Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is the federal agency established to enforce the laws and rules governing United States securities markets. The SEC's primary functions involve the registration of securities and compliance with the rule of full disclosure—timely, relevant, and accurate information about a security and the issuing company that helps an investor make a buy, sell, or hold decision. The expertise of investor relations professionals depends in part on knowledge of the SEC and its regulations concerning securities and the publicly held companies that issue those securities. Investor relations professionals must also understand disclosure opportunities beyond filing requirements that could occur in releases, responses to rumors, and comments.

The SEC administers the Securities Act of 1933 and the Securities Exchange Act of 1934, along with a cohort of laws created to help protect investors. Those include the Trust Indenture Act, the Investment Company Act, the Investment Advisors Act, and the Public Utility Holding Act. These laws were written to prevent the kind of market collapse that culminated in the crash of October 1929.

Investors had no such protections in the boom of the 1920s when market manipulation and an absence of ethics, rules, and laws were prevalent. A highly speculative stock market and other weaknesses in the economy courted financial catastrophe and an ensuing depression. Congress held hearings to find ways to restore the public's faith in the securities markets. Participants in the hearings agreed that a corporation issuing a stock or bond must be fair and honest in disclosing to investors information about the company, the security, and level of investment risk, while brokers, dealers, and exchanges must be fair and honest in issuing securities to investors.

The Securities Act of 1933 established strong civil and criminal liabilities for omissions and distortions of facts concerning the issue of stocks or bonds. The Securities and Exchange Act of 1934 created the SEC and required stock exchanges to register with the five-member commission. The Trust Indenture Act of 1939 required that debt securities (such as bonds, debentures, and notes) not be offered for sale to the public unless a formal agreement (the trust indenture) between the issue and the bondholder conformed to standards of the act. The Investment Company Act of 1940 focused on compliance of disclosure of information about mutual funds and investment objectives as well as on investment company structures and operations. The [Page 770]Investment Advisors Act of 1940 required that investment advisor firms or sole practitioners register with the SEC and conform to regulations. The act was amended in 1996 to limit registration to advisers with at least $25 million of assets. The Public Utility Holding Act of 1935 established regulation of interstate holding companies engaged in the electric utility business or in the retail distribution of natural gas.

The SEC is currently implementing the SarbanesOxley Act of 2002, which will require corporate officers to certify company financial statements or be subject to criminal penalties. Among other provisions, the act has mandated creation of the new Public Company Accounting Oversight Board (PCAOB). The act was signed into law in the summer of 2002 in response to questionable accounting practices and poor internal controls that led to the failures of such high-profile public companies as Enron, WorldCom, and Global Crossing.

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