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Securities Fraud

The Securities and Exchange Commission (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. The SEC, which was created following the market crash of 1929, describes its mission as being to “protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.”  Securities laws and regulations focus on achieving these goals by: (1) requiring companies offering securities to the public to tell the truth about their businesses, the securities being sold, and the risks involved in investing; and (2) requiring those who sell and trade securities to treat investors fairly and honestly.

The laws enforced by the SEC include:

  • The Securities Act of 1933, which ensures “truth in securities” by requiring that securities issuers provide investors with honest and accurate financial and other significant information about securities being offered for sale. The Securities Act of 1933 requires the registration of securities offered for sale, unless exemptions apply.  Private offerings of securities to a limited group of investors and small offerings are among those typically exempt from registration.
  • The Securities Exchange Act of 1934, which created the SEC and empowered it to oversee exchanges, broker-dealers, transfer agents, and clearing agencies. The act also authorized the SEC to require companies to make periodic public reports, and prohibited fraudulent activities in connection with the offer, purchase, or sale of a security, including insider trading. Among the reports required to be filed with the SEC are annual reports, quarterly reports, and reports about certain significant developments (e.g. change of control in the company or an important acquisition or disposition of assets). False or misleading statements on any of these can subject companies to enforcement actions and financial penalties.
  • The Trust Indenture Act of 1939, which governs the issuance and public sale of debt securities such as bonds.
  • The Investment Company Act of 1940, which regulates companies such as mutual funds.
  • The Investment Advisors Act of 1940, which requires that certain individuals in the business of advising others about securities must register with the SEC and follow rules designed to protect investors.
  • The Sarbanes-Oxley Act of 2002, which seeks to combat corporate and accounting fraud by requiring certain financial disclosures and practices.
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 which, among other things, created the SEC Whistleblower Program.
  • The Foreign Corrupt Practices Act of 1977, which the SEC is jointly responsible for enforcing with the DOJ.

The SEC has primary responsibility for enforcing the securities laws and for proposing and enacting rules to implement the securities laws.  Through these laws and regulations, the SEC regulates the issuance and trading of equities, equity options, corporate bonds, and municipal bonds, as well as securities industry participants, the stock and options exchanges, and other activities and organizations.  The Commodity Futures Trading Commission regulates the activities and actors of the derivatives markets.

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