SEC Regulatory Overview
Office of Investor Education and Advocacy
United States Securities and Exchange
Commission
February 9, 2016
SEC Disclaimer
The Securities and Exchange Commission, as a matter of
policy, disclaims responsibility for any private
publication or statement by any of its employees. The
views expressed in this presentation do not necessarily
reflect the views of the SEC, its Commissioners, or other
members of the SEC’s staff.
2
The Mission
The Mission of the SEC:
• Protect Investors
• Maintain Fair, Orderly, and Efficient Markets
• Facilitate Capital Formation
3
The Mission
The main purposes of the Exchange Act, as well as the
Securities Act of 1933 (“Securities Act”), can be reduced
to two common-sense notions:
• Companies publicly offering securities for
investment must tell the public the truth about their
businesses, the securities they are selling, and the
risks involved in investing.
• People who sell and trade securities – brokers,
dealers, and exchanges – must treat investors fairly
and honestly.
4
The Mission
Accomplishes its Mission by:
• Administering and enforcing federal securities
laws
• Overseeing brokerage firms and investment
advisers
• Reviewing filings by most public companies
5
Creation of the SEC
• Congress created the SEC in the
Securities Exchange Act of 1934
(“Exchange Act”)
• Created to restore investor confidence
in the capital markets following the
crash of 1929 and the Great
Depression
6
Organization of the SEC
• Independent Agency of the Executive
Branch
• Approximately 3500 Employees
• Headquarters in Washington, D.C.
• 11 Regional Offices, including New York,
Atlanta, Miami, Boston, Chicago, and San
Francisco
7
About the SEC
• Five Presidentially-appointed Commissioners
• No more than three of same political party
• Staggered five-year terms
• The President designates the Chairman
8
Organization of the SEC
5 Major Divisions
• Division of Enforcement (“Enforcement”)
• Division of Corporation Finance (“Corp Fin”)
• Division of Trading and Markets (“TM”)
• Division of Investment Management (“IM”)
• Division of Economic and Risk Analysis (“DERA”)
9
Division of Enforcement
Division of Enforcement staff:
• Investigate violations of federal securities laws
• Bring civil actions, negotiate settlements, and refer
actions to DOJ for criminal enforcement
• Types of actions sought, include:
• trading suspensions
• sanctions against entities and individuals
• injunctions and temporary restraining orders
• bars against officers and directors
10
Division of Corporation Finance
Reviews documents that public companies are
required to file, including:
• Registration statements for newly-offered
securities
• 10-K and 10-Q (annual and quarterly filings)
• Proxy materials
• Documents concerning tender offers
• Filings relating to mergers & acquisitions
11
Division of Corporation Finance
• Provides guidance to registrants, prospective
registrants and the public to help them comply
with the law
• Provides administrative interpretations of
several of the securities laws that the SEC
oversees
• Issues no-action letters to provide guidance in a
more formal manner
12
Division of Investment Management
Oversees SEC regulation of:
• Investment Companies
• Mutual Funds and ETFs
• Variable insurance products
• Money Market Funds
• Federally registered investment advisers
13
Division of Investment Management
Responsibilities include:
• Reviewing investment company and
investment adviser filings
• Advising the Commission on adapting
SEC rules to new circumstances
14
Division of Trading and Markets
Establishes and maintains standards for fair, orderly,
and efficient markets through oversight of the major securities
participants:
•
•
•
•
•
•
•
Securities Exchanges
Securities Firms
Self-regulatory Organizations (including FINRA)
Clearing Agencies
Transfer Agents
Securities Information Processors
Credit Rating Agencies
15
Division of Trading and Markets
Oversees Securities Investor Protection Corporation (SIPC)
• SIPC, private/non-profit, corporations that insures securities
and cash in customer accounts of member brokerage firms
against failure of firm
• SIPC does not cover market declines or fraud
Division also:
• Reviews new rules and proposed changes to rules filed
by the SROs
• Assists with establishing rules and interpretations
related to the operation of the securities markets
• Carries out broker-dealer financial integrity program
16
Division of Economic and Risk Analysis
Integrates robust economic analysis and rigorous
data analytics into the work of the Commission,
through two main functions:
• Economic support of Commission rulemaking
and policy development
• Economic support on matters presenting the
greatest perceived risks in litigation,
examinations and registrant reviews
17
Division of Economic and Risk Analysis
The Division’s functions include:
• Analyzing the potential economic effects of Commission
rulemakings or other Commission actions
• Providing quantitative and qualitative research and
support related to risk assessment
• Assisting the Division of Enforcement by, for example,
providing economic and quantitative analysis and
support in enforcement proceedings and settlement
negotiations
18
SEC Offices
 Office of the General Counsel
 Office of the Chief Accountant
 Office of Compliance Inspections and
Examinations
 Office of International Affairs
 Office of Investor Education and
Advocacy
 Office of Credit Ratings
19
SEC Offices
 Office of Legislative Affairs and
Intergovernmental Relations
 Office of the Secretary
 Office of Public Affairs
 Office of the Chief Operating Officer
 Office of Equal Employment Opportunity
 Office of the Inspector General
 Office of Administrative Law Judges
20
Office of Investor Education and Advocacy
OIEA’s duties include:
•
Receiving tips, complaints, and inquiries from the public
•
•
•
•
Conducting investor education and outreach
•
•
•
•
Respond to questions from public
Refer tips when appropriate to Enforcement, OCIE, and others
Contact brokers to help resolve account problems
Issue Investor Alerts and Bulletins
Create educational content, including brochures and other publications
Speak at conferences and seminars
Channels of Communication
•
•
•
•
•
•
•
Investor.gov
SEC.gov
Twitter
Facebook
Press releases
RSS feeds
Speeches
21
Securities Fraud
Section 10(b) of the Exchange Act states, in relevant part:
It shall be unlawful for any person, directly or indirectly . . . [t]o use or employ, in
connection with the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the public interest or
for the protection of investors.
The Commission promulgated Rule 10b-5, which states in relevant part:
It shall be unlawful for any person, directly or indirectly . . .
•
To employ any device, scheme, or artifice to defraud;
•
To make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or
•
To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase or sale
22
of any security.
Some Common Types of Securities Fraud
•
Financial Fraud in Periodic Reports
Materially false or misleading statements in periodic reports filed with the
Commission may violate Section 10(b) of the Exchange Act and Rule 10b-5 where
the false statements are made with scienter.
•
Market Manipulation
Manipulation is intentional conduct designed to deceive investors by controlling or
artificially affecting the market for a security. Manipulation can involve a number of
techniques to affect the supply of, or demand for, a stock. They include: spreading
false or misleading information about a company; improperly limiting the number of
publicly-available shares; or rigging quotes, prices or trades to create a false or
deceptive picture of the demand for a security.
23
Some Common Types of Securities Fraud
•
Affinity Fraud
Affinity fraud refers to investment scams that prey upon members of identifiable
groups, such as religious or ethnic communities, the elderly, or professional groups.
The fraudsters who promote affinity scams frequently are - or pretend to be members of the group. They often enlist respected community or religious leaders
from within the group to spread the word about the scheme, by convincing those
people that a fraudulent investment is legitimate and worthwhile. Many times, those
leaders become unwitting victims of the fraudster's ruse.
•
Ponzi Schemes
A Ponzi scheme is an investment fraud that involves the payment of purported returns
to existing investors from funds contributed by new investors. Ponzi scheme
organizers often solicit new investors by promising to invest funds in opportunities
claimed to generate high returns with little or no risk. In many Ponzi schemes, the
fraudsters focus on attracting new money to make promised payments to earlier-stage
investors and to use for personal expenses, instead of engaging in any legitimate
investment activity.
24
Some Common Types of Securities Fraud
•
Pump and Dump Schemes
"Pump and dump" schemes have two parts. In the first, promoters try to boost the
price of a stock with false or misleading statements about the company. Once the
stock price has been pumped up, fraudsters move on to the second part, where they
seek to profit by selling their own holdings of the stock, dumping shares into the
market.
•
Foreign Corrupt Practices Act Violations
The FCPA, enacted in 1977, added Section 30A to the Exchange Act in order to
prohibit public companies from, among other things, making or authorizing payments
to any person while knowing that all or a portion of such payments will be offered or
given to any foreign official for the purpose of influencing the official’s decision in
order to obtain or retain business.
25
Insider Trading
Classical theory:
•
Involves an insider and his own corporation. Under the “traditional” or “classical
theory” of insider trading liability, Section 10(b) and Rule 10b-5 are violated when a
corporate insider trades in the securities of his corporation on the basis of material
nonpublic information in breach of a duty arising from a fiduciary or other
relationship of trust or confidence. The classical theory targets a corporate insider’s
breach of duty to shareholders with whom the insider transacts, to either disclose his
intent to trade on material nonpublic information or to not trade.
Misappropriation:
•
Involves an outsider. In misappropriation cases, the insider trader may not have an
employment or other business relationship with the issuer of the securities in which
he or she trades or tips, but instead gains material nonpublic information because he
or she has a fiduciary relationship, or similar relationship of trust and confidence,
with someone else. The misappropriation theory outlaws trading on the basis of
nonpublic information by a corporate “outsider” in breach of a duty owed not to a
trading party, but to the source of the information.
26
EDGAR – SEC’s free database
Company filings you’ll find in EDGAR
 Reports:
Form S-1:
Form 10-K:
Form 10-Q:
Form 8-K:
Forms 3, 4 & 5:
Schedule 14A:
Registration Statement
Annual Report
Quarterly Report
Current Report
Insider Holdings & Sales
Proxy Statement
27
Researching Financial Professionals
 BrokerCheck: BrokerCheck is a free tool to help investors research the
professional backgrounds of current and former FINRA-registered brokerage firms
and brokers, as well as investment adviser firms and representatives.
 (800) 289-9999
 FINRA.org or www.saveandinvest.org
 Investment Adviser Public Disclosure (IAPD) database: IAPD features
professional background information on individuals acting as investment adviser
representatives and current and former investment adviser firms.
 (800) 732-0330
 SEC.gov or www.adviserinfo.sec.gov
 State Regulators
 North American Securities Administrators Association NASAA.org
28
SEC Contact Information
Websites:
www.SEC.gov
www.Investor.gov
Twitter:
@SEC_Investor_Ed
Like OIEA on Facebook
at www.facebook.com/secinvestoreducation
Toll free number:
(800) 732-0330
Mail:
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
29