Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is charged with protecting investors and maintaining fair and efficient capital markets. SEC regulations govern the activities of individuals and organizations involved in the sale of securities, including brokers and brokerage firms. The SEC operates at a high level, however, and does not recoup losses for individual investors.

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Historical Background of the SEC

Established in 1934 to enforce securites laws passed in response to the stock market crash of 1929, the SEC regulates individuals and institutions who sell securities (including exchanges, brokers, dealers, investment advisors, and mutual funds), and requires publicly-held companies to disclose relevant financial and business information to investors and potential investors. There are two primary laws the SEC enforces: the Securities Act of 1933, and the Securities Exchange Act of 1934. Both of these laws are based on two fundamental concepts:

  • Publicly-traded companies must tell the truth about their businesses, their securities, and the risks involved with investing in those securities.
  • Individuals and institutions involved in buying and selling securities must be honest and act in the best interests of investors.

How the SEC Protects InvestorsThe SEC's enforcement activities are conducted by its Division of Enforcement. This office conducts investigations into potential violations of securities laws, and prosecutes both civil suits and administrative proceedings when appropriate.

Civil suits are tried in Federal court; penalties can include injunctions, civil monetary penalties, and disgorgement (surrender of illegal profits). The SEC files between 400 and 500 civil actions each year.

Administrative actions are conducted before an administrative law judge. Sanctions from an administrative action can include cease-and-desist orders, banning individuals from employment in the securities industry, and disgorgement.

The SEC also runs an Office of Investor Education and Assistance. This office works to prevent investor fraud by educating investors. They also receive complaints from individual investors, and will send an inquiry on behalf of an investor seeking information regarding a dispute. This office does not conduct investigations, however, and cannot impose sanctions of any sort.

What the SEC Can't DoThe SEC cannot serve as an advocate for individual investors involved in disputes with brokers, dealers, or financial advisors. The SEC cannot take action to ensure an individual's full legal rights under state and federal law are protected.

The SEC advises investors who believes they are a victim of securities fraud to "discuss the matter with a private attorney who is familiar with securities laws…"
<>. Shepherd, Smith, & Edwards is a firm of securities attorneys whose mission is to assist individual investors to recover losses caused by the misconduct of stock brokers and their firms.

If you have lost money on your investments and want to find out if you have been the victim of broker misconduct, click to learn how to recognize the main types of securities fraud. Or click here to learn about the steps for stock loss reimbursement. We also offer a free consultation to evaluate your case.

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