Scope of the Securites and Exchange Act of 1934The Securities Exchange Act of 1934 ("Exchange Act") was designed by Congress and has been updated over the past sixty years to deal with post issuance aspects of securities transactions and the regulation of the securities markets. It has been amended a number of times by the passage of the Maloney Act in 1938, Securities Acts Amendments of 1964, 1968 Williams Act, Securities Acts Amendments of 1975, 1978 Foreign Corrupt Practices Act, 1986 Government Securities Act, Securities Enforcement Remedies and Penny Stock Reform Act of 1990, Private Securities Litigation Reform Act of 1995, National Securities Markets Improvement Act of 1996, Securities Litigation Uniform Standards Act of 1998, and the Gramm-Leach-Bliley Act of 1999, among others.
In Section 2, Congress specified the key reasons for the legislation. That Section states that in the national public interest the securities markets are to be regulated "in order to protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions…" 15 U.S.C. § 78b.
The Exchange Act provides for the regulation of brokers, dealers, municipal and government securities dealers, national securities exchanges, over-the-counter markets, self-regulatory organizations, clearing agencies, transfer agents, and other securities market professionals. In regulating these industry professionals, the Exchange Act prohibits the manipulation of securities prices and the use of manipulative and deceptive devices in connection with the purchase or sale of certain types of securities. The Exchange Act also establishes both civil and criminal liability for those persons who make false or misleading statements with regard to disclosures required by the Exchange Act. With respect to these and other prohibited types of conduct, the Exchange Act sets forth an enforcement mechanism for imposing liability for such violations and prescribes the penalties for such misconduct.
The Exchange Act also imposes registration requirements for securities traded on exchanges and for non-exchange traded securities; mandates that specific annual and periodic reporting and record-keeping requirements be adhered to by publicly traded companies; and regulates, in the context of publicly traded companies, the solicitation of proxies, tender offers and other types of takeovers, and insider shortswing profits by officers, directors and principal stockholders.
Additionally, the Exchange Act authorizes the Board of Governors of the Federal Reserve System to establish rules and regulations regarding the amount of credit that may be extended and maintained to purchase securities. It also places restrictions on borrowing and lending by members of national securities exchanges, and on brokers or dealers who transact business in securities through any member.
Securities and Exchange Commission: Powers and Responsibilities
Through the enactment of the Exchange Act, Congress created the Securities and Exchange Commission ("SEC" or "Commission"). The SEC is an independent federal agency having rule-making, oversight and enforcement authority so that it can regulate the securities markets and put into action the Exchange Act. Section 4(a) of the Exchange Act provides that the SEC is to be composed of five commissioners who are appointed by the President by and with the advice and consent of the Senate. 15 U.S.C. § 78(d). Not more than three of the commissioners can be from the same political party and the commissioners who are from different political parties are to be appointed alternately as is practicable. The term of office for each commissioner is five years.
The Commission is authorized under Section 4(b) of the Exchange Act to appoint and compensate members of its staff so that it may carry out its functions. Section 4(A), for example, also enables the Commission to delegate "its functions to a division of the Commission, an individual Commissioner, an administrative law judge, or an employee or employee board, including functions with respect to hearing, determining, ordering, certifying, reporting, or otherwise acting as to any work, business, or matter." 15 U.S.C. § 78d1.
Section 23 of the Exchange Act allows the Commission, the Board of Governors of the Federal Reserve System and other agencies identified in the Exchange Act to implement such rules, regulations, and orders that are necessary for implementing the provisions of the Exchange Act. 15 U.S.C. § 78w.
Under Section 19 of the Exchange Act, the Commission has oversight responsibilities for monitoring the operation of the securities exchanges, securities associations and clearing agencies that are registered pursuant to Sections 6, 15A, and 17A. 15 U.S.C. §§ 78s, 78f, 78o3, and 78q1. While the exchanges and associations are in large part self-regulating entities, the SEC still has the sole authority to approve, disapprove or modify those rules as it "deems necessary or appropriate to insure the fair administration of the self-regulatory organization ["SRO"]" and to insure that the rules are consistent with the rules and regulations of the Exchange Act and SRO. 15 U.S.C. § 78s(c).
Section 21 of the Exchange Act gives the SEC the power to investigate and ultimately prosecute violations of the Exchange Act, its rules and regulations, as well as those rules that are violated on any of the registered securities exchanges and associations. 15 U.S.C. § 78u. In connection with the SEC's investigative powers, Section 21(b) empowers the SEC to "administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, paper, correspondence, memoranda, or other records which the Commission deems relevant or material to the inquiry." 15 U.S.C. § 78u(b).
In the event the Commission finds that a person has violated, is violating, or is about to violate the Exchange Act or any of its rules and regulations, after notice and opportunity for hearing, the Commission pursuant to Section 21C of the Exchange Act is authorized to administratively issue a cease-and-desist order with regard to the violative conduct. 15 U.S.C. § 78u3. As part of the order, the Commission may require future compliance with the law or mandate that steps be taken to effect future compliance either permanently or for as long as the Commission may specify with respect to any security, issuer or any other person. 15 U.S.C. § 78u3(a).
Section 21(d)(1) of the Exchange Act authorizes the Commission to bring a court action, upon a proper showing, to enjoin such acts or practices by permanent or temporary injunction or restraining order. 15 U.S.C. § 78u(d)(1). Section 21(d)(3) of the Exchange Act enables the Commission to seek civil money penalties in an action brought in court where it appears that a person has violated the Exchange Act, its rules or regulations, or where a cease-and-desist order has been entered. 15 U.S.C. § 78u(d)(3).
According to Section 21(d)(3)(D), where there is an action to enforce a Section 21C cease-and-desist order entered by the Commission, the Exchange Act states that it is a separate offense for each day that passes where there is a continuing failure to comply with a cease-and-desist order. 15 U.S.C. § 78u(d)(3)(D).
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There is a lot more, but just from reading this I feel the SEC is open to be challenged that they are not fulfilling their responsibility as required.
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