OverviewThe 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 s, 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&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 (the Electronic Data Gathering, Analysis, and Retrieval system) online 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 ing, 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 . 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.
BackgroundPrior 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. 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.
FoundingThe 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 (), which federally regulates Primary market, 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, 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. In 1934, Roosevelt named his friend Joseph P. Kennedy, a self-made multimillionaire, financier, and leader among the Irish-American community. 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. 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. 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 William O. Douglas, Jerome Frank (lawyer), Jerome Frank, and William J. Casey. 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
Commission membersThe Commission has five Commissioners who are appointed by the President of the United States. The commission is kept nonpartisan, non-partisan as 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 John McCain 2008 presidential campaign, 2008 presidential election in connection with the Global financial crisis of 2008–2009, ensuing financial crises.
DivisionsWithin the SEC, there are five divisions. Headquartered in Washington, D.C.. The SEC's divisions are:Organization of the SEC
Regional officesThere 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 to develop Generally Accepted Accounting Principles, the Public Company Accounting Oversight Board in developing audit requirements, and the International Accounting Standards Board in advancing the development of International Financial Reporting Standards; * The ''Office of Compliance, Inspections and Examinations'', which inspects broker-dealers, stock exchanges, credit rating agency, credit rating agencies, registered investment companies, including both closed-end and open-end (mutual funds) investment companies, money funds. and Registered Investment Advisors; * 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 and the Financial Stability Forum; 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 ''Office of Inspector General (United States), Inspector General''. The SEC announced in January 2013 that it had named Carl Hoecker 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 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.
Comment lettersComment 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 lettersNo-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 bond credit rating, credit ratings that the SEC permits other financial firms to use for certain regulatory purposes.
Freedom of Information Act processing performanceIn the latest Center for Effective Government analysis of 15 federal agencies which receive the most Freedom of Information Act (United States), Freedom of Information Act (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)The SEC's Enforcement Division took a number of major actions in 2009–12.
Regulatory action in the credit crunchThe 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 security, auction rate securities from six different financial institutions.
Regulatory failuresThe 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". 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 percent 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. 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 in an insider trading case involving hedge fund Pequot Capital Management;Blaylock D. (June 2010)
Inspector General office failuresIn 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 #Organizational structure, 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 ''Rolling Stone'', former SEC employees were interviewed and commented negatively on the SEC's Office of the Inspector General (OIG). Going to the OIG was "well-known to be a career-killer". Is the SEC Covering Up Wall Street Crimes?
Destruction of documentsAccording 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 Bank, Goldman Sachs, Lehman Brothers, SAC Capital, and other financial companies involved in the Great Recession 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 agenciesIn 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.Regulatory Structure
Notable Former Personnel
Current/former employer: Citadel/Citadel SecuritiesStephen Luparello (former head of Trading and Markets division, which oversees exchanges and brokerages): General Counsel of Kenneth C. Griffin, Ken Griffin's Citadel LLC, Citadel Securities LLC (2017-2021; replaced by Heath Tarbert, 2021), adviser at Citadel Securities, 2021. Ryan VanGrack (adviser to former SEC Chair Mary Jo White): deputy chief legal officer at Kenneth C. Griffin, Ken Griffin's Citadel LLC, Citadel hedge fund (January 2018 - present). David Glockner (former head of the SEC’s Chicago office, 2013-2017): Chief Compliance Officer at Ken Griffin's Citadel LLC, Citadel hedge fund (December 2017 - present). Gregg Berman (former head of data and analytics in the SEC’s trading and markets unit): Director of Research at Kenneth C. Griffin, Ken Griffin's Citadel Securities (September 2016 - present).
Curent/former employer: RobinhoodDaniel M. Gallagher (commissioner, 2011-2015): currently Chief Legal Officer for Robinhood (company), Robinhood. Lucas Moskowitz (chief of staff to commissioner Jay Clayton (attorney), Jay Clayton, 2017-2019): currently deputy general counsel for regulatory, litigation and government affairs at Robinhood (company), Robinhood. Justin Daly (commissioner’s counsel, 2007-2010): currently retained as lobbyist for Robinhood (company), Robinhood. Benjamin Brown (former counsel to the SEC): currently retained as lobbyist for Robinhood (company), Robinhood. Richard Roberts (commissioner): retained as lobbyist for Goldman Sachs.
Current former employer: Other hedge fundsJay Clayton (attorney), Jay Clayton (commissioner, 2017-2020): Lead Independent Director, Board of Apollo Global Management (February 2021 - present).
Current/former employer: JP Morgan ChaseStephen M. Cutler (Director of the Division of Enforcement, 2001 until 2005): General Counsel, Vice Chairman of JPMorgan Chase (February 2007 - 2018).
Current/former employer: Bank of AmericaGary Lynch (Director of Enforcement, 1985-1989); Global General Counsel, Bank of America (2011-2016).
Current/former employer: Deutsche BankRichard H. Walker, Richard Walker (General Counsel, 1996-1998; Director of Enforcement, 1998-2001)): General Counsel of Deutsche Bank (2001-2015).
Related legislation* 1933: Securities Act of 1933 * 1934: Securities Exchange Act of 1934 * 1938: Temporary National Economic Committee (establishment) * 1939: Trust Indenture Act of 1939 * 1940: Investment Advisers Act of 1940 * 1940: * 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 * 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)