Securities And Exchange Commission - SEC

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What is the 'Securities And Exchange Commission - SEC'

The Securities and Exchange Commission (SEC) is a government commission created by U.S. Congress with goals of protecting investors, maintaining fair and orderly functioning of securities markets, and facilitating capital formation. The SEC promotes full public disclosure, protects investors against fraudulent and manipulative practices in the market, and monitors corporate takeover actions in the United States. Generally, most issues of securities offered in interstate commerce, through the mail or on the internet, must be registered with the SEC.

BREAKING DOWN 'Securities And Exchange Commission - SEC'

The SEC's primary function is to oversee organizations and individuals in the securities markets, including securities exchanges, brokerage firms, dealers, investment advisors and various investment funds. Through established securities rules and regulations, the SEC promotes disclosure and sharing of market-related information, fair dealing and protection against fraud. It provides investors with access to registration statements, periodic reports and other securities forms through its comprehensive electronic, data gathering, analysis and retrieval (EDGAR) database.

As a tool for bolstering law abidance, the SEC brings numerous civil enforcement actions against firms and individuals that violate securities laws each year. Typical offenses prosecuted by the SEC include accounting fraud, dissemination of misleading or false information, and insider trading.

Founding of the SEC

When the U.S. stock market crashed in 1929, making securities issued by many companies worthless as a result of previously stated false or misleading information, public faith in securities markets plunged. To restore confidence in capital markets, U.S. Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, which created the SEC. The SEC's primary tasks were checking that companies made truthful statements about their businesses and securities institutions, such as brokers, dealers and exchanges, treated investors in an honest and fair manner.

Organization of the SEC

The SEC is headed by five commissioners appointed by the president, with one of the commissioners designated as chairman of the SEC. The law requires that no more than three of the five commissioners be from the same political party to promote nonpartisanship. The SEC consists of five divisions and 23 offices, whose goals are to interpret and take enforcement actions on securities laws; issue new rules; provide oversight over securities institutions; and coordinate regulation among different levels of government.

The SEC Office of the Whistleblower

Among all the SEC's offices, the office of the whistleblower stands out as one of the most potent means of securities laws enforcement. Created as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC's whistleblower program rewards eligible individuals for sharing original information that leads to successful law enforcement actions, producing monetary sanctions in excess of $1 million. Eligible individuals can receive 10 to 30% of the total sanctions' proceeds.