The SEC

The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, these goals are more compelling than ever.

The world of investing is fascinating, complex, and can be very fruitful. But unlike the banking world, where deposits are guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees. That is why investing should not be a spectator sport; indeed, the principal way for investors to protect the money they put into the securities markets is to do research and ask questions.

The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves if a company's securities are a good investment. Only through the steady flow of timely, comprehensive and accurate information can people make sound investment decisions.

The SEC also oversees other key participants in the securities world, including stock exchanges, broker-dealers, investment advisors, mutual funds, and public utility holding companies. Here again, the SEC is concerned primarily with promoting disclosure of important information, enforcing the securities laws, and protecting investors who interact with these various organizations and individuals.

Crucial to the SEC's effectiveness is its enforcement authority. Each year the SEC brings between 400-500 civil enforcement actions against individuals and companies that break the securities laws. Typical infractions include insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issue them.

Fighting securities fraud, however, requires teamwork. At the heart of effective investor protection is an educated and careful investor. The SEC offers the public a wealth of educational information on its Internet website at www.sec.gov. The website also includes the EDGAR database, www.sec.gov/edgar.shtml, of disclosure documents that public companies are required to file with the Commission.

Though it is the primary overseer and regulator of the U.S. securities markets, the SEC works closely with many other institutions, including Congress, other federal departments and agencies, the self-regulatory organizations (e.g. the stock exchanges), state securities regulators, and various private sector organizations.

You can visit www.sec.gov/about/whatwedo.shtml to see an overview of the SEC's history, responsibilities, activities, organization, and operation.

The Laws That Govern the Securities Industry - The first step is to understand the laws which form the foundation for the SEC. They are:

• Securities Act of 1933
• Securities Exchange Act of 1934
• Public Utility Holding Company Act of 1935
• Trust Indenture Act of 1939
• Investment Company Act of 1940
• Investment Advisers Act of 1940

Complete information on these Acts can be found at www.sec.gov/about/laws.shtml.

The key issue of these Acts is "truth in securities", requiring that investors receive financial and other significant information concerning securities being offered for public sale and prohibiting deceit, misrepresentations, and other fraud in the sale of securities. It is important for investors to know the source of information and the affiliation of that source with the securities the information pertains to. 

Private Securities Litigation Reform Act of 1995 - Providing relief for the many companies caught in disclosure-related lawsuits, was a primary objective of the Private Securities Litigation Reform Act of 1995. The Reform Act created a safe harbor for "forward-looking statements" other than those contained in financial statements prepared in accordance with generally accepted accounting principles, or made in connection with certain types of securities offerings. The safe harbor exempts companies from liability for forward-looking statements if they are accompanied by meaningful cautionary language, and, in any event, a company cannot be liable unless an executive approving the statement had actual knowledge that the statement was false.

The Reform Act defines forward-looking statements to mean projections of financial items, such as revenues and earnings, statements of plans and objectives and any statement of underlying assumptions. In some cases, even statements phrased in the past tense are forward-looking when primarily relevant to some expected future event.

Many, if not most, projections are based on what is known, or assumed to be known, about the past or present. The safe harbor protection extends to the "assumptions underlying or relating to" forward-looking statements. The safe harbor should therefore protect a company that errs in developing facts which are a basis for its projections. An error in developing facts may be distinguished from deliberate suppression of known and highly relevant facts. In some jurisdictions, pre-Reform Act cases held that a prediction was "false" within the meaning of the securities law if, at the time it was made, the speaker knew but failed to disclose a fact that tended to seriously undermine the prediction.

Safe harbor statements can be found in company reports and press releases with forward-looking statements. An example of a safe harbor statement:

Forward-looking statements in this release are made pursuant to the ``safe harbor'' provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including without limitation, continued acceptance of the Company's products, increased levels of competition for the Company, new products and technological changes, the Company's dependence on third-party suppliers, and other risks detailed from time to time in the Company's periodic reports filed with the Securities and Exchange Commission.

Regulation FD - As of October 23, 2000, the SEC adopted new rules and amendments governing fair disclosure of information on publicly traded securities. The new rules address three issues:

the selective disclosure by issuers of material nonpublic information; when insider trading liability arises in connection with a trader's "use" or "knowing possession" of material nonpublic information; and when the breach of a family or other non-business relationship may give rise to liability under the misappropriation theory of insider trading.

The rules are designed to promote the full and fair disclosure of information by issuers, and to clarify and enhance existing prohibitions against insider trading. Regulation FD covers information provided on this web site. Company information provided adheres to Regulation FD and has been made available to the general public prior to publication on this web site.

For more on Regulation FD, please visit www.sec.gov/rules/final/33-7881.htm.  

Securities as Compensation - The SEC regulates the use of securities as compensation, requiring registration of shares. One method of accelerating the registration of shares to be provided as compensation is the use of Form S-8 to register stock. The intent of Regulation S-8 is to allow companies to register securities issued to employees or consultants. This allows the shares to become free trading upon filing of the registration statement.

There are specific restrictions upon the use of Form S-8 to register securities. In particular, S-8 securities may only be issued as compensation or as an incentive to individuals who provide services that do not involve capital raising transactions or market making activities. To lean more about Regulation S-8 you can visit www.sec.gov/rules/final/33-7646.txt.