United States Securities and Exchange Commission
The United States Securities and Exchange Commission is an independent regulatory and law enforcement agency of the U.S. federal government charged with protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. Established in the wake of the 1929 Wall Street crash and the New Deal securities reforms, the SEC serves as the nation’s primary federal law enforcement and regulatory authority for the securities laws and investigates and pursues misconduct such as financial fraud, insider trading, and market manipulation. The SEC enforces the securities laws primarily through civil actions and, when appropriate, refers potential criminal violations to the Department of Justice. The agency is headquartered in Washington, D.C., and is often referred to simply as “the Commission” or “the Agency.”
Congress established the SEC through the Securities Exchange Act of 1934—specifically Section 4. Alongside the Exchange Act, the SEC administers and enforces a core set of statutes that shape U.S. capital markets, including the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Sarbanes–Oxley Act of 2002, among others. Through rulemaking, inspections, and enforcement, the SEC oversees public companies, broker-dealers, investment advisers, mutual funds, ETFs, and national securities exchanges.
The Commission is led by up to five Commissioners appointed by the President and confirmed by the Senate, with no more than three Commissioners from the same political party; the President designates one Commissioner as Chair. The agency’s work is carried out through six principal divisions—Corporation Finance, Economic and Risk Analysis, Enforcement, Examinations, Investment Management, and Trading and Markets—along with specialized offices supporting policy, compliance, and investor outreach.
The SEC enforces the securities laws primarily through civil actions brought in federal court or through administrative proceedings, and it may refer potential criminal violations to the Department of Justice for prosecution. In June 2024, the Supreme Court held that when the SEC seeks civil penalties for securities fraud, the Seventh Amendment entitles defendants to a jury trial, limiting the agency’s ability to impose such penalties through in-house adjudication.
The SEC has been the subject of debate and criticism over both enforcement choices and regulatory scope. After the collapse of Bernard L. Madoff Investment Securities, the SEC’s Office of Inspector General issued a report examining the agency’s failure to uncover Bernard Madoff’s Ponzi scheme despite receiving warnings and complaints over several years. In the 2020s, the SEC expanded its focus on cybersecurity and digital assets, including adopting rules requiring public companies to disclose material cybersecurity incidents and related governance information. The agency has also brought high-profile crypto-related cases, including a civil action against Samuel Bankman-Fried relating to investors in FTX Trading Ltd. and a case against Terraform Labs and Do Kwon that ended in a jury verdict and a settlement exceeding $4.5 billion following the collapse of the TerraUSD and Luna ecosystem. Enforcement and rulemaking in these areas have drawn both support and criticism, including disputes over the SEC’s theories of liability and the appropriate boundaries of disclosure obligations in rapidly evolving markets.
Overview
The SEC has a three-part mission: to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.Legal Authority and Statutory Framework
Congress established the SEC through the Securities Exchange Act of 1934—specifically Section 4. Alongside the Exchange Act, the SEC administers and enforces a core set of statutes that shape U.S. capital markets, including the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Sarbanes–Oxley Act of 2002, among others.How the SEC Carries out its Mandate
The agency carries out that mandate in three main ways: through corporate disclosure, market supervision, and enforcement. Corporate disclosure protects investors by requiring public companies to publish standard financial information and plain-language discussion, so everyone can judge risk using the same basic facts. Market supervision helps keep markets fair and efficient by overseeing firms like broker-dealers and investment advisers and checking that they follow conduct rules and protect customer assets. Enforcement supports market integrity—and, in turn, capital formation—by investigating possible violations of the securities laws and bringing civil cases for misconduct such as fraud and market manipulation.Disclosure Filings
Federal securities laws require public companies to disclose material information to ensure market transparency. This mandate nvolves filing periodic financial statements, accompanied by a Management’s Discussion and Analysis, which offers a narrative explanation of the financial outcomes and associated operational risks. These reporting requirements aim to reduce information asymmetry by providing a uniform factual baseline for all market participants. To facilitate public access to these records, the agency maintains a centralized electronic database known as EDGAR, which allows for independent analysis by both institutional and retail investors.Quarterly and semiannual reports from public companies are crucial for investors to make sound decisions when investing in capital markets. Unlike banking, investment in capital markets is not guaranteed by the federal government. The potential for large gains needs to be weighed against that of sizable losses. Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same fundamental facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.
Oversight of Market Participants
The SEC maintains a supervisory framework for the intermediaries that facilitate trading and asset management, including broker-dealers, investment advisers, and securities exchanges. The Division of Examinations executes this oversight by conducting risk-based inspections to verify compliance with federal laws regarding conflict of interest management and asset safeguarding. Examinations, however, are only one part of oversight. Ongoing supervision also requires routine monitoring of brokerage activity and firm conduct. For broker-dealers, the SEC relies on FINRA, a self-regulatory organization that operates under SEC oversight and performs much of the day-to-day monitoring and related compliance work for brokerage firms. The setup lets the SEC focus more attention on higher-risk firms and market-wide issues while maintaining broad coverage across the sector.Investigations and Enforcement
The SEC investigates possible violations of the securities laws, including fraud, insider trading, market manipulation, and misleading disclosures. The Division of Enforcement leads these cases as a civil authority and can bring actions in federal court or in SEC administrative proceedings. The SEC often coordinates with the Department of Justice, Federal Bureau of Investigations, and other law enforcement bodies, since the same misconduct can trigger both civil penalties and criminal charges. Outcomes can include financial penalties, orders to return ill-gotten gains, and bars that prevent individuals from working in the securities industry. A whistleblower program also facilitates the reporting of misconduct through public tips. During an investigation, the SEC generally does not comment publicly to protect the process and the rights of the parties involved.History
Origins
The Era of Blue Sky Laws
Before the enactment of the federal securities laws and the establishment of the SEC, the regulation of securities trading in the United States relied primarily on state-level statutes known as blue sky laws. Kansas led the way in 1911, with banking commissioner Joseph Norman Dolley pushing for measures to guard investors against fraud by mandating registration of securities offerings, sales, and participants like stockbrokers and firms. The name "blue sky" stems from a 1917 Supreme Court decision in Hall v. Geiger-Jones, which likened dubious schemes to peddling "feet of 'blue sky'"—baseless ventures exploiting the unwary.By 1933, these laws were on the books in 47 states, Nevada being the outlier, but details differed markedly from one to another. Certain versions took a merit-based approach, letting officials assess if investments promised reasonable returns; others stuck to blocking overt deception. Still, the system faltered overall, hampered by patchy standards, lax enforcement, and simple workarounds. As far back as 1915, the Investment Bankers Association was advising its members to sidestep restrictions by handling offerings interstate via mail.
Founding and Early Development
New Deal Securities Reforms and Enabling Statutes
The SEC's authority stems from the Securities Act of 1933 and the Securities Exchange Act of 1934, both enacted as part of President Franklin D. Roosevelt's New Deal reforms.Following the Pecora Commission hearings, which exposed widespread abuses and fraud in the securities markets, Congress passed the Securities Act of 1933. This law introduced federal regulation of primary securities offerings across state lines, chiefly by mandating registration of distributions before sale, allowing investors to review essential financial details and decide accordingly. For its first year, enforcement fell to the Federal Trade Commission.
The Securities Exchange Act of 1934 followed, governing secondary trading—exchanges between parties typically unconnected to the original issuers. The act placed under SEC oversight entities like physical exchanges, self-regulatory organizations, the Municipal Securities Rulemaking Board, NASDAQ, alternative trading systems, and others handling transactions for clients. Section 4 created the SEC, shifting FTC authority over the 1933 Act and assigning enforcement of both laws to the new agency..