lawyer Gary Aguirre, who was terminated in September 2005 following his attempt to subpoena Wall Street figure John J. Mack
in an insider trading case involving hedge fund Pequot Capital Management
. While the insider case was dropped at the time, a month prior to the SEC's settlement with Aguirre the SEC filed charges against Pequot. The Senate released a report in August 2007 detailing the issue and calling for reform of the SEC.
, a government watchdog group, sent a letter to Congress criticizing the SEC for failing to implement more than half of the recommendations made to it by its Inspector General According to POGO, in the past 2 years, the SEC had taken no action on 27 out of 52 recommended reforms suggested in Inspector General reports, and still had a "pending" status on 197 of the 312 recommendations made in audit reports. Some of these recommendations included imposing disciplinary action on SEC employees who receive improper gifts or other favors from financial companies and investigating and reporting the causes of the failures to detect the Madoff ponzi scheme.
In a 2011 article by Matt Taibbi
in Rolling Stone
, former SEC employees were interviewed and they commented negatively on the agency's Inspector General's office. Going to the OIG was "well-known to be a career-killer."
Darcy Flynn, also reported by Taibbi, the agency routinely destroyed thousands and thousands of documents related to preliminary investigations of alleged crimes committed by Deutsche Bank
, Goldman Sachs
, Lehman Brothers
, SAC Capital, and other financial companies involved in the Great Recession that the SEC was supposed to have been regulating. The documents included those relating to "Matters Under Inquiry", or MUI, the name the SEC gives to the first stages of the investigation process. The tradition of destruction began as early as the 1990s. This SEC activity eventually caused a conflict with the National Archives and Records Administration when it was revealed to them in 2010 by Flynn. Flynn also described a meeting at SEC in which top staff discussed refusing to admit the destruction had taken place because it was possibly illegal.
Iowa Republican Sen. Charles Grassley, among others, took note of Flynn's call for protection as a whistleblower and the story of the agency's document-handling procedures. The SEC issued a statement defending its procedures. NPR
quoted University of Denver law professor Jay Brown
as saying, "My initial take on this is it's a tempest in a teapot," and Jacob Frenkel, a securities lawyer in the Washington, D.C., area, as saying in effect "there's no allegation the SEC tossed sensitive documents from banks it got under subpoena in high-profile cases that investors and lawmakers care about." NPR concluded its report:
:Category:United States federal financial legislation
:Category:United States proposed federal legislation
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
industry, the nation's stock and options exchanges, and other electronic securities markets in the United States. In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
, the Trust Indenture Act of 1939
Trust Indenture Act of 1939
The United States Trust Indenture Act of 1939 , codified at through , supplements the Securities Act of 1933 in the case of the distribution of debt securities...
, the Investment Company Act of 1940
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 on August 22, 1940, and is codified at through . Along with the Securities Exchange Act of 1934 and Investment Advisers Act of 1940, and extensive rules issued by the Securities and Exchange...
, the Investment Advisers Act of 1940
Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
, the Sarbanes-Oxley Act of 2002
Sarbanes-Oxley Act
The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
and other statutes. The SEC was created by section 4 of the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
(now codified as and commonly referred to as the 1934 Act).
Commission members
The Securities and Exchange Commission has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate. No more than three can be from a single political party. Each commissioner serves a five-year term, which are staggered so that one commissioner's term ends on June 5 of each year. Currently the SEC commissioners are:| Sworn in: | Term expires: | ||||
|---|---|---|---|---|---|
| * Mary L. | Schapiro, | Chairperson | (D) | January 27, 2009 | 2014 |
| * | Commissioner | (R) | 2011 | ||
| * Elisse B. | Walter Elisse B. Walter Elisse B. Walter was appointed by President George W. Bush to the U.S. Securities and Exchange Commission and was sworn in on July 9, 2008. Under designation by President Barack Obama, she served as Acting Chairman during January 2009... , |
Commissioner | (D) | July 9, 2008 | 2012 |
| * Luis A. | Aguilar Luis A. Aguilar Luis A. Aguilar is a Democratic commissioner of the U.S. Securities and Exchange Commission. He was appointed by President George W. Bush on March 31, 2008 and confirmed by the United States Senate on June 27, 2008. He was sworn in as a Commissioner on July 31, 2008.-Background:Prior to his... , |
Commissioner | (D) | July 31, 2008 | 2010 |
| * Troy A. | Paredes Troy A. Paredes Troy A. Paredes has served as a Commissioner of the U.S. Securities and Exchange Commission since August 1, 2008. Commissioner Paredes was appointed to the SEC by President George W. Bush on June 30, 2008 to replace Paul S. Atkins, a Republican commissioner, who was retiring at the end of his... , |
Commissioner | (R) | August 1, 2008 | 2013 |
The vacated Republican spot was held by Kathleen L. Casey
Kathleen L. Casey
Kathleen L. Casey was a Republican commissioner of the U.S. Securities and Exchange Commission. She was appointed by President George W. Bush and sworn in on July 17, 2006. Her term expired in August 2011.-Background:...
, who served from July 17, 2006 to August 5, 2011. Her five-year term expired on June 5, 2011.
Overview
The SEC was established by the United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 1934 as an independent, quasi-judicial
Quasi-judicial body
A quasi-judicial body is an individual or organization which has powers resembling those of a court of law or judge and is able to remedy a situation or impose legal penalties on a person or organization.-Powers:...
regulatory agency
Independent agencies of the United States government
Independent agencies of the United States federal government are those agencies that exist outside of the federal executive departments...
during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
that followed the Crash of 1929
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
. The main reason for the creation of the SEC was to regulate the stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges, the companies whose securities traded on them, and the brokers and dealers who conducted the trading.
Currently, the SEC is responsible for administering seven major laws that govern the securities industry. They are: the Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
, the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
, the Trust Indenture Act of 1939
Trust Indenture Act of 1939
The United States Trust Indenture Act of 1939 , codified at through , supplements the Securities Act of 1933 in the case of the distribution of debt securities...
, the Investment Company Act of 1940
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 on August 22, 1940, and is codified at through . Along with the Securities Exchange Act of 1934 and Investment Advisers Act of 1940, and extensive rules issued by the Securities and Exchange...
, the Investment Advisers Act of 1940
Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
, the Sarbanes-Oxley Act of 2002
Sarbanes-Oxley Act
The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
and most recently, the Credit Rating Agency Reform Act of 2006.
The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
alleged to have committed accounting fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
, provided false information, or engaged in insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
or other violations of the securities law
Financial regulation
Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system...
. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses which include a criminal violation.
To achieve its mandate, the SEC enforces the statutory requirement that public companies
Public company
This is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
submit quarterly and annual report
Annual report
An annual report is a comprehensive report on a company's activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company's activities and financial performance...
s, as well as other periodic reports. In addition to annual financial report
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
s, company executives must provide a narrative
Narrative
A narrative is a constructive format that describes a sequence of non-fictional or fictional events. The word derives from the Latin verb narrare, "to recount", and is related to the adjective gnarus, "knowing" or "skilled"...
account, called the "management discussion and analysis" (MD&A), that outlines the previous year of operations and explains how the company fared in that time period. Management will usually also touch on the upcoming year, outlining future goals and approaches to new projects. In an attempt to level the playing field for all investors, the SEC maintains an online database called EDGAR
EDGAR
EDGAR, the Electronic Data-Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission...
(the Electronic Data Gathering, Analysis, and Retrieval system) online from which investors can access this and other information filed with the agency.
Quarterly and annual reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
ing, investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
in the capital markets is not guaranteed
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
by the federal government. The potential for big gains needs to be weighed against equally likely losses. Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same basic facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.
The SEC makes reports available to the public via the EDGAR system. SEC also offers publications on investment-related topics for public education. The same online system also takes tips and complaints from investors to help the SEC track down violators of the securities laws. The SEC adheres to a strict policy that it never comments on the existence or status of an ongoing investigation.
History
Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called Blue Sky LawsBlue sky law
A blue sky law is a state law in the United States that regulates the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws vary among states, they all require the registration of all securities offerings and sales, as well as of stock...
that were enacted and enforced at the state level and regulated the offering and sale of securities
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
to protect the public from fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every US stock broker
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
and brokerage firm.
However, these Blue Sky laws were generally found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could "ignore" Blue Sky Laws by making securities offerings across state lines through the mail. After holding hearings
Unofficial hearing
Unofficial hearing in the context of U.S. Congress is a hearing conducted by either single Congressmen of the United States or other state or local legislative bodies in order to hear the testimony of the people. It is unofficial because they are not conducted by either Congressional Committees of...
on abuses on interstate frauds (commonly known as the Pecora Commission
Pecora Commission
The Pecora Investigation was an inquiry begun on March 4, 1932 by the United States Senate Committee on Banking and Currency to investigate the causes of the Wall Street Crash of 1929...
), Congress passed the Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
which regulates interstate sales of securities (original issues
Primary market
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process...
) at the federal level. The subsequent Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
regulates sales of securities in the secondary market
Secondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
. Section 4 of the 1934 Act created the U.S. Securities and Exchange Commission to enforce the federal securities laws. Both laws are considered part of Franklin Roosevelt's "New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
" raft of legislation.
The Securities Act of 1933 is also known as the "Truth in Securities Act" or the "Federal Securities Act” or just the "1933 Act." Its goal is to increase public trust in the capital markets by requiring uniform disclosure of information about public securities offerings. The primary drafters of 1933 Act were Huston Thompson, a former Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
chairman, and Walter Miller and Ollie Butler, two attorneys in the Commerce Department
United States Department of Commerce
The United States Department of Commerce is the Cabinet department of the United States government concerned with promoting economic growth. It was originally created as the United States Department of Commerce and Labor on February 14, 1903...
's Foreign Service Division, with input from Supreme Court Justice Louis Brandeis
Louis Brandeis
Louis Dembitz Brandeis ; November 13, 1856 – October 5, 1941) was an Associate Justice on the Supreme Court of the United States from 1916 to 1939.He was born in Louisville, Kentucky, to Jewish immigrant parents who raised him in a secular mode...
. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission, but this power was transferred to the SEC following its creation in 1934. (Interestingly, the first, rejected draft of the Securities Act written by Samuel Untermyer
Samuel Untermyer
Samuel Untermyer Samuel Untermyer Samuel Untermyer (March 6, 1858 – March 16, 1940, although some sources cite March 2, 1858, and even others, June 6, 1858 also known as Samuel Untermeyer was a Jewish-American lawyer and civic leader as well as a self-made millionaire. He was born in...
vested these powers in the U.S. Post Office
United States Postal Service
The United States Postal Service is an independent agency of the United States government responsible for providing postal service in the United States...
, because Untermyer believed that only by vesting enforcement powers with the postal service could the constitutionality of the act be assured.) The law requires that issuing companies register distributions of securities with the SEC prior to interstate sales of these securities, so that investors may have access to basic financial information about issuing companies and risks involved in investing in the securities in question. Since 1996, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC’s online system, EDGAR
EDGAR
EDGAR, the Electronic Data-Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission...
.
The Securities Exchange Act of 1934 is also known as "the Exchange Act" or "the 1934 Act". This act regulates secondary trading between individuals and companies which are often unrelated to the original issuers of securities. Entities under the SEC’s authority include securities exchanges with physical trading floors such as the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
(NYSE), self-regulatory organizations such as the National Association of Securities Dealers
Financial Industry Regulatory Authority
In the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization . FINRA is the successor to the National Association of Securities Dealers, Inc. ...
(NASD), the Municipal Securities Rulemaking Board
Municipal Securities Rulemaking Board
The Municipal Securities Rulemaking Board, often referred to as the MSRB, writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities market, including tax-exempt and taxable municipal bonds, municipal notes, and other securities...
(MSRB), online trading platforms such as NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
and ATS, and any other persons (e.g., securities brokers) engaged in transactions for the accounts of others.
President Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
appointed Joseph P. Kennedy, Sr.
Joseph P. Kennedy, Sr.
Joseph Patrick "Joe" Kennedy, Sr. was a prominent American businessman, investor, and government official....
, father of President John F. Kennedy
John F. Kennedy
John Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....
, to serve as the first Chairman of the SEC, along with James M. Landis
James M. Landis
James McCauley Landis was an American academic, government official and legal adviser.-Biography:Landis was born in Tokyo, Japan, where his parents were teachers at a missionary school...
(one of the architects of the 1934 Act and other New Deal legislation) and Ferdinand Pecora
Ferdinand Pecora
Ferdinand Pecora was an American lawyer and judge who became famous in the 1930s as Chief Counsel to the United States Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices.-Early career:Ferdinand Pecora was born in Nicosia, Sicily,...
(Chief Counsel to the United States Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices). Other prominent SEC commissioners and chairmen include William O. Douglas
William O. Douglas
William Orville Douglas was an Associate Justice of the United States Supreme Court. With a term lasting 36 years and 209 days, he is the longest-serving justice in the history of the Supreme Court...
(who went on to be a U.S. Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
justice), Jerome Frank (one of the leaders of the legal realism
Legal realism
Legal realism is a school of legal philosophy that is generally associated with the culmination of the early-twentieth century attack on the orthodox claims of late-nineteenth-century classical legal thought in the United States...
movement) and William J. Casey
William J. Casey
William Joseph Casey was the Director of Central Intelligence from 1981 to 1987. In this capacity he oversaw the entire United States Intelligence Community and personally directed the Central Intelligence Agency ....
(who would later head the Central Intelligence Agency
Central Intelligence Agency
The Central Intelligence Agency is a civilian intelligence agency of the United States government. It is an executive agency and reports directly to the Director of National Intelligence, responsible for providing national security intelligence assessment to senior United States policymakers...
under President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
).
As part of the continuing investigation in 1974–75, Watergate scandal
Watergate scandal
The Watergate scandal was a political scandal during the 1970s in the United States resulting from the break-in of the Democratic National Committee headquarters at the Watergate office complex in Washington, D.C., and the Nixon administration's attempted cover-up of its involvement...
prosecutors offered companies that had given illegal campaign contributions to Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
's re-election campaign lenient sentences if they came forward. Many companies complied, including Northrop Grumman
Northrop Grumman
Northrop Grumman Corporation is an American global aerospace and defense technology company formed by the 1994 purchase of Grumman by Northrop. The company was the fourth-largest defense contractor in the world as of 2010, and the largest builder of naval vessels. Northrop Grumman employs over...
, 3M
3M
3M Company , formerly known as the Minnesota Mining and Manufacturing Company, is an American multinational conglomerate corporation based in Maplewood, Minnesota, United States....
, American Airlines
American Airlines
American Airlines, Inc. is the world's fourth-largest airline in passenger miles transported and operating revenues. American Airlines is a subsidiary of the AMR Corporation and is headquartered in Fort Worth, Texas adjacent to its largest hub at Dallas/Fort Worth International Airport...
and Braniff International Airways
Braniff International Airways
Braniff International Airways was an American airline that operated from 1928 until 1982, primarily in the midwestern and southwestern U.S., South America, Panama, and in its later years also Asia and Europe...
. By 1976, prosecutors had convicted 18 American corporations of contributing illegally to Nixon's campaign. The SEC, in a state of flux after its chairman was forced to resign his post, began to audit all the political activities of publicly traded companies. The SEC's subsequent investigation found that many American companies were making vast political contributions abroad.
Chairs and commissioners
Members are listed in main article by Presidential administration.Or for alphabetized list of members who have articles written about them, see :Category:Members of the United States Securities and Exchange Commission.
Organizational structure
The SEC consists of five Commissioners appointed by the President of the United StatesPresident of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
with the advice and consent of the United States Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. To ensure that the SEC remains non-partisan
Nonpartisan
In political science, nonpartisan denotes an election, event, organization or person in which there is no formally declared association with a political party affiliation....
, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive. However, the President does not possess the power to fire the appointed commissioners, a provision that was made to ensure the independence of the SEC. This issue arose during the 2008 Presidential Election
John McCain presidential campaign, 2008
John McCain, the senior United States Senator from Arizona, launched his second candidacy for the presidency of the United States in an unsuccessful bid to win the 2008 presidential election. His candidacy, in the works for a number of years, was informally announced on February 28, 2007 during a...
in connection with the ensuing Financial Crises.
Within the SEC, there are five divisions. Headquartered in Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, the SEC has 11 regional offices throughout the United States.
The SEC's five main divisions are: Corporation Finance, Trading and Markets, Investment Management, Enforcement, and Risk, Strategy, and Financial Innovation.
Corporation Finance is the division that oversees the disclosure made by public companies as well as the registration of transactions, such as mergers, made by companies. The division is also responsible for operating EDGAR.
The Trading and Markets division oversees self-regulatory organization
Self-regulatory organization
A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and...
s (SROs) such as FINRA
Financial Industry Regulatory Authority
In the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization . FINRA is the successor to the National Association of Securities Dealers, Inc. ...
and MSRB
Municipal Securities Rulemaking Board
The Municipal Securities Rulemaking Board, often referred to as the MSRB, writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities market, including tax-exempt and taxable municipal bonds, municipal notes, and other securities...
, and all broker-dealer
Broker-dealer
A broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....
firms and investment houses
Investment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
. This division also interprets proposed changes to regulations and monitors operations of the industry. In practice, the SEC delegates most of its enforcement and rulemaking authority to FINRA. In fact, all trading firms not regulated by other SROs must register as a member of FINRA. Individuals trading securities must pass exams administered by FINRA to become registered representatives
General Securities Representative Exam
The General Securities Representative Exam, commonly referred to as the Series 7 Exam, is a required exam to become a Registered Representative of a broker-dealer in the United States....
.
The Investment Management Division oversees investment companies including mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s and investment advisor
Investment Advisor
The term Investment Advisor is an individual or firm who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities...
s. This division administers federal securities laws, in particular the Investment Company Act of 1940 and Investment Advisers Act of 1940. This Division's responsibilities include:
- assisting the Commission in interpreting laws and regulations for the public and SEC inspection and enforcement staff;
- responding to no-action requests and requests for exemptive relief;
- reviewing investment company and investment adviser filings;
- assisting the Commission in enforcement matters involving investment companies and advisers; and
- advising the Commission on adapting SEC rules to new circumstances.
The Enforcement Division works with the other three divisions, and other Commission offices, to investigate violations of the securities laws and regulations and to bring actions against alleged violators. The SEC generally conducts investigations in private. The SEC's staff may seek voluntary production of documents and testimony, or may seek a formal order of investigation from the SEC, which allows the staff to compel the production of documents and witness testimony. The SEC can bring a civil action
Lawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
in a U.S. District Court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
or an administrative proceeding
Administrative proceeding
An administrative proceeding is a non-judicial determination of fault or wrong-doing and may include, in some cases, penalties of various forms. They are typically conducted by government or military institutions....
which is heard by an independent administrative law judge
Administrative law judge
An administrative law judge in the United States is an official who presides at an administrative trial-type hearing to resolve a dispute between a government agency and someone affected by a decision of that agency. The ALJ is usually the initial trier of fact and decision maker...
(ALJ). The SEC does not have criminal authority, but may refer matters to state and federal prosecutors. The current director of the SEC's Enforcement Division is Robert Khuzami
Robert Khuzami
Robert S. Khuzami is currently the director of the Division of Enforcement of the U.S. Securities and Exchange Commission. He is a former United States federal prosecutor and general counsel of Deutsche Bank AG....
, a former federal prosecutor.
Among the SEC's offices are:
- The Office of General Counsel, which acts as the agency's "lawyer" before federal appellate courts and provides legal advice to the Commission and other SEC divisions and offices;
- The Office of the Chief Accountant, which establishes and enforces accounting and auditing policies set by the SEC. This office has played an important role in such areas as working with the Financial Accounting Standards BoardFinancial Accounting Standards BoardThe Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...
to develop Generally Accepted Accounting PrinciplesGenerally Accepted Accounting PrinciplesGenerally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
, the Public Company Accounting Oversight BoardPublic Company Accounting Oversight BoardThe Public Company Accounting Oversight Board is a private-sector, non-profit corporation created by the Sarbanes–Oxley Act, a 2002 United States federal law, to oversee the auditors of public companies. Its stated purpose is to 'protect the interests of investors and further the public interest...
in developing audit requirements, and the International Accounting Standards BoardInternational Accounting Standards BoardThe International Accounting Standards Board is an independent, privately funded accounting standard-setter based in London, England.The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee...
in advancing the development of International Financial Reporting StandardsInternational Financial Reporting StandardsInternational Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
; - The Office of Compliance, Inspections and Examinations, which inspects broker-dealerBroker-dealerA broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....
s, stock exchangeStock exchangeA stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
s, credit rating agenciesCredit rating agencyA Credit rating agency is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves...
, registered investment companies, including both closed-end and open-end (mutual fundMutual fundA mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s) investment companies, money fundMoney fundA money market fund is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are widely regarded as being as safe as bank deposits yet providing a higher yield...
s and Registered Investment AdvisorRegistered Investment AdvisorThe term Registered Investment Adviser is used to describe an Investment Adviser who is registered with the Securities and Exchange Commission or a state's securities agency. The term has been popularized due to its use within the Investment Advisers Act of 1940 and its association to the term...
s; - The Office of International Affairs, which represents the SEC abroad and which negotiates international enforcement information-sharing agreements, develops the SEC's international regulatory policies in areas such as mutual recognition, and helps develop international regulatory standards through organizations such as the International Organization of Securities CommissionsInternational Organization of Securities CommissionsThe International Organization of Securities Commissions is an association of organisations that regulate the world’s securities and futures markets....
and the Financial Stability ForumFinancial Stability ForumThe Financial Stability Forum was a group consisting of major national financial authorities such as finance ministries, central bankers, and international financial bodies. The Forum was founded in 1999 to promote international financial stability...
; - The Office of Investor Education and Advocacy, which helps educate the public about securities markets and warns investors of fraud and stock market scams; and
- The Office of Economic Analysis, which helps the SEC estimate the economic costs and benefits of its various rules and regulations.
- The Office of Information Technology, supports the Commission and staff of the SEC in all aspects of information technology. The Office has overall management responsibility for the Commission's IT program including application development, infrastructure operations and engineering, user support, IT program management, capital planning, security, and enterprise architecture.
- Inspector GeneralInspector GeneralAn Inspector General is an investigative official in a civil or military organization. The plural of the term is Inspectors General.-Bangladesh:...
. The current IG, H. David KotzH. David KotzH. David Kotz is the Inspector General of the U.S. Securities and Exchange Commission since his appointment on December 5, 2007...
, has served since December, 2007. Kotz has a staff of 22.
Relationship to other agencies
In addition to working with various SROSelf-regulatory organization
A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and...
s such as NYSE and FINRA, the Securities and Exchange Commission also works with other federal agencies
Independent agencies of the United States government
Independent agencies of the United States federal government are those agencies that exist outside of the federal executive departments...
, state securities regulators, international securities agencies and law enforcement agencies.
In 1988 Executive Order 12631
Working Group on Financial Markets
The Working Group on Financial Markets was created by Executive Order 12631, signed on March 18, 1988 by United States President Ronald Reagan.The Group was established explicitly in response to events in the financial markets surrounding October 19,...
established the President's Working Group on Financial Markets
Working Group on Financial Markets
The Working Group on Financial Markets was created by Executive Order 12631, signed on March 18, 1988 by United States President Ronald Reagan.The Group was established explicitly in response to events in the financial markets surrounding October 19,...
. The Working Group is chaired by the Secretary of the Treasury
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
and includes the Chairman of the SEC, the Chairman of the Federal Reserve
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
and the Chairman of the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
. The goal of the Working Group is to enhance the integrity, efficiency, orderliness and competitiveness of the financial markets while maintaining investor confidence.
The Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
was originally administered by the Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
(FTC). The Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
transferred this responsibility from FTC to the SEC. The main mission of the FTC is to promote consumer protection and to eradicate anticompetitive business practices
Anti-competitive practices
Anti-competitive practices are business or government practices that prevent or reduce competition in a market .- Anti-competitive practices :These can include:...
. The FTC regulates general business practices, while the SEC focuses on the securities markets.
The Temporary National Economic Committee
Temporary National Economic Committee
The Temporary National Economic Committee was established by a joint resolution of the United States Congress on June 16, 1938 and operated until its defunding on April 3, 1941. The TNEC's function was to study the monopoly powers and to report to Congress with its findings.One of the many firms...
was established by joint resolution of Congress 52 Stat. 705 on June 16, 1938. It was in charge of reporting to the Congress on abuses of monopoly power. The committee was defunded in 1941, but its records are still under seal by order of the SEC.
The Municipal Securities Rulemaking Board
Municipal Securities Rulemaking Board
The Municipal Securities Rulemaking Board, often referred to as the MSRB, writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities market, including tax-exempt and taxable municipal bonds, municipal notes, and other securities...
(MSRB) was established in 1975 by Congress to develop rules for companies involved in underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
and trading municipal securities
Municipal bond
A municipal bond is a bond issued by a city or other local government, or their agencies. Potential issuers of municipal bonds includes cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and any...
. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules.
While most violations of securities laws are enforced by the SEC and the various SROs it monitors, state securities regulators can also enforce state-wide securities laws known colloquially as Blue sky law
Blue sky law
A blue sky law is a state law in the United States that regulates the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws vary among states, they all require the registration of all securities offerings and sales, as well as of stock...
s. States may require securities to be registered in the state before they can be sold there. National Securities Markets Improvement Act of 1996 (NSMIA) addresses this dual system of federal-state regulation by amending Section 18 of the 1933 Act to exempt nationally traded securities from state registration, thereby pre-empting state law in this area. However, NSMIA preserves the states' anti-fraud authority over all securities traded in the state.
The SEC also works with federal and state law enforcement agencies to carry out actions against actors alleged to be in violation of the securities laws.
The SEC is a member of International Organization of Securities Commissions
International Organization of Securities Commissions
The International Organization of Securities Commissions is an association of organisations that regulate the world’s securities and futures markets....
(IOSCO) and uses the IOSCO Multilateral Memorandum of Understanding as well as direct bilateral agreements with other countries Securities Commission
Securities Commission
Securities Commission a statutory body entrusted with the responsibility of regulating and systematically developing the capital markets in Malaysia.-History:...
s to deal with cross border misconduct in securities markets.
Related legislation
- 1934 – Securities Exchange Act of 1934Securities Exchange Act of 1934The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
, governing the secondary trading of securities - 1938 – Establishment of the Temporary National Economic CommitteeTemporary National Economic CommitteeThe Temporary National Economic Committee was established by a joint resolution of the United States Congress on June 16, 1938 and operated until its defunding on April 3, 1941. The TNEC's function was to study the monopoly powers and to report to Congress with its findings.One of the many firms...
52 Stat. 705 - 1964 – Securities Act Amendments PL 88-467
- 1968 – Williams ActWilliams ActThe Williams Act refers to amendments to the Securities Exchange Act of 1934 enacted in 1968 regarding tender offers. The legislation was proposed by Senator Harrison A. Williams of New Jersey....
(Securities Disclosure Act) PL 90-439 - 1975 – Securities and Exchange Act PL 94-29
- 1980 – Depository Institutions and Deregulation Money Control Act PL 96-221
- 1982 – Garn–St. Germain Depository Institutions Act PL 97-320
- 1984 – Insider Trading Sanctions Act PL 98-376
- 1988 – Insider Trading and Securities Fraud Enforcement Act PL 100-704
- 1989 – Financial Institutions Reform, Recovery, and Enforcement PL 101-73
- 1999 – Gramm-Leach-Bliley ActGramm-Leach-Bliley ActThe Gramm–Leach–Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress...
PL 106-102 - 2000 – Commodity Futures Modernization Act of 2000Commodity Futures Modernization Act of 2000The Commodity Futures Modernization Act of 2000 is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton...
- 2002 – Sarbanes-Oxley ActSarbanes-Oxley ActThe Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
- 2007 – Regulation NMSRegulation NMSRegulation NMS is a regulation promulgated and described by the United States Securities and Exchange Commission as "a series of initiatives designed to modernize and strengthen the national market system for equity securities." It was established in 2007...
- 2010 – Dodd–Frank Wall Street Reform and Consumer Protection Act
Comment letters
Comment letters are letters by the SEC to a public company raising issues and requested comments. For example, in October 2001, the SEC wrote to CA, Inc., covering fifteen items, mostly about CA's accounting, including five about revenue recognition. The chief financial officerChief financial officer
The chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
of CA, to whom the letter was addressed, pleaded guilty to fraud at CA in 2004.
In June 2004, the SEC announced that it would publicly post all comment letters, to give investors access to the information in them. In mid-2005, Allan Beller, former head of the SEC's Division of Corporation Finance, said that the SEC believed that "it is appropriate to expand the transparency of our comment process by making this information available to an unlimited audience."
An analysis in May 2006 of regulatory filings over the prior 12 months indicates, however, that the SEC has not accomplished what it said it would do. The analysis found 212 companies that had reported receiving comment letters from the SEC, but only 21 letters (for these companies) were posted on the SEC's website. John W. White, the current head of the Division of Corporation Finance, told the New York Times: "We have now resolved the hurdles of posting the information.... We expect a significant number of new postings in the coming months."
No-action letters
No-action letters are letters by the SEC staff indicating that the staff will not recommend to the Commission that the SEC undertake enforcement action against a person or company if that entity engages in a particular action. These letters are sent in response to requests made when the legal status of an activity is not clear. These letters are publicly released and increase the body of knowledge on what exactly is and is not allowed. They represent the staff's intrepretations of the securities laws and, while persuasive, are not binding on the courts.Regulatory action in the credit crunch
The SEC announced on September 17, 2008, strict new rules to prohibit all forms of "naked short sellingNaked short selling
Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame,...
" as a measure to reduce volatility in turbulent markets.
The SEC investigated into cases involving individuals attempting to manipulate the market by passing false rumors about certain financial institutions. The commission has also investigated into trading irregularities and abusive short selling practices. Hedge fund managers, broker-dealers, and institutional investors were also asked to disclose under oath, certain information pertaining to their positions in credit default swap
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
s. The commission also brought about the largest settlements in the history of the SEC (approximately $51 billion in all) on behalf of investors who purchased auction rate securities
Auction Rate Security
An auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
from six different financial institutions.
An internal investigation which was completed in 2010 found that, starting in 2008 at the beginning of the crisis, 17 senior SEC officials who receive 6-figure salaries used SEC computers to access pornography
Pornography
Pornography or porn is the explicit portrayal of sexual subject matter for the purposes of sexual arousal and erotic satisfaction.Pornography may use any of a variety of media, ranging from books, magazines, postcards, photos, sculpture, drawing, painting, animation, sound recording, film, video,...
on the internet, in one case up to 8 hours per day.
Regulatory failures
Christopher Cox, the former chairman of the SEC, has recognized the organization's own multiple failures in relation to the Bernard MadoffBernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
fraud. Starting with an investigation in 1992 into a Madoff feeder fund which only invested with Madoff, and which, according to the SEC, promised "curiously steady" returns, the SEC did not investigate indications that something was amiss in Madoff's investment firm. The SEC has therefore been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud. As a result, Cox has said that an investigation will ensue into "all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm." Approximately 45 per cent of institutional investors felt that better oversight by the SEC could have prevented the Madoff fraud. Harry Markopolos
Harry Markopolos
Harry M. Markopolos is a former securities industry executive and independent financial fraud investigator for institutional investors and others seeking forensic accounting expertise. He has received public acclaim for uncovering evidence over a period of nine years that Bernard Madoff's wealth...
complained to the SEC's Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
office in May 1999, telling the SEC staff they should investigate Madoff because it was impossible to legally make the profits Madoff claimed using the investment strategies that he claimed to use.
In June 2010, the SEC settled a wrongful termination lawsuit with former SEC enforcement lawyer Gary Aguirre, who was terminated in September 2005 following his attempt to subpoena Wall Street figure John J. Mack
John J. Mack
John J. Mack is the current Chairman of the Board at Morgan Stanley, the New York-based investment bank and brokerage firm. Mack announced his retirement as Chief Executive Officer on September 10, 2009, which was effective January 1, 2010. Former Co-President James P...
in an insider trading case involving hedge fund Pequot Capital Management
Pequot Capital Management
Pequot Capital Management was a multi-billion dollar hedge fund sponsor founded in 1998 by Arthur J. Samberg that was forcibly terminated by order of the Securities and Exchange Commission in 2010. The firm's investment funds invested in a range of markets through a variety of strategies...
. While the insider case was dropped at the time, a month prior to the SEC's settlement with Aguirre the SEC filed charges against Pequot. The Senate released a report in August 2007 detailing the issue and calling for reform of the SEC.
Inspector General office failures
In 2009, the Project on Government OversightProject on Government Oversight
The Project On Government Oversight , founded in 1981, is an independent non-profit organization in the United States which investigates and seeks to expose corruption and other misconduct. POGO assists whistleblowers and investigates federal agencies, Congress, and government contractors...
, a government watchdog group, sent a letter to Congress criticizing the SEC for failing to implement more than half of the recommendations made to it by its Inspector General According to POGO, in the past 2 years, the SEC had taken no action on 27 out of 52 recommended reforms suggested in Inspector General reports, and still had a "pending" status on 197 of the 312 recommendations made in audit reports. Some of these recommendations included imposing disciplinary action on SEC employees who receive improper gifts or other favors from financial companies and investigating and reporting the causes of the failures to detect the Madoff ponzi scheme.
In a 2011 article by Matt Taibbi
Matt Taibbi
Matthew C. "Matt" Taibbi is an American author and journalist reporting on politics, media, finance, and sports for Rolling Stone and Men's Journal, often in a polemical style. He has also edited and written for The eXile, the New York Press, and The Beast.- Early years :Taibbi grew up in the...
in Rolling Stone
Rolling Stone
Rolling Stone is a US-based magazine devoted to music, liberal politics, and popular culture that is published every two weeks. Rolling Stone was founded in San Francisco in 1967 by Jann Wenner and music critic Ralph J...
, former SEC employees were interviewed and they commented negatively on the agency's Inspector General's office. Going to the OIG was "well-known to be a career-killer."
Destruction of documents
According to former SEC employee and whistleblowerWhistleblower
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department, a public or private organization, or a company...
Darcy Flynn, also reported by Taibbi, the agency routinely destroyed thousands and thousands of documents related to preliminary investigations of alleged crimes committed by Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, SAC Capital, and other financial companies involved in the Great Recession that the SEC was supposed to have been regulating. The documents included those relating to "Matters Under Inquiry", or MUI, the name the SEC gives to the first stages of the investigation process. The tradition of destruction began as early as the 1990s. This SEC activity eventually caused a conflict with the National Archives and Records Administration when it was revealed to them in 2010 by Flynn. Flynn also described a meeting at SEC in which top staff discussed refusing to admit the destruction had taken place because it was possibly illegal.
Iowa Republican Sen. Charles Grassley, among others, took note of Flynn's call for protection as a whistleblower and the story of the agency's document-handling procedures. The SEC issued a statement defending its procedures. NPR
NPR
NPR, formerly National Public Radio, is a privately and publicly funded non-profit membership media organization that serves as a national syndicator to a network of 900 public radio stations in the United States. NPR was created in 1970, following congressional passage of the Public Broadcasting...
quoted University of Denver law professor Jay Brown
J. Robert Brown, Jr.
Jay Brown is a law professor with specializations in corporations and corporate governance, business law, administrative law and securities regulation. He currently teaches at the University of Denver Sturm College of Law.-Education:...
as saying, "My initial take on this is it's a tempest in a teapot," and Jacob Frenkel, a securities lawyer in the Washington, D.C., area, as saying in effect "there's no allegation the SEC tossed sensitive documents from banks it got under subpoena in high-profile cases that investors and lawmakers care about." NPR concluded its report:
The debate boils down to this: What does an investigative record mean to Congress? And the courts? Under the law, those investigative records must be kept for 25 years. But federal officials say no judge has ruled that papers related to early-stage SEC inquiries are investigative records. The SEC's inspector general says he's conducting a thorough investigation into the allegations. [Kotz] tells NPR that he'll issue a report by the end of September.
Forms
SEC Forms List by category- Form 4Form 4Form 4 is a United States SEC filing that relates to insider trading. Every director, officer or owner of more than ten percent of a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934 must file with the United States Securities and Exchange Commission a...
(stock and stock options ownership and exercise disclosure) - Form 8-KForm 8-KForm 8-K is a very broad form used to notify investors of any material event that is important to shareholders or the United States Securities and Exchange Commission. This is one of the most common types of forms filed with the SEC...
- SEC Form 10-KForm 10-KA Form 10-K is an annual report required by the U.S. Securities and Exchange Commission , that gives a comprehensive summary of a public company's performance...
- Form S-1Form S-1Form S-1 is an SEC filing used by public companies to register their securities with the U.S. Securities and Exchange Commission as the "registration statement under the Securities Act of 1933". The S-1 contains the basic business and financial information on an issuer with respect to a specific...
(IPO)
See also
:Category:Financial regulation in the United States:Category:United States federal financial legislation
:Category:United States proposed federal legislation
- Commodity Futures Trading CommissionCommodity Futures Trading CommissionThe U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
- Securities CommissionSecurities CommissionSecurities Commission a statutory body entrusted with the responsibility of regulating and systematically developing the capital markets in Malaysia.-History:...
- Chicago Stock ExchangeChicago Stock ExchangeThe Chicago Stock Exchange is a stock exchange in Chicago, Illinois, USA. The exchange is a national securities exchange and self-regulated organization, which operates under the oversight of the U.S. Securities and Exchange Commission . The Chicago Stock Exchange is the third most active stock...
- Financial regulationFinancial regulationFinancial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system...
- List of financial regulatory authorities by country
- NASDAQNASDAQThe NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
- New York Stock ExchangeNew York Stock ExchangeThe New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
- Stock exchangeStock exchangeA stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
- Regulation D (SEC)
External links
- U.S. Securities and Exchange Commission website
- What the SEC does
- SECLaw.com – The Securities Law Home Page
- Introduction to the Federal Securities Laws
- United States Securities Laws and Rules
- Hedge Fund Regulation by the SEC
Take a Look at the Securities and Exchange CommissionDead link as of Aug 17, 2010- SEC Historical Society – Archive and Museum nonprofit and independent from the SEC
- Association of Securities and Exchange Commission Alumni, Inc.
- TheCorporateCounsel.net (USA) Home of popular securities law blog and related resources
- Understanding the Securities Exchange Commission--About.com
- SecuritiesLinks Links to U.S. securities laws, rules, forms and other resources
- SEC Accounting Bulletins – United States
- SEC Division of Corporate Finance – United States
- SEC Said to Examine More Ponzi Schemes Bloomberg
- seccube.com - Viewing SEC filings made easy