Securities and Exchange Commission

Securities and Exchange Commission (SEC), independent, quasi-judicial agency of the United States government, which is generally responsible for protecting the public against malpractices in the securities and financial markets. It was created by the Securities Exchange Act of 1934.

The SEC requires most issuers of securities making public offerings in interstate commerce to make known in a prospectus all pertinent facts concerning those offerings. The commission also monitors trading in securities on exchanges and in over-the-counter markets, including short selling and options trading, and regulates the activities of brokers, dealers, and others in the securities business.

The SEC enforces sanctions—including the issuance of injunctions, the initiation of administrative proceedings for the suspension or revocation of brokers' licenses, and the initiation of criminal prosecutions through the United States Department of Justice—against those charged with securities frauds, manipulations, and other violations. In addition, the commission has responsibility for the enforcement of the Public Utility Holding Company Act of 1935. The SEC also examines protective provisions in mortgage debentures (a type of bond) under which debt securities are sold to the public. The SEC also participates in the rehabilitation of failing corporations under Chapter 11 of the U.S. Bankruptcy Code.

The agency supervises the activities of mutual funds and other investment companies under the Investment Company Act of 1940 and of investment advisers under the Investment Advisers Act of 1940. In 1975 the SEC ended the long-standing system of fixed brokerage fees, opening the way to competition in the securities business. The commission also had a major role during the late 1980s in highly publicized prosecutions of individuals and firms charged with so-called insider trading and other violations of securities laws.

The powers of the SEC were broadened to include greater oversight of the accounting profession under the Public Company Accounting Reform and Investor Protection Act of 2002. Under this law the SEC appoints and supervises a five-member Public Company Accounting Oversight Board, which establishes accounting standards for publicly traded companies. The law also authorizes the SEC to prevent “unfit” officers from sitting on corporate boards. The law was passed in the wake of a series of major accounting scandals. See also Accounting and Bookkeeping.

The SEC consists of five members, no more than three of whom may be members of the same political party. They are appointed by the president with the approval of the Senate for staggered terms of five years; one member is replaced each year. In its early years the prestige of the SEC was established by a succession of strong chairmen, including the businessman and diplomat Joseph P. Kennedy, the jurists James M. Landis and William O. Douglas, and the lawyer and administrator Jerome N. Frank. The commission's decisions may be appealed to the U.S. circuit courts of appeals. The central office of the commission is in Washington, D.C.; nine regional offices are in Atlanta, Boston, Chicago, Denver, Fort Worth, Los Angeles, New York City, Philadelphia, and Seattle.