Securities and Exchange Commission

A U.S. government agency that supervises the exchange of securities so as to protect investors against malpractice.

A government commission created by Congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S. President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce, through the mail or on the internet, must be registered with the SEC.

Investopedia Says:
Here's an example of an activity that falls within the SEC's domain: if someone purchases more than 5% of a company's equity, they must report to the SEC within 10 days of the purchase because of the takeover threats it may cause.

Related Links:
Find out how this regulatory body protects the rights of investors. Policing The Securities Market: An Overview Of The SEC
In 2003, the SEC issued a new regulation meant to hold analysts more accountable for their reports. Find out what it means. Reg AC: What Does It Mean To Investors?
Learn to profit by following the lead of some of Wall Street's most ruthless investors. Activist Hedge Funds
This document can provide important clues about a company and its stock. Digging In To 13D Disclosures
Learn how to gather all the pieces before you start to put together your puzzle. The Flow Of Company Information

Federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933, formerly carried out by the Federal Trade Commission. The SEC is made up of five commissioners, appointed by the President of the United States on a rotating basis for five-year terms. The chairman is designated by the President and, to insure its independence, no more than three members of the commission may be of the same political party. The statutes administered by the SEC are designed to promote full public Disclosure and protect the investing public against malpractice in the securities markets. All issues of securities offered in interstate commerce or through the mails must be registered with the SEC; all national securities exchanges and associations are under its supervision, as are Investment Companies, investment counselors and advisers, Over the Counter brokers and dealers, and virtually all other individuals and firms operating in the investment field. In addition to the 1933 and 1934 securities acts, responsibilities of the SEC include the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940 and the Investment Advisers Act of 1940. It also administers the Securities Acts Amendments of 1975, which directed the SEC to facilitate the establishment of a National Market System and a nationwide system for clearance and settlement of transactions and established the Municipal Securities Rulemaking Board, a self-regulatory organization whose rules are subject to SEC approval. See also Securities and Exchange Commission Rules.

The federal agency created in 1934 to carry out the provisions of the Securities Exchange Act. Generally, the agency seeks to protect the investing public by preventing Misrepresentation, Fraud manipulation, and other abuses in the securities markets.Example: The Securities and Exchange Commission requires their review of proposed Public Offerings of securities, registration of listed securities, and other matters. They do not, however, guarantee the investor against loss.

Accelerated Depreciation Subject to Section 1231, 1245, or 1250

Table 48 Treatment of Gain After Use of Depreciation Method

Accelerated Method Straight-Line Method

Ordinary income C - D N/A

Capital gain (25% rate) B - C B - C

Capital gain (15% rate) A - B A - B

The Securities and Exchange Commission (SEC) is a regulatory agency responsible for administering the U.S. laws regarding securities. The purpose of these laws is to ensure fair markets and to provide accurate information to investors. The major securities laws were enacted in the 1930s after the 1929 stock market crash and the anemic performance of the market in the early 1930s.

Congress passed the Securities Act of 1933 to regulate the primary market—the market for new securities. Sometimes called the "truth in issuance act," the 1933 act required a company to submit independently verified financial information, a registration statement, and a prospectus to the Federal Trade Commission.

The Securities and Exchange Act of 1934 created the Securities Exchange Commission, giving it the power to regulate the stock exchanges and the trading practices of the secondary market (a market for currently traded shares). In 1935 the Public Utility Holding Company Act was enacted to regulate all interstate holding companies (a holding company controls other companies by owning their stock) in the utility business.

In 1940 Congress passed two laws covering the people working in the security business. The Investment Company Act of 1940 provided for the regulation of investment companies, including those involved with mutual funds. The Investment Advisers Act of 1940 established regulation of investment advisers and their activities. In 1974 the Employee Retirement Income Security Act gave the SEC jurisdiction over pension funds. Other legislation addressed foreign activities, insider trading, and further clarification of existing legislation.

The SEC consists of five commissioners who are appointed by the president, only three of whom can be from the same political party. Terms are staggered; thus, each June 5, a person rotates off the Commission. To accomplish their duties, the commissioners have office staffs of accountants and lawyers and regional offices in eleven cities.

The organizational structure of the SEC includes eight divisions. The Division of Corporate Finance is responsible for reviewing registration statements, tender offers, and mergers and acquisitions. Overseeing the markets and the market participants is the duty of the Division of Market Regulation. The Division of Investment Management is responsible for the enforcement of three statutes: the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Public Utility Holding Company Act of 1935. The Division of Enforcement is the investigating arm of the SEC. The Office of Compliance, Inspections, and Examinations determines whether all investment organizations are in compliance with federal securities laws. The remaining divisions' duties are defined by their titles: the Office of General Counsel, the Office of Municipal Securities, and the Office of Investor Education and Assistance.

In enforcing the securities laws, the SEC acts as a guide and adviser whose actions are largely remedial. One common activity of each division is rulemaking. New rules and rule modifications are usually accomplished in open meetings. Those industries or parties affected by rule changes are allowed to present their positions and make comments in an open meeting. Any SEC investigations are conducted by the Division of Enforcement and the field offices. If the evidence indicates a violation, the SEC can take administrative action (such as suspension) or instigate a civil action in an U.S. District Court. If evidence indicates a criminal action, the SEC turns the case over to the Justice Department.

More information is available from the U.S. Securities and Exchange Commission, 450 Fifth St. NW, Washington, D.C. 20549; (202) 942-7114; or www.sec.gov.

Bibliography

Hirt, Geoggrey A., and Block, Stanley, B. Fundamentals of Investment Management, 4th ed. Irwin Publishing.

Levy, Haim. (1996). Introduction to Investments. Southwestern College Publishing.

SEC. http://www.sec.gov/asec.

SEC Enforcement Division. http://www.sec.gov/enforce.

Securities and Exchange Commission (SEC). "Current SEC Rulemakers." Archived at: http://www.sec.gov/rulemake.

[Article by: MARY JEAN LUSH; VAL HINTON]

For more information on Securities and Exchange Commission, visit Britannica.com.

After the stock market crash of 1929, a congressional investigation estimated that perhaps half of the stocks offered for sale during the Roaring Twenties had been fraudulent or otherwise misleading. The major stock exchanges operated essentially as private clubs, under their own rules, with almost no outside supervision. At the start of Franklin Roosevelt's New Deal, in 1933, Congress passed the Securities Act to require accurate information for all stock offerings. The following year saw the passage of the Securities and Exchange Act, which created the Securities and Exchange Commission (SEC).

The SEC is an independent regulatory agency that administers federal laws to protect everyone who buys stocks. The commission also regulates firms that provide investment advice. The SEC includes five members who are nominated by the President and confirmed by the Senate for five-year terms. No more than three of the commissioners may be members of the same political party. The President designates the commission's chairperson.

Within the SEC, the Division of Corporation Finance ensures that companies issuing stock comply with federal disclosure requirements. The Division of Market Regulation supplements the rules enacted by the securities exchanges to further protect investors. The Division of Investment Management enforces three measures enacted during the infancy of the SEC: the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, and the Investment Advisors Act of 1940.

The SEC polices Wall Street practices, seeking to stop those who use inside information, who make misleading claims, or who otherwise attempt to manipulate the markets illegally for their own advantage. The investigative arm of the SEC is its Division of Enforcement, which can refer cases to the Department of Justice with recommendations for criminal prosecution.

The Securities and Exchange Commission was established in 1934 to regulate the commerce in stocks, bonds, and other securities. After the October 29, 1929, stock market crash, reflections on its cause prompted calls for reform. Controls on the issuing and trading of securities were virtually nonexistent, allowing for any number of frauds and other schemes. Further, the unreported concentration of controlling stock interests in a very few hands led to the abuses of power that the free exchange of stock supposedly eliminated.

To bring order out of chaos, Congress passed three major acts creating the Securities and Exchange Commission (sec) and defining its responsibilities. The Securities Act of 1933 required public corporations to register their stock sales and distribution and make regular financial disclosures. The Securities Exchange Act of 1934 created the sec to regulate exchanges, brokers, and over-the-counter markets, as well as to monitor the required financial disclosures. The 1935 Public Utility Holding Company Act did away with holding companies more than twice removed from the utilities whose stocks they held. This "death sentence" ended the practice of using holding companies to obscure the intertwined ownership of public utility companies. Further, the act authorized the sec to break up any unnecessarily large utility combinations into smaller, geographically based companies and to set up federal commissions to regulate utility rates and financial practices.

The business community, wary of New Deal reforms, was mollified by the efficient chairmanships of Joseph P. Kennedy and William O. Douglas.

See also Government and the Economy; New Deal.

The Securities and Exchange Commission (SEC) is the federal agency primarily responsible for administering and enforcing federal securities laws. The SEC strives to protect investors by ensuring that the securities markets are honest and fair. When necessary, the SEC enforces securities laws through a variety of means, including fines, referral for criminal prosecution, revocation or suspension of licenses, and injunctions.

Headquartered in Washington, D.C., the Commission itself is comprised of five members appointed by the president; one position expires each year. No more than three members may be from one political party. With more than nine hundred employees, the agency has five regional and six district offices throughout the country and enjoys a generally favorable reputation.

Securities Laws

Before the October 29, 1929, stock market crash on Wall Street, a company could issue stock without disclosing its financial status. Many bogus or severely undercapitalized corporations sold stock, eventually leading to the disastrous plunge in the market and an ensuing panic. From the havoc wreaked by the crash came the first major piece of federal securities legislation, the Securities Act of 1933 (15 U.S.C.A. § 77a et seq.). The act regulates the primary, or new issue, market. The following year, Congress provided for the creation of the Securities and Exchange Commission when it enacted far-reaching securities legislation in the Securities Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.). These two laws, along with the Trust Indenture Act of 1939 (15a U.S.C.A. §§ 77aaa-77bbbb), the Investment Company Act of 1940 (15 U.S.C.A. §§ 80-1-80a-64), the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1-80b-21), and the Public Utility Holding Company Act of 1935 (15 U.S.C.A. §§ 79a-79z-6) make up the bulk of federal securities laws under the jurisdiction of the SEC.

In addition to federal statutory authority, the SEC has broad rule-making authority. It has used this power to fashion procedural and technical rules, define terms used in the laws, and make substantive rules implementing the laws. The SEC also devises forms that must be used to fulfill various requirements in the statutes and rules. Moreover, the SEC engages in a significant amount of informal lawmaking through the distribution of SEC releases containing its opinions on questions of current concern. These releases are disseminated to the press, companies and firms registered with the SEC, and other interested persons. In addition to these general public statements of policy, the SEC also responds to individual private inquiries.

Securities Act of 1933

The Securities Act of 1933 regulates the public offering of new issues. All public offerings of securities in interstate commerce or through the mails must be registered with the SEC before they can be offered and sold, subject to exemptions for specifically enumerated types of securities, such as government securities, nonpublic offerings, offerings below a certain dollar amount, and intrastate offerings. The registration provisions apply to issuers of securities or others acting on their behalf. Issuers must file a registration statement with the SEC containing financial and other pertinent data about the issuer and the securities that are being offered. The Securities Act of 1933 also prohibits fraudulent or deceptive practices in the offer or sale of securities, whether or not the securities are required to be registered.

A major part of the SEC's work is to review the registration documents required by the 1933 Act and determine when registration is required. Registration with the SEC is intended to allow potential investors to make an informed evaluation regarding the worth of securities. Registration does not mean that the commission approves of the issue or that the disclosures in the registration are accurate, nor does it insure an investor against loss in the purchase.

Registration requires extensive disclosure on behalf of a corporation. For example, full disclosure includes management's aims and goals; the number of shares the company is selling; what the issuer intends to do with the money; the company's tax status; contingent plans if problems arise; legal standing, such as pending lawsuits; income and expenses; and inherent risks of the enterprise. Registration consists of two parts: a prospectus, which must be furnished to every purchaser of the security, and other information and attachments that need not be furnished to purchasers but are available in SEC files for public inspection. A registration statement is generally effective twenty days after filing, but the SEC has the power to delay or suspend the effectiveness of the registration statement. When a disclosure or registration statement becomes effective, it is called a prospectus and is used to solicit orders for the security.

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 transferred responsibility for administration of the 1933 Act from the Federal Trade Commission to the newly created SEC. The 1934 Act also provided for federal regulation of trading in already issued and outstanding securities. Other provisions include disclosure requirements for publicly held corporations; prohibitions on various manipulative or deceptive devices or contrivances; SEC registration and regulation of brokers and dealers; and registration, oversight, and regulation of national securities exchanges, associations, clearing agencies, transfer agents, and securities information processors.

The SEC has broad oversight responsibilities for the self-regulatory organizations within the securities industry. For approximately 140 years prior to 1934, stock exchanges regulated their own members. Self-regulation is still an important component of the industry, but now the SEC provides additional regulation, including authority to review disciplinary actions taken by a self-regulatory organization. The 1934 Act also established the Municipal Securities Rulemaking Board and conferred oversight power upon the commission. The Municipal Securities Rulemaking Board formulates rules for the municipal securities industry. The commission has the authority to approve or disapprove most proposed rules of the board.

The 1934 Act seeks to provide the public with adequate information about companies with publicly traded securities. Subject to certain exemptions, disclosure requirements apply not only to companies with securities listed on national securities exchanges but to all companies with more than five hundred shareholders and more than $5,000,000 in assets. Companies must file detailed statements with the SEC when first registering under the 1934 Act and must provide periodic reports as prescribed by the commission.

Under the 1934 Act, the SEC also regulates the solicitation of proxies. Proxies are voting solicitations allowing stockholders to participate in the annual or special meetings of shareholders without actually attending the meeting; the proxy empowers someone else to vote on behalf of the shareholder. Detailed SEC regulations delineate the form of proxies and the information that must be furnished to stockholders. A registered company must furnish each shareholder, before every stockholder meeting, a proxy statement and a proxy form on which she can indicate approval or disapproval of each proposal expected to be introduced at the meeting. Companies must file with the commission copies of the proxy statement and the proxy form. The SEC may comment on the proxy statement and insist on changes before it is mailed to security holders.

The Williams Act of 1968 (Pub. L. No. 90-439, 82 Stat. 454) amended the 1934 Act to address recurring problems arising in tender offers and corporate takeovers. A tender offer is a formal request that stockholders sell their shares in response to a large purchase bid; the buyer reserves the right to accept all, none, or a certain number of shares tendered for sale. A takeover occurs when a corporation assumes control of another corporation through an acquisition or merger. Pursuant to the law as amended, any person or group that takes ownership of more than five percent of any class of specific registered securities must file a statement within ten days with the issuer of the security and with the SEC. This statement provides the background of the purchaser, the source of funds used in the purchase, the purpose of the purchase, the number of shares owned, and any relevant contracts, arrangements, or understandings. In addition, no person may make a tender offer unless he has first filed with the SEC and provided certain specific information to each offeree. A tender offer must remain open for a minimum of twenty days and at least ten days after any change in the terms of the offer.

The Securities Act of 1934 also requires any person who beneficially owns, whether directly or indirectly, more than 10 percent of a class of certain registered securities and every officer or director of every company with specific registered securities to report to the SEC. Reports must be filed at the time the status is acquired and at the end of any month in which such a person acquires or disposes of any equity securities of that company. This provision is designed to discourage short-term trading by preventing corporate insiders from unfairly using nonpublic information.

Investment Company Act of 1940

Pursuant to the Investment Company Act of 1940, investment companies must register with the SEC. Investment companies are companies engaged primarily in the business of investing, reinvesting, or trading in securities. They may also be companies with more than 40 percent of their assets consisting of investment securities, that is, securities other than those of majority-owned subsidiaries and government securities. Among other types of companies, this act covers "open-end companies," commonly known as mutual funds. The SEC regulatory responsibilities under this act encompass sales load, management contracts, the composition of boards of directors, capital structure of investment companies, approval of adviser contracts, and changes in investment policy. In addition, a 1970 amendment imposed restrictions on management compensation and sales charges.

The act prohibits various transactions by investment companies, unless the commission has first made a determination that the transaction is fair. Moreover, the act permits the SEC to bring a court action to enjoin the execution of mergers and other reorganization plans of investment companies if the plans are unfair to security holders. The SEC also has the power to impose sanctions pursuant to administrative proceedings for violation of this act and may file suit to enjoin the acts of management officials involving breaches of fiduciary duties or personal misconduct and may bar such officials from office.

Investment Advisers Act of 1940

This act provides for SEC regulation and registration of investment advisers. The act is comparable to provisions of the 1934 Act with respect to broker-dealers but is not as comprehensive. Generally speaking, an investment adviser is a person who engages in the business of advising others with respect to securities and does so for compensation. Certain fee arrangements are prohibited; adverse personal interests in a transaction must be disclosed. Moreover, the SEC may define and prohibit certain fraudulent and deceptive practices.

Other Securities Laws

The Trust Indenture Act of 1939 applies to public issues of debt securities in excess of a certain amount. This law prescribes requirements to ensure the independence of indenture trustees. It also requires the exclusion of certain types of exculpatory clauses and the inclusion of certain protective clauses in indentures. In addition, the Public Utility Holding Company Act of 1935 (15 U.S.C.A. §§ 79a-79z-6) was enacted to correct abuses in the financing and operation of electric and gas public utility holding companies; the SEC's functions under these provisions were substantially completed by the 1950s.

SEC Enforcement Authority

The commission enforces the myriad laws and regulations under its jurisdiction in a number of ways. The SEC may seek a court injunction against acts and practices that deceive investors or otherwise violate securities laws; suspend or revoke the registration of brokers, dealers, investment companies, and advisers who have violated securities laws; refer persons to the Department of Justice for criminal prosecution in situations involving criminal fraud or other willful violation of securities laws; and bar attorneys, accountants, and other professionals from practicing before the commission.

The SEC may conduct investigations to determine whether a violation of federal securities laws has occurred. The SEC has the power to subpoena witnesses, administer oaths, and compel the production of records anywhere in the United States. Generally, the SEC initially conducts an informal inquiry, including interviewing witnesses. This stage does not usually involve sworn statements or compulsory testimony. If it appears that a violation has occurred, SEC staff members request an order from the commission delineating the scope of a formal inquiry.

Witnesses may be subpoenaed in a formal investigation. A witness compelled to testify or produce evidence is entitled to see a copy of the order of investigation and be accompanied, represented, and advised by counsel. A witness also has the absolute right to inspect the transcript of her testimony. Typically the same privileges one could assert in a judicial proceeding, such as the Fourth Amendment to the U.S. Constitution's prohibition against unreasonable searches and seizures and the Fifth Amendment's privilege against self-incrimination, apply in an SEC investigation. Proceedings are usually conducted privately to protect all parties involved, but the commission may publish information regarding violations uncovered in the investigation. In a private investigation, a targeted person has no right to appear to rebut charges. In a public investigation, however, a person must be afforded a reasonable opportunity to cross-examine witnesses and to produce rebuttal testimony or evidence, if the record contains implications of wrongdoing.

When an SEC investigation unearths evidence of wrongdoing, the commission may order an administrative hearing to determine responsibility for the violation and impose sanctions. Administrative proceedings are only brought against a person or firm registered with the SEC, or with respect to a security registered with the commission. Offers of settlement are common. In these cases the commission often insists upon publishing its findings regarding violations.

An administrative hearing is held before an administrative law judge, who is actually an independent SEC employee. The hearing is similar to that of a nonjury trial and may be either public or private. After the hearing the judge makes an initial written decision containing findings of fact and conclusions of law. If either party requests, or if the commission itself chooses, the commission may review the decision. The SEC must review cases involving a suspension, denial, or revocation of registration. The commission may request oral argument, will study briefs, and may modify the decision, including increasing the sanctions imposed. Possible sanctions in administrative proceedings include censure, limitations on the registrant's activities, or revocation of registration. In 1990 the SEC's powers were expanded to include the authority to impose civil penalties of up to $500,000, to order disgorgement of profits, and to issue cease and desist orders against persons violating or about to violate securities laws, whether or not the persons are registered with the SEC.

The U.S. Court of Appeals for the District of Columbia or another applicable circuit court of appeals has jurisdiction to review most final orders from an SEC administrative proceeding. Certain actions by the commission are not reviewable.

The SEC may request an injunction from a federal district court if future securities law violations are likely or if a person poses a continuing menace to the public. An injunction may include a provision that any future violation of law constitutes contempt of court.

The SEC may request further relief, such as turning over profits or making an offer to rescind the profits gained from an insider trading transaction. In cases of pervasive corporate mismanagement, the SEC may obtain appointment of a receiver or of independent directors and special counsel to pursue claims on behalf of the corporation.

Willful violations may be punished by fines and imprisonment. The SEC refers such cases to the Department of Justice for criminal prosecution. Willfulness means only that the defendant intended the act, not that he knew that it was a violation of securities laws.

See: Administrative Law and Procedure; Bonds; Mergers and Acquisitions.

A federal agency that supervises the exchange of securities so as to protect investors against malpractice, such as insider trading.

"SEC" redirects here. For other uses, see SEC (disambiguation).

"Securities and Exchange Commission" redirects here. For other uses, see Securities and Exchange Commission (disambiguation).

The United States Securities and Exchange Commission (commonly known as the SEC) is a United States government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market. The SEC was created by section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the 1934 Act). 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.

Christopher Cox is the current chairman of the SEC. He was appointed by President George W. Bush.

President Franklin Delano Roosevelt appointed Joseph P. Kennedy, Sr., father of President John F. Kennedy, to serve as the first Chairman of the SEC. For a full list of SEC chairs and commissioners, see: Securities and Exchange Commission appointees.

Overview

The SEC was established by the United States Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory agency following years of depression caused by over production of goods, the introduction of consumer credit, and the Great 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. Currently, the SEC is responsible for administering six 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 and, most recently, the Sarbanes-Oxley Act of 2002.

The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies found 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 reports, as well as other periodic reports. As part of the annual reporting requirement, the company's top management must provide a narrative account in addition to the numbers called the "management discussion and analysis" which provides an overview of the previous year of operations and 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 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 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.

Creation

Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called Blue Sky Laws, which were enacted and enforced at the state level.^[1] However, these laws were generally found lacking; 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.^[2] 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 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” and is often shorted to 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.^[2]) 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.^[3]

The Securities Exchange Act of 1934 is also known as “the Exchange Act” or "the 34 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.^[4]

Structure

Headquartered in Washington, D.C., the SEC consists of five Commissioners appointed by the President of the United States 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.

Within the SEC, there are four divisions, 18 offices and approximately 3,100 staff. Beside its headquarters in Washington, D.C., the SEC has 11 regional offices throughout the United States.

The SEC's four main divisions are: Corporation Finance, Market Regulation, Investment Management, and Enforcement. ^[5]

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 Market Regulation division oversees self-regulatory organizations (SROs) such as NYSE, NASD and MSRB, and all broker-dealer firms and investment houses. Market Regulation 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 NYSE and NASD. In fact, all trading firms not regulated by other SROs must register as a member of NASD. Individuals trading securities must pass exams administered by NASD to become registered representatives. ^{[6] [7]}

The Investment Management Division oversees investment companies (commonly referred to as mutual funds) and their advisory professionals. This division administers federal securities laws, in particular the Investment Company Act of 1940 and Investment Advisers Act of 1940.

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.

Relationship to other agencies

In addition to working with various SROs such as NYSE and NASD, the Securities and Exchange Commission also works with other federal agencies, state securities regulators and law enforcement agencies. ^[8]

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. ^[9]

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 tasked with 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.^[10]

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 laws. ^[1] States may require securities to be registered in the state before they can be sold there. The 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. ^[11]

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.

Related legislation

• 1938 - Establishment of the Temporary National Economic Committee 52 Stat. 705
• 1964 - Securities Act Amendments PL 88-467
• 1968 - 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 Act PL 106-102
• 2000 - Commodity Futures Modernization Act of 2000
• 2002 - Sarbanes-Oxley Act
• 2007 - Reg NMS

SEC communications

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 Computer Associates (CA), covering fifteen items, mostly about CA's accounting, including five about revenue recognition. The chief financial 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. 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." ^[12]

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.

Forms

Further information: SEC filing

SEC Forms List by category

• SEC Form 4 (stock and stock options ownership and exercise disclosure)
• SEC Form S-1 (IPO)
• Form 8-K
• SEC Form 10-K

SecuritiesLinks Links to commonly used SEC forms

Misc

President Franklin D. Roosevelt appointed Joseph P. Kennedy, Sr., father of President John F. Kennedy, to serve as the first Chairman of the SEC.

Further information: Securities and Exchange Commission appointees

See also

• Financial regulation
• Regulation D

References

1. ^ ^{a b} Blue Sky Laws
2. ^ ^{a b} Seligman, Joel (2003). The Transformation of Wall Street. Aspen, 45,51-52. 
3. ^ Securities Act of 1933
4. ^ Securities Exchange Act of 1934
5. ^ Policing The Securities Market: An Overview Of The SEC." Investopedia. Investopedia Inc., 21 Oct, 2005
6. ^ National Association of Securities Dealers
7. ^ "How does the NASD differ from the SEC?" Investopedia. Investopedia Inc.
8. ^ Regulatory Structure
9. ^ U.S. Treasury
10. ^ National Archives
11. ^ NSMIA
12. ^ Gretchen Morgenson: "Deafened by the S.E.C.'s Silence, He Sued", New York Times, May 28, 2006, section 3, p. 1

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
• Take a Look at the Securities and Exchange Commission
• 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

Chairmen of the United States Securities and Exchange Commission
Kennedy • Landis • Douglas • Frank • Eicher • Purcell • Caffrey • Hanrahan • McDonald • D Cook • Demmler • Armstrong • Gadsby • Cary • Cohen • Budge • Casey • B Cook • Garrett • Hills • Williams • Shad • Ruder • Breeden • Levitt • Pitt • Donaldson • Cox

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)