Securities and Exchange Commission

Fact Box

U.S. Securities and Exchange Commission

Formed on June 6, 1934
Headquarters- Washington, D.C.
Chairman- Mary Jo White
Employees (2010) 3,748
Annual budget (2014) -- $1.4 billion
Website- sec.gov

Overview
The Securities and Exchange Commission (SEC) functions as a sort of watchdog over Wall Street, responsible for protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. The SEC does this by requiring public companies to disclose “meaningful financial and other information to the public,” so that investors can make informed decisions about whether to buy, sell or hold a particular security. The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisers, and mutual funds. The commission also brings civil enforcement actions against individuals and companies for violating the securities laws, including insider trading, accounting fraud, and providing false or misleading information about securities and companies issuing securities.

History

The foundations of the SEC were laid in the era before the Great Crash of 1929, when there were few regulations governing the sale of securities in the United States. After World War I, securities trading surged, but little effort was made by federal officials to regulate the industry by requiring financial disclosure of participants.  

Investors increasingly moved to invest in risky securities during the 1920s, when credit was easy and rags-to-riches stories dominated the national consciousness. Approximately 20 million large and small shareholders set out to make their fortunes this way, and it is estimated that of the $50 billion in new securities offered during this period, half became worthless. 

The stock market crash of October 1929 immediately destroyed consumer confidence in financial markets. Investors lost huge sums of money, and banks quickly failed as the Great Depression took hold. To help the economy recover, Congress held hearings to identify the main problems and help restore the public’s faith in capital markets.

In 1933, during the peak year of the Depression, Congress passed the Securities Act of 1933. Together with the Securities Exchange Act of 1934, which created the SEC, the legislation was designed to help investors feel more comfortable about putting their money back into the stock market. It did this by providing investors with reliable information and clear rules for dealing honestly in the securities markets. Companies offering securities were required to tell the truth about their business, the securities they were selling, and the risks involved in investing. Additionally, the people selling trade securities had to treat investors fairly and honestly, putting their interests first.

President Franklin Roosevelt appointed Joseph P. Kennedy (father of future President John F. Kennedy) as the first chairman of the SEC.

In 1940 the SEC brought actions against nine of the country’s 13 largest public utilities holding companies. Through these actions, the SEC restructured the utilities industry.

In the 1950s the SEC underwent staff reduction due to budget cuts. From 1,200 people in the 1940s, the SEC shrunk to less than 700. This downsizing trend was stopped by President John F. Kennedy, who restored funding for 250 jobs at the commission.

In 1969-1970, the securities industry was rocked by a series of voluntary liquidations, mergers, receiverships and bankruptcies of a substantial number of brokerage houses. The situation caused a downturn in investor confidence and lawmakers worried over a possible “domino effect” involving otherwise solvent brokers that had substantial open transactions with firms that failed. To address the crisis, Congress adopted the Securities Investor Protection Act, which led to the creation of the Securities Investor Protection Corporation (SIPC). Financed through fees from broker-dealers, the SIPC initially provided $50,000 of insurance to brokerage customers in the event a brokerage firm went bankrupt.

During the 1980s, the SEC came under criticism at a time when Wall Street was running amok with acts of insider trading and other illegal or unethical financial maneuvers. The decade was marked by investor scandals involving such figures as Ivan Boesky, Michael Milken, and Dennis Levine, along with the stock market crash of 1987.

In response to the enactment of the Dodd-Frank Act in July 2010, the SEC became responsible for the in-house creation of five new agency offices, 20 new reports, and 100 new regulations—some covering complex derivatives and asset-backed securities. These actions have thus far been delayed due to a lack of funding approval from Congress. Consequently, 800 new staff positions are not being filled while existing SEC departments are taking on the new workload, and funds are being diverted from ongoing agency activity to finance it. As a result, restrictions on travel and the hiring of expert witnesses have been put into effect, thereby weakening case prosecutions.

Also in July 2010, the SEC imposed the largest penalty it’s ever charged to a Wall Street firm—$550 million—on Goldman Sachs for misleading investors at the onset of the housing market collapse. The fraud caused investors to lose a billion dollars. Goldman Sachs acknowledged its culpability and agreed to pay the fine, as well reform its business practices.  

Various controversies have plagued the SEC since 2009, including the 2011 revelation that it allegedly broke the law by destroying files, over a 20-year period, pertaining to 9,000 investigations, including those involving the Bernie Madoff scandal and investment banks linked to the 2008 financial crisis. Questions have also arisen about alleged discussions at the SEC of a cover-up of the documents disposal. The National Archives had contacted the SEC in 2010 expressing concern that an unauthorized destruction of federal records had occurred at the agency. The SEC claimed that it did nothing illegal.


What it Does

The SEC is responsible for protecting U.S. investors from potential loss of income by maintaining fair and orderly practices to encourage capital markets. The commission requires businesses to disclose meaningful information about securities they sell, so that investors can make informed decisions. 

The SEC also oversees participants in the securities world, including exchanges, brokers and dealers, financial advisers and mutual funds, and can bring civil suits against individuals or companies that break the securities laws. The commission is charged with interpreting federal securities laws, issuing new rules and amending existing rules, overseeing the inspection of securities firms, brokers, investment advisors and ratings agencies, maintaining private regulatory organizations in the securities, accounting and auditing fields, and coordinating U.S. securities regulation with federal, state, and foreign authorities.

The SEC consists of five commissioners, appointed by the President, who serve staggered five-year terms. One commissioner is designated (by the President) as chairman of the commission, and no more than three of the commissions may belong to the same political party. 

The SEC is organized into 4 divisions and 19 offices, each headquartered in Washington D.C. The agency also maintains 11 regional offices throughout the country. 

SEC divisions:

Division of Enforcement handles the SEC’s law enforcement function by recommending the investigations of securities law violations and that the commission bring civil actions in federal court or before an administrative law judge, and by prosecuting these cases on behalf of the commission. As an adjunct to the SEC’s civil enforcement authority, the division works closely with law enforcement agencies in the U.S. and around the world.

Common violations that may lead to SEC investigations include: misrepresentation or omission of important information about securities; manipulating the market prices of securities; stealing customer funds or securities; violating broker-dealers’ responsibility to treat customers fairly; insider trading (violating a trust relationship by trading on material, non-public information about a security); and selling unregistered securities.

Division of Corporation Finance oversees corporate disclosure of important information to the investing public. Corporations are required to comply with regulations pertaining to disclosure that must be made when stock is initially sold and then on a continuing and periodic basis. The division’s staff routinely reviews the disclosure documents filed by companies. The staff also provides companies with assistance in interpreting the commission’s rules and recommends to the SEC new rules for adoption.

The Division of Corporation Finance provides administrative interpretations of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust Indenture Act of 1939, and recommends regulations to implement these statutes. Working with the Office of the Chief Accountant, the division monitors the activities of the accounting profession, particularly the Financial Accounting Standards Board (FASB), that result in the formulation of generally accepted accounting principles (GAAP). Increasingly, the division monitors the use by U.S. registrants of International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board.

Division of Investment Management takes care of investor protection and promoting capital formation through oversight and regulation of America’s $26 trillion investment management industry. This important part of U.S. capital markets includes mutual funds and the professional fund managers who advise them; analysts who research individual assets and asset classes; and investment advisers to individual customers. Because of the high concentration of individual investors in the mutual funds, exchange-traded funds, and other investments that fall within the division’s purview, the Division of Investment Management is focused on ensuring that disclosures about these investments are useful to retail customers, and that the regulatory costs which consumers must bear are not excessive.

The division’s additional responsibilities include assisting the SEC in interpreting laws and regulations for the public and helping SEC inspection and enforcement staff. It also responds to no-action requests and requests for exemptive relief, reviews investment company and investment adviser filings, assists the commission in enforcement matters involving investment companies and advisers, and advises the commission in adapting SEC rules to new circumstances.

Division of Trading and Markets provides day-to-day oversight of the major securities market participants: the securities exchanges; securities firms; self-regulatory organizations (SROs) including the Financial Industry Regulatory Authority (FInRA), the Municipal Securities Rulemaking Board (MSRB), clearing agencies that help facilitate trade settlement; transfer agents (parties that maintain records of securities owners); securities information processors; and credit rating agencies.

The division also oversees the Securities Investor Protection Corporation (SIPC), a private, non-profit corporation that insures the securities and cash in the customer accounts of member brokerage firms against the failure of those firms. SIPC insurance does not cover investor losses arising from market declines or fraud.

The division’s additional responsibilities include carrying out the SEC’s financial integrity program for broker-dealers, reviewing (and in some cases approving, under authority delegated from the commission) proposed new rules and proposed changes to existing rules filed by the SROs, assisting the commission in establishing rules and issuing interpretations on matters affecting the operation of the securities markets, and monitoring the markets.

The Division of Risk, Strategy, and Financial Innovation (RiskFin) is considered the agency’s “think tank,” and provides interdisciplinary analysis to help inform the Commission’s policymaking, rulemaking, enforcement, and examinations. Its staff has expertise in disciplines including economics, risk analysis, finance, law, mathematics, and statistics. The division encompasses the former Office of Economic Analysis, which advised the commission and its staff on the economic aspects of all SEC regulatory initiatives. It also includes these two offices:

The Office of Interactive Disclosure makes financial disclosure accessible through simplified use of interactive data. The office designs the technological processes being used, and researches new uses for interactive data.

The Office of Risk Assessment (ORA) helps the SEC anticipate, identify, and manage risks, focusing on early identification of new or resurgent forms of fraud and illegal or questionable activities. The ORA focuses on risk issues across the corporate and financial sector, including issues relevant to corporate disclosure, market operation, sales practices, new product innovation, and other activities of financial market participants. It analyzes information from a variety of sources, such as external experts, domestic and foreign agencies, industry and financial services, empirical data and other market data.

SEC offices:

Office of Acquisitions has the responsibility for overseeing SEC contracts and advises as to requests for contract information.

Office of the Chief Operating Officer oversees agency management policies, including formulating budget policy, allocation and utilization of agency resources, promoting management controls and financial integrity, managing the administrative support offices, and overseeing the agency's information technology capital planning process.

Office of Compliance Inspections and Examinations administers the SEC’s nationwide examination and inspection program for registered self-regulatory organizations, broker-dealers, transfer agents, clearing agencies, investment companies and investment advisers. The office conducts inspections to foster compliance with the securities laws to detect violations of the law and to keep the commission informed of developments in the regulated community. Among the more important goals of the examination program is the quick and informal correction of compliance problems. When the office finds deficiencies, it issues a “deficiency letter” identifying the problems that need to be rectified and monitors the situation until compliance is achieved. Violations that appear too serious for informal correction are referred to the Division of Enforcement.

The Office of Ethics Counsel advises all SEC employees and members on such issues as conflicts of interest, securities holdings and transactions of SEC employees and their immediate families, gifts, seeking and negotiating other employment, outside activities, financial disclosure, and post-employment restrictions and clearances. Former SEC employees seeking assistance may call the Ethics Officer of the Day at 202-551-5170.

The Office of the Chief Operating Officer formulates budget and authorization strategies, supervises the allocation and use of SEC resources, promotes management controls and financial integrity, manages the administrative support offices, and oversees the development and implementation of the SEC’s automated information systems. The office has three main areas:

  1. The Office of Administrative Services assists the chairman and the COO in managing the agency’s facilities and assets and provides a wide range of support services to the SEC staff. The office serves the headquarters office and all regional office locations on matters including procurement and contracting, physical security, emergency management, property management, office lease acquisition and administration, space renovation, supplies and office equipment management, transportation, mail distribution, publications, printing, and desktop publishing.

  1. The Office of Human Resources has overall responsibility for the strategic management of the SEC’s humans. The office also represents the commission as the liaison to the U.S. Office of Personnel Management and other federal agencies, various public and private-sector professional human resources organizations, and educational institutions in matters relating to human capital management.

  1. The Office of Financial Management administers the financial management and budget functions of the SEC. The office assists the chairman and the COO in formulating budget and authorization requests, monitors the utilization of agency resources, and develops, oversees, and maintains SEC financial systems. These activities include cash management, accounting, fee collections, travel policy development, and oversight and budget justification and execution.
  2. \

Office of FOIA, Records Management, and Security is responsible for handling requests under the Freedom of Information and Privacy Acts, the management of all agency records in accordance with the Federal Records Act, and maintaining the security and safety of all SEC facilities. The office has three sub-divisions:

  1. The Office of FOIA Services is responsible for receiving and responding to requests for non-public records under the Freedom of Information Act and the Privacy Act. It also responds to requests for public information that has not been published to the SEC Web site.
  1. The Office of Records Management Services handles policies, procedures, records schedules, and systems that allow the agency to meet federal statutory and regulatory requirements. This includes identifying, creating, authenticating, and managing active SEC records, as well as disposing of inactive records. The office also provides certified copies of SEC records supporting enforcement activities, other legal proceedings, and performs records management training for SEC staff.
  1. The Office of Security Services is responsible for operations related to the security, safety, and emergency management of all SEC facilities and staff.

Office of the General Counsel assumes overall responsibility for the establishment of agency policy on legal matters. The General Counsel serves as the chief legal adviser to the SEC chairman regarding all legal matters and services performed within, or involving, the commission, and provides legal advice to the commissioners, the divisions, the offices, and other SEC components.

Office of Information Technology has overall management responsibility for the commission’s IT program including application development, infrastructure operations and engineering, user support, IT program management, capital planning, security, and enterprise architecture. The Office operates the Electronic Data Gathering Analysis and Retrieval (EDGAR) system, which electronically receives, processes, and disseminates more than 500,000 financial statements every year.

Office of Investor Education and Advocacy serves individual investors by seeing to it that their problems and concerns are known throughout the SEC and considered the first priority whenever the agency takes action. The office has these main functional areas:

  1. Reviewing all formal agency action from the perspective of the individual investor, including conducting investor surveys and focus groups. This is the responsibility of the Office of Policy, which plays a leading role in the commission’s efforts to ensure that investor disclosures are written in plain English, as well as the SEC’s technology initiatives such as providing increasingly more investor information in “interactive data” format.
  2. Responsibility for acting on investor tips, complaints and suggestions. Tens of thousands of investors contact the SEC each year using the commission’s online forms or its (800) SEC-0330 hotline (toll-free in U.S.) to ask questions on a wide range of securities-related topics, complain about problems with their investments or their financial professionals, or suggest improvements to the agency’s regulations and procedures.
  3. Carrying out the SEC’s investor education program, which includes producing and distributing educational materials, participating in educational seminars and investor-oriented events, and partnering with federal agencies, state regulators, consumer groups, industry associations, and others on financial literacy initiatives. With the impending retirement of some 76 million Baby Boomers, one of the primary focuses of these educational efforts is the prevention of fraud against seniors.

Office of the Chief Accountant is the principal adviser to the commission on accounting and auditing matters. The Office of the Chief Accountant assists the commission in executing its responsibility under the securities laws to establish accounting principles and for overseeing the private sector standards-setting process. The office works closely with the Financial Accounting Standards Board, to which the SEC has delegated authority for setting accounting standards, as well as the International Accounting Standards Board and the American Institute of Certified Public Accountants.

Office of the Secretary houses the Secretary of the Commission, who is appointed by the chairman, and is responsible for the procedural administration of commission meetings, rulemaking, practice, and procedure.

Office of International Affairs promotes cooperation among national securities regulatory agencies and encourages the maintenance of high regulatory standards worldwide. The office assists the chairman and the commission in the development and implementation of the SEC’s international regulatory and enforcement initiatives. The office negotiates bilateral and multilateral agreements for commission approval on such subjects as regulatory cooperation and enforcement assistance and oversees the implementation of such arrangements. It is also responsible for advancing the commission’s agenda in international meetings and organizations. The office conducts a technical assistance program for countries with emerging securities markets that includes training both in the United States and in the requesting country. More than 100 countries currently participate in this program.

Office of Administrative Law Judges consists of independent judicial officers who conduct hearings and rule on allegations of securities law violations in cases initiated by the commission. When the commission initiates a public administrative proceeding, it refers the cases to the office, where it is assigned to an individual Administrative Law Judge (ALJ). The ALJ then conducts a public hearing that is similar to a non-jury trial in the federal courts. Just as a federal judge can do, an ALJ issues subpoenas, rules on motions, and rules on the admissibility of evidence. At the conclusion of the hearing, the parties submit proposed findings of fact and conclusions of law. The ALJ prepares an initial decision that includes factual findings and legal conclusions that are matters of public record. Parties may appeal an initial decision to the commission, which can affirm, reverse, modify, set aside, or remand for further proceedings. Appeals from commission action are sent to a United States Court of Appeals.

Office of Equal Employment Opportunity works to ensure that members of the agency’s professional staff come from diverse backgrounds that reflect the diversity of the investing public. To maintain neutrality in resolving disputes, the EEO Office is independent of any other SEC office. The EEO director reports to the chairman. The primary mission of the EEO Office is to prevent employment discrimination, including discriminatory harassment, so that all SEC employees have the working environment to support them in their efforts to protect investors, maintain healthy markets, and promote capital formation.

Office of the Inspector General conducts internal audits and investigations of SEC programs and operations. Through these audits and investigations, the Inspector General seeks to identify and mitigate operational risks, enhance government integrity, and improve the efficiency and effectiveness of SEC programs.

The Office of Public Affairs coordinates the agency’s relations with the media and the general public. The office also assists in the enforcement of the commission’s policy concerning the confidentiality of law enforcement and investigative information, which is designed to protect the privacy rights of American citizens. The office reviews and distributes within the agency press coverage of the SEC and of commission-related issues, including the securities industry and the financial markets. It also provides limited research where policy and public affairs goals overlap.

The Office of Legislative and Intergovernmental Affairs serves as the SEC’s formal liaison with Congress, other Executive Branch agencies, and state and local governments. The staff monitors ongoing legislative activities and initiatives on Capitol Hill that affect the commission and its mission. Through regular communication and consultation with House and Senate members and staff, the office communicates legislators’ goals to the agency and communicates the SEC’s own regulatory and management initiatives to Congress. The office is also responsible for responding to congressional requests for testimony of SEC officials, as well as requests for documents, technical assistance, and other information. In addition, the office monitors legislative and oversight hearings that pertain to the securities markets and the protection of investors.

The SEC FY 2012 Budget Justification reported that the agency was establishing five new offices by requirement of the Dodd-Frank Act: Office of Credit Ratings; Office of the Investor Advocate; Office of Minority and Women Inclusion; Office of Municipal Securities; and Office of Whistleblower Protection (to be a department within the Division of Enforcement). These offices necessitated the creation of 33 new employee positions in FY 2012. Existing departments were assigned to handle the new workload and funds were diverted from market oversight and enforcement operations to pay for it.


Where Does the Money Go?

The SEC spent more than $1.2 billion on 7,724 contractor transactions during the past decade.  According to USASpending.gov, the SEC paid for a variety of services, from automatic data processing (ADP) and telecommunications ($243,937,814) to ADP systems and development ($132,042,714), miscellaneous professional services ($60,695,091), expert witnesses ($53,096,026 ), and ADP software ($49,827,424).

The top five contractors employed by the SEC since 2002 were:

1. BDM International                                                                  $124,411,625

2. Keane International Inc.                                                        $60,045,620

3. SAIC, Inc.                                                                             $57,411,794

4. Lockheed Martin Corporation                                                  $56,849,675

5. Altegrity, Inc.                                                                       $43,936,703 

BDM International, the SEC’s largest contractor, was a subsidiary of TRW, which in turn was acquired by Northrop Grumman. BDM has provided systems and software integration, computer and technical services, and enterprise management and operations to public and private sector clients, including international defense agencies, civil government agencies, and commercial clients.

Keane International Inc., the SEC’s second-largest contractor, is a subsidiary of NTT Data that provides informational technology services to U.S. government agencies, insurance companies, financial institutions, global manufacturers, pharmaceutical companies, and healthcare insurers

SAIC, Inc., the SEC’s third-largest contractor is a scientific, engineering, and technology applications company that works in national security, energy and the environment, critical infrastructure, and health. For the SEC, the company provides telecommunication and technical assistance including the maintenance and repair of equipment.

Lockheed Martin Corporation, the SEC’s fourth-largest contractor is a global security and information technology company that is the largest provider of IT services, systems integration and training to the U.S. government. The majority of Lockheed Martin's business is with the U.S. Department of Defense and other U.S. federal government agencies. For the SEC, the company provides automatic data processing and telecom services. 

Altegrity, Inc., the SEC’s fifth largest contractor, is a global screening and security solutions company that provides its clients with law enforcement training and data mining, and provides background investigations for the U.S. government.

According to the SEC FY 2013 Budget Justification, the agency’s proposed $1.566 billion budget will be spent as follows:

Personnel Compensation & Benefits                                                  $942,944,000

Other Contractual Services                                                                  $321,482,000

Rent, Communications & Utilities                                                      $176,671,000

Equipment                                                                                             $81,948,000

Travel and Transportation of Persons                                                   $16,873,000

Printing and Reproduction                                                                       $9,995,000

Building Alterations                                                                                 $9,501,000

Supplies and Materials                                                                            $3,838,000

Benefits for Former Personnel                                                                 $2,653,000

Transportation of Things                                                                             $95,000

Total Spending Authority (FY 2013 Budget)                         $1,566,000,000


Data on the Securities and Exchange Commission

Source
  • http://www.allgov.com/departments/independent-agencies/securities-and-exchange-commission-sec?agencyid=7357
    Comments