Deminor Wiki – U.S. Securities and Exchange Commission

History

The SEC was created by Section 4 of the Securities Exchange Act of 1934, signed into law by President Franklin D. Roosevelt on 6 June 1934 as part of his New Deal programme. The agency's formation followed the Pecora Commission hearings, which investigated the causes of the 1929 stock market crash and exposed widespread fraud, market manipulation, and insider trading that had devastated public confidence in American financial markets.

Prior to federal intervention, securities regulation was governed by state-level 'blue sky laws', which proved largely ineffective at preventing cross-border fraud. The Securities Act of 1933 first established federal oversight of securities offerings, whilst the 1934 Act created the SEC and extended regulatory authority to secondary market trading. Joseph P. Kennedy served as the agency's first chairman, tasked with restoring investor confidence and eliminating fraudulent practices.

Structure and Functions

The SEC is headquartered in Washington, D.C., and operates through six primary divisions alongside regional offices across the United States. The agency is governed by five presidentially appointed commissioners, including a chairman, who serve staggered five-year terms. To ensure political balance, no more than three commissioners may belong to the same political party.

The SEC pursues a three-part mission: protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. Key divisions include the Division of Corporation Finance, which oversees public company disclosures; the Division of Trading and Markets, which regulates broker-dealers and exchanges; the Division of Investment Management, which supervises investment advisers and funds; and the Division of Enforcement, which investigates and prosecutes securities law violations.

Public companies must file periodic reports with the SEC, including annual (10-K) and quarterly (10-Q) reports, which are made publicly available through the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database. This transparency framework ensures investors have access to material information necessary for informed decision-making.

Litigation Funding Context

The SEC's regulatory and enforcement activities are fundamentally interconnected with the litigation funding industry. Securities class actions, which represent a significant portion of funded litigation in the United States, frequently arise from violations of disclosure requirements and anti-fraud provisions that the SEC administers. When companies make materially false or misleading statements in their SEC filings, affected investors may pursue private securities fraud claims under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5.

Litigation funders play an increasingly important role in enabling institutional and retail investors to pursue recovery against companies that have engaged in securities fraud. The Private Securities Litigation Reform Act of 1995 (PSLRA) established procedural requirements for securities class actions, including lead plaintiff appointment and heightened pleading standards. These requirements can create substantial upfront costs that make third-party funding attractive for claimants seeking to hold wrongdoers accountable.

SEC enforcement actions often run parallel to private securities litigation, and successful enforcement outcomes can provide valuable precedential support for funded claims. The SEC's Fair Fund provisions allow the agency to distribute disgorgement and penalties to harmed investors, complementing private recovery efforts. In fiscal year 2024, the SEC obtained orders for approximately $8.2 billion in financial remedies, demonstrating the scale of potential investor harm that enforcement addresses.

For litigation funders evaluating securities cases, SEC filings provide essential due diligence materials. The EDGAR database enables funders to analyse company disclosures, identify potential misstatements, and assess the merits of prospective claims. Additionally, SEC investigation announcements and enforcement actions may signal litigation opportunities where investors have suffered recoverable losses.

Conclusion

The U.S. Securities and Exchange Commission stands as the cornerstone of American securities regulation, establishing and enforcing the legal framework that protects investors and maintains market integrity. For the litigation funding industry, the SEC's activities create both the regulatory predicates for securities claims and the enforcement precedents that support funded litigation. Understanding the SEC's role is essential for funders, claimants, and legal practitioners engaged in securities dispute resolution across global markets.