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{{Redirect|Securities and Exchange Commission}}
{{Use mdy dates|date=December 2016}}
{{Infobox government agency
|agency_name = U.S. Securities and Exchange Commission
|logo = US Security and Exchange Commission Office photo D Ramey Logan.jpg
|logo_caption = U.S. Securities and Exchange Commission headquarters in [[Washington, D.C.]]
|seal = Seal of the United States Securities and Exchange Commission.svg
|seal_caption = Seal of the U.S. Securities and Exchange Commission
|formed = {{start date and age|1934|6|6}}
|jurisdiction = [[Federal government of the United States|United States federal government]]
|headquarters = [[Washington, D.C.]], U.S.
|employees = 4,301 (2015)<ref>{{cite book |title=FY 2017 Congressional Budget Justification|page=14|publisher=U.S. Securities and Exchange Commission|year=2016 |url=https://www.sec.gov/about/reports/secfy17congbudgjust.pdf}}</ref>
|chief1_name = [[Jay Clayton (attorney)|Jay Clayton]], Chairman
|budget =
|website = {{URL|https://www.sec.gov|www.sec.gov}}
|footnotes =
}}
The '''U.S. Securities and Exchange Commission''' ('''SEC''') is an [[independent agencies of the United States government|independent agency of the United States federal government]]. The SEC holds primary responsibility for enforcing the federal [[security (finance)|securities]] laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.<ref>{{cite web
| url = https://www.sec.gov/Article/whatwedo.html
| title = What We Do
| last = SEC
| first =
| date = June 10, 2013
| website = SEC.gov
| publisher = U.S. Securities and Exchange Commission
| access-date = 2017-03-24
| quote = }}</ref>
In addition to the [[Securities Exchange Act of 1934]], which created it, the SEC enforces the [[Securities Act of 1933]], the [[Trust Indenture Act of 1939]], the [[Investment Company Act of 1940]], the [[Investment Advisers Act of 1940]], the [[Sarbanes–Oxley Act|Sarbanes–Oxley Act of 2002]], and other statutes. The SEC was created by Section 4 of the Securities Exchange Act of 1934 (now codified as {{usc|15|78d}} and commonly referred to as the Exchange Act or the 1934 Act).
==Overview==
{{refimprove section|date=February 2017}}
The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.<ref>{{cite web|url=http://investor.gov/introduction-markets/role-sec|title=The Role of the SEC|last=|first=|date=|website=Investor.gov|publisher=|access-date=}}</ref>
To achieve its mandate, the SEC enforces the statutory requirement that [[public company|public companies]] and other regulated companies submit quarterly and [[annual report]]s, as well as other periodic reports. In addition to annual [[financial statements|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 [[EDGAR]] (the Electronic Data Gathering, Analysis, and Retrieval system) [[online and offline|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 [[bank]]ing, [[investment]] in the capital markets is not [[Federal Deposit Insurance Corporation|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 [[fraud]].
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.
==History==
Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called [[blue sky law]]s. They 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.<ref name="bluesky">{{cite web|url=http://www.seclaw.com/bluesky.htm |title=Blue Sky laws |publisher=Seclaw.com |date=July 7, 2007 |accessdate=March 1, 2013}}</ref>
However, these blue sky laws were generally found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could "ignore" blue sky laws by making securities offerings across state lines through the mail.<ref name="transwall">{{cite book|first=Joel|last=Seligman|title=The Transformation of Wall Street|pages=45, 51–52|publisher=Aspen|year=2003}}</ref> After holding hearings on abuses on interstate frauds (commonly known as the [[Pecora Commission]]), Congress passed the Securities Act of 1933 ({{usc|15|77a}}), which regulates interstate sales of securities ([[Primary market|original issues]]) at the federal level. The subsequent Securities Exchange Act of 1934 ({{usc|15|78d}}) regulates sales of securities in the [[secondary market]]. Section 4 of the 1934 act created the U.S. Securities and Exchange Commission to enforce the federal securities laws; both laws are considered parts of [[Franklin D. Roosevelt]]'s [[New Deal]] raft of legislation.
[[File:Joseph P. Kennedy, Sr. 1940.jpg|thumb|upright|left|[[Joseph P. Kennedy Sr.|Joseph P. Kennedy Sr]], the inaugural Chairman of the SEC]]
The Securities Act of 1933 is also known as the "Truth in Securities Act" and the "Federal Securities Act", or just the "1933 Act". Its goal was to increase public trust in the [[capital market]]s by requiring uniform disclosure of information about public securities offerings. The primary drafters of 1933 Act were Huston Thompson, a former [[Federal Trade Commission]] (FTC) chairman, and Walter Miller and Ollie Butler, two attorneys in the [[United States Department of Commerce|Commerce Department]]'s Foreign Service Division, with input from Supreme Court Justice [[Louis Brandeis]]. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission, but this power was transferred to the SEC following its creation in 1934.
In 1934, Roosevelt named his friend [[Joseph P. Kennedy]], a self-made multimillionaire financier and a leader among the Irish-American community, as the insider-as-chairman who knew Wall Street well enough to clean it up.<ref>He was the father of president John F. Kennedy. David Nasaw, ''The Patriarch: The Remarkable Life and Turbulent Times of Joseph P. Kennedy'' (2012) pp 204-37.</ref> Two of the other five commissioners were [[James M. Landis]] (one of the architects of the 1934 Act and other New Deal legislation) and [[Ferdinand Pecora]] (Chief Counsel to the Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices). Kennedy added a number of intelligent young lawyers, including [[William O. Douglas]] and [[Abe Fortas]], both of whom later became Supreme Court justices. Kennedy's team defined the mission and operating mode for the SEC, making full use of its wide range of legal powers. The SEC had four missions. First and most important was to restore investor confidence in the securities market, which had practically collapsed because of doubts about its internal integrity, and fears of the external threats supposedly posed by anti-business elements in the Roosevelt administration. Second, in terms of integrity, the SEC had to get rid of the penny-ante swindles based on fake information, fraudulent devices, and unsound get-rich-quick schemes. That unsavory element had to be prosecuted and shut down. Thirdly, and much more important than the outright frauds, the SEC had to end the million-dollar insider maneuvers by top officials of major corporations, whereby insiders with access to much better information about the condition of the company knew when to buy or sell their own securities. A crackdown on insider trading was given high priority. Finally, the SEC had to set up a complex system of registration for all securities sold in America, with a clear-cut set of deadlines, rules and guidelines that everyone had to follow. Drafting precise rules was the main challenge faced by the bright young lawyers. The SEC succeeded in its four missions, as 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.<ref>Nassau, ''The Patriarch,'' pp. 226–28</ref>
The law requires that issuing companies register distributions of securities with the SEC prior to interstate sales of these securities, so that investors may have access to basic financial information about issuing companies and risks involved in investing in the securities in question. Since 1994, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC's online system, EDGAR.<ref name="Act1933">{{cite web|url=https://www.sec.gov/about/laws/sa33.pdf |title=Securities Act of 1933 |format=PDF |accessdate=March 1, 2013}}</ref>
The Securities Exchange Act of 1934 is also known as "the Exchange Act" or "the 1934 Act". This 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]] (NYSE), [[self-regulatory organization]]s (SROs) such as the [[Financial Industry Regulatory Authority|National Association of Securities Dealers]] (NASD), the [[Municipal Securities Rulemaking Board]] (MSRB), online trading platforms such as the [[NASDAQ|NASDAQ Stock Market]] (NASDAQ) and [[alternative trading system]]s (ATSs), and any other persons (''e.g.'', securities brokers) engaged in transactions for the accounts of others.<ref name="Act1934">{{cite web|url=https://www.sec.gov/about/laws/sea34.pdf |title=Securities Exchange Act of 1934 |format=PDF |accessdate=March 1, 2013}}</ref>
Later SEC commissioners and chairmen include [[William O. Douglas]], [[Jerome Frank (lawyer)|Jerome Frank]] (one of the leaders of the [[legal realism]] movement), and [[William J. Casey]] (who later headed the [[Central Intelligence Agency]] under President [[Ronald Reagan]]).
==Organizational structure==
===Commission members===
{{main|Securities and Exchange Commission appointees}}
[[nonpartisan|Non-partisan]], no more than three Commissioners may belong to the same political party. 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 presidential campaign, 2008|2008 presidential election]] in connection with the [[Global financial crisis of 2008–2009|ensuing financial crises]].
Currently, the SEC Commissioners are:<ref>{{cite web|url=https://www.sec.gov/about/commissioner.shtml |title=Current SEC Commissioners |publisher=Sec.gov |date=December 17, 2012 |accessdate=March 1, 2013}}</ref>
{|class="wikitable sortable" style="text-align:center"
|-
! Name
! Title
! Party
! Took office
! Term expires
|-
| [[Jay Clayton (attorney)|Jay Clayton]]
| Chairman
| Independent
| May 4, 2017
| 2021
|-
| [[Kara Stein]]
| rowspan="4" | Commissioner
| Democratic
| August 9, 2013
| 2017
|-
| [[Robert J. Jackson Jr.]]
| Democratic
| rowspan="2" | January 11, 2018
| 2019
|-
| [[Hester Peirce]]
| Republican
| 2020
|-
|Elad Roisman
|Republican
|September 11, 2018
|2023
|}
===Divisions===
[[File:U.S. Securities and Exchange Commission headquarters.JPG|thumb|U.S. Securities and Exchange Commission headquarters in [[Washington, D.C.]], near [[Union Station (Washington)|Union Station]]]]
Within the SEC, there are five divisions. Headquartered in [[Washington, D.C.]], the SEC has 11 regional offices throughout the US.
The SEC's divisions are:<ref name="divisions">[https://www.sec.gov/about/whatwedo.shtml#org Organization of the SEC] U.S. Securities and Exchange Commission</ref>
* Corporation Finance
* Trading and Markets
* Investment Management
* Enforcement
* Economic and Risk Analysis
'''Corporation Finance''' is the division that oversees the disclosure made by [[Public company|public companies]], as well as the registration of transactions, such as mergers, made by companies. The division is also responsible for operating EDGAR.
The '''Trading and Markets''' division oversees self-regulatory organizations such as the [[Financial Industry Regulatory Authority]] (FINRA) and [[Municipal Securities Rulemaking Board]] (MSRB) and all [[broker-dealer]] firms and [[investment banking|investment houses]]. This division also interprets proposed changes to regulations and monitors operations of the industry. In practice, the SEC delegates most of its enforcement and rulemaking authority to FINRA. In fact, all trading firms not regulated by other SROs must register as a member of FINRA. Individuals trading securities must pass exams administered by FINRA to become [[General Securities Representative Exam|registered representatives]].<ref name="finra">{{cite web|url=http://www.finra.com |title=National Association of Securities Dealers |publisher=Finra.com |accessdate=March 1, 2013}}</ref><ref name="nasdSec">"How does the NASD differ from the SEC?" Investopedia. Investopedia Inc.</ref>
The '''Investment Management''' Division oversees registered investment companies, which include [[mutual fund]]s, as well as registered [[investment advisor]]s. These entities are subject to extensive regulation under various federal securities laws.<ref>Lemke and Lins, ''Regulation of Investment Advisers'' (Thomson West, 2013 ed.); Lemke, Lins and Smith, ''Regulation of Investment Companies'' (Matthew Bender, 2013 ed.).</ref> The Division of Investment Management administers various federal securities laws, in particular the Investment Company Act of 1940 and Investment Advisers Act of 1940. This division's responsibilities include:<ref name="InvestManDivResponsibilities">{{cite web|url=https://www.sec.gov/about/whatwedo.shtml#org |title=How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation (Securities and Exchange Commission) |publisher=Sec.gov |accessdate=March 1, 2013}}</ref>
* assisting the Commission in interpreting laws and regulations for the public and SEC inspection and enforcement staff;
* responding to no-action requests and requests for exemptive relief;
* reviewing investment company and investment adviser filings;
* assisting the Commission in enforcement matters involving investment companies and advisers; and
* advising the Commission on adapting SEC rules to new circumstances.
The '''Enforcement''' Division works with the other three divisions, and other Commission offices, to investigate violations of the securities laws and regulations and to bring actions against alleged violators. The SEC generally conducts investigations in private. The SEC's staff may seek voluntary production of documents and testimony, or may seek a formal order of investigation from the SEC, which allows the staff to compel the production of documents and witness testimony. The SEC can bring a [[lawsuit|civil action]] in a [[United States district court|U.S. District Court]], or an [[administrative proceeding]] which is heard by an independent [[administrative law judge]] (ALJ). The SEC does not have criminal authority, but may refer matters to state and federal prosecutors. The director of the SEC's Enforcement Division [[Robert Khuzami]] left the office in February 2013.<ref>{{cite news|last=Protess |first=Ben |url=https://dealbook.nytimes.com/2013/02/11/s-e-c-s-revolving-door-hurts-its-effectiveness-report-says/ |title=S.E.C.'s Revolving Door Hurts Its Effectiveness, Report Says |publisher=Dealbook.nytimes.com |accessdate=March 1, 2013 |date=February 11, 2013}}</ref>
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-dealer]]s, [[stock exchange]]s, [[credit rating agency|credit rating agencies]], registered investment companies, including both closed-end and open-end ([[mutual fund]]s) investment companies, [[money fund]]s. and [[Registered Investment Advisor]]s;
* 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]];
* The ''Office of Investor Education and Advocacy'', which helps educate the public about securities markets and warns investors of fraud and stock market scams;
* The ''Office of Economic Analysis'', which helps the SEC estimate the economic costs and benefits of its various rules and regulations; 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 ''[[Inspector General]]''. The SEC announced in January 2013 that it had named [[Carl Hoecker]] the new inspector general.<ref>{{cite web|last=Schroeder |first=Peter |url=http://thehill.com/blogs/on-the-money/banking-financial-institutions/279929-sec-names-new-inspector-general |title=SEC names new inspector general – The Hill's On The Money |publisher=Thehill.com |date=January 29, 2013 |accessdate=March 1, 2013}}</ref><ref>{{cite web|url=https://www.sec.gov/news/press/2012/2012-106.htm|title=SEC.gov - Jon Rymer Named Interim Inspector General|website=www.sec.gov}}</ref> He has a staff of 22.<ref>Greene, Jenna,[http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202508312296 "The Conversation Stopper: SEC Inspector General H. David Kotz: Staffers may not like riding the elevator with him, but the SEC is taking his advice"], ''Corporate Counsel'', July 27, 2011. Retrieved August 18, 2011.</ref>
* 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.<ref>{{cite web|url=https://www.sec.gov/whistleblower |title=Office of the SEC Whistleblower |publisher=Sec.gov |accessdate=2013-12-05}} {{PD-notice}}</ref> 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."<ref>https://www.sec.gov/about/offices/owb/reg-21f.pdf</ref> 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.<ref>https://www.sec.gov/about/offices/owb/annual-report-2012.pdf {{PD-notice}}</ref>
==SEC communications==
===Comment letters===
Comment letters are issued by the SEC's Division of Corporation Finance in response to a company's public filing.<ref name="secgovcommentletters">{{cite web|url=https://www.sec.gov/answers/commentletters.htm |title=Fast Answers: Comment Letters |publisher=SEC.gov |accessdate=October 16, 2015}}</ref> 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.<ref name="secgovfilingprocess">{{cite web|url=https://www.sec.gov/divisions/corpfin/cffilingreview.htm |title=Filing Review Process| publisher=SEC.gov |accessdate=October 16, 2015}}</ref> 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]].<ref name="nytimesgavin">{{cite web |url=https://www.nytimes.com/2006/05/28/business/yourmoney/28gavin.html?pagewanted=print |title=Deafened by the S.E.C.'s Silence, He Sued|author=Gretchen Morgenson|date=May 28, 2008|newspaper=The New York Times}}</ref> The [[chief executive officer]] of CA, to whom the letter was addressed, pleaded guilty to fraud at CA in 2004.<ref name="nytimesgavin" />
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."<ref name="nytimesgavin" />
===No-action letters===
[[No-action letter]]s 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 performance==
In the latest [[Center for Effective Government]] analysis of 15 federal agencies which receive the most [[Freedom of Information Act (United States)]] (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.<ref>[http://www.foreffectivegov.org/access-to-information-scorecard-2015/ Making the Grade: Access to Information Scorecard 2015] March 2015, 80 pages, [[Center for Effective Government]], retrieved 21 March 2016</ref>
==Operations==
=== List of major SEC enforcement actions (2009–12) ===
{{Main|List of major SEC enforcement actions (2009–12)}}
The SEC's Enforcement Division brought a number of major actions in 2009–12.
===Regulatory action in the credit crunch===
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.<ref>{{cite web |url=http://www.thestreet.com/story/10437867/1/sec-bans-naked-short-selling.html?puc=googlefi&cm_ven=GOOGLEFI&cm_cat=FREE&cm_ite=NA |title=Naked-Shorts Ban Gets Chilly Reception|
author=Lauren Tara LaCapra |date = September 17, 2008|newspaper=The street}}</ref><ref>{{cite news |url=http://money.cnn.com/2008/09/17/news/companies/sec_short_selling/ |title=Regulator enacts new ruling banning 'naked' short selling on all public companies. | work=CNN | date=September 17, 2008 | accessdate=May 26, 2010 | first=David | last=Ellis}}</ref>
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 swap]]s. 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 failures===
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".<ref>{{Cite episode
| publisher = PBS
| credits = Jason Breslow (Director)
| title = Is SEC "Fearful" of Wall Street? Agency Insider Says Yes
| work = The Untouchables
| series = [[Frontline (U.S. TV series)]]
| accessdate = December 14, 2014
| date = April 8, 2014
| url = https://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/is-sec-fearful-of-wall-street-agency-insider-says-yes/
}}</ref><ref>{{Cite web
| last = Schmidt
| first = Robert
| title = SEC Goldman Lawyer Says Agency Too Timid on Wall Street Misdeeds
| work = Bloomberg
| accessdate = December 14, 2014
| date = April 8, 2014
| url = https://www.bloomberg.com/news/2014-04-08/sec-goldman-lawyer-says-agency-too-timid-on-wall-street-misdeeds.html
}}</ref><ref>{{Cite web
| last = Kidney
| first = Jim
| title = Retirement Remarks
| work = SEC Union, NTEU Chapter 293
| accessdate = November 20, 2014
| date = 2014
| url = http://www.secunion.org/files/RetirementRemarks.pdf
| archive-url = https://web.archive.org/web/20140912014828/http://www.secunion.org/files/RetirementRemarks.pdf
| dead-url = yes
| archive-date = 2014-09-12
}}</ref>
[[Christopher Cox]], the former SEC chairman, has recognized the organization's multiple failures in relation to the [[Bernard Madoff]] fraud.<ref>{{cite web|last=Chung |first=Joanna |url=http://www.ft.com/cms/s/92bd4c68-cbd7-11dd-ba02-000077b07658,Authorised=false.html |title=Financial Times: SEC chief admits to failures in Madoff case |publisher=Ft.com |date=December 17, 2008 |accessdate=March 1, 2013}}</ref> 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.<ref name="Forbes12.23">{{cite news
| last =Moyer | first =Liz | title =Could SEC Have Stopped Madoff Scam In 1992?
| work = | publisher =Forbes | date =December 23, 2008
| url =https://www.forbes.com/business/2008/12/23/madoff-fraud-sec-biz-wall-cx_lm_1223madoff.html
| accessdate =December 24, 2008|archiveurl=https://web.archive.org/web/20090201052739/http://www.forbes.com/2008/12/23/madoff-fraud-sec-biz-wall-cx_lm_1223madoff.html|archivedate=February 1, 2009}}</ref> The SEC has been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud.<ref name="fort wayne sec">{{cite news|url=http://www.fwdailynews.com/articles/2008/12/26/greater_fort_wayne/features/opinion/letters_to_the_editor/hid108593sect_34f8ccf755b92af298.txt |title=Madoff exposes double standard for Ponzi schemes |work=Bloomberg News |publisher=Greater Fort Wayne Business Weekly |accessdate=December 26, 2008 |last=Weil |first=Jonathan }}{{dead link|date=June 2016|bot=medic}}{{cbignore|bot=medic}}</ref>
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".<ref name="forbes sec">{{cite news| url=https://www.forbes.com/intelligentinvesting/2008/12/20/intelligent-investing-madoff-sec-fraud-panelDec22.html?partner=contextstory|title=Love, Madoff And The SEC|publisher=Forbes|accessdate=December 24, 2008|last=Serchuk|first=David|date=December 22, 2008}}</ref> 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.<ref>{{cite news| url=https://www.nytimes.com/2008/12/19/business/19swanson.html?_r=0 | work=The New York Times | first=Stephen | last=Labaton | title=Unlikely Player Pulled Into Madoff Swirl | date=December 19, 2008}}</ref>
Approximately 45 per cent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud.<ref>{{cite web |url=http://www.briskfox.com/open/years/2009_q1/do_h_c44818.php|title=Little faith in regulators and rating agencies, as LP demand for alternatives cools off, finds survey}}</ref> [[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.<ref>{{cite book | last = Markopolos | first = H | authorlink = Harry Markopolos | title = No One Would Listen: A True Financial Thriller | isbn = 0-470-55373-1 | publisher = [[John Wiley & Sons]] | year = 2010 | pages = [https://books.google.com/books?id=7NeZeQ6qHq4C&pg=PA55#v=onepage&q&f=false 55–60] }}</ref>
A similar failure occurred in the case of [[Allen Stanford]], who sold fake [[Certificate of deposit|certificates of deposit]] to tens of thousands of people, many of them working-class retirees. In 1997, the SEC's own examiners spotted the fraud and warned about it. But the Enforcement division would not pursue Stanford, despite repeated warnings by SEC examiners over the years.<ref>{{cite book | last = Kurdas | first = Chidem | title = Political Sticky Wicket: The Untouchable Ponzi Scheme of Allen Stanford |url=https://www.amazon.com/Political-Sticky-Wicket-Untouchable-Stanford/dp/1479257583/ref=sr_1_2?s=books&ie=UTF8&qid=1348001922&sr=1-2 }}</ref> After the Madoff fraud emerged, the SEC finally took action against Stanford in 2009.
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]];<ref name=Blaylock2010>Blaylock D. (June 2010). [http://www.commondreams.org/newswire/2010/06/29-6 SEC Settles with Aguirre]. Government Accountability Project.</ref> [[Mary Jo White]], who was at the time representing Morgan Stanley later nominated as chair of the SEC, was involved in this case.<ref>[https://www.rollingstone.com/politics/blogs/taibblog/choice-of-mary-jo-white-to-head-sec-puts-fox-in-charge-of-hen-house-20130125 Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen House]. ''Rolling Stone''.</ref> While the insider case was dropped at the time, a month prior to the SEC's settlement with Aguirre the SEC filed charges against Pequot.<ref name=Blaylock2010/> The Senate released a report in August 2007 detailing the issue and calling for reform of the SEC.<ref name=SenateFiringReport>Committee on Finance, Committee on the Judiciary.[http://finance.senate.gov/library/prints/download/?id=f9d94204-7602-49f7-8bab-cb932c05310e The Firing of an SEC Attorney and the Investigation of Pequot Capital Management]. U.S. Government Printing Office.</ref>
On September 26, democratic senator [[Mark Warner]] in a letter asked the SEC to evaluate whether the current disclosure regime was adequate, citing the low number of companies' disclosures to date.<ref>{{cite web|title=20160926 Letter to SEC on Yahoo Breach|url=https://www.scribd.com/document/325367178/20160926-Letter-to-SEC-on-Yahoo-Breach|accessdate=13 December 2016}}</ref><ref>{{cite web|last1=Volz|first1=Dustin|title=Yahoo hack may become test case for SEC data breach disclosure rules|url=https://www.reuters.com/article/us-yahoo-cyber-disclosure-idUSKCN1202MG|publisher=Reuters|accessdate=13 December 2016}}</ref><ref>{{cite web|title=Sen. Warner Calls on SEC to Investigate Disclosure of Yahoo Breach|url=http://www.warner.senate.gov/public/index.cfm/pressreleases?ContentRecord_id=AC6EC18E-F309-404B-BF2D-9F60CD9884E8|accessdate=13 December 2016|date=26 September 2016}}</ref>
Others have criticized the SEC for taking an overly rule-based and enforcement-focused approach to regulation, rather than an approach that emphasizes industry-wide safety and learning and thus ensures the reliability of the national securities trading system.<ref>{{Cite web
| title = Preventing Crashes: Lessons for the SEC from the Airline Industry
| accessdate = January 6, 2015
| date = January 6, 2015
| url = http://www.system-logic.com/commentary/posts/Preventing%20Crashes%3A%20Lessons%20for%20the%20SEC%20from%20the%20Airline%20Industry1Ycg
}}</ref>
====Inspector General office failures====
In 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]].<ref>Johnson, Fawn. (December 17, 2009) [http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=200912171553dowjonesdjonline000580&title=group-alleges-slack-sec-response-to-internal-watchdog "Group Alleges Slack SEC Response to Internal Watchdog"]. NASDAQ.</ref> 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.<ref>Brian, Danielle. (December 16, 2009) [http://www.pogo.org/pogo-files/letters/financial-oversight/er-fra-20091216.html "POGO Letter to SEC Chairman Mary Schapiro regarding SEC's failure to act on hundreds of Inspector General recommendations"] {{webarchive|url=https://web.archive.org/web/20100804151139/http://www.pogo.org/pogo-files/letters/financial-oversight/er-fra-20091216.html |date=August 4, 2010 }}. The Project On Government Oversight Website.</ref>
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".<ref name=taibi20118>[https://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817 Is the SEC Covering Up Wall Street Crimes?], Matt Taibbi, 2011 August 17</ref>
Because of concerns raised by [[David P. Weber]], former SEC Chief Investigator, regarding conduct by SEC Inspector General [[H. David Kotz]], Inspector General [[David C. Williams (Inspector General)|David C. Williams]] of the [[U.S. Postal Service]] was brought in to conduct an independent, outside review of Kotz's alleged improper conduct in 2012.<ref name="bloomberg1">{{cite news|last=Schmidt |first=Robert |url=https://www.bloomberg.com/news/2013-01-25/sec-said-to-back-hire-of-u-s-capitol-police-inspector-general.html |title=SEC Said to Back Hire of U.S. Capitol Police Inspector General |publisher=Bloomberg |date=January 25, 2013 |accessdate=February 10, 2013}}</ref> Williams concluded in his 66-page Report that Kotz violated ethics rules by overseeing probes that involved people with whom he had [[conflicts of interest]] due to "personal relationships."<ref name="bloomberg1"/><ref name="bloomberg2"/> The report questioned Kotz's work on the Madoff investigation, among others, because Kotz was a "very good friend" with Markopolos.<ref name="bloomberg2">{{cite news|last=Schmidt |first=Robert |author2=Joshua Gallu |url=https://www.bloomberg.com/news/2012-10-06/former-sec-watchdog-kotz-violated-ethics-rules-review-finds-1-.html |title=Former SEC Watchdog Kotz Violated Ethics Rules, Review Finds |publisher=Bloomberg |date= October 26, 2012|accessdate=February 10, 2013}}</ref><ref name="businessweek2">{{cite news|url=http://www.businessweek.com/news/2012-10-06/former-sec-watchdog-kotz-violated-ethics-rules-review-finds |author= Robert Schmidt and Joshua Gallu |title=Former SEC Watchdog Kotz Violated Ethics Rules, Review Finds |publisher=Business Week |date= October 6, 2012 |accessdate=February 12, 2013}}</ref><ref name="huffingtonpost1">{{cite news|url=http://www.huffingtonpost.com/2012/11/15/davir-weber-lawsuit_n_2140452.html |title=David Weber Lawsuit: Ex-SEC Investigator Accused Of Wanting To Carry A Gun At Work, Suing For $20 Million|author=Sarah N. Lynch |work=[[The Huffington Post]] |date= November 15, 2012|accessdate=February 10, 2013}}</ref><ref name="huffingtonpost2">{{cite news |url=http://www.huffingtonpost.com/2012/10/05/david-kotz-conflict-of-interest_n_1944205.html |title=David Kotz, Ex-SEC Inspector General, May Have Had Conflicts Of Interest |work=[[The Huffington Post]] |date=October 5, 2012|accessdate=February 10, 2013}}</ref> It concluded that while it was unclear when Kotz and Markopolos became friends, it would have violated U.S. ethics rules if their relationship began before or during Kotz's Madoff investigation.<ref name="bloomberg2"/> The report also found that Kotz himself "appeared to have a conflict of interest" and should not have opened his Standford investigation, because he was friends with a female attorney who represented victims of the fraud.<ref name="businessweek2"/>
==== Destruction of documents ====
According 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''.<ref name=taibi20118/>
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:
<blockquote>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.<ref>Johnson, Carrie, [https://www.npr.org/2011/08/18/139758303/sec-documents-destroyed-employee-tells-congress "SEC Documents Destroyed, Employee Tells Congress"], National Public Radio (transcript and audio), August 18, 2011. Retrieved August 18, 2011.</ref></blockquote>
== Relationship to other agencies ==
In 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.<ref name="regulatory">[http://www.sia.com/capitol_hill/html/securities_regulation.html Regulatory Structure] {{webarchive |url=https://web.archive.org/web/20071118135436/http://www.sia.com/capitol_hill/html/securities_regulation.html |date=November 18, 2007 }}</ref>
In 1988 [[Working Group on Financial Markets|Executive Order 12631]] established the President's [[Working Group on Financial Markets]]. The Working Group is chaired by the [[United States Secretary of the Treasury|Secretary of the Treasury]] and includes the Chairman of the SEC, the Chairman of the [[Federal Reserve System|Federal Reserve]] and the Chairman of the [[Commodity Futures Trading Commission]]. The goal of the Working Group is to enhance the integrity, efficiency, orderliness, and competitiveness of the financial markets while maintaining investor confidence.<ref name="treasury">[http://www.ustreas.gov/offices/domestic-finance/financial-markets/fin-market-policy/ U.S. Treasury] {{webarchive |url=https://web.archive.org/web/20101203050801/http://www.ustreas.gov/offices/domestic-finance/financial-markets/fin-market-policy/ |date=December 3, 2010 }}</ref>
The Securities Act of 1933 was originally administered by the [[Federal Trade Commission]]. The Securities Exchange Act of 1934 transferred this responsibility from the FTC to the SEC. The main mission of the FTC is to promote consumer protection and to eradicate [[anti-competitive practices|anti-competitive business practices]]. The FTC regulates general business practices, while the SEC focuses on the securities markets.
The [[Temporary National Economic Committee]] was established by joint resolution of Congress 52 Stat. 705 on June 16, 1938. It was in charge of reporting to Congress on abuses of monopoly power. The committee was defunded in 1941, but its records are still under seal by order of the SEC.<ref name="tnec">{{cite web|url=https://www.archives.gov/research/guide-fed-records/groups/144.html |title=National Archives |publisher=Archives.gov |accessdate=March 1, 2013}}</ref>
The [[Municipal Securities Rulemaking Board]] (MSRB) was established in 1975 by Congress to develop rules for companies involved in [[underwriting]] and trading [[Municipal bond|municipal securities]]. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules.
While most violations of securities laws are enforced by the SEC and the various SROs it monitors, state securities regulators can also enforce statewide securities blue sky laws.<ref name="bluesky"/> States may require securities to be registered in the state before they can be sold there. [[National Securities Markets Improvement Act of 1996]] (NSMIA) addressed this dual system of federal-state regulation by amending Section 18 of the 1933 Act to exempt nationally traded securities from state registration, thereby pre-empting state law in this area. However, NSMIA preserves the states' anti-fraud authority over all securities traded in the state.<ref name="nsmia">{{cite web|url=http://www.accreditedinvestors.net/national-securities-markets-improvement-act/|title=National Securities Markets Improvement Act|publisher=AccreditedInvestors.net}}</ref>
The SEC also works with federal and state law enforcement agencies to carry out actions against actors alleged to be in violation of the securities laws.
The SEC is a member of [[International Organization of Securities Commissions]] (IOSCO), and uses the IOSCO Multilateral Memorandum of Understanding as well as direct bilateral agreements with other countries' [[securities commission]]s to deal with cross-border misconduct in securities markets.
==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: [[Investment Company Act of 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 S-1]] ([[Initial Public Offering|IPO]])
== References ==
{{Reflist|30em}}
== External links ==
{{commons category|United States Securities and Exchange Commission}}
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<!--===============================================================================-->
* {{Official website|https://www.sec.gov/}}
* [https://www.federalregister.gov/agencies/securities-and-exchange-commission SEC] in the [[Federal Register]]
* [http://www.sechistorical.org/ Securities and Exchange Commission Historical Society]
* [http://www.secalumni.org/ Association of Securities and Exchange Commission Alumni (ASECA)]
{{SEC}}
{{Authority control}}
{{DEFAULTSORT:U.S. Securities And Exchange Commission}}
[[Category:U.S. Securities and Exchange Commission| ]]
[[Category:1934 establishments in Washington, D.C.]]
[[Category:Corporate crime]]
[[Category:Financial crime prevention]]
[[Category:Financial regulatory authorities of the United States]]
[[Category:Government agencies established in 1934]]
[[Category:New Deal agencies]]
{{Use mdy dates|date=December 2016}}
{{Infobox government agency
|agency_name = U.S. Securities and Exchange Commission
|logo = US Security and Exchange Commission Office photo D Ramey Logan.jpg
|logo_caption = U.S. Securities and Exchange Commission headquarters in [[Washington, D.C.]]
|seal = Seal of the United States Securities and Exchange Commission.svg
|seal_caption = Seal of the U.S. Securities and Exchange Commission
|formed = {{start date and age|1934|6|6}}
|jurisdiction = [[Federal government of the United States|United States federal government]]
|headquarters = [[Washington, D.C.]], U.S.
|employees = 4,301 (2015)<ref>{{cite book |title=FY 2017 Congressional Budget Justification|page=14|publisher=U.S. Securities and Exchange Commission|year=2016 |url=https://www.sec.gov/about/reports/secfy17congbudgjust.pdf}}</ref>
|chief1_name = [[Jay Clayton (attorney)|Jay Clayton]], Chairman
|budget =
|website = {{URL|https://www.sec.gov|www.sec.gov}}
|footnotes =
}}
The '''U.S. Securities and Exchange Commission''' ('''SEC''') is an [[independent agencies of the United States government|independent agency of the United States federal government]]. The SEC holds primary responsibility for enforcing the federal [[security (finance)|securities]] laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.<ref>{{cite web
| url = https://www.sec.gov/Article/whatwedo.html
| title = What We Do
| last = SEC
| first =
| date = June 10, 2013
| website = SEC.gov
| publisher = U.S. Securities and Exchange Commission
| access-date = 2017-03-24
| quote = }}</ref>
In addition to the [[Securities Exchange Act of 1934]], which created it, the SEC enforces the [[Securities Act of 1933]], the [[Trust Indenture Act of 1939]], the [[Investment Company Act of 1940]], the [[Investment Advisers Act of 1940]], the [[Sarbanes–Oxley Act|Sarbanes–Oxley Act of 2002]], and other statutes. The SEC was created by Section 4 of the Securities Exchange Act of 1934 (now codified as {{usc|15|78d}} and commonly referred to as the Exchange Act or the 1934 Act).
==Overview==
{{refimprove section|date=February 2017}}
The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.<ref>{{cite web|url=http://investor.gov/introduction-markets/role-sec|title=The Role of the SEC|last=|first=|date=|website=Investor.gov|publisher=|access-date=}}</ref>
To achieve its mandate, the SEC enforces the statutory requirement that [[public company|public companies]] and other regulated companies submit quarterly and [[annual report]]s, as well as other periodic reports. In addition to annual [[financial statements|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 [[EDGAR]] (the Electronic Data Gathering, Analysis, and Retrieval system) [[online and offline|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 [[bank]]ing, [[investment]] in the capital markets is not [[Federal Deposit Insurance Corporation|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 [[fraud]].
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.
==History==
Prior to the enactment of the federal securities laws and the creation of the SEC, there existed so-called [[blue sky law]]s. They 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.<ref name="bluesky">{{cite web|url=http://www.seclaw.com/bluesky.htm |title=Blue Sky laws |publisher=Seclaw.com |date=July 7, 2007 |accessdate=March 1, 2013}}</ref>
However, these blue sky laws were generally found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could "ignore" blue sky laws by making securities offerings across state lines through the mail.<ref name="transwall">{{cite book|first=Joel|last=Seligman|title=The Transformation of Wall Street|pages=45, 51–52|publisher=Aspen|year=2003}}</ref> After holding hearings on abuses on interstate frauds (commonly known as the [[Pecora Commission]]), Congress passed the Securities Act of 1933 ({{usc|15|77a}}), which regulates interstate sales of securities ([[Primary market|original issues]]) at the federal level. The subsequent Securities Exchange Act of 1934 ({{usc|15|78d}}) regulates sales of securities in the [[secondary market]]. Section 4 of the 1934 act created the U.S. Securities and Exchange Commission to enforce the federal securities laws; both laws are considered parts of [[Franklin D. Roosevelt]]'s [[New Deal]] raft of legislation.
[[File:Joseph P. Kennedy, Sr. 1940.jpg|thumb|upright|left|[[Joseph P. Kennedy Sr.|Joseph P. Kennedy Sr]], the inaugural Chairman of the SEC]]
The Securities Act of 1933 is also known as the "Truth in Securities Act" and the "Federal Securities Act", or just the "1933 Act". Its goal was to increase public trust in the [[capital market]]s by requiring uniform disclosure of information about public securities offerings. The primary drafters of 1933 Act were Huston Thompson, a former [[Federal Trade Commission]] (FTC) chairman, and Walter Miller and Ollie Butler, two attorneys in the [[United States Department of Commerce|Commerce Department]]'s Foreign Service Division, with input from Supreme Court Justice [[Louis Brandeis]]. For the first year of the law's enactment, the enforcement of the statute rested with the Federal Trade Commission, but this power was transferred to the SEC following its creation in 1934.
In 1934, Roosevelt named his friend [[Joseph P. Kennedy]], a self-made multimillionaire financier and a leader among the Irish-American community, as the insider-as-chairman who knew Wall Street well enough to clean it up.<ref>He was the father of president John F. Kennedy. David Nasaw, ''The Patriarch: The Remarkable Life and Turbulent Times of Joseph P. Kennedy'' (2012) pp 204-37.</ref> Two of the other five commissioners were [[James M. Landis]] (one of the architects of the 1934 Act and other New Deal legislation) and [[Ferdinand Pecora]] (Chief Counsel to the Senate Committee on Banking and Currency during its investigation of Wall Street banking and stock brokerage practices). Kennedy added a number of intelligent young lawyers, including [[William O. Douglas]] and [[Abe Fortas]], both of whom later became Supreme Court justices. Kennedy's team defined the mission and operating mode for the SEC, making full use of its wide range of legal powers. The SEC had four missions. First and most important was to restore investor confidence in the securities market, which had practically collapsed because of doubts about its internal integrity, and fears of the external threats supposedly posed by anti-business elements in the Roosevelt administration. Second, in terms of integrity, the SEC had to get rid of the penny-ante swindles based on fake information, fraudulent devices, and unsound get-rich-quick schemes. That unsavory element had to be prosecuted and shut down. Thirdly, and much more important than the outright frauds, the SEC had to end the million-dollar insider maneuvers by top officials of major corporations, whereby insiders with access to much better information about the condition of the company knew when to buy or sell their own securities. A crackdown on insider trading was given high priority. Finally, the SEC had to set up a complex system of registration for all securities sold in America, with a clear-cut set of deadlines, rules and guidelines that everyone had to follow. Drafting precise rules was the main challenge faced by the bright young lawyers. The SEC succeeded in its four missions, as 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.<ref>Nassau, ''The Patriarch,'' pp. 226–28</ref>
The law requires that issuing companies register distributions of securities with the SEC prior to interstate sales of these securities, so that investors may have access to basic financial information about issuing companies and risks involved in investing in the securities in question. Since 1994, most registration statements (and associated materials) filed with the SEC can be accessed via the SEC's online system, EDGAR.<ref name="Act1933">{{cite web|url=https://www.sec.gov/about/laws/sa33.pdf |title=Securities Act of 1933 |format=PDF |accessdate=March 1, 2013}}</ref>
The Securities Exchange Act of 1934 is also known as "the Exchange Act" or "the 1934 Act". This 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]] (NYSE), [[self-regulatory organization]]s (SROs) such as the [[Financial Industry Regulatory Authority|National Association of Securities Dealers]] (NASD), the [[Municipal Securities Rulemaking Board]] (MSRB), online trading platforms such as the [[NASDAQ|NASDAQ Stock Market]] (NASDAQ) and [[alternative trading system]]s (ATSs), and any other persons (''e.g.'', securities brokers) engaged in transactions for the accounts of others.<ref name="Act1934">{{cite web|url=https://www.sec.gov/about/laws/sea34.pdf |title=Securities Exchange Act of 1934 |format=PDF |accessdate=March 1, 2013}}</ref>
Later SEC commissioners and chairmen include [[William O. Douglas]], [[Jerome Frank (lawyer)|Jerome Frank]] (one of the leaders of the [[legal realism]] movement), and [[William J. Casey]] (who later headed the [[Central Intelligence Agency]] under President [[Ronald Reagan]]).
==Organizational structure==
===Commission members===
{{main|Securities and Exchange Commission appointees}}
[[nonpartisan|Non-partisan]], no more than three Commissioners may belong to the same political party. 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 presidential campaign, 2008|2008 presidential election]] in connection with the [[Global financial crisis of 2008–2009|ensuing financial crises]].
Currently, the SEC Commissioners are:<ref>{{cite web|url=https://www.sec.gov/about/commissioner.shtml |title=Current SEC Commissioners |publisher=Sec.gov |date=December 17, 2012 |accessdate=March 1, 2013}}</ref>
{|class="wikitable sortable" style="text-align:center"
|-
! Name
! Title
! Party
! Took office
! Term expires
|-
| [[Jay Clayton (attorney)|Jay Clayton]]
| Chairman
| Independent
| May 4, 2017
| 2021
|-
| [[Kara Stein]]
| rowspan="4" | Commissioner
| Democratic
| August 9, 2013
| 2017
|-
| [[Robert J. Jackson Jr.]]
| Democratic
| rowspan="2" | January 11, 2018
| 2019
|-
| [[Hester Peirce]]
| Republican
| 2020
|-
|Elad Roisman
|Republican
|September 11, 2018
|2023
|}
===Divisions===
[[File:U.S. Securities and Exchange Commission headquarters.JPG|thumb|U.S. Securities and Exchange Commission headquarters in [[Washington, D.C.]], near [[Union Station (Washington)|Union Station]]]]
Within the SEC, there are five divisions. Headquartered in [[Washington, D.C.]], the SEC has 11 regional offices throughout the US.
The SEC's divisions are:<ref name="divisions">[https://www.sec.gov/about/whatwedo.shtml#org Organization of the SEC] U.S. Securities and Exchange Commission</ref>
* Corporation Finance
* Trading and Markets
* Investment Management
* Enforcement
* Economic and Risk Analysis
'''Corporation Finance''' is the division that oversees the disclosure made by [[Public company|public companies]], as well as the registration of transactions, such as mergers, made by companies. The division is also responsible for operating EDGAR.
The '''Trading and Markets''' division oversees self-regulatory organizations such as the [[Financial Industry Regulatory Authority]] (FINRA) and [[Municipal Securities Rulemaking Board]] (MSRB) and all [[broker-dealer]] firms and [[investment banking|investment houses]]. This division also interprets proposed changes to regulations and monitors operations of the industry. In practice, the SEC delegates most of its enforcement and rulemaking authority to FINRA. In fact, all trading firms not regulated by other SROs must register as a member of FINRA. Individuals trading securities must pass exams administered by FINRA to become [[General Securities Representative Exam|registered representatives]].<ref name="finra">{{cite web|url=http://www.finra.com |title=National Association of Securities Dealers |publisher=Finra.com |accessdate=March 1, 2013}}</ref><ref name="nasdSec">"How does the NASD differ from the SEC?" Investopedia. Investopedia Inc.</ref>
The '''Investment Management''' Division oversees registered investment companies, which include [[mutual fund]]s, as well as registered [[investment advisor]]s. These entities are subject to extensive regulation under various federal securities laws.<ref>Lemke and Lins, ''Regulation of Investment Advisers'' (Thomson West, 2013 ed.); Lemke, Lins and Smith, ''Regulation of Investment Companies'' (Matthew Bender, 2013 ed.).</ref> The Division of Investment Management administers various federal securities laws, in particular the Investment Company Act of 1940 and Investment Advisers Act of 1940. This division's responsibilities include:<ref name="InvestManDivResponsibilities">{{cite web|url=https://www.sec.gov/about/whatwedo.shtml#org |title=How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation (Securities and Exchange Commission) |publisher=Sec.gov |accessdate=March 1, 2013}}</ref>
* assisting the Commission in interpreting laws and regulations for the public and SEC inspection and enforcement staff;
* responding to no-action requests and requests for exemptive relief;
* reviewing investment company and investment adviser filings;
* assisting the Commission in enforcement matters involving investment companies and advisers; and
* advising the Commission on adapting SEC rules to new circumstances.
The '''Enforcement''' Division works with the other three divisions, and other Commission offices, to investigate violations of the securities laws and regulations and to bring actions against alleged violators. The SEC generally conducts investigations in private. The SEC's staff may seek voluntary production of documents and testimony, or may seek a formal order of investigation from the SEC, which allows the staff to compel the production of documents and witness testimony. The SEC can bring a [[lawsuit|civil action]] in a [[United States district court|U.S. District Court]], or an [[administrative proceeding]] which is heard by an independent [[administrative law judge]] (ALJ). The SEC does not have criminal authority, but may refer matters to state and federal prosecutors. The director of the SEC's Enforcement Division [[Robert Khuzami]] left the office in February 2013.<ref>{{cite news|last=Protess |first=Ben |url=https://dealbook.nytimes.com/2013/02/11/s-e-c-s-revolving-door-hurts-its-effectiveness-report-says/ |title=S.E.C.'s Revolving Door Hurts Its Effectiveness, Report Says |publisher=Dealbook.nytimes.com |accessdate=March 1, 2013 |date=February 11, 2013}}</ref>
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-dealer]]s, [[stock exchange]]s, [[credit rating agency|credit rating agencies]], registered investment companies, including both closed-end and open-end ([[mutual fund]]s) investment companies, [[money fund]]s. and [[Registered Investment Advisor]]s;
* 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]];
* The ''Office of Investor Education and Advocacy'', which helps educate the public about securities markets and warns investors of fraud and stock market scams;
* The ''Office of Economic Analysis'', which helps the SEC estimate the economic costs and benefits of its various rules and regulations; 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 ''[[Inspector General]]''. The SEC announced in January 2013 that it had named [[Carl Hoecker]] the new inspector general.<ref>{{cite web|last=Schroeder |first=Peter |url=http://thehill.com/blogs/on-the-money/banking-financial-institutions/279929-sec-names-new-inspector-general |title=SEC names new inspector general – The Hill's On The Money |publisher=Thehill.com |date=January 29, 2013 |accessdate=March 1, 2013}}</ref><ref>{{cite web|url=https://www.sec.gov/news/press/2012/2012-106.htm|title=SEC.gov - Jon Rymer Named Interim Inspector General|website=www.sec.gov}}</ref> He has a staff of 22.<ref>Greene, Jenna,[http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202508312296 "The Conversation Stopper: SEC Inspector General H. David Kotz: Staffers may not like riding the elevator with him, but the SEC is taking his advice"], ''Corporate Counsel'', July 27, 2011. Retrieved August 18, 2011.</ref>
* 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.<ref>{{cite web|url=https://www.sec.gov/whistleblower |title=Office of the SEC Whistleblower |publisher=Sec.gov |accessdate=2013-12-05}} {{PD-notice}}</ref> 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."<ref>https://www.sec.gov/about/offices/owb/reg-21f.pdf</ref> 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.<ref>https://www.sec.gov/about/offices/owb/annual-report-2012.pdf {{PD-notice}}</ref>
==SEC communications==
===Comment letters===
Comment letters are issued by the SEC's Division of Corporation Finance in response to a company's public filing.<ref name="secgovcommentletters">{{cite web|url=https://www.sec.gov/answers/commentletters.htm |title=Fast Answers: Comment Letters |publisher=SEC.gov |accessdate=October 16, 2015}}</ref> 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.<ref name="secgovfilingprocess">{{cite web|url=https://www.sec.gov/divisions/corpfin/cffilingreview.htm |title=Filing Review Process| publisher=SEC.gov |accessdate=October 16, 2015}}</ref> 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]].<ref name="nytimesgavin">{{cite web |url=https://www.nytimes.com/2006/05/28/business/yourmoney/28gavin.html?pagewanted=print |title=Deafened by the S.E.C.'s Silence, He Sued|author=Gretchen Morgenson|date=May 28, 2008|newspaper=The New York Times}}</ref> The [[chief executive officer]] of CA, to whom the letter was addressed, pleaded guilty to fraud at CA in 2004.<ref name="nytimesgavin" />
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."<ref name="nytimesgavin" />
===No-action letters===
[[No-action letter]]s 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 performance==
In the latest [[Center for Effective Government]] analysis of 15 federal agencies which receive the most [[Freedom of Information Act (United States)]] (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.<ref>[http://www.foreffectivegov.org/access-to-information-scorecard-2015/ Making the Grade: Access to Information Scorecard 2015] March 2015, 80 pages, [[Center for Effective Government]], retrieved 21 March 2016</ref>
==Operations==
=== List of major SEC enforcement actions (2009–12) ===
{{Main|List of major SEC enforcement actions (2009–12)}}
The SEC's Enforcement Division brought a number of major actions in 2009–12.
===Regulatory action in the credit crunch===
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.<ref>{{cite web |url=http://www.thestreet.com/story/10437867/1/sec-bans-naked-short-selling.html?puc=googlefi&cm_ven=GOOGLEFI&cm_cat=FREE&cm_ite=NA |title=Naked-Shorts Ban Gets Chilly Reception|
author=Lauren Tara LaCapra |date = September 17, 2008|newspaper=The street}}</ref><ref>{{cite news |url=http://money.cnn.com/2008/09/17/news/companies/sec_short_selling/ |title=Regulator enacts new ruling banning 'naked' short selling on all public companies. | work=CNN | date=September 17, 2008 | accessdate=May 26, 2010 | first=David | last=Ellis}}</ref>
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 swap]]s. 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 failures===
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".<ref>{{Cite episode
| publisher = PBS
| credits = Jason Breslow (Director)
| title = Is SEC "Fearful" of Wall Street? Agency Insider Says Yes
| work = The Untouchables
| series = [[Frontline (U.S. TV series)]]
| accessdate = December 14, 2014
| date = April 8, 2014
| url = https://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/is-sec-fearful-of-wall-street-agency-insider-says-yes/
}}</ref><ref>{{Cite web
| last = Schmidt
| first = Robert
| title = SEC Goldman Lawyer Says Agency Too Timid on Wall Street Misdeeds
| work = Bloomberg
| accessdate = December 14, 2014
| date = April 8, 2014
| url = https://www.bloomberg.com/news/2014-04-08/sec-goldman-lawyer-says-agency-too-timid-on-wall-street-misdeeds.html
}}</ref><ref>{{Cite web
| last = Kidney
| first = Jim
| title = Retirement Remarks
| work = SEC Union, NTEU Chapter 293
| accessdate = November 20, 2014
| date = 2014
| url = http://www.secunion.org/files/RetirementRemarks.pdf
| archive-url = https://web.archive.org/web/20140912014828/http://www.secunion.org/files/RetirementRemarks.pdf
| dead-url = yes
| archive-date = 2014-09-12
}}</ref>
[[Christopher Cox]], the former SEC chairman, has recognized the organization's multiple failures in relation to the [[Bernard Madoff]] fraud.<ref>{{cite web|last=Chung |first=Joanna |url=http://www.ft.com/cms/s/92bd4c68-cbd7-11dd-ba02-000077b07658,Authorised=false.html |title=Financial Times: SEC chief admits to failures in Madoff case |publisher=Ft.com |date=December 17, 2008 |accessdate=March 1, 2013}}</ref> 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.<ref name="Forbes12.23">{{cite news
| last =Moyer | first =Liz | title =Could SEC Have Stopped Madoff Scam In 1992?
| work = | publisher =Forbes | date =December 23, 2008
| url =https://www.forbes.com/business/2008/12/23/madoff-fraud-sec-biz-wall-cx_lm_1223madoff.html
| accessdate =December 24, 2008|archiveurl=https://web.archive.org/web/20090201052739/http://www.forbes.com/2008/12/23/madoff-fraud-sec-biz-wall-cx_lm_1223madoff.html|archivedate=February 1, 2009}}</ref> The SEC has been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud.<ref name="fort wayne sec">{{cite news|url=http://www.fwdailynews.com/articles/2008/12/26/greater_fort_wayne/features/opinion/letters_to_the_editor/hid108593sect_34f8ccf755b92af298.txt |title=Madoff exposes double standard for Ponzi schemes |work=Bloomberg News |publisher=Greater Fort Wayne Business Weekly |accessdate=December 26, 2008 |last=Weil |first=Jonathan }}{{dead link|date=June 2016|bot=medic}}{{cbignore|bot=medic}}</ref>
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".<ref name="forbes sec">{{cite news| url=https://www.forbes.com/intelligentinvesting/2008/12/20/intelligent-investing-madoff-sec-fraud-panelDec22.html?partner=contextstory|title=Love, Madoff And The SEC|publisher=Forbes|accessdate=December 24, 2008|last=Serchuk|first=David|date=December 22, 2008}}</ref> 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.<ref>{{cite news| url=https://www.nytimes.com/2008/12/19/business/19swanson.html?_r=0 | work=The New York Times | first=Stephen | last=Labaton | title=Unlikely Player Pulled Into Madoff Swirl | date=December 19, 2008}}</ref>
Approximately 45 per cent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud.<ref>{{cite web |url=http://www.briskfox.com/open/years/2009_q1/do_h_c44818.php|title=Little faith in regulators and rating agencies, as LP demand for alternatives cools off, finds survey}}</ref> [[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.<ref>{{cite book | last = Markopolos | first = H | authorlink = Harry Markopolos | title = No One Would Listen: A True Financial Thriller | isbn = 0-470-55373-1 | publisher = [[John Wiley & Sons]] | year = 2010 | pages = [https://books.google.com/books?id=7NeZeQ6qHq4C&pg=PA55#v=onepage&q&f=false 55–60] }}</ref>
A similar failure occurred in the case of [[Allen Stanford]], who sold fake [[Certificate of deposit|certificates of deposit]] to tens of thousands of people, many of them working-class retirees. In 1997, the SEC's own examiners spotted the fraud and warned about it. But the Enforcement division would not pursue Stanford, despite repeated warnings by SEC examiners over the years.<ref>{{cite book | last = Kurdas | first = Chidem | title = Political Sticky Wicket: The Untouchable Ponzi Scheme of Allen Stanford |url=https://www.amazon.com/Political-Sticky-Wicket-Untouchable-Stanford/dp/1479257583/ref=sr_1_2?s=books&ie=UTF8&qid=1348001922&sr=1-2 }}</ref> After the Madoff fraud emerged, the SEC finally took action against Stanford in 2009.
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]];<ref name=Blaylock2010>Blaylock D. (June 2010). [http://www.commondreams.org/newswire/2010/06/29-6 SEC Settles with Aguirre]. Government Accountability Project.</ref> [[Mary Jo White]], who was at the time representing Morgan Stanley later nominated as chair of the SEC, was involved in this case.<ref>[https://www.rollingstone.com/politics/blogs/taibblog/choice-of-mary-jo-white-to-head-sec-puts-fox-in-charge-of-hen-house-20130125 Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen House]. ''Rolling Stone''.</ref> While the insider case was dropped at the time, a month prior to the SEC's settlement with Aguirre the SEC filed charges against Pequot.<ref name=Blaylock2010/> The Senate released a report in August 2007 detailing the issue and calling for reform of the SEC.<ref name=SenateFiringReport>Committee on Finance, Committee on the Judiciary.[http://finance.senate.gov/library/prints/download/?id=f9d94204-7602-49f7-8bab-cb932c05310e The Firing of an SEC Attorney and the Investigation of Pequot Capital Management]. U.S. Government Printing Office.</ref>
On September 26, democratic senator [[Mark Warner]] in a letter asked the SEC to evaluate whether the current disclosure regime was adequate, citing the low number of companies' disclosures to date.<ref>{{cite web|title=20160926 Letter to SEC on Yahoo Breach|url=https://www.scribd.com/document/325367178/20160926-Letter-to-SEC-on-Yahoo-Breach|accessdate=13 December 2016}}</ref><ref>{{cite web|last1=Volz|first1=Dustin|title=Yahoo hack may become test case for SEC data breach disclosure rules|url=https://www.reuters.com/article/us-yahoo-cyber-disclosure-idUSKCN1202MG|publisher=Reuters|accessdate=13 December 2016}}</ref><ref>{{cite web|title=Sen. Warner Calls on SEC to Investigate Disclosure of Yahoo Breach|url=http://www.warner.senate.gov/public/index.cfm/pressreleases?ContentRecord_id=AC6EC18E-F309-404B-BF2D-9F60CD9884E8|accessdate=13 December 2016|date=26 September 2016}}</ref>
Others have criticized the SEC for taking an overly rule-based and enforcement-focused approach to regulation, rather than an approach that emphasizes industry-wide safety and learning and thus ensures the reliability of the national securities trading system.<ref>{{Cite web
| title = Preventing Crashes: Lessons for the SEC from the Airline Industry
| accessdate = January 6, 2015
| date = January 6, 2015
| url = http://www.system-logic.com/commentary/posts/Preventing%20Crashes%3A%20Lessons%20for%20the%20SEC%20from%20the%20Airline%20Industry1Ycg
}}</ref>
====Inspector General office failures====
In 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]].<ref>Johnson, Fawn. (December 17, 2009) [http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=200912171553dowjonesdjonline000580&title=group-alleges-slack-sec-response-to-internal-watchdog "Group Alleges Slack SEC Response to Internal Watchdog"]. NASDAQ.</ref> 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.<ref>Brian, Danielle. (December 16, 2009) [http://www.pogo.org/pogo-files/letters/financial-oversight/er-fra-20091216.html "POGO Letter to SEC Chairman Mary Schapiro regarding SEC's failure to act on hundreds of Inspector General recommendations"] {{webarchive|url=https://web.archive.org/web/20100804151139/http://www.pogo.org/pogo-files/letters/financial-oversight/er-fra-20091216.html |date=August 4, 2010 }}. The Project On Government Oversight Website.</ref>
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".<ref name=taibi20118>[https://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817 Is the SEC Covering Up Wall Street Crimes?], Matt Taibbi, 2011 August 17</ref>
Because of concerns raised by [[David P. Weber]], former SEC Chief Investigator, regarding conduct by SEC Inspector General [[H. David Kotz]], Inspector General [[David C. Williams (Inspector General)|David C. Williams]] of the [[U.S. Postal Service]] was brought in to conduct an independent, outside review of Kotz's alleged improper conduct in 2012.<ref name="bloomberg1">{{cite news|last=Schmidt |first=Robert |url=https://www.bloomberg.com/news/2013-01-25/sec-said-to-back-hire-of-u-s-capitol-police-inspector-general.html |title=SEC Said to Back Hire of U.S. Capitol Police Inspector General |publisher=Bloomberg |date=January 25, 2013 |accessdate=February 10, 2013}}</ref> Williams concluded in his 66-page Report that Kotz violated ethics rules by overseeing probes that involved people with whom he had [[conflicts of interest]] due to "personal relationships."<ref name="bloomberg1"/><ref name="bloomberg2"/> The report questioned Kotz's work on the Madoff investigation, among others, because Kotz was a "very good friend" with Markopolos.<ref name="bloomberg2">{{cite news|last=Schmidt |first=Robert |author2=Joshua Gallu |url=https://www.bloomberg.com/news/2012-10-06/former-sec-watchdog-kotz-violated-ethics-rules-review-finds-1-.html |title=Former SEC Watchdog Kotz Violated Ethics Rules, Review Finds |publisher=Bloomberg |date= October 26, 2012|accessdate=February 10, 2013}}</ref><ref name="businessweek2">{{cite news|url=http://www.businessweek.com/news/2012-10-06/former-sec-watchdog-kotz-violated-ethics-rules-review-finds |author= Robert Schmidt and Joshua Gallu |title=Former SEC Watchdog Kotz Violated Ethics Rules, Review Finds |publisher=Business Week |date= October 6, 2012 |accessdate=February 12, 2013}}</ref><ref name="huffingtonpost1">{{cite news|url=http://www.huffingtonpost.com/2012/11/15/davir-weber-lawsuit_n_2140452.html |title=David Weber Lawsuit: Ex-SEC Investigator Accused Of Wanting To Carry A Gun At Work, Suing For $20 Million|author=Sarah N. Lynch |work=[[The Huffington Post]] |date= November 15, 2012|accessdate=February 10, 2013}}</ref><ref name="huffingtonpost2">{{cite news |url=http://www.huffingtonpost.com/2012/10/05/david-kotz-conflict-of-interest_n_1944205.html |title=David Kotz, Ex-SEC Inspector General, May Have Had Conflicts Of Interest |work=[[The Huffington Post]] |date=October 5, 2012|accessdate=February 10, 2013}}</ref> It concluded that while it was unclear when Kotz and Markopolos became friends, it would have violated U.S. ethics rules if their relationship began before or during Kotz's Madoff investigation.<ref name="bloomberg2"/> The report also found that Kotz himself "appeared to have a conflict of interest" and should not have opened his Standford investigation, because he was friends with a female attorney who represented victims of the fraud.<ref name="businessweek2"/>
==== Destruction of documents ====
According 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''.<ref name=taibi20118/>
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:
<blockquote>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.<ref>Johnson, Carrie, [https://www.npr.org/2011/08/18/139758303/sec-documents-destroyed-employee-tells-congress "SEC Documents Destroyed, Employee Tells Congress"], National Public Radio (transcript and audio), August 18, 2011. Retrieved August 18, 2011.</ref></blockquote>
== Relationship to other agencies ==
In 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.<ref name="regulatory">[http://www.sia.com/capitol_hill/html/securities_regulation.html Regulatory Structure] {{webarchive |url=https://web.archive.org/web/20071118135436/http://www.sia.com/capitol_hill/html/securities_regulation.html |date=November 18, 2007 }}</ref>
In 1988 [[Working Group on Financial Markets|Executive Order 12631]] established the President's [[Working Group on Financial Markets]]. The Working Group is chaired by the [[United States Secretary of the Treasury|Secretary of the Treasury]] and includes the Chairman of the SEC, the Chairman of the [[Federal Reserve System|Federal Reserve]] and the Chairman of the [[Commodity Futures Trading Commission]]. The goal of the Working Group is to enhance the integrity, efficiency, orderliness, and competitiveness of the financial markets while maintaining investor confidence.<ref name="treasury">[http://www.ustreas.gov/offices/domestic-finance/financial-markets/fin-market-policy/ U.S. Treasury] {{webarchive |url=https://web.archive.org/web/20101203050801/http://www.ustreas.gov/offices/domestic-finance/financial-markets/fin-market-policy/ |date=December 3, 2010 }}</ref>
The Securities Act of 1933 was originally administered by the [[Federal Trade Commission]]. The Securities Exchange Act of 1934 transferred this responsibility from the FTC to the SEC. The main mission of the FTC is to promote consumer protection and to eradicate [[anti-competitive practices|anti-competitive business practices]]. The FTC regulates general business practices, while the SEC focuses on the securities markets.
The [[Temporary National Economic Committee]] was established by joint resolution of Congress 52 Stat. 705 on June 16, 1938. It was in charge of reporting to Congress on abuses of monopoly power. The committee was defunded in 1941, but its records are still under seal by order of the SEC.<ref name="tnec">{{cite web|url=https://www.archives.gov/research/guide-fed-records/groups/144.html |title=National Archives |publisher=Archives.gov |accessdate=March 1, 2013}}</ref>
The [[Municipal Securities Rulemaking Board]] (MSRB) was established in 1975 by Congress to develop rules for companies involved in [[underwriting]] and trading [[Municipal bond|municipal securities]]. The MSRB is monitored by the SEC, but the MSRB does not have the authority to enforce its rules.
While most violations of securities laws are enforced by the SEC and the various SROs it monitors, state securities regulators can also enforce statewide securities blue sky laws.<ref name="bluesky"/> States may require securities to be registered in the state before they can be sold there. [[National Securities Markets Improvement Act of 1996]] (NSMIA) addressed this dual system of federal-state regulation by amending Section 18 of the 1933 Act to exempt nationally traded securities from state registration, thereby pre-empting state law in this area. However, NSMIA preserves the states' anti-fraud authority over all securities traded in the state.<ref name="nsmia">{{cite web|url=http://www.accreditedinvestors.net/national-securities-markets-improvement-act/|title=National Securities Markets Improvement Act|publisher=AccreditedInvestors.net}}</ref>
The SEC also works with federal and state law enforcement agencies to carry out actions against actors alleged to be in violation of the securities laws.
The SEC is a member of [[International Organization of Securities Commissions]] (IOSCO), and uses the IOSCO Multilateral Memorandum of Understanding as well as direct bilateral agreements with other countries' [[securities commission]]s to deal with cross-border misconduct in securities markets.
==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: [[Investment Company Act of 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 S-1]] ([[Initial Public Offering|IPO]])
== References ==
{{Reflist|30em}}
== External links ==
{{commons category|United States Securities and Exchange Commission}}
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* {{Official website|https://www.sec.gov/}}
* [https://www.federalregister.gov/agencies/securities-and-exchange-commission SEC] in the [[Federal Register]]
* [http://www.sechistorical.org/ Securities and Exchange Commission Historical Society]
* [http://www.secalumni.org/ Association of Securities and Exchange Commission Alumni (ASECA)]
{{SEC}}
{{Authority control}}
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[[Category:U.S. Securities and Exchange Commission| ]]
[[Category:1934 establishments in Washington, D.C.]]
[[Category:Corporate crime]]
[[Category:Financial crime prevention]]
[[Category:Financial regulatory authorities of the United States]]
[[Category:Government agencies established in 1934]]
[[Category:New Deal agencies]]
