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65-578: The U.S. Securities and Exchange Commission ( SEC ) is an independent agency of the United States federal government , created in the aftermath of the Wall Street Crash of 1929 . Its primary purpose is to enforce laws against market manipulation . Created by Section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C.   § 78d and commonly referred to as

130-519: 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. Approximately 45 percent of institutional investors thought that better oversight by the SEC could have prevented the Madoff fraud. Harry Markopolos complained to the SEC's Boston office in 2000, telling the SEC staff they should investigate Madoff because it

195-461: A civil action in a 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 Economic and Risk Analysis Division (DERA) was created in September 2009 to integrate financial economics and rigorous data analytics into the core mission of

260-500: 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. In a 2011 article by Matt Taibbi in Rolling Stone , former SEC employees were interviewed and commented negatively on

325-559: A clear-cut set of deadlines, rules and guidelines. The SEC succeeded; 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. Later SEC commissioners and chairmen include William O. Douglas , Jerome Frank , and William J. Casey . Since 1994, most registration statements (and associated materials) filed with

390-448: A commission, board, or similar collegial body consisting of five to seven members who share power over the agency. (This is why many independent agencies include the word "Commission" or "Board" in their name.) The president appoints the commissioners or board members , subject to Senate confirmation, but they often serve terms that are staggered and longer than a four-year presidential term, meaning that most presidents will not have

455-517: A measure to reduce volatility in turbulent markets. 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 swaps . The commission also negotiated

520-486: A meeting at the SEC in which top staff discussed refusing to admit the destruction had taken place, because it was possibly illegal . 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 Jay Brown as saying: "My initial take on this

585-526: A narrower sense, the term independent agency refers only to these independent regulatory agencies that, while considered part of the executive branch, have rulemaking authority and are insulated from presidential control, usually because the president's power to dismiss the agency head or a member is limited. Independent agencies can be distinguished from the federal executive departments and other executive agencies by their structural and functional characteristics. Their officers can be protected from removal by

650-452: 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". 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

715-535: A self-made multimillionaire, financier, and leader among the Irish-American community, as chairman of the SEC. Roosevelt chose Kennedy partly based on his experience on Wall Street. Two of the other five commissioners were James M. Landis and Ferdinand Pecora . Kennedy added a number of intelligent young lawyers to the SEC staff, including William O. Douglas and Abe Fortas , both of whom later became Supreme Court Justices. Kennedy's team defined four missions for

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780-444: Is called a primary issue of debt or stock, which involves the issue by a corporation of its own debt or new stock directly to buyers like pension funds , or to private investors and shareholders. Since the securities are issued directly by the company to its buyers, the company receives the money and issues new security certificates to the buyers. The primary market plays the crucial function of facilitating capital formation within

845-771: Is headquartered in Washington, D.C. The SEC's divisions are: Corporation Finance is the division that oversees the disclosure made by 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 (SRO's) such as the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) and all broker-dealer firms and investment houses . This division also interprets proposed changes to regulations and monitors operations of

910-461: 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: Independent agencies of the United States government [REDACTED] [REDACTED] In

975-673: The New York Stock Exchange , self-regulatory organizations , the Municipal Securities Rulemaking Board , NASDAQ , alternative trading systems , and any other persons engaged in transactions for the accounts of others. Section 4 of the 1934 Act transferred the FTC's enforcement authority under the 1933 Act to the newly created Securities and Exchange Commission and tasked the new Commission with enforcing both Acts. In 1934, Roosevelt named his friend Joseph P. Kennedy ,

1040-530: The SEC, was at the time representing Morgan Stanley and was involved in this case. 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. The Senate released a report in August 2007 detailing the issue and calling for reform of the SEC. On September 26, 2016, Democratic senator Mark Warner sent a letter to the SEC, asking them to evaluate whether

1105-455: The Securities Act of 1933 ( 15 U.S.C.   § 77a ), which federally regulates original issues of securities across state lines, primarily by requiring that issuing companies register distributions prior to sale so that investors may access basic financial information and make informed decisions. For the first year of the law's enactment, the enforcement of the statute rested with

1170-839: The Securities and Exchange Commission , the Federal Reserve , the Commodity Futures Trading Commission , the Federal Deposit Insurance Corporation , and the Consumer Financial Protection Bureau . Generally, the heads of independent regulatory agencies can only be removed for cause, but Cabinet members and heads of independent executive agencies, such as the head of the Environmental Protection Agency , serve "at

1235-608: The United States government , independent agencies are agencies that exist outside the federal executive departments (those headed by a Cabinet secretary) and the Executive Office of the President . In a narrower sense, the term refers only to those independent agencies that, while considered part of the executive branch , have regulatory or rulemaking authority and are insulated from presidential control, usually because

1300-513: The Commission and other Divisions/Offices and developing customized, analytic tools and analyzes to proactively detect market risks indicative of possible violations of the Federal securities laws. Using data, DERA staff create analytic programs designed to detect patterns identifying risks, enabling Commission divisions and offices to deploy scarce resources targeting possible misconduct. DERA also houses

1365-453: 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

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1430-715: The Exchange Act or the 1934 Act), 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 of 2002 , among other statutes. The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. To achieve its mandate,

1495-469: The Federal Trade Commission. The subsequent Securities Exchange Act of 1934 ( 15 U.S.C.   § 78d ) regulates secondary markets for securities. The 1934 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

1560-635: The Investment Bankers Association told its members that they could circumvent blue sky laws by making securities offerings across state lines through the mail. The SEC's authority was established by the Securities Act of 1933 and Securities Exchange Act of 1934; both laws are considered parts of Franklin D. Roosevelt 's New Deal program. After the Pecora Commission hearings on abuses and frauds in securities markets, Congress passed

1625-500: The Investment Company Act of 1940 and Investment Advisers Act of 1940. This division's responsibilities include: The Enforcement Division investigates violations of the securities laws and regulations to bring legal actions against alleged violators. It is the largest division in terms of both headcount and budget, and its resources have been increased by more than 50% since the 2007–2008 financial crisis . The SEC can bring

1690-439: The Madoff investigation, among others, because Kotz was a "very good friend" with Markopolos. 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. The report also found that Kotz himself "appeared to have a conflict of interest" and should not have opened his Standford investigation, because he

1755-426: The President of the United States. No more than three Commissioners may belong to the same political party. Their terms last five years and are staggered so that one commissioner's term ends on June 5 of each year. Service may continue up to eighteen additional months past term expiration. The president also designates one of the commissioners as chairman, the SEC's top executive. However, the president does not possess

1820-514: The SEC can be accessed via the SEC's online system, EDGAR. In 2019, the Securities and Exchange Commission Historical Society introduced an online gallery to illustrate changes in the US securities market structure since the 1930s. The online gallery features a narrative history supported by dozens of documents, papers, interviews, photos and videos. The commission has five commissioners who are appointed by

1885-460: The SEC enforces the statutory requirement that public companies and other regulated entities submit quarterly and annual reports , as well as other periodic disclosures. In addition to annual 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 usually addresses

1950-474: The SEC to inform rule-making initiatives, identify and monitor risks, improve industry practices and pursue misconduct. There are 11 regional offices throughout the US, which are listed below along with the name of the respective regional director. Among the SEC's offices are: Comment letters are issued by the SEC's Division of Corporation Finance in response to a company's public filing. This letter, initially private, contains an itemized list of requests from

2015-482: 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

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2080-749: The SEC's Office of the Inspector General (OIG). Going to the OIG was "well-known to be a career-killer". 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 of the U.S. Postal Service was brought in to conduct an independent, outside review of Kotz's alleged improper conduct in 2012. 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". The report questioned Kotz's work on

2145-521: 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." No-action letters are letters by the SEC staff indicating that the staff will not recommend to

2210-505: 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. 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 . The chief executive officer of CA, to whom

2275-408: The SEC. The Division is involved across the entire range of SEC activities, including policy-making, rule-making, enforcement, and examination. As the agency's "think tank", DERA relies on a variety of academic disciplines, quantitative and non-quantitative approaches, and knowledge of market institutions and practices to help the Commission approach complex matters in a fresh light. DERA also assists in

2340-425: The agency, such as reports. The same online system also accepts tips and complaints from investors to help the SEC track down violators of the securities laws, as well as offering publications on investment-related topics for public education. The SEC maintains a strict policy of refraining from commenting on the existence or status of any ongoing investigation. Prior to the enactment of the federal securities laws and

2405-399: The commission's Chief Economist. The Division of Examinations conducts the SEC's National Exam Program. The Division's mission is to protect investors, ensure market integrity and support responsible capital formation through risk-focused strategies that: (1) improve compliance; (2) prevent fraud; (3) monitor risk; and (4) inform policy. The results of the Division's examinations are used by

2470-538: The commission's efforts to identify, analyze, and respond to risks and trends, including those associated with new financial products and strategies. Through the range and nature of its activities, DERA serves the critical function of promoting collaborative efforts throughout the agency and breaking through silos that might otherwise limit the impact of the agency's institutional expertise. The Division's activities include providing detailed, high-quality economic and statistical analyzes, and specific subject-matter expertise to

2535-590: The commissioners – the Appointments Clause of the Constitution vests that power in the president. The Senate does participate, however, in appointments through " advice and consent ", which occurs through confirmation hearings and votes on the president's nominees. These agencies are not represented in the cabinet and are not part of the Executive Office of the president: Although not officially part of

2600-456: The courts. One such use, from 1975 to 2007, was with the nationally recognized statistical rating organization (NRSRO), a credit rating agency that issues credit ratings that the SEC permits other financial firms to use for certain regulatory purposes. In the latest Center for Effective Government analysis of 15 federal agencies which receive the most Freedom of Information Act (FOIA) requests published in 2015 (using 2012 and 2013 data,

2665-518: The creation of the SEC, securities trading was governed by so-called blue sky laws . These laws 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. However, blue sky laws were generally considered ineffective. For example, as early as 1915,

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2730-537: The current disclosure regime was adequate, citing the low number of companies' disclosures to date. 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 Inspector General . 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

2795-539: The economy. The securities issued at the primary market can be issued in face value , premium value, or at par value . Primary markets create long-term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM). Once issued, the securities typically trade thereafter on a secondary market such as a stock exchange , bond market , or derivatives exchange . Corporate entities raise funds from

2860-571: The executive branch, these agencies are required by federal statute to release certain information about their programs and activities into the Federal Register , the daily journal of government activities: [REDACTED]  This article incorporates public domain material from Independent Agencies . USA.gov . Primary market In a primary market, companies, governments, or public sector institutions can raise funds through bond issues , and corporations can raise capital through

2925-399: The federal executive departments (those headed by a Cabinet secretary) and the Executive Office of the President. There is a further distinction between independent executive agencies and independent regulatory agencies, which have been assigned rulemaking responsibilities or authorities by Congress. The Paperwork Reduction Act lists 19 enumerated "independent regulatory agencies", such as

2990-544: The former SEC chairman, has recognized the organization's multiple failures in relation to the Bernard Madoff fraud. 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. The SEC has been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud. As

3055-415: The governing statute, but the functional differences have more legal significance. In reality, the high turnover rate among these commissioners or board members means that most presidents have the opportunity to fill enough vacancies to constitute a voting majority on each independent agency commission within the first two years of the first term as president. In some famous instances, presidents have found

3120-712: The independent agencies more loyal and in lockstep with the president's wishes and policy objectives than some dissenters among the executive agency political appointments . Although Congress can pass statutes limiting the circumstances under which the president can remove commissioners of independent agencies, if the independent agency exercises any executive powers like enforcement, and most of them do, Congress cannot reserve removal power over executive officers to itself. Constitutionally, Congress can only remove officers through impeachment proceedings. Members of Congress cannot serve as commissioners on independent agencies that have executive powers, nor can Congress itself appoint

3185-647: 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 registered representatives . The Investment Management Division oversees registered investment companies, which include mutual funds , as well as registered investment advisors . These entities are subject to extensive regulation under various federal securities laws. The Division of Investment Management administers various federal securities laws, in particular,

3250-549: The issuer and the security itself gives private individuals as well as large institutions the same fundamental facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud . 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 from which investors can access information filed with

3315-399: The largest settlements in the history of the SEC (approximately $ 51 billion in all) on behalf of investors who purchased auction rate securities from six different financial institutions. 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". Christopher Cox ,

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3380-473: The letter was addressed, pleaded guilty to fraud at CA in 2004. 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

3445-407: 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. The SEC's Enforcement Division took a number of major actions in 2009–12. The SEC announced on September 17, 2008, strict new rules to prohibit all forms of " naked short selling " as

3510-482: The new Commission: (1) to restore investor confidence in the securities market, which had practically collapsed; (2) to restore integrity to securities markets by prosecuting and eliminating fraudulent and unsound practices targeting investors; (3) to end million-dollar insider trading by top officials of major corporations; and (4) to establish a complex and universal system of registration for securities sold in America, with

3575-442: The opportunity to appoint all the commissioners of a given independent agency. In addition, most independent agencies have a statutory requirement of bipartisan membership on the commission, so the president cannot simply fill vacancies with members of his own political party. The president can normally designate which commissioner will serve as the chairperson. Congress can designate certain agencies explicitly as "independent" in

3640-419: The pleasure of the president" and can be removed without cause. The degree to which the President has the power to use executive orders to set policy for independent executive agencies is disputed. Many orders specifically exempt independent agencies, but some do not. Executive Order 12866 has been a particular matter of controversy; it requires cost-benefit analysis for certain regulatory actions. In

3705-488: The power to fire the appointed Commissioners, a provision that was made to ensure the independence of the SEC. This issue arose during the 2007–2008 financial crisis and the John McCain 2008 presidential campaign . The current board members as of September 24, 2024: President Biden has nominated the following to fill a seat on the commission. They await Senate confirmation. Within the SEC, there are six divisions, which

3770-406: The power to remove officials from agencies that were "an arm or an eye of the executive", it upheld statutory limitations on the president's power to remove officers of administrative bodies that performed quasi-legislative or quasi-judicial functions, such as the Federal Trade Commission. Presidents normally do have the authority to remove regular executive agency heads at will , but they must meet

3835-443: The president's power to dismiss the agency head or a member is limited. Established through separate statutes passed by Congress , each respective statutory grant of authority defines the goals the agency must work towards, as well as what substantive areas, if any, over which it may have the power of rulemaking. These agency rules (or regulations), when in force, have the power of federal law. Independent agencies exist outside

3900-459: The president, they can be controlled by a board that cannot be appointed all at once, and the board can be required to be bipartisan. Presidential attempts to remove independent agency officials have generated most of the important Supreme Court legal opinions in this area. In 1935, the Supreme Court in the case of Humphrey's Executor v. United States decided that although the president had

3965-493: The sale of new stock through an initial public offering (IPO). This is often done through an investment bank or underwriter or finance syndicate of securities dealers. The process of selling new shares to buyers is called underwriting . Dealers earn a commission that is commonly built into the price of the security offering, though it can be found in the prospectus . IPOs are not the only way new securities are issued. Publicly traded companies can issue new shares in what

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4030-409: The statutory requirements for removal of commissioners of independent agencies, such as demonstrating incapacity, neglect of duty , malfeasance , or other good cause . While most executive agencies have a single director, administrator, or secretary appointed by the president of the United States , independent agencies (in the narrower sense of being outside presidential control) almost always have

4095-457: The upcoming year, outlining future goals and approaches to new projects. Quarterly and semiannual reports from public companies are crucial for investors to make sound decisions when investing in capital markets. Unlike banking , investment in capital markets is not guaranteed by the federal government. The potential for large gains needs to be weighed against that of sizable losses. Mandatory disclosure of financial and other information about

4160-482: Was friends with a female attorney who represented victims of the fraud. 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

4225-458: Was impossible to legally make the profits Madoff claimed using the investment strategies that he said he used. 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 ; Mary Jo White , who later served as chair of

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