Since the economic near-collapse in the United States in 2008 that required billions of tax dollars to avert, there has been much in the news about transparency and increased federal regulation of Wall Street. The federal agency charged with the responsibility of enforcing existing securities laws is the U.S. Securities and Exchange Commission (SEC). The SEC is an independent agency that regulates stock market exchanges and the securities industry in the United States. It was created to prevent abuses such as those that led to the stock market Crash of 1929 and the Great Depression that followed.
Prior to the stock market collapse in 1929, there was no federal regulation of securities markets that prevented the fraudulent sales of stocks. Many investors looking to make their fortunes purchased high risk securities with easy credit and margin financing during the prosperous post-World War I 1920s. These investors lost enormous sums of money as a result of the stock market crash as did the banks who loaned them the money to invest. Faith in the stock markets understandably collapsed as well.
To restore the confidence of investors, the Securities Act of 1933 was passed and in 1934 the Securities Exchange Act was passed creating the SEC. These acts called for disclosure of information by publicly held companies offering securities for investment. They must provide truthful financial reporting to enable investors to know what they are investing in and understand the risks they are taking. Furthermore, the Acts place regulations on those who sell and trade securities such as dealers, brokers, and exchanges to ensure that investors are honestly and fairly dealt with.
With the formation of the SEC, the commission was given civil enforcement authorization to enable it to bring action against companies or individuals that engage in illegal insider trading, provide false information, commit accounting fraud, or otherwise violate current securities laws. The SEC collaborates with criminal law enforcement agencies in the prosecution of criminal offenses as they pertain to securities.
Publicly traded companies must submit quarterly and annual reports to the SEC that include financial reports and narrative accounts of the status of the companies. The reports are made available to the public through a database that can be accessed online known as EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system. These reports allow investors to make well informed decisions in order to weigh potential gains against risks. This external reporting is essential to maintain public confidence and transparency and to reduce the risk of fraud.
Author Resource:-
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