The Securities and Exchange Commission, or SEC, is the independent federal government agency that regulates the securities industry and protects investors from fraud and unfair business practices.
The SEC was created as part of the Securities and Exchange Act of 1934 in the wake of the Great Depression. The mission of the SEC is to protect investors from fraud, deception and misrepresentation by brokers and investment advisors and to maintain a fair and efficient securities market for all participants.
The SEC is governed by a set of up to five commissioners who are appointed by the U.S. president. Each commissioner serves a five-year term, with one being designated as chair.
To maintain political balance, no more than three commissioners of the same political party may serve on the commission at the same time. Terms are staggered to ensure that no more than one commissioner’s term will end during a calendar year.
The SEC regulates the entire U.S. securities industry.
A security is a financial investment in which capital that is invested by one party is managed by another. A mutual fund is an example of a security. Stock (equity) and bond (dept) investments in public and private companies are also considered securities. All securities – large or small, public or private – that seek investors, along with all brokers and dealers in securities are to some extent regulated by the SEC.
The scope of SEC regulation is broad. It covers but is not limited to the following areas:
- Capital formation – raising capital for managed investments or business operations by issuing equity (stock) or debt (bonds).
- Broker-dealers – individuals and companies acting as agents or brokers in the sale and distribution of public and private securities.
- Investment advisors – individuals and companies in the business of offering investment advice or money management for a fee.
- Securities exchanges – organizations that “list” securities for purchase and sale, make markets in securities and facilitate securities trading.
Major SEC Enforcement Actions
- Allianz Global Investors charged with fraud. In May 2022, the SEC charged Allianz Global Investors U.S. LLC with a massive mutual fund fraud scheme. The company admitted to defrauding clients and agreed to a multibillion-dollar restitution settlement and to pay a fine of more than $1 billion.
- Robinhood accused of misleading investors. In December 2020, the SEC accused the app-based brokerage firm Robinhood Markets Inc. (ticker: HOOD) of misleading clients by including misstatements and making omissions in customer communications. The firm did not admit wrongdoing but agreed to pay a $65 million fine.
- Former Domino’s Pizza accountant charged with insider trading. In a complaint filed in April 2022, the SEC charged a former accountant for the pizza delivery chain, Domino’s Pizza Inc. (DPZ), with using inside information to earn more than $900,000 in illicit trading profits. The resolution of the case required the former Domino’s employee to pay a penalty of about $2 million.
