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The Securities & Exchange Commission (SEC)

What is the Securities & Exchange Commission (SEC)?

Congress established the Securities & Exchange Commission (SEC) in 1934 to enforce the newly passed securities laws, such as the Securities Exchange Act of 1934, to protect investors and to promote stability in the markets. The SEC monitors corporate conduct by requiring companies that publicly offer securities for investment dollars to tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. In addition, the SEC oversees people who sell and trade securities – brokers, dealers, and exchanges – ensuring that they treat investors fairly and honestly, putting investors' interests first.

 

How does the SEC decide whether to open an investigation or bring charges?

In determining whether to open an investigation and, if so, whether an enforcement action is warranted, SEC staff considers a number of factors, including: the statutes or rules potentially violated; the egregiousness of the potential violation; the potential magnitude of the violation; whether the potentially harmed group is particularly vulnerable or at risk; whether the conduct is ongoing; whether the conduct can be investigated efficiently and within the statute of limitations period; and whether other authorities, including federal or state agencies or regulators, might be better suited to investigate the conduct.

 

Information about how SEC conducts investigations and the guiding principles that SEC staff considers when deciding whether to open or close an investigation and whether civil charges are merited can be found in SEC’s Enforcement Manual, available on SEC’s website.

 

What are some of the new tools the SEC uses to fight financial fraud?

In 2013, the SEC’s Enforcement Division formed the Financial Reporting and Audit Task Force to detect “fraudulent or improper financial reporting” and “enhance the Division’s ongoing enforcement efforts related to accounting and disclosure fraud.” Around the same time, the SEC established a similar group focused on microcap fraud, especially geared toward companies that don’t regularly publicly report their financial results, and created the Center for Risk and Quantitative Analysis. The Center works closely with the Division of Economic and Risk Analysis and serves as both an analytical hub and a source of information about characteristics and patterns that indicate possible fraud or other illegality.

 

How has the SEC strengthened oversight of asset-backed securities?

The SEC now requires that the relevant transaction agreements include provisions for a review of the underlying assets for compliance with the representations and warranties upon the occurrence of certain post-securitization trigger events. The rule is designed to address comments received related to the triggers and potential costs, while at the same time balance the need for stronger mechanisms to enforce underlying contract terms. Under the final rule, the agreements must require a review, at a minimum, upon the occurrence of a two-pronged trigger. The first prong of the trigger is the occurrence of a specified percentage of delinquencies in the pool. If the delinquency trigger is met, the second prong of the trigger is the direction of investors by vote. The reviewer’s findings and conclusions for all assets reviewed must be reported to the trustee so that the trustee can determine whether a repurchase request would be appropriate under the terms of the transaction agreements, and a summary of the report must be included on Form 10-D.

 

How does the SEC oversee cybersecurity risks?

In November 2014, the SEC adopted Regulation Systems Compliance and Integrity and Form SCI to strengthen the technology infrastructure of U.S. securities markets, which mandates comprehensive new controls to strengthen key technological systems, promoting greater transparency, resiliency, and accountability. Regulation SCI applies to self-regulatory organizations such as stock and options exchanges; registered clearing agencies; the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB); alternative trading systems (ATSs) that trade National Market System (NMS) and non-NMS stocks exceeding specified volume thresholds; disseminators of consolidated market data (plan processors) and certain exempt clearing agencies. The rules apply primarily to the systems of SCI entities that directly support any one of six key securities market functions—trading, clearance and settlement, order routing, market data, market regulation, and market surveillance. Regulation SCI took effect on November 3, 2015.

 

How does the SEC protect corporate whistleblowers?

The SEC’s Whistleblower program allows an individual to file a claim anonymously by using an attorney as his legal representative. Under Dodd-Frank, the Whistleblower Office is prohibited from even revealing details that could identify the whistleblower during the investigation. The claim is submitted anonymously by the lawyer who completes a Tip, Complaint or Referral (TCR) Form. The statute also protects whistleblower against any retaliation he or she may encounter as a result of his litigation. This protection also extends to employees of any subsidiary or parent corporation of the company suspected of violating the securities laws.

 

If a whistleblower is fired, demoted or otherwise faces retaliation because s/he filed or even just considered filing a SEC action, the Dodd-Frank Act further extends its protection by allowing him or her to bring a lawsuit in federal court against the employer for wrongful discrimination. If it is found that the employee did face retaliation, the plaintiff is entitled to double back pay with interest, reinstatement to his/her former position (in cases of termination or demotion), compensation for litigation costs including attorney’s fees, and possibly even a higher position overall. The program’s anti-retaliation provision also protects those who did not work directly for the fraudulent company but instead were employed as agents such as accountants, bankers, or salesmen.

 

Those who report a violation are entitled to receive a reward as long as the authorities successfully recover more than $1 million through an enforcement action. This award ranges from 10 percent to 30 percent of the total amount recollected when the investigation is over. This reward system means that the minimum a successful whistleblower can receive is $100,000, with potential for a payout in the millions of dollars.

The Filing Cabinet Blog

SEC’s Jackson criticizes stock exchanges, promises reforms

Joe Mont | September 21, 2018

The time has come to reform America’s stock markets. That was the message from SEC Commissioner Robert Jackson during a speech this week at George Mason University, where he laid out potential changes. 

Accounting & Auditing Update Blog

SEC will watch for SAB 74 disclosure leading to CECL

Tammy Whitehouse | September 21, 2018

The SEC will be looking for increasingly detailed disclosures to investors about the expected effects of moving to a new method for recognizing credit losses.

News Article

Public sounds off to SEC on proposed whistleblower changes

Joe Mont | September 19, 2018

As part of a public comment process that reached its deadline on Sept. 15, the SEC has collected ideas and opinions on proposed changes to its whistleblower program. We took a look at some of the responses.

News Article

Guidance confirms diminished tax benefits for exec comp

Tammy Whitehouse | September 17, 2018

While certain aspects of tax reform remain ambiguous, the provisions around the deductibility of executive compensation awards are becoming clearer.

The Filing Cabinet Blog

SEC monitoring Hurricane Florence 

Joe Mont | September 14, 2018

The Securities and Exchange Commission, in a statement on Friday, said it is “closely monitoring the effects of Hurricane Florence” on investors and capital markets. It will consider extending deadlines for filings and other regulatory requirements.

The Filing Cabinet Blog

SEC chairman weighs in on role of guidance

Joe Mont | September 13, 2018

Reacting, in part, to a recent statement by banking regulators regarding the role of guidance in their regulatory regimes, SEC Chairman Jay Clayton has clarified his own views on the topic.

Enforcement Action Blog

UTC to pay $13.9M to settle SEC FCPA charges

Jaclyn Jaeger | September 13, 2018

United Technologies on Sept. 12 reached a $13.9 million settlement with the Securities and Exchange Commission to resolve charges that it violated the Foreign Corrupt Practices Act by making illicit payments in its elevator and aircraft engine businesses.

Accounting & Auditing Update Blog

Still MIA: 2016 inspection report on KPMG

Tammy Whitehouse | September 12, 2018

Audit regulators remain mum on when, if ever, they will publish a report on their 2016 inspection of Big 4 audit firm KPMG.

News Article

SEC, FASB issue changes aimed at simplifying disclosure requirements

Tammy Whitehouse | September 11, 2018

Companies need to update their disclosure controls and procedures now that the SEC and FASB are starting to trim unnecessary bulk out of disclosure requirements.

Enforcement Action Blog

Moody’s to pay $16.25M for internal controls failures and ratings symbols deficiencies

Jaclyn Jaeger | September 10, 2018

The SEC has filed its first-ever enforcement action involving rating symbol deficiencies, hitting Moody’s Investors Service with $16.25 million in penalties to settle charges involving internal control failures and failing to clearly define and consistently apply credit rating symbols.