What Is the Securities and Exchange Commission (SEC)?
The U.S. Securities and Exchange Commission (SEC) is an independent federal government regulatory agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation. It was created by Congress in 1934 as the first federal regulator of the securities markets. The SEC promotes full public disclosure, protects investors against fraudulent and manipulative practices in the market, and monitors corporate takeover actions in the United States. It also approves registration statements for bookrunners among underwriting firms.
Generally, issues of securities offered in interstate commerce, through the mail or on the Internet, must be registered with the SEC before they can be sold to investors. Financial services firms—such as broker-dealers, advisory firms and asset managers, as well as their professional representatives—must also register with the SEC to conduct business. An example: they would be responsible for approving any formal bitcoin exchange.
. The SEC was established by the passage of the U.S. Securities Act of 1933 and the Securities and Exchange Act of 1934, largely in response to the stock market crash of 1929 that led to the Great Depression.
. The SEC can itself bring civil actions against lawbreakers, and also works with the Justice Department on criminal cases.
How the Securities and Exchange Commission (SEC) Works?
The SEC’s primary function is to oversee organizations and individuals in the securities markets, including securities exchanges, brokerage firms, dealers, investment advisors, and investment funds. Through established securities rules and regulations, the SEC promotes disclosure and sharing of market-related information, fair dealing, and protection against fraud. It provides investors with access to registration statements, periodic financial reports, and other securities forms through its electronic data-gathering, analysis, and retrieval database, known as EDGAR.
The SEC consists of five divisions and 23 offices.
U.S. Securities and Exchange Commission. “What We Do.”
Their goals are to interpret and take enforcement actions on securities laws, issue new rules, provide oversight of securities institutions, and coordinate regulation among different levels of government. The five divisions and their respective roles are:
1- Division of Corporate Finance: Ensures investors are provided with material information (that is, information relevant to a company’s financial prospects or stock price) in order to make informed investment decisions.
2- Division of Enforcement: In charge of enforcing SEC regulations by investigating cases and prosecuting civil suits and administrative proceedings.
3- Division of Investment Management: Regulates investment companies, variable insurance products, and federally registered investment advisors.
4- Division of Economic and Risk Analysis: Integrates economics and data analytics into the core mission of the SEC.
5- Division of Trading and Markets: Establishes and maintains standards for fair, orderly, and efficient markets.
The SEC is allowed to bring only civil actions, either in federal court or before an administrative judge. Criminal cases fall under the jurisdiction of law enforcement agencies within the Department of Justice; however, the SEC often works closely with such agencies to provide evidence and assist with court proceedings.
In civil suits, the SEC seeks two main sanctions:
Injunctions, which are orders that prohibit future violations. A person or company that ignores an injunction is subject to fines or imprisonment for contempt.
Civil money penalties and the disgorgement of illegal profits. In certain cases, the SEC may also seek a court order barring or suspending individuals from acting as corporate officers or directors. The SEC may also bring a variety of administrative proceedings, which are heard by internal officers and the commission. Common proceedings include cease and desist orders, revoking or suspending registration, and imposing bars or suspensions of employment.
The SEC also serves as the first level of appeal for actions sought by the securities industry’s self-regulatory organizations, such as FINRA or the New York Stock Exchange.
Among all the SEC’s offices, the Office of the Whistleblower stands out as one of the most potent means of securities law enforcement. Created as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC’s whistleblower program rewards eligible individuals for sharing original information that leads to successful law enforcement actions with monetary sanctions in excess of $1 million. The individuals can receive 10% to 30% of the total sanctions’ proceeds.
What do you think about SEC?