The U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) is an independent agency of the United States federal government . The SEC holds primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.
In addition to the
Securities Exchange Act of 1934
* 1 Overview * 2 History
* 3 Organizational structure
* 3.1 Commission members * 3.2 Divisions
* 4 SEC communications
* 4.1 Comment letters * 4.2 No-action letters
* 5 Freedom of Information Act processing performance
* 6 Operations
* 6.1 List of major SEC enforcement actions (2009–12) * 6.2 Regulatory action in the credit crunch
* 6.3 Regulatory failures
* 6.3.1 Inspector General office failures * 6.3.2 Destruction of documents
* 7 Relationship to other agencies * 8 Related legislation
* 9 See also
* 9.1 Forms
* 10 References * 11 External links
This section NEEDS ADDITIONAL CITATIONS FOR VERIFICATION . Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed. (February 2017) (Learn how and when to remove this template message )
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 and other regulated 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 both laws are considered parts of
Franklin D. Roosevelt
Securities Act of 1933
Roosevelt in 1934 named his friend
Joseph P. Kennedy , a self-made
multimillionaire financier and leader of the Irish community, as the
insider-as-chairman who knew
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.
Securities Exchange Act of 1934
Later SEC commissioners and chairmen include
William O. Douglas ,
Main article: Securities and Exchange Commission appointees
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 .
Currently, the SEC Commissioners are:
NAME TITLE PARTY TOOK OFFICE TERM EXPIRES
Jay Clayton Chairman Independent May 4, 2017 2021
Michael Piwowar Commissioner Republican August 15, 2013 2018
Kara Stein Commissioner Democratic August 9, 2013 2017
U.S. Securities and Exchange Commission
Within the SEC, there are five divisions. Headquartered in
The SEC's divisions are:
* Corporation Finance
* Trading and Markets
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 organizations such as the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (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 registered investment
companies, which include mutual funds , as well as registered
investment advisors . These entities are subject to extensive
regulation under various federal securities laws. The Division of
* 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 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 director of the SEC's Enforcement Division Robert Khuzami left the office in February 2013.
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 to develop
Generally Accepted Accounting Principles
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. , covering 15 items, mostly about CA's accounting, including 5 about revenue recognition . The chief executive officer 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 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 (NRSRO), a credit rating agency that issues credit ratings 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 (United States) (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.
LIST OF MAJOR SEC ENFORCEMENT ACTIONS (2009–12)
Main article: List of major SEC enforcement actions (2009–12)
The SEC's Enforcement Division brought 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 " 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 managers, broker-dealers, and institutional investors were also asked to disclose under oath certain information pertaining to their positions in credit default swaps . 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.
The SEC has been criticized "for being too 'tentative and fearful' in
confronting wrongdoing on
Christopher Cox , the former SEC chairman, has recognized the organization's multiple failures in relation to the Bernard Madoff fraud. Starting with an investigation in 1992 into a Madoff feeder fund 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 had met Madoff's niece, Shana Madoff , when Swanson was conducting an SEC examination of whether Bernard Madoff was running a Ponzi scheme because she was the firm's compliance attorney. The investigation was closed, and Swanson subsequently left the SEC, and married Shana Madoff.
Approximately 45 per cent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud. Harry Markopolos 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.
A similar failure occurred in the case of Allen Stanford , who sold fake certificates of deposit to tens of thousands of people, many of them working-class retirees. In 1997, the SEC's own examiners spotted the fraud and warned about it. But the Enforcement division would not pursue Stanford, despite repeated warnings by SEC examiners over the years. After the Madoff fraud emerged, the SEC finally took action against Stanford in 2009.
In June 2010, the SEC settled a wrongful termination lawsuit with
former SEC enforcement lawyer
Gary J. Aguirre , who was terminated in
September 2005 following his attempt to subpoena
On September 26, democratic senator
Others have criticized the SEC for taking an overly rule-based and enforcement-focused approach to regulation, rather than an approach that emphasizes industry-wide safety and learning and thus ensures the reliability of the national securities trading system.
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 . 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 in
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 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 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 Darcy Flynn, also
reported by Taibbi, the agency routinely destroyed thousands of
documents related to preliminary investigations of alleged crimes
committed by Deutsche
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.
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. 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 (FINRA), the Securities Investor Protection Corporation (SIPC), and Municipal Securities Rulemaking Board (MSRB), the SEC 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.
Securities Act of 1933
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 (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 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 (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.
Securities Act of 1933
Chicago Stock Exchange
* ^ FY 2017 Congressional Budget Justification (PDF). U.S.
Securities and Exchange Commission. 2016. p. 14.
* ^ SEC (June 10, 2013). "What We Do". SEC.gov. U.S. Securities and
Exchange Commission. Retrieved 2017-03-24.
* ^ "The Role of the SEC". Investor.gov.
* ^ A B "Blue Sky laws". Seclaw.com. July 7, 2007. Retrieved March
* ^ Seligman, Joel (2003). The Transformation of Wall Street.
Aspen. pp. 45, 51–52.
* ^ He was the father of president John F. Kennedy. David Nasaw,
The Patriarch: The Remarkable Life and Turbulent Times of Joseph P.
Kennedy (2012) pp 204-37.
* ^ Nassau, The Patriarch, pp. 226–28
* ^ "Securities Act of 1933" (PDF). Retrieved March 1, 2013.
* ^ "Securities Exchange Act of 1934" (PDF). Retrieved March 1,
* ^ "Current SEC Commissioners". Sec.gov. December 17, 2012.
Retrieved March 1, 2013.
* ^ Organization of the SEC U.S. Securities and Exchange Commission
* ^ "National Association of Securities Dealers". Finra.com.
Retrieved March 1, 2013.
* ^ "How does the NASD differ from the SEC?" Investopedia.
* ^ Lemke and Lins, Regulation of