U.S. Securities and Exchange Commission

Joseph P. Kennedy, Sr. 1940

Joseph P. Kennedy, Sr. 1938

James McCauley Landis cph.3b30465

Face detail, Douglas dons robes of Supreme Court Justice. Washington, D.C., April 17. William Orville Douglas, 40 year old successor to retired Justice Louis D. Brandeis, today donned the robes of an LCCN2016875459 (cropped)

Jerome Frank

EdwardCEicher

U.S. Securities and Exchange Commission (SEC) is a federal agency responsible for enforcing federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other related activities and organizations in the United States. Established by the United States Congress in 1934 as part of the Securities Exchange Act of 1934 following the stock market crash of 1929, the SEC's primary function is to protect investors and maintain the integrity of the securities markets.

History

The SEC was created in the aftermath of the Great Depression, an era marked by financial instability and public outcry over the lack of securities regulation. Before its creation, the regulation of securities was primarily governed by state laws, known as Blue Sky Laws. However, these laws were largely ineffective at preventing the widespread fraud and manipulation that led to the 1929 crash. The establishment of the SEC was intended to restore investor confidence in the financial markets.

Structure

The SEC is headed by a Chairman, who is appointed by the President of the United States, with the advice and consent of the United States Senate. The Commission consists of five Commissioners, including the Chairman, appointed by the President. No more than three Commissioners may belong to the same political party, ensuring a degree of non-partisanship. The SEC is divided into several divisions and offices, each responsible for specific areas of the securities market, including the Division of Corporation Finance, the Division of Trading and Markets, the Division of Investment Management, and the Division of Enforcement.

Functions and Responsibilities

The SEC's functions are broad and encompass both direct regulation and oversight of the securities markets. Key responsibilities include:

• **Regulating Securities Markets**: The SEC oversees securities exchanges, securities brokers and dealers, securities clearing agencies, and self-regulatory organizations (SROs) such as the Financial Industry Regulatory Authority (FINRA).
• **Protecting Investors**: The SEC enforces laws against market manipulation, fraud, and insider trading to protect investors.
• **Facilitating Capital Formation**: By ensuring the integrity of the securities markets, the SEC seeks to facilitate capital formation, allowing businesses to raise the funds necessary for expansion and innovation.
• **Enforcing Federal Securities Laws**: The SEC investigates and prosecutes violations of federal securities laws, including misleading investment practices and accounting fraud.
• **Corporate Reporting**: Companies that are publicly traded in the U.S. are required to file regular reports with the SEC, including annual reports (Form 10-K), quarterly reports (Form 10-Q), and current reports (Form 8-K).

Regulatory Actions

The SEC has the authority to bring civil enforcement actions against individuals or companies alleged to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law. It can issue injunctions, levy fines, and bar individuals from serving as officers or directors of public companies.

Criticism and Challenges

The SEC has faced criticism over the years for various reasons, including its failure to prevent some of the major financial scandals and crises, such as the Bernard Madoff Ponzi scheme and the 2008 financial crisis. Critics argue that the SEC has been underfunded, understaffed, and at times, too close to the financial industry it is supposed to regulate.

See Also

• Financial Industry Regulatory Authority
• Securities Exchange Act of 1934
• Great Depression
• Bernard Madoff