FOREWORD The Commission administers several statutes in the general field of securities and finance, all enacted by Congress for the protection of the interests of investors and the public. Securities are by their very nature much different from almost any other type of "merchandise" for which there are established public markets. A person who wishes to purchase a new car or household appliance-or for that matter, a peck of potatoes or a bag of beans—can pretty well determine from personal inspection the quality of the product and the reasonableness of the price in relation to other competing products. But this is not so with respect to a bond or a share of stock. An engraved certificate representing an interest in an abandoned mine or a defunct gadget manufacturer, for example, might look no less impressive than a "blue chip" security with a history of years of unbroken dividend payments. Beyond that all comparisons cease—and for the average investor to differentiate between the securities of little or no value and those offering at least reasonable prospect of a satisfactory return on his investment requires (1) a personal inspection of the properties and operations of the issuer (which for all practical purposes is generally impossible), or (2) that he place almost complete reliance on the oral and written representations and available literature about the company, its prospects, and the terms of its securities. Recognizing this and the further fact that traffic in securities often extends across State lines, thus restricting the ability of particular States to suppress fraud in their sale, Congress enacted the "truth in securities" laws to protect investors against misrepresentation, manipulation and other fraudulent acts and practices in the purchase and sale of securities. Congress also sought to establish and maintain just and equitable principles of trade in the securities markets and thus to reestablish investor confidence in securities as an investment medium and to revitalize our capitalistic economy. It should be understood that the securities laws were designed to facilitate informed investment analyses and prudent and discriminating investment decisions by the investing public. It is the investor, not the Commission who must make the ultimate judgment of the worth of securities offered for sale. The Commission is powerless to pass upon the merits of securities; and assuming proper disclosure of the financial and other information essential to informed investment analysis, the Commission cannot bar the sale of securities which such analysis may show to be of questionable value. It is hoped that the following description of the nature and scope of the Commission's work and authority will contribute both to a better understanding of the laws and to their objective of investor protection. Securities and Exchange Commission INTRODUCTION The Securities and Exchange Commission (SEC) was created by an act of Congress entitled the Securities Exchange Act of 1934. It is an independent, bipartisan, quasi-judicial agency of the United States Government. The laws administered by the Commission relate in general to the field of securities and finance, and seek to provide protection for investors and the public in their securities transactions. They include (in addition to the Securities Exchange Act of 1934) the Securities Act of 1933 (administered by the Federal Trade Commission until September 1934), the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. The Commission also serves as advisor to Federal courts in corporate reorganization proceedings under Chapter X of the National Bankruptcy Act. Organized July 2, 1934, the Commission is composed of five members not more than three of whom may be members of the same political party. They are appointed by the President, with the advice and consent of the Senate, for 5-year terms, the terms being staggered so that one expires on June 5th of each year. The Chairman is designated by the President. The Commission's staff is composed of lawyers, accountants, engineers, security analysts and examiners, together with administrative and clerical employees. The staff is divided into Divisions and Offices (including nine Regional Offices), each under charge of officials appointed by the Commission. The Commission reports annually to the Congress. These reports contain a review of the Commission's administration of the several laws. SECURITIES ACT OF 1933 This "truth in securities" law has two basic objectives: (a) to provide investors with material financial and other information concerning securities offered for public sale; and (b) to prohibit misrepresentation, deceit and other fraudulent acts and practices in the sale of securities generally (whether or not required to be registered). 1 |