What Is the SEC and What Does It Do?
3 min read · · Korean original
The main role of the U.S. Securities and Exchange Commission (SEC) is to oversee financial markets and protect investors. The SEC requires companies to disclose information transparently, and it also requires brokers, dealers and exchanges to act honestly and fairly toward investors.
The SEC was created after the Great Depression of 1929 under the Securities Act of 1933 and the Securities Exchange Act of 1934, and it works with law enforcement agencies to punish wrongdoing in the securities markets.
What the SEC Does
The SEC oversees financial markets based on U.S. securities laws and regulations. The SEC works to protect investors by ensuring that companies share information transparently, that trading is fair, and that fraud is prevented. It also provides investors with company registration information, financial reports and more through a searchable database called EDGAR.
You can't talk about the SEC without talking about lawsuits. The SEC can file civil lawsuits in federal courts and administrative courts. Criminal cases, on the other hand, fall under the jurisdiction of law enforcement agencies within the Department of Justice. Even so, the SEC usually works closely with those agencies and provides them with evidence.
Every year, the SEC brings a large number of civil lawsuits against companies and individuals that violate securities laws. The most common types of offenses the SEC prosecutes are manipulating accounting records, providing false or misleading information, and insider trading.
How the SEC Is Organized
The SEC is made up of five commissioners appointed by the President, one of whom serves as Chair. Each commissioner serves a five-year term. The SEC consists of 5 divisions and 23 offices, and its duties include interpreting and enforcing securities laws, making new rules, overseeing securities institutions, and coordinating regulation with other government bodies.
The History of the SEC
So how did the SEC come about? The following historical events played a big part in its creation.
In October 1929, the U.S. stock market crashed, and countless securities became worthless. The market was flooded with lies and misleading information, and trust in the securities markets plummeted. To restore that trust, Congress launched the SEC based on the Securities Act of 1933 and the Securities Exchange Act of 1934. The goal was to oversee markets and companies and to make sure brokers, dealers and exchanges acted honestly and fairly toward investors.
In addition, during the 2008 financial crisis, the SEC played an important role in prosecuting the financial institutions that caused the crisis and returning billions of dollars to investors. In total, it charged 204 entities or individuals and imposed about $4 billion in penalties. Goldman Sachs alone paid $550 million in penalties. This was the largest penalty ever paid by a Wall Street firm and the second-largest in SEC history.
However, the SEC has also been criticized for being reluctant to directly prosecute the brokers and senior executives involved in illegal activity. So far, only one Wall Street executive has gone to prison for criminal conduct, while the rest got off with fines and administrative sanctions.
Wrapping Up
The U.S. SEC is the agency that oversees the securities markets and protects investors. It was created after the Great Depression of 1929 under the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC aims to build transparent and fair markets and protect investors, and it works with law enforcement agencies to punish wrongdoing.
