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The U.S. Securities and Exchange Commission (SEC) is a large independent agency of the United States federal government, created in the aftermath of the
Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash A stock market crash is a sudden dramatic decline of stock In finance, stock (also capital stock) consists of all of the shares In ...
. The primary purpose of the SEC is to enforce the law against
market manipulation Market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances with respect to the price of, ...
. In addition to the
Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stock In finance, stock (also capital stock) consists of all of th ...
, which created it, the SEC enforces the
Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress The United States Congress is the legislature ...
, the
Trust Indenture Act of 1939 The Trust Indenture Act of 1939 (TIA), codified at , supplements the Securities Act of 1933 in the case of the distribution of Security (finance)#Debt, debt securities in the United States. Generally speaking, the TIA requires the appointment of a ...
, the
Investment Company Act of 1940 The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress An Act of Congress is a statute enacted by United States Congress, Congress. Acts can affect only individual entities (called private laws), or the gen ...
, the
Investment Advisers Act of 1940 The Investment Advisers Act of 1940, codified at through , is a United States federal law The law of the United States comprises many levels of codified and uncodified forms of law Law is a system A system is a group of Interaction, ...
, 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 Exchange Act or the 1934 Act).


Overview

The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. To achieve its mandate, the SEC enforces the statutory requirement that
public companies A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a legal entity In law, a legal person is any person A person (plura ...
and other regulated companies submit quarterly and
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. T ...
s, as well as other periodic reports. In addition to annual
financial reports Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to und ...
, company executives must provide a narrative account, called the "
management discussion and analysis Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to und ...
" (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 Edgar is a commonly used English given name English names are names used in, or originating in, England England is a that is part of the . It shares land borders with to its west and to its north. The lies northwest of England an ...

EDGAR
(the Electronic Data Gathering, Analysis, and Retrieval system)
online In computer technology and telecommunications Telecommunication is the transmission of information by various types of technologies over , radio, , or other systems. It has its origin in the desire of humans for communication over a dista ...
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
bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
ing,
investment Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance Finance is the study of financial institution ...

investment
in the capital markets is not guaranteed by the federal government. The potential for big gains needs to be weighed against that of sizable 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 In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by ...

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


Background

Prior to the enactment of the federal securities laws and the creation of the SEC, securities trading was governed by so-called
blue sky law A blue sky law is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper i ...
s. These laws 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 A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a sell ...

stockbroker
and brokerage firm. However, blue sky laws were generally considered ineffective. For example, as early as 1915, the Investment Bankers Association told its members that they could circumvent blue sky laws by making securities offerings across state lines through the mail.


Founding

The SEC's authority was established by the Securities Act of 1933 and Securities Exchange Act of 1934; both laws are considered parts of
Franklin D. Roosevelt Franklin Delano Roosevelt (, ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician who served as the 32nd president of the United States from 1933 until his death in 1945. A member of the De ...

Franklin D. Roosevelt
's
New Deal The New Deal was a series of programs, public work projects, financial reforms, and regulations Regulation is the management of complex systems according to a set of rules and trends. In systems theory Systems theory is the interdisciplina ...
program. After the
Pecora Commission The Pecora Investigation was an inquiry begun on March 4, 1932, by the United States Senate Committee on Banking and Currency The United States Senate Committee on Banking, Housing, and Urban Affairs (formerly the Committee on Banking and Curre ...
hearings on abuses and frauds in securities markets, Congress passed the
Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress The United States Congress is the legislature ...
(), which federally regulates original issues of securities across state lines, primarily by requiring that issuing companies register distributions prior to sale so that investors may access basic financial information and make informed decisions. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission. The subsequent Securities Exchange Act of 1934 () regulates
secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market A financial market is a market (economics), market in which people trade financial Security (finance), securities and derivative (finan ...
s for securities. The 1934 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 The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an U ...

New York Stock Exchange
,
self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could exist in place of government regulation, or applied in addition to government ...
s, the
Municipal Securities Rulemaking Board The Municipal Securities Rulemaking Board (MSRB) writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities, municipal securities market, including tax-exempt and taxable municipal ...
,
NASDAQ The Nasdaq Stock Market () is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorpora ...
,
alternative trading system Alternative trading system (ATS) is a US and Canadian Financial regulation, regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulate ...
s, and any other persons engaged in transactions for the accounts of others. Section 4 of the 1934 Act transferred the FTC's enforcement authority under the 1933 Act to the newly created Securities and Exchange Commission and tasked the new Commission with enforcing both Acts. In 1934, Roosevelt named his friend Joseph P. Kennedy, a self-made multimillionaire, financier, and leader among the Irish-American community, as chairman of the SEC. Roosevelt chose Kennedy partly based on his experience on Wall Street, as a man who knew the markets well enough to clean them up. Two of the other five commissioners were James M. Landis and
Ferdinand Pecora Ferdinand Pecora (January 6, 1882 – December 7, 1971) was an American lawyer A lawyer or attorney is a person who practices law, as an advocate, attorney at lawAttorney at law or attorney-at-law, usually abbreviated in everyday speech to ...
. Kennedy added a number of intelligent young lawyers to the SEC staff, including and
Abe Fortas Abraham Fortas (June 19, 1910 – April 5, 1982) was an American lawyer and jurist who served as an Associate Justice of the Supreme Court of the United States An associate justice of the Supreme Court of the United States is any member of ...
, both of whom later became Supreme Court Justices.Nassau, ''The Patriarch,'' pp. 226–28 Kennedy's team defined four missions for the new Commission: (1) to restore investor confidence in the securities market, which had practically collapsed; (2) to restore integrity to securities markets by prosecuting and eliminating fraudulent and unsound practices targeting investors; (3) to end million-dollar insider trading by top officials of major corporations; and (4) to establish a complex and universal system of registration for securities sold in America, with a clear-cut set of deadlines, rules and guidelines. The SEC succeeded; Kennedy reassured the American business community that they would no longer be deceived and tricked and taken advantage of by Wall Street. He became a cheerleader for ordinary investors to return to the market and enable the economy to grow again. Later SEC commissioners and chairmen include ,
Jerome Frank Jerome New Frank (September 10, 1889 – January 13, 1957) was an American legal philosopher and author who played a leading role in the legal realism Legal realism is a naturalism (philosophy), naturalistic approach to law. It is the view tha ...
, and
William J. Casey William Joseph Casey (March 13, 1913 – May 6, 1987) was the Director of Central Intelligence The Director of Central Intelligence (DCI) was the head of the American Central Intelligence Agency The Central Intelligence Agency (CIA; ...
. Since 1994, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC's online system, EDGAR. In 2019, the Securities and Exchange Commission Historical Society introduced an online gallery to illustrate changes in the US securities market structure since the 1930s. The online gallery features a narrative history supported by dozens of documents, papers, interviews, photos and videos.


List of chairs


Organizational structure


Commission members

The commission has five commissioners who are appointed by the President of the United States. No more than three Commissioners may belong to the same political party. Their terms last five years and are staggered so that one commissioner's term ends on June 5 of each year. Service may continue up to eighteen additional months past term expiration. 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 election2008 presidential election may refer to: * 2008 Armenian presidential election * 2008 Azerbaijani presidential election * 2008 People's Republic of China presidential election * 2008 Cypriot presidential election * 2008 Czech presidential election * ...
in connection with the ensuing financial crises.


Divisions

Within the SEC, there are five divisions. Headquartered in
Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument The Washington Monument is an obelisk within the National Mall The National Mall is a Landscape architecture, landscaped ...
The SEC's divisions are:Organization of the SEC
U.S. Securities and Exchange Commission
* Corporation Finance * Trading and Markets * Investment Management * Enforcement * Economic and Risk Analysis Corporation Finance is the division that oversees the disclosure made by
public companies A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a legal entity In law, a legal person is any person A person (plura ...
, 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 organizations (SRO’s) such as the
Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an ...
(FINRA) and
Municipal Securities Rulemaking Board The Municipal Securities Rulemaking Board (MSRB) writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities, municipal securities market, including tax-exempt and taxable municipal ...
(MSRB) and all
broker-dealerIn financial services Financial services are the economic services provided by the finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation a ...
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."How does the NASD differ from the SEC?" Investopedia. Investopedia Inc. The Investment Management Division oversees registered investment companies, which include
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s, as well as registered
investment advisor A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory bo ...
s. These entities are subject to extensive regulation under various federal securities laws. The Division of Investment Management administers various 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 investigates violations of the securities laws and regulations to bring legal actions against alleged violators. It is the largest division in terms of both headcount and budget, and its resources have been increased by more than half since the
financial crisis of 2007-2008 Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investment To invest is to allocate money Image:National- ...
. The SEC can bring a
civil action A lawsuit is a proceeding by a party or parties against another in the civil Civil may refer to: *Civic virtue, or civility *Civil action, or lawsuit *Civil affairs *Civil and political rights *Civil disobedience *Civil engineering *Civil ...
in a
U.S. District Court The United States district courts are the general trial court A trial court or court of first instance is a court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate leg ...
, or an
administrative proceeding An administrative proceeding is a ''non-judicial'' determination of fault or wrongdoing and may include, in some cases, penalties of various forms. They are typically conducted by government A government is the system or group of people ...
which is heard by an independent
administrative law judge An administrative law judge (ALJ) in the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country in . It consists of 50 , a , five major , 326 , and some . At ...
(ALJ). The SEC does not have criminal authority but may refer matters to state and federal prosecutors. The Economic and Risk Analysis Division (DERA) was created in September 2009 to integrate financial economics and rigorous data analytics into the core mission of the SEC. The Division is involved across the entire range of SEC activities, including policy-making, rule-making, enforcement, and examination. As the agency's "think tank," DERA relies on a variety of academic disciplines, quantitative and non-quantitative approaches, and knowledge of market institutions and practices to help the Commission approach complex matters in a fresh light. DERA also assists in the commission's efforts to identify, analyze, and respond to risks and trends, including those associated with new financial products and strategies. Through the range and nature of its activities, DERA serves the critical function of promoting collaborative efforts throughout the agency and breaking through silos that might otherwise limit the impact of the agency's institutional expertise. The Division's activities include providing detailed, high-quality economic and statistical analyses, and specific subject-matter expertise to the Commission and other Divisions/Offices and developing customized, analytic tools and analyses to proactively detect market risks indicative of possible violations of the Federal securities laws. Using data, DERA staff create analytic programs designed to detect patterns identifying risks, enabling Commission divisions and offices to deploy scarce resources targeting possible misconduct. DERA also houses the commission's Chief Economist.


Regional offices

There are 11 regional offices throughout the US with the name of the regional director. ''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 a role in such areas as working with the
Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securi ...
to develop
Generally Accepted Accounting Principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
, the
Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act The Sarbanes–Oxley Act of 2002 is a that mandates certain practices in financial record keeping and reporting for corpor ...
in developing audit requirements, and the
International Accounting Standards Board The International Accounting Standards Board (IASB) is the independent, accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
in advancing the development of
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
; * The ''Office of Compliance, Inspections and Examinations'', which inspects
broker-dealerIn financial services Financial services are the economic services provided by the finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation a ...
s,
stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green To ...
s,
credit rating agencies A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratingA credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ab ...
, registered investment companies, including both closed-end and open-end (
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s) investment companies,
money fund A money market fund (also called a money market mutual fund) is an open-ended mutual fund that invests in short-term debt securities such as Treasury bill, US Treasury bills and commercial paper. Money market funds are managed with the goal of main ...
s. and
Registered Investment AdvisorA registered investment adviser (RIA) is a firm that is an investment adviser A financial adviser or financial advisor is a professional who provides financial services Financial services are the Service (economics), economic services provided by ...
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 Commissions The International Organization of Securities Commissions (IOSCO) is an association of organizations that regulate the world's securities and Futures contract, futures markets. Members are typically primary securities and/or futures regulators in a ...
and the
Financial Stability Forum The Financial Stability Forum (FSF) was a group consisting of major national financial authorities such as finance ministry, finance ministries, central bankers, and international financial bodies. It was first convened in April 1999 in Washington. ...
; and * The ''Office of Information Technology'', which supports the commission and staff in information technology, including application development, infrastructure operations. and engineering, user support, IT program management, capital planning, security, and enterprise architecture. * The ''
Inspector General An inspector general is an investigative official An official is someone who holds an office (function or , regardless whether it carries an actual with it) in an or government and participates in the exercise of , (either their own or that o ...
''. The SEC announced in January 2013 that it had named the new inspector general. He has a staff of 22. * The '' SEC Office of the Whistleblower'' provides assistance and information from a whistleblower who knows of possible securities law violations: this can be among the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission. Created by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd–Frank) is a United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a co ...
amended the Securities Exchange Act of 1934 (the "Exchange Act") by, among other things, adding Section 21F, entitled "Securities Whistleblower Incentives and Protection". Section 21F directs the commission to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1,000,000, and certain successful related actions.


Communications


Comment letters

Comment letters are issued by the SEC's Division of Corporation Finance in response to a company's public filing. This letter, initially private, contains an itemized list of requests from the SEC. Each comment in the letter asks the filer to provide additional information, modify their submitted filing, or change the way they disclose in future filings. The filer must reply to each item in the comment letter. The SEC may then reply back with follow-up comments. This correspondence is later made public. In October 2001 the SEC wrote to
CA, Inc. CA Technologies, formerly known as CA, Inc. and Computer Associates International, Inc., is an American multinational corporation A multinational company (MNC) is a corporate A corporation is an organization—usually a group of people ...
, covering 15 items, mostly about CA's accounting, including 5 about
revenue recognition The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle In accrual accounting, the revenue recognition principle states that revenues should be recorded during the period in which they are e ...
. The
chief executive officer A chief executive officer (CEO), chief administrator officer, or just chief executive (CE), is one of a number of corporate executives A corporation is an organization—usually a group of people or a company A company, abbreviated as c ...
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. An analysis of regulatory filings in May 2006 over the prior 12 months indicated, that the SEC had 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 head of the Division of Corporation Finance, told the ''New York Times'' in 2006: "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 interpretations of the securities laws and, while persuasive, are not binding on the courts. One such use, from 1975 to 2007, was with the
nationally recognized statistical rating organization#REDIRECT Nationally recognized statistical rating organization A nationally recognized statistical rating organization (NRSRO) is a credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information ...
(NRSRO), a
credit rating agency A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratingA credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their a ...
that issues
credit ratingsA credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor Default (financ ...
that the SEC permits other financial firms to use for certain regulatory purposes.


Freedom of Information Act processing performance

In the latest Center for Effective Government analysis of 15 federal agencies which receive the most
Freedom of Information Act Freedom of Information Act may refer to the following legislations in different jurisdictions which mandate the national government to disclose certain data to the general public upon request: * Freedom of Information Act 1982 The ''Freedom of Inf ...
(FOIA) requests published in 2015 (using 2012 and 2013 data, the most recent years available), the SEC was among the 5 lowest performers, earned a D− by scoring 61 out of a possible 100 points, i.e. did not earn a satisfactory overall grade. It had deteriorated from a D− in 2013.


Operations


List of major SEC enforcement actions (2009–12)

The SEC's Enforcement Division took a number of major actions in 2009–12.


Regulatory action in the credit crunch

The SEC announced on September 17, 2008, strict new rules to prohibit all forms of "
naked short selling Image:Naked short.png, upright=1.5, Schematic representation of naked short selling of stock shares in two steps. The short seller sells shares without owning them. They later purchase and deliver the shares for a different market price. If the sh ...

naked short selling
" as a measure to reduce volatility in turbulent markets. The SEC investigated cases involving individuals attempting to manipulate the market by passing false rumors about certain financial institutions. The commission has also investigated trading irregularities and abusive short-selling practices.
Hedge fund A hedge fund is a pooled investment fund Image:Financial info.jpg, The values and performance of collective funds are listed in newspapers. An investment fund is a way of investment, investing money alongside other investors in order to benefit ...
managers, broker-dealers, and institutional investors were also asked to disclose under oath certain information pertaining to their positions in
credit default swap A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default Default may refer to: Law * Default (law), the failure to do something required by law ** Defaul ...
s. The commission also negotiated 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.


Regulatory failures

The SEC has been criticized "for being too 'tentative and fearful' in confronting wrongdoing on
Wall Street Wall Street is an eight-block-long street in the Financial District This is a list of financial districts in cities around the world. Background A financial district is usually a central area in a city where financial services firms suc ...

Wall Street
", and for doing "an especially poor job of holding executives accountable".
Christopher Cox Charles Christopher Cox (born October 16, 1952) is an American business leader and former Chairman of the U.S. Securities and Exchange Commission, a 17-year Republican Party (United States), Republican member of the United States House of Repres ...
, the former SEC chairman, has recognized the organization's multiple failures in relation to the
Bernard Madoff Bernard Lawrence Madoff ( ; April 29, 1938April 14, 2021) was an American financier and convicted fraudster who ran the world's largest Ponzi scheme. He was at one time non-executive chairman of the NASDAQ stock market before being reveale ...
fraud. Starting with an investigation in 1992 into a Madoff
feeder fund A feeder fund is an investment fund which does almost all of its investments through a ''master fund'' via a master-feeder relationship. It is a situation similar to a fund of funds A "fund of funds" (FOF) is an investment strategyIn finance ...
that 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 been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud. As a result, Cox said that an investigation would 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". SEC Assistant Director of the Office of Compliance Investigations
Eric Swanson Eric J. Swanson is an American lawyer who worked at the U.S. Securities and Exchange Commission (SEC) and dated and eventually married the niece of Bernard Madoff while the SEC was investigating Madoff's investment firm for what was eventually ...
had met Madoff's niece,
Shana Madoff Shana Diane Madoff, sometimes referred to as Shana Madoff Skoller Swanson (born December 8, 1967), is an American former attorney who is now a yoga teacher. She is the daughter of Peter Madoff, and a niece of Bernie Madoff Bernard Lawrence ...
, when Swanson was conducting an SEC examination of whether Bernard Madoff was running a
Ponzi scheme A Ponzi scheme (, ) is a form of fraud In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and inf ...
because she was the firm's compliance attorney. The investigation was closed, and Swanson subsequently left the SEC, and married Shana Madoff. Approximately 45 percent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud.
Harry Markopolos Harry M. Markopolos (born October 22, 1956) is an American former securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some coun ...
complained to the SEC's Boston office in 2000, 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 said he used. In June 2010, the SEC settled a
wrongful termination In law, wrongful dismissal, also called wrongful termination or wrongful discharge, is a situation in which an employee's contract of employment An employment contract or contract of employment is a kind of contract A contract is a legally ...
lawsuit with former SEC enforcement lawyer
Gary J. Aguirre Gary J. Aguirre is an American lawyer A lawyer or attorney is a person who practices law, as an advocate, attorney at lawAttorney at law or attorney-at-law, usually abbreviated in everyday speech to attorney, is the preferred term for a pr ...
, who was terminated in September 2005 following his attempt to subpoena Wall Street figure
John J. Mack John J. Mack (born November 17, 1944) is a senior advisor to the investment firm An investment company is a financial institution principally engaged in investing in security (finance), securities. These companies in the United States are regulate ...
in an insider trading case involving hedge fund
Pequot Capital Management Pequot Capital Management was a multibillion-dollar hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid A liquid is a nearly incompressible fluid In physics, a fluid is a substance that continually De ...
;Blaylock D. (June 2010)
SEC Settles with Aguirre
. Government Accountability Project.
, who later served as chair of the SEC, was at the time representing Morgan Stanley and was involved in this case. 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.Committee on Finance, Committee on the Judiciar
The Firing of an SEC Attorney and the Investigation of Pequot Capital Management
U.S. Government Printing Office.
On September 26, 2016, Democratic senator
Mark Warner Mark Robert Warner (born December 15, 1954) is an American businessman and politician serving as the Seniority in the United States Senate, senior United States Senate, United States senator from Virginia, first elected in 2008. He is a member o ...

Mark Warner
sent a letter to the SEC, asking them to evaluate whether the current disclosure regime was adequate, citing the low number of companies' disclosures to date.


Inspector General office failures

In 2009, the Project on Government Oversight, 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 An inspector general is an investigative official An official is someone who holds an office (function or , regardless whether it carries an actual with it) in an or government and participates in the exercise of , (either their own or that o ...
. According to POGO, in the prior two 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 the 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 Matthew C. Taibbi (; born March 2, 1970) is an American author, journalist, and podcaster. He has reported on finance, media, politics, and sports. He is a contributing editor for ''Rolling Stone ''Rolling Stone'' is an American monthly ma ...

Matt Taibbi
in ''
Rolling Stone ''Rolling Stone'' is an American monthly magazine that focuses on music, politics, and popular culture. It was founded in San Francisco, California San Francisco (/Help:IPA/English, ˌsæn fɹənˈsɪskoʊ/; Spanish language, Spanish ...
'', former SEC employees were interviewed and commented negatively on the SEC's
Office of the Inspector General In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Wash ...
(OIG). Going to the OIG was "well-known to be a career-killer". Is the SEC Covering Up Wall Street Crimes?
Matt Taibbi, 2011 August 17
Because of concerns raised by David P. Weber, former SEC Chief Investigator, regarding conduct by SEC Inspector General H. David Kotz, Inspector General David C. Williams of the
U.S. Postal Service The United States Postal Service (USPS; also known as the Post Office, U.S. Mail, or Postal Service) is an independent agency A regulatory agency or regulatory authority, is a Public benefit corporation Public-benefit corporation is a te ...
was brought in to conduct an independent, outside review of Kotz's alleged improper conduct in 2012. Williams concluded in his 66-page Report that Kotz violated ethics rules by overseeing probes that involved people with whom he had
conflicts of interest A conflict of interest (COI) is a situation in which a person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and being a part of a cultu ...
due to "personal relationships". The report questioned Kotz's work on the Madoff investigation, among others, because Kotz was a "very good friend" with Markopolos. It concluded that while it was unclear when Kotz and Markopolos became friends, it would have violated U.S. ethics rules if their relationship began before or during Kotz's Madoff investigation. The report also found that Kotz himself "appeared to have a conflict of interest" and should not have opened his Standford investigation, because he was friends with a female attorney who represented victims of the fraud.


Destruction of documents

According to former SEC employee and
whistleblower A whistleblower (also written as whistle-blower or whistle blower) is a person, usually an employee, who exposes information or activity within a private, public, or government organization that is deemed illegal, illicit, unsafe, fraud, or abus ...

whistleblower
Darcy Flynn, also reported by Taibbi, the agency routinely destroyed thousands of documents related to preliminary investigations of alleged crimes committed by
Deutsche Bank Deutsche Bank AG () is a German multinational investment bank Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effo ...

Deutsche Bank
,
Goldman Sachs The Goldman Sachs Group, Inc. () is an American multinational investment bank Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as tim ...

Goldman Sachs
,
Lehman Brothers Lehman Brothers Holdings Inc. () was a global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank Investment is the dedication of an asset to attain an increase in val ...

Lehman Brothers
, SAC Capital, and other financial companies involved in the
Great Recession The Great Recession was a period of marked general decline (recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution ( ...
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 the SEC in which top staff discussed ''refusing to admit the destruction had taken place, because it was possibly illegal''. Iowa Republican Senator 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 Sturm College of Law professor J. Robert Brown, Jr., 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:
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.


Relationship to other agencies

In addition to working with various self-regulatory organizations such as the
Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an ...
(FINRA), the Securities Investor Protection Corporation (SIPC), and
Municipal Securities Rulemaking Board The Municipal Securities Rulemaking Board (MSRB) writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities, municipal securities market, including tax-exempt and taxable municipal ...
(MSRB), the SEC also works with other federal agencies, state securities regulators, international securities agencies and law enforcement agencies.Regulatory Structure
In 1988 Working Group on Financial Markets, Executive Order 12631 established the President's Working Group on Financial Markets. The Working Group is chaired by the United States Secretary of the Treasury, Secretary of the Treasury and includes the Chairman of the SEC, the Chairman of the Federal Reserve System, 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.U.S. Treasury
The Securities Act of 1933 was originally administered by the Federal Trade Commission. The Securities Exchange Act of 1934 transferred this responsibility from the FTC to the SEC. The Securities Exchange Act of 1934 also gave the SEC the power to regulate the solicitation of proxies, though some of the rules the SEC has since proposed (like the universal proxy) have been controversial. The main mission of the FTC is to promote consumer protection and to eradicate anti-competitive practices, anti-competitive 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 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 The Municipal Securities Rulemaking Board (MSRB) writes investor protection rules and other rules regulating broker-dealers and banks in the United States municipal securities, municipal securities market, including tax-exempt and taxable municipal ...
(MSRB) was established in 1975 by Congress to develop rules for companies involved in underwriting and trading Municipal bond, municipal securities. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules. The Asset Management Advisory Committee (AMAC) was formally established on 1 November 2019, to provide the SEC with "diverse perspectives on asset management and related advice and recommendations". Topics the committee may address include trends and developments affecting investors and market participants, the effects of globalization, and changes in the role of technology and service providers. The committee is composed of outside experts, including individuals representing the views of retail and institutional investors, small and large funds, intermediaries, and other market participants. While most violations of securities laws are enforced by the SEC and the various SROs it monitors, state securities regulators can also enforce statewide securities blue sky laws. States may require securities to be registered in the state before they can be sold there. National Securities Markets Improvement Act of 1996 (NSMIA) addressed 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 The International Organization of Securities Commissions (IOSCO) is an association of organizations that regulate the world's securities and Futures contract, futures markets. Members are typically primary securities and/or futures regulators in a ...
(IOSCO), and uses the IOSCO Multilateral Memorandum of Understanding as well as direct bilateral agreements with other countries' securities commissions to deal with cross-border misconduct in securities markets.


Related legislation

* 1933:
Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress The United States Congress is the legislature ...
* 1934:
Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stock In finance, stock (also capital stock) consists of all of th ...
* 1938: Temporary National Economic Committee (establishment) * 1939:
Trust Indenture Act of 1939 The Trust Indenture Act of 1939 (TIA), codified at , supplements the Securities Act of 1933 in the case of the distribution of Security (finance)#Debt, debt securities in the United States. Generally speaking, the TIA requires the appointment of a ...
* 1940:
Investment Advisers Act of 1940 The Investment Advisers Act of 1940, codified at through , is a United States federal law The law of the United States comprises many levels of codified and uncodified forms of law Law is a system A system is a group of Interaction, ...
* 1940:
Investment Company Act of 1940 The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress An Act of Congress is a statute enacted by United States Congress, Congress. Acts can affect only individual entities (called private laws), or the gen ...
* 1968: Williams Act (Securities Disclosure Act) * 1982: Garn–St. Germain Depository Institutions Act * 1999: Gramm–Leach–Bliley Act * 2000: Commodity Futures Modernization Act of 2000 * 2002: Sarbanes–Oxley Act * 2003: Fair and Accurate Credit Transactions Act of 2003 * 2006: Credit Rating Agency Reform Act of 2006 * 2010:
Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd–Frank) is a United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a co ...
* 2012: Volcker Rule (a specific section of the Dodd–Frank Act) * Title 17 of the Code of Federal Regulations


See also

* Chicago Stock Exchange * Financial regulation * List of financial regulatory authorities by country * Regulation D (SEC) * Securities regulation in the United States * Securities market participants (United States)


Forms

* SEC filing ** Form 4 (stock and stock options ownership and exercise disclosure) ** Form 8-K ** Form 10-K ** Form 10-Q ** Form S-1 (Initial public offering, IPO)


References


External links

*
SEC
in the Federal Register
Securities and Exchange Commission Historical Society

Association of Securities and Exchange Commission Alumni (ASECA)
{{DEFAULTSORT:U.S. Securities And Exchange Commission U.S. Securities and Exchange Commission, Financial services companies established in 1934 1934 establishments in Washington, D.C. Corporate crime Financial crime prevention Financial regulatory authorities of the United States Government agencies established in 1934 New Deal agencies