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February 21, 2020

What is the SEC?

 

You’ve probably seen various stories in recent years about the SEC levying fines against the likes of Facebook, Volkswagen, and others. However, the SEC’s role in the financial markets is more than just levying fines against corporations and individuals. Here, we’ll go over the main functions of the SEC, how it works, and how it relates to equity crowdfunding. 

 

What is SEC?

The SEC is an independent federal government agency responsible for protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. This means the SEC is responsible for overseeing FINRA, promoting full disclosure of investments to the public, overseeing the securities market, and even enacting legislation that set forth the rules and guidelines around the JOBS Act

Generally, the issuance of securities offered in interstate commerce must be registered with the SEC before being sold to investors. This means for every company looking to raise online, like KingsCrowd and many others, those companies must register with the SEC and disclose financial information like you’d find in a Form C

 

How Does the SEC Work?

The primary function of the SEC is to oversee organizations and individuals in the securities markets, including securities exchanges, brokerage firms, dealers, investment advisors, and investment funds. Through established securities regulations, the SEC promotes disclosure and sharing of market-related information, fair dealing, and protection against fraud. Moreover, the SEC provides investors with a number of securities forms, periodic financial reports, and more. 

The SEC consists of five divisions and 24 offices. The agency’s goals are to interpret and take enforcement actions on securities laws, issue new rules, provide oversight of securities institutions, and coordinate regulation among different levels of government. 

The Five Divisions

  • Corporate Finance: Ensures investors are provided with pertinent and important information (like information relevant to a company’s financial health or stock price) in order to make informed investment decisions. 
  • Enforcement: In charge of enforcing SEC regulations by investigating cases and prosecuting civil suits and administrative hearings.
  • Investment Management: Regulates investment companies, variable insurance products, and federally registered investment advisors.
  • Economic and Risk Analysis: Integrates economics and data analytics into the SEC’s core mission.
  • Trading and Markets: Establishes and maintains standards for fair, orderly, and efficient markets.

 

Among other relevant roles, the SEC serves as the first level of appeal for actions sought by the securities industry’s self-regulatory organizations, like FINRA or the New York Stock Exchange (NYSE). Additionally, it’s important to make the distinction here that the SEC is responsible for ensuring fairness for the individual investor, and FINRA is responsible for overseeing nearly all U.S. stockbrokers and brokerage firms.

Furthermore, If you’d like to read an in-depth description and history of the SEC, you can visit the SEC’s site here to learn more.

 

How is this Related to Equity Crowdfunding?

You can thank the SEC for helping ensure that companies raising on a Reg CF offering disclose risks associated with the investment, and for making companies disclose their most recent financials! They protect potential investors by ensuring that information is up-to-date and available so individuals can make the most informed decision possible when dealing with investing or equity crowdfunding.  

Current SEC Chairman Jay Clayton is also an advocate for making the U.S. capital markets more accessible to businesses and investors. Clayton is also quite outspoken on the need to update the U.S.’s draconic laws surrounding distributed ledger technology, cryptocurrency, and initial coin offerings (ICOs). Also, Clayton has also addressed the current archaic definition of accredited investors and has submitted proposals to update the current definition which would hopefully open the number of accredited investors. 

 

The KingsCrowd Advantage

Admittedly, the amount of laws, regulation, and jargon surrounding the nascent equity crowdfunding market can be overwhelming. Our goal at KingsCrowd is to not only democratize alternative investing, but to educate individuals interested in the growing online private markets. We do this by providing articles like this as well as by providing unbiased, institutional grade research and analytics for every company across all platforms. Signup for KingsCrowd here to access the best analysis and research on the online private markets. 


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About: Francis Vu

An investment professional with a background in private equity and venture capital having spent time conducting investments at VU Venture Partners and Pacific Oak LLC with a finance and management degree from Tulane University.

View Francis Vu's articles

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