Securities and Exchange Commission
Protects investors and maintains fair, orderly, and efficient markets
Mission & Role
Overview
[ edit]
 |
This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources in this section. Unsourced material may be challenged and removed.(February 2017)__(Learn how and when to remove this message) |
The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.[8]
To achieve its mandate, the SEC enforces the statutory requirement that public companies and other regulated entities submit quarterly and annual reports, as well as other periodic disclosures. In addition to annual financial reports, company executives must provide a narrative account, called the " management discussion and analysis" (MD&A), that outlines the previous year of operations and explains how the company fared in that time period. MD&A usually addresses the upcoming year, outlining future goals and approaches to new projects.
Quarterly and semiannual reports from public companies are crucial for investors to make sound decisions when investing in capital markets. Unlike banking, investment in capital markets is not guaranteed by the federal government. The potential for large 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 fundamental facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.
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) from which investors can access information filed with the agency, such as reports. The same online system also accepts tips and complaints from investors to help the SEC track down violators of the securities laws, as well as offering publications on investment-related topics for public education. The SEC maintains a strict policy of refraining from commenting on the existence or status of any ongoing investigation.
History
History
[ edit]
Background
[ edit]
Prior to the enactment of the federal securities laws and the creation of the SEC, securities trading was governed by so-called blue sky laws. 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 and brokerage firm.[9] 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.[10]
Founding
[ edit]
See also: Securities Act of 1933 and Securities Exchange Act of 1934
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's New Deal program.
After the Pecora Commission hearings on abuses and frauds in securities markets, Congress passed the Securities Act of 1933 ( 15 U.S.C. § 77a), 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.[11] 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 ( 15 U.S.C. § 78d) regulates secondary markets 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, self-regulatory organizations, the Municipal Securities Rulemaking Board, NASDAQ, alternative trading systems, 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.[12]
Joseph P. Kennedy Sr, the inaugural chairman of the SEC
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.[13] Two of the other five commissioners were James M. Landis and Ferdinand Pecora. Kennedy added a number of intelligent young lawyers to the SEC staff, including William O. Douglas and Abe Fortas, both of whom later became Supreme Court justices.[[14]](https://en.wikipedia.org/wiki/United_States_Securities_and_Exchange_Commission#
…
Programs & Activities
Operations
[ edit]
List of major SEC enforcement actions (2009–12)
[ edit]
Main article: 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
[ edit]
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.[35][36]
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.
Regulatory failures
[ edit]
The SEC has been criticized "for being too 'tentative and fearful' in confronting wrongdoing on Wall Street", and for doing "an especially poor job of holding executives accountable".[37][38][39]
Christopher Cox, the former SEC chairman, has recognized the organization's multiple failures in relation to the Bernard Madoff fraud.[40] 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.[41] The SEC has been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud.[42]
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".[43] 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.[44]
Approximately 45 percent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud.[45] 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.[46]
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 Wall Street figure [John J. Mack](h
…
Agency overview, history, and program data sourced from Wikipedia (CC-BY-SA 3.0).
Key Regulations
Annual Report (Form 10-K) Filing Requirements
Public companies must file comprehensive annual reports including financial statements and risk disclosures.
Regulation D — Private Placement Exemptions
Allows companies to raise capital through private offerings without full SEC registration under certain conditions.
Rule 10b-5 — Employment of Manipulative and Deceptive Devices
Prohibits fraud, insider trading, and deceptive practices in connection with buying or selling securities.
Internal Control Over Financial Reporting (SOX 404)
Requires public companies to assess and report on the effectiveness of their internal financial controls.
Regulation FD — Fair Disclosure
Prevents companies from selectively disclosing important information to favored analysts or investors before the public.
Regulation A — Small Issue Exemption
Provides a streamlined exemption for small and medium-sized public offerings up to $75 million.
Regulation SHO — Short Sale Regulation
Regulates short selling of stocks to prevent abusive practices and excessive market manipulation.
Investment Adviser Compliance Programs
Requires registered investment advisers to maintain compliance programs and designate a chief compliance officer.
Enforcement Actions
SEC v. Theranos and Elizabeth Holmes — Securities Fraud
Respondent: Theranos, Inc. and Elizabeth Holmes
The SEC charged Theranos, Inc. and its founder and CEO Elizabeth Holmes with massive fraud for raising more than $700 million from investors through an elaborate scheme involving false and misleading ...
Outcome: Settlement with officer/director bar; separate criminal conviction on wire fraud charges.
SEC Enforcement Against Insider Trading Ring — SAC Capital
Respondent: SAC Capital Advisors LP
SAC Capital Advisors, one of the most successful hedge funds in history, agreed to pay $1.8 billion in penalties and plead guilty to insider trading charges in what was then the largest such penalty e...
Outcome: $1.8 billion penalty; fund ceased managing outside capital; multiple employee convictions.
SEC v. Ripple Labs — Unregistered Securities Offering
Respondent: Ripple Labs Inc.
The SEC filed a lawsuit against Ripple Labs and two of its executives alleging that the company raised over $1.3 billion through the sale of XRP tokens in an unregistered securities offering. The case...
Outcome: Mixed ruling; institutional sales found to be securities violations; programmatic sales not.
SEC v. Goldman Sachs — Abacus CDO Fraud
Respondent: Goldman, Sachs & Co.
The SEC charged Goldman Sachs with fraud in connection with the structuring and marketing of a synthetic collateralized debt obligation (CDO) called Abacus 2007-AC1. The SEC alleged that Goldman misle...
Outcome: $550M settlement; Goldman acknowledged marketing materials were incomplete.
SEC v. Enron — Accounting Fraud
Respondent: Enron Corp. (and executives)
The SEC brought enforcement actions against numerous Enron executives for their roles in one of the largest corporate fraud scandals in American history. Enron, once the seventh-largest company in the...
Outcome: Multiple executive convictions; led to Sarbanes-Oxley Act; Arthur Andersen dissolution.
SEC v. Binance — Operating Unregistered Exchange
Respondent: Binance Holdings Limited and Changpeng Zhao
The SEC filed 13 charges against Binance, the world's largest cryptocurrency exchange, and its founder Changpeng Zhao (CZ). The charges alleged that Binance operated unregistered exchanges, broker-dea...
Outcome: Criminal plea by CEO; $4.3B in penalties; ongoing SEC litigation on securities claims.
SEC v. Telegram — Unregistered Token Offering (Gram)
Respondent: Telegram Group Inc. and TON Issuer Inc.
The SEC obtained an emergency restraining order to halt Telegram's planned distribution of its Gram cryptocurrency tokens to investors who had purchased $1.7 billion worth of tokens in a private offer...
Outcome: $1.2B returned to investors; $18.5M penalty; TON project abandoned.
SEC v. Elon Musk — Securities Fraud ("Funding Secured" Tweet)
Respondent: Elon Musk
The SEC charged Tesla CEO Elon Musk with securities fraud for a series of tweets claiming he had 'funding secured' to take Tesla private at $420 per share. The SEC alleged that Musk's statements were ...
Outcome: $40M combined penalty; Musk stepped down as chairman; tweet pre-approval process.
SEC v. Theranos Executive Ramesh Balwani — Securities Fraud
Respondent: Ramesh 'Sunny' Balwani
The SEC brought securities fraud charges against former Theranos president and COO Ramesh Balwani, alleging that he helped orchestrate a massive fraud that deceived investors about the capabilities of...
Outcome: Criminal conviction on 12 fraud counts; nearly 13-year prison sentence.
SEC v. Wirecard — Accounting Fraud Scheme
Respondent: Wirecard AG (former executives)
The SEC charged former Wirecard executives with participating in a multi-year scheme to fraudulently inflate the company's revenue and assets by billions of dollars. Wirecard, a German payments compan...
Outcome: Charges filed against executives; former COO became fugitive; ongoing international proceedings.