What Is Sec's Role In Business Regulations?

What is SEC's Role in Business Regulations?

A. Introduction

"The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, these goals are more compelling than ever" ("The Investor's Advocate").

The investing world is a complex environment not easy to understand. Stocks and Bonds are volatile valuables that can loose value rapidly. That's is why the SEC, in Section 10 (b) and 20 of the 1934 Act and Rule, was given power to prohibit executives and companies from engaging in fraudulent actions and to hide relevant financial information that would have a potential harmful affect on the stock price and other relevant financial indicators. In addition, the SEC also encourages companies to disclose all the financial information relevant to the public and potential investors based on the fact that all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it ("The Investor's Advocate").

Before the Great Crash of 1929, there was little support for federal regulation of the securities markets. This was particularly true during the post-World War I surge of securities activity. Proposals that the federal government require financial disclosure and prevent the fraudulent sale of stock were never seriously pursued ("The Investor's Advocate").

During the 1920s, approximately 20 million large and small shareholders took advantage of post-war prosperity and set out to make their fortunes in the stock market. It is estimated that of the $50 billion in new securities, offered during this period, half became worthless ("The Investor's Advocate").

When the stock market crashed in October 1929, fortunes of countless investors were lost. Banks also lost great sums of money in the Crash because they had invested heavily in the markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a "run" on the banking system caused many bank failures ("The Investor's Advocate").

President Franklin D. Roosevelt

Joseph Kennedy

With the Crash and ensuing depression, public confidence in the markets plummeted. There was a consensus that for the economy to recover, the public's faith in the capital markets needed to be restored. Congress held hearings to identify the problems and search for solutions ("The Investor's Advocate").

Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws aimed at restoring investor confidence in the capital markets by providing a more structured oversight. The main purposes of these laws can be reduced to two common-sense notions:

Ð'* Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. ("The Investor's Advocate").

Ð'* People who sell and trade securities Ð'- brokers, dealers, and exchanges Ð'- must treat investors fairly and honestly, putting investors'