The U.S. Securities and Exchange Commission (SEC) is a regulatory agency developed to protect investors in the securities market by administering federal security laws against fraud and dishonest activities. It was formed after the stock market collapse in 1929 leading to the Great Depression that followed (U.S. Securities and Exchange Commission, 2013a). It was mainly formed to prevent companys misrepresentation of relevant information and misrepresentation of financial information made to defraud investors (U.S. Securities and Exchange Commission, 2013a). Some of the main federal safeguards put in place are the Securities Act of 1933, the Public Utility Act of 1935, the Sarbanes-Oxley Act of 2002, The Securities Exchange Act of 1934, The Investment Advisers Act of 1940, The Investment Company Act of 1940, and The Public Utility Holding of 1935 (U.S. Securities and Exchange Commission, 2013b).
These acts highlighted above are some of the main federal safeguards put in place to reduce and prevent financial reporting malpractices, thus protecting investors (U.S. Securities and Exchange Commission, 2013a). All the safeguards put in place play one role specifically: protecting investors. For example, the first federal safeguard put in place is the Securities Act of 1933 that is also known as the truth in securities law. It compels organizations to provide all the relevant financial information regarding securities on sale to the public (U.S. Securities and Exchange Commission, 2013b). It clearly prohibits organizations from manipulating, misrepresenting, or deceiving investors in the process of selling securities. The securities Exchange Act of 1934, on the other hand, extended the concept of disclosure. Different from the Truth in Securities law, it was used to form the SEC by making them the watchdogs of security affairs. It compelled companies with assets worth more than $10 million to file annual reports as well as other periodic reports accurately. Other Acts that were also meant to coerce organization into mandatory and accurate reporting of financial acts include the Investment Company Act of 1940, Public Utility Holding Act of 1935, and the Sarbanes-Oxley Act of 2002 (U.S. Securities and Exchange Commission, 2013b). However, the main difference between the act is in the individuals it specifically target to achieve that. For example, the Public Utility Holding Act of 1935 targeted electric utility business or companies involved in the distribution of natural or manufactured gas while the investment Company Act of 1940 targets companies engaged in investing, reinvesting and trading securities. The Sarbanes-Oxley Act of 2002, combats accounting and corporate fraud, and enhances financial disclosure and created the PCAOB an overseeing board to coordinate activities in auditing professions (U.S. Securities and Exchange Commission, 2013b). All the acts highlighted above are considered important since they have helped streamline the capital markets effectively, for example, the Sarbanes-Oxley Act of 2002 has induced organizations to improve compliance with the law like no other law devised in the past.
The Investor's Advocate. (2013a). U.S. Securities and Exchange Commission. Retrieved from: https://www.sec.gov/Article/whatwedo.html
The Laws That Govern the Securities Industry. (2013b). U.S. Securities and Exchange Commission. Retrieved from: https://www.sec.gov/answers/about-lawsshtml.html
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