SEC Regulations for Investors: An Overview of How the Securities and Exchange Commission Protects Investors

Summary

The Securities and Exchange Commission (SEC) is the U.S. government agency responsible for helping to protect investors and ensure the integrity of the securities markets. The SEC's mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The SEC is made up of five divisions and 12 regional offices and is responsible for enforcing the federal securities laws, regulating the securities industry, and overseeing the various national securities exchanges and other securities activities.


The SEC requires publically traded companies to register and to file periodic reports detailing their financial performance and corporate activities. These reports are available to the public on the SEC's website. The SEC also provides guidance on corporate governance and disclosure rules, and shares information on enforcement actions it has taken against companies that violate the law. In addition, the SEC requires publicly traded companies to comply with disclosure rules, such as issuing press releases and filing documents with the SEC.

The SEC uses its enforcement powers to investigate and penalize companies that violate federal securities laws. The SEC can bring civil and criminal actions against companies and individuals for violations such as insider trading, accounting fraud, market manipulation, and making false or misleading statements. The SEC's enforcement division also investigates and reviews IPO registration statements, corporate proxy statements, and other public disclosures.

The SEC's Division of Corporation Finance helps to ensure that investors receive all the material information necessary to make informed investment decisions. This division reviews registration statements, periodic reports, proxy statements and other forms filed with the SEC to ensure accuracy and completeness. The SEC's Division of Investment Management is responsible for overseeing the activities of investment advisers, investment companies, and mutual funds. Finally, the SEC's Division of Economic and Risk Analysis provides economic and risk analysis to the Commission to help it make policy decisions.

The Securities and Exchange Commission (SEC) is a federal government agency that protects investors, maintains fair and orderly financial markets, and facilitates capital formation. The SEC requires publically traded companies to register and to file periodic reports detailing their financial performance and corporate activities. The SEC also issues guidance on corporate governance and disclosure rules, and takes enforcement actions against companies that violate the law. The SEC's Division of Corporation Finance reviews registration statements and proxy statements while its Division of Investment Management oversees the activities of investment advisers, investment companies, and mutual funds. Finally, the SEC's Division of Economic and Risk Analysis provides economic and risk analysis to the Commission to help it make policy decisions.
 

The Security and Exchange Commission

The Security and Exchange Commission (SEC) is a government agency established in 1934 under the Securities Exchange Act. The SEC's mission is to protect investors and maintain the integrity of the securities markets. The SEC is responsible for administering federal securities laws, regulating the industry and ensuring that companies providing financial services follow the rules intended to protect investors.
 

Purpose of The Security and Exchange Commission

The Security and Exchange Commission was formed to enforce the Securities Exchange Act, which is the federal law that regulates the securities industry in the United States. The SEC's mission is to protect investors, maintain fair and orderly functioning of the securities markets, and promote capital formation. The SEC enforces the federal securities laws and provides oversight of the securities industry, which includes broker-dealers, investment advisors, mutual funds, and public companies.
 

Investor Protection and Corporate Governance

The SEC is focused on investor protection and corporate governance. It does this by requiring public companies to disclose information about their financial performance, business operations, and corporate governance. The SEC also requires companies to file registration statements and periodic reports with the SEC and the exchange on which their securities are traded. This information is critical for investors to make informed decisions about their investments.
 

Regulatory and Enforcement Authority

The SEC has regulatory and enforcement authority over the securities industry. The SEC enforces the federal securities laws, including insider trading laws, and monitors the activities of securities professionals such as brokers, investment advisors, and mutual funds. The SEC also examines and inspects registered entities to ensure compliance with the securities laws and regulations, as well as the rules of the financial exchanges.

Although the layperson might think of the Securities and Exchange Commission as primarily an employer of accountants and economists, nearly half of the agency's 3,000 employees are lawyers. The SEC celebrates its 70th anniversary this year with a heavy docket of nationally publicized cases and after the recent attention to white-collar crime, a reaffirmed mission of safeguarding investors in the vibrant but potentially vulnerable U.S. securities market.

Five commissioners who are appointed by the President of the United States govern the SEC. To ensure a non-partisan stance, no more that three commissioners can hail from the same political party, and their appointments are staggered so that every year one commissioner steps down, making room for a new perspective. Although the SEC keeps its headquarters in Washington, DC, it also houses 12 regional offices in financial hubs across the country.

Investors of the Roaring 20s and previous generations placed little credence in the idea of stringent securities regulation, and it was not until Black Thursday brought the world of high finance to its knees that the formation of the SEC became a reality. In response to the stock market crash of 1929, Congress first passed the Securities Act of 1933, which requires the disclosure of information to investors and outlaws securities fraud. One year later, the Securities Exchange Act of 1934 gave birth to the SEC, which has since fought off the prospect of a second Great Depression as the nation's premiere securities law-enforcement agency.

Although many of the foundational laws of the SEC were passed by 1940, recent additions serve as a useful indication of the agency's attempt to keep pace with innovations and present challenges in the areas of investment and business. For example, the Sarbanes-Oxley Act, which President Bush signed in 2002, was created in response to mounting concerns over corporate scandals most famously exemplified by Enron and WorldCom. Perhaps the most significant change to securities laws since the New Deal, Sarbanes-Oxley places even stronger emphasis on proper disclosure of information to investors and the enforcement of codes of professional ethics for executives. In addition to white-collar crime, technological advances in investing (such as on-line trading) and the globalization of the market stand as current challenges for the SEC.

Lawyers at the SEC often work on cases that involve some of the most prominent corporations and business leaders in the world. Recently, Halliburton agreed to pay $7.5 million in fines to resolve a claim brought by the SEC. Allegedly, the company, which was headed by Vice President Dick Cheney at the time, neglected to announce the implementation of a change to its accounting process that resulted in a 46% overstatement of its pre-tax revenue.

The SEC also affects business practices indirectly, as exemplified by the tension-filled weeks before Google's landmark IPO in August 2004. Although the SEC did not bring any charges against Google, the mere threat of its presence led Google to disclose two possible violations of SEC violations. The first involved the improper issuance of stocks to its employees. The second, not without irony, came with the release of an interview Google's founders had done with Playboy magazine that some believed violated an SEC rule mandating a quiet period before an IPO.

The SEC's widespread and complex involvement in the securities markets translates into the need for lawyers with a diverse set of skills and specialties. The main legal divisions of the SEC workforce are: enforcement, corporation finance, market regulation, investment management, general counsel, compliance inspections and examinations, and international affairs. While some SEC lawyers may dedicate their time to the investigation and litigation of securities fraud claims, others might focus on analyzing disclosure statements, creating new SEC rules, or interacting with regulatory counterparts abroad. Across the board, SEC lawyers work closely with accountants, economist, financial analysts, and other professionals in the securities industry.

With opportunities ranging from entry-level law clerk to supervisory attorneys, the SEC has something to offer legal professionals at all stages of their careers. While straight monetary compensation falls below the top market rate in the private practice, a highly competitive benefits package, flexible work hours, and other intangibles provided by a government post counterbalance any shortcomings there may be in salary. In short, lawyers with a particular flair for finance and investment or who are simply seeking a stimulating alternative to the private practice, might find their ideal job at the Securities and Exchange Commission.

Find Securities Law job listings on LawCrossing.