Sunday, January 20, 2013

Legal Protection for Investors: Securities and Exchange Commission

Both federal and state governments have departments to protect investors by requiring corporations to disclose all necessary information to help investors decide whether to buy proposed bonds, notes and stocks. These governmental departments and agencies were created because of lessons learned over many years. When you want to invest you go to the offices of an established brokerage house. Such houses are registered with the appropriate state agency and with the Securities and Exchange Commission in Washington DC. Almost all brokerage houses also have departments for handling their customers orders. 

Before the creation of SEC in 1934, protection of the investor was done by the state. Many of the states adopted blue sky laws requiring registration and approval by the state agencies of the sale of securities in certain industries - such as mining and oil- where the investor had no way of checking the veracity of the facts given.

Even today these agencies work where SEC does not. The New York State Attorney General's office for example is the only governmental department that requires the filing of full information regarding the sale to residents of New York of land in other states. 

The SEC comes in when the company needs more money than it can raise locally and will have to go to an underwriter for professional assistance. The SEC supervises the daily operations of the securities markets and has a plethora of regulations to protect consumers i.e. investors. 

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