My team this quarter is diving head long into the world of securities. For a bunch of die hard foodies this is a new world. Yes, we even had a conversation that when something like 'what exactly is a security'... For those of you courious a security is a broad term to explain financial investment tools that include debt, equity, and derivitives. These securities that are created can then be sold and traded on primary and secondary markets.
So when the foodies set out to help farmers get access to more capital through connecting them with investors our has been to make sure we follow the federal rules set by the Securities and Exchange Commision. A quick visit to their website and you quickly learn this a beast of an organziation. Information is layed on information and finding clear cut set of rules you must follow is not very straighforward (and this doesn't even cover any state regulation).
For me it was helpful to take a step back and think about the SEC first in a historical context and why it was created in the first place. The story of the SEC begins with the stock crash of October 29, 1929 and the subsequeant great depression. Shortly after Congress passed The Securities Act of 1933 and The Securities Exchange Act of 1934. Under the act publicly-traded companies were now obligated to disclose investment risk and information about the state of their business. Also, companies in the buesiness of selling and trading securities were now legally required to put the interest of their investors first.
The SEC misison is stated as "is to protect investors, maintain fair, orderly and efficien markets, and facilitate capital formation." Also stated is "all investors, wether large or small institution, or private individuals should have access to certain basic facts about investment prior to buying it and so long as the hold it."
There are four divisions of the SEC overseeing key participants in the securities world. (1) coporate finance, (2) trading and markets, (3) managment (dealing with mutual funds, proffisional fund manager, analysist), (4) enforcement and (5) risk, strategy, and rinancial innovation. The SEC has five appointed commisioners who serve five-year terms. The chairman of the SEC is appointed by the president. Interestly only three of the five commissioners can belong to the same political party.
The years since have seen several amendmends these include:
The Securities Act Amendments of 1975 created the Municipal Securities Rulemaking Board (MSRB) which writes rules governing broker dealers engage in municipal securities transactions.
Sarbanes-Oxley Act of 2020 set new stanards for public company boards, management and public accounting firms.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is finanical regulatory reform legislation passed in repsonse to the late 2000's recession. The Dodd-Frank Act focused on these seven three areas: (1) Regulating credit cards, loans and mortgages; (2) stopping banks from gambling with depositors' money; (3) regulate risky derivatives; (4) bringing hedge funds trades into the light; (5) overseeing credit rating agencies; (6) increasing supervision of insurance companies; and (7) reforming the Federal Reserve.
The Jumpstart Our Business Startups Act includes provisions that require the SEC to undertake various initiatives, including rulemaking and studies touching on capital formation, disclosure and registration requirements.
So when I mentioned layers and layers of information when you go to the SEC website it's the layers of these Act's and Amendments makes it hard for the novice to sift through and find the information. There are acts, rules, regulations and exemptions for almost everything that has to do with securities. The most helpful for our project was a section of the SEC focused on small business. In this section we found a lot of regulations and exemptions meant to help small business overcome some of the high cost barriers to presuing capital formation mechnisms.
So I bet you are asking about now what happens if you don't follow the SEC rules. The SEC will either bring a civil action again individuals or organization or enforce administration sanctions. With the recent rise in crowdfunding some platforms because of their structure where forced to register as broker dealers and until they complied with these regulation had to halt opertions.
But don't be fooled SEC is a law enforcement division and will act accordingly if there investigation warrent civil prosectution. There website reads "First and foremost, the SEC is a law enforcement agency. "
So friends that is who the SEC is and why you should care. They rule the land of securities and exchange and yes, you should care what they think. If you don't like what they do or think they should do something different it is proably advised to push for a change in the laws rather than just ignoring them. But hey, who am I to tell you want to do :)
