The US Securities and Exchange Commission (SEC) is a federal agency responsible for regulating and enforcing securities laws in the United States. The agency was created in 1934 with the passing of the Securities Exchange Act and is headquartered in Washington, D.C.
The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The agency works to achieve its objectives through a number of divisions and offices, each with their own specific responsibilities.
Divisions:
Division of Corporation Finance - responsible for reviewing and monitoring the disclosure and financial reporting of public companies. This division ensures that companies provide investors with accurate and timely information to make informed investment decisions.
Division of Enforcement - responsible for investigating and prosecuting violations of securities laws. This division works closely with other federal and state agencies to bring legal action against individuals and companies engaged in illegal activities in the securities markets.
Division of Investment Management - responsible for regulating investment companies and investment advisers. This division ensures that investors are provided with comprehensive and accurate information about the risks and rewards of investing in these products.
Division of Economic and Risk Analysis - responsible for providing economic and statistical analysis to aid in the development and implementation of SEC rules and regulations.
Offices:
Office of the General Counsel - responsible for providing legal advice and representation to the SEC.
Office of Compliance Inspections and Examinations - responsible for conducting inspections and examinations of securities firms to ensure compliance with federal securities laws.
Office of Investor Education and Advocacy - responsible for educating investors and helping them make informed investment decisions. This office also advocates for investors’ rights and provides resources to help investors protect themselves from fraud and other abuses.
Office of the Chief Accountant - responsible for providing accounting and auditing guidance to the SEC and ensuring that companies comply with accounting standards.
Office of International Affairs - responsible for coordinating the SEC’s international activities and working with other countries to promote global regulatory cooperation.
The SEC also maintains a website where investors can access information about the agency, its rules and regulations, and important information about investing in the securities markets.
The SEC’s role in protecting investors came to the forefront during the global financial crisis of 2008. The agency was criticized for failing to prevent the crisis and for not taking a more aggressive stance against Wall Street firms that contributed to the collapse. In response to these criticisms, the SEC implemented a number of reforms to improve its regulatory oversight of the securities markets and to strengthen investor protections.
Despite its struggles during the financial crisis, the SEC is widely viewed as an important regulator of the securities markets and a crucial component of the United States’ financial regulatory system. The agency’s efforts to enforce securities laws, promote transparency in financial reporting, and protect investors from fraud and abuse remain essential to the stability and health of the US financial system.
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Elon Musk has lost his bid to modify or end the 2018 agreement he made with the US Securities and Exchange Commission (SEC) that required him to get clearance from a Tesla attorney before releasing certain tweets. The 2nd US Circuit Court of Appeals in Manhattan dismissed Musk’s assertion that the SEC had used the agreement to conduct “bad-faith, harassing investigations of his protected speech” and that its enforcement measures had made it much harder for him to comply. Legal experts said the outcome means Musk is now likely to face greater scrutiny from both his company and regulators.
Shares in Tesla dropped nearly 6% after the ruling on Monday, wiping $13.5bn off the company’s value. This was because the SEC had made the demand in the first place after Musk had tweeted he had funding secured to take Tesla private at $420 a share. Three weeks later, under regulatory scrutiny, Musk backed down. He called it an attempt at humour. Former SEC chairman Harvey Pitt said Musk may now have to seriously consider how to beat the regulators. “He is going to have to decide whether he wants to continue to be chairman and CEO of Tesla or whether he wants to walk away,” said Pitt. “Because in the end, if he continues his present approach, he will lose.”
Neil Wilson at trading platform Markets.com said the ruling set “a bad precedent for public company executives who will now be more cautious about making bold statements on social media”. “They will look at this and say Musk has been rightly punished for overstepping the mark,” he said. “It puts executives in a bit of a straitjacket. The whole point of social media is it’s supposed to be informal and chatty. This ruling puts a real dampener on the ability of executives to have a bit of a personality, show some spark and talk to customers as people rather than just dollar signs.”
CEO of JP Morgan Chase, Jamie Dimon, has urged US regulators to investigate the conduct of investors betting against bank stocks. As we have previously reported, a number of hedge funds have profited from declines in banking shares lately, however, calls for regulatory action against them has arisen. Both the American Bankers Association and the US Managed Funds Association have asked the Securities and Exchange Commission (SEC) to take measures against alleged “market manipulation” by short sellers, however, the London-based Alternative Investment Management Association and hedge funds have opposed any potential short selling ban, with a spokesperson from AIMA stressing that “there is plenty of hard evidence out there showing that it’s not short selling that is behind any particular stock underperformance.”
Hester Peirce, the senior Republican member of the US Securities and Exchange Commission, has warned that without rules to govern crypto asset markets, the US risks falling behind the EU and UK. Peirce said that frameworks in Brussels and London could be a blueprint for Washington lawmakers. The EU has drafted the Markets in Crypto Assets regulation while the UK has set out regulations that aim to bring the governing of crypto assets in line with traditional financial assets. US regulators have not yet developed regulations for crypto assets.
SEC Chair Gary Gensler said a US default would lead to "hard to predict, and likely lasting effects on investors, issuers, and markets alike”. Gensler went on to say that the SEC does not have a direct role in the same but the outcome is "directly consequential to each part of [its] mission: protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets".
The US SEC has given a record-breaking $279m reward to a whistleblower whose actions led to enforcement actions protecting investors from securities law violations, following a case with fines totalling $930m to $2.8bn. The previous highest whistleblower reward was $114m paid to an individual in 2020, itself twice the previous record of $50m given in 2020. The Dodd-Frank Act set up the SEC’s whistleblower programme to encourage reporting by insiders, but secrecy over rewards and investigations creates uncertainty around who might claim them and on what basis. Rumours suggest this latest reward might be related to Allianz Global Investors’ Structured Alpha funds or to the ongoing WhatsApp probe. As fights over whistleblower rewards mount, questions are being raised about whether regulations are effective when financial whistleblowers can become multimillionaires.
The UK regulator and financial watchdog, the Bank of England (BoE), has adopted a form of style not dissimilar to US regulator the Securities and Exchange Commission (SEC), according to the Financial Times (FT). Both SEC head Gary Gensler and BoE director of authorisations, regtech and international supervision Rebecca Jackson have resorted to opening speeches and briefings with dated pop culture references. In a recent speech, Jackson referred to the BoE's prudential regulatory authority as a “starship”; she also made seven other references to “starship PRA”.
