Contents

§ Overview [ edit ]

The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. [ 3 ]

The enforcement authority it received from Congress enables 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 that include a criminal violation.

To achieve its mandate, the SEC enforces the statutory requirement that public companies submit quarterly and annual reports. as well as other periodic reports. In addition to annual financial reports. 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. MD&A 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 semiannual reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike banking. 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 through the EDGAR system. The 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 of never commenting on the existence or status of an ongoing investigation.

§ History [ edit ]

Joseph P. Kennedy, Sr.. the inaugural Chairman of the SEC

Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called blue sky laws. They 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 U.S. stockbroker and brokerage firm. [ 4 ]

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. [ 5 ] After holding hearings on abuses on interstate frauds (commonly known as the Pecora Commission ), Congress passed the Securities Act of 1933 (15 U.S.C.  § 77a ), which regulates interstate sales of securities (original issues ) at the federal level. The subsequent Securities Exchange Act of 1934 (15 U.S.C.  § 78d ) 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 parts of Franklin D. Roosevelt ‘s New Deal raft of legislation.

The Securities Act of 1933 is also known as the Truth in Securities Act and the Federal Securities Act”, or just the 1933 Act. Its goal was 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 (FTC) 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. [ 5 ] ) 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 1994, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC’s online system, EDGAR. [ 6 ]

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 (SROs) such as the National Association of Securities Dealers (NASD), the Municipal Securities Rulemaking Board (MSRB), online trading platforms such as the NASDAQ Stock Market (NASDAQ) and alternative trading systems (ATSs), and any other persons (e.g.. securities brokers) engaged in transactions for the accounts of others. [ 7 ]

President 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 later headed the Central Intelligence Agency under President Ronald Reagan ).

§ Organizational structure [ edit ]

§ Commission members [ edit ]