Securities and Exchange Commission

Author:Jeffrey Lehman, Shirelle Phelps
 
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The Securities and Exchange Commission (SEC) is the federal agency primarily responsible for administering and enforcing federal SECURITIES laws. The SEC strives to protect investors by ensuring that the securities markets are honest and fair. When necessary, the SEC enforces securities laws through a variety of means, including fines, referral for criminal prosecution, revocation or suspension of licenses, and injunctions.

Headquartered in Washington, D.C., the commission itself is comprised of five members appointed by the president; one position expires each year. No more than three members may be from one political party. With more than 900 employees, the agency has five regional and six district offices throughout the country and enjoys a generally favorable reputation.

Securities Laws

Before the October 29, 1929, STOCK MARKET crash on Wall Street, a company could issue stock without disclosing its financial status. Many bogus or severely undercapitalized corporations sold stock, eventually leading to the disastrous plunge in the market and an

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ensuing panic. From the havoc wreaked by the crash came the first major piece of federal securities legislation, the Securities Act of 1933 (15 U.S.C.A. § 77a et seq.). The act regulates the primary, or new issue, market. The following year, Congress provided for the creation of the Securities and Exchange Commission when it enacted far-reaching securities legislation in the Securities Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.). These two laws, along with the Trust Indenture Act of 1939 (15a U.S.C.A. §§ 77aaa?77bbbb), the Investment Company Act of 1940 (15 U.S.C.A. §§ 80-1?80a-64), the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1?80b-21), and the Public Utility Holding Company Act of 1935 (15 U.S.C.A. §§ 79a?79z-6) make up the bulk of federal securities laws under the jurisdiction of the SEC.

In addition to federal statutory authority, the SEC has broad rule-making authority. It has used this power to fashion procedural and technical rules, define terms used in the laws, and make substantive rules implementing the laws. The SEC also devises forms that must be used to fulfill various requirements in the statutes and rules. Moreover, the SEC engages in a significant amount of informal lawmaking through the distribution of SEC releases containing its opinions on questions of current concern. These releases are disseminated to the press, companies and firms registered with the SEC, and other interested persons. In addition to these general public statements of policy, the SEC also responds to individual private inquiries.

Securities Act of 1933 The Securities Act of 1933 regulates the PUBLIC OFFERING of new issues. All public offerings of securities in inter-state commerce or through the mails must be registered with the SEC before they can be offered and sold, subject to exemptions for specifically enumerated types of securities, such as government securities, nonpublic offerings, offerings below a certain dollar amount, and intrastate offerings. The registration provisions apply to issuers of securities or others acting on their behalf. Issuers must file a registration statement with the SEC containing financial and other pertinent data about the issuer and the securities that are being offered. The Securities Act of 1933 also prohibits fraudulent or deceptive practices in the offer or sale of securities, whether or not the securities are required to be registered.

A major part of the SEC work is to review the registration documents required by the 1933 act and determine when registration is required. Registration with the SEC is intended to allow potential investors to make an informed evaluation regarding the worth of securities. Registration does not mean that the commission approves of the issue or that the disclosures in the registration are accurate, nor does it insure an investor against loss in the purchase.

Registration requires extensive disclosure on behalf of a corporation. For example, full disclosure includes management's aims and goals; the number of shares the company is selling; what the issuer intends to do with the money; the company's tax status; contingent plans if problems arise; legal standing, such as pending lawsuits; income and expenses; and inherent risks of the enterprise. Registration consists of two parts: a prospectus, which must be furnished to every purchaser of the security, and other information and attachments...

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