The U.S. Securities and Exchange Commission (SEC) is one of the most well-known financial regulatory agencies in the world, but many don’t know how it functions. The SEC enforces securities laws and helps investors avoid fraud by requiring companies to disclose important information about their business. Let’s take a closer look at this powerful government organization that monitors U.S. markets and trading activities, as well as the individual companies operating within them. If you invest in stocks, exchange-traded funds, or other securities listed on an American stock exchange, the company you’re investing in will have to register with the SEC before they can begin selling their shares to the public or offer them for sale through brokerages like Vanguard or Fidelity Investments.
What Does the SEC Do?
The SEC is responsible for monitoring and regulating the U.S. securities markets. This includes issuing rules and regulations for the trading of stocks, bonds, and other securities on exchanges. The SEC also enforces federal securities laws that apply to investment companies, securities brokers and dealers, and other participants in the securities markets.
The SEC has three major functions:
Regulation of the securities markets
Regulation of the securities industry
Enforcement of federal securities laws
The SEC also works to increase public understanding of the securities markets and encourages informed investment decision-making. It does this by issuing reports and publishing educational materials.
How Does the SEC Regulate the Markets?
The SEC works to ensure that investors and markets are protected as they regulate the markets. Traders and investment companies go through a rigorous registration process and compliance review to meet the SEC’s standards. This includes federal background checks and other forms of verification. The SEC conducts an examination of each brokerage firm on a regular basis to make sure that they continue to meet these standards. If an investment company fails to meet the SEC’s regulatory requirements, the SEC may take action against it. This may include shutting down the company or placing restrictions on its operations. If the company has misled investors, the SEC may issue a cease and desist order to stop the company from engaging in fraudulent activities.
What Is Market Manipulation and Fraud?
Market manipulation involves misleading investors and manipulating the price of a security for personal gain. Market manipulation often involves false statements about a company’s products or financial condition. Fraud involves deceiving investors and misusing their money. This may include using misleading sales practices, manipulating financial records, or misappropriating funds. If fraud or market manipulation occurs, investors can report it to the SEC or a state securities regulator. The SEC may bring legal action against the company or individuals involved in the fraud. Investors who report fraudulent activity may be eligible for a financial reward.
Examples of types of securities fraud include:
Insider trading: This occurs when someone uses confidential information to trade a security.
Ponzi scheme: This is a type of fraud that involves promising investors high returns and using new investor money to pay old investors.
Microcap fraud: This is a type of fraud that involves stocks of very small companies that trade at low prices.
Advance fee fraud: This is a type of fraud that involves promising investors a percentage of the money they invest in a project if they pay an upfront fee.
Prime bank fraud: This is a type of fraud that involves promising investors high returns on investments that do not exist.
What is the SEC Whistleblower Program?
The SEC Whistleblower Program rewards people who report securities law violations to the SEC. The SEC Whistleblower Program was created in order to encourage people to come forward with information about securities law violations. Under the program, whistleblowers who provide information that leads to a successful enforcement action can receive an award of up to 30% of the money recovered by the SEC. In order to qualify for a reward, whistleblowers must provide “original, timely, and credible information” that leads to a successful enforcement action. Additionally, the information must be provided voluntarily and cannot be publicly known at the time it is submitted.
This program is important because it allows the SEC to investigate fraud and other illegal activity that might otherwise go undetected. Without whistleblowers, many securities law violations would never be uncovered. To qualify for an award under this program, the information you provide must lead to a successful enforcement action. The SEC must collect monetary sanctions that total more than $1 million.
Key Takeaways
The SEC is responsible for monitoring the U.S. securities markets. It ensures that investors are protected as they regulate the markets and protects against market manipulation and fraud. Investors should know whom they’re dealing with, including the broker-dealer and their regulatory organization. They should also know how their broker-dealer measures their financial success. Investors who report potential violations of securities laws may be eligible for a financial reward.
The SEC also works to increase public understanding of the securities markets and encourages informed investment decision-making. It does this by issuing reports and publishing educational materials.
If you have information about wrongdoing involving financial instrument, your information may make you eligible for an award under the SEC Whistleblower Program. Contact us at Whistleblowers International for a free and confidential case evaluation.