What is the Securities and Exchange Commission (SEC)?

Definition: The Securities and Exchange Commission, most commonly referred to as the SEC, is the federal agency that Congress put in charge of establishing reporting rules of publicly traded companies. The SEC does not, however, make rules for accounting principles and concepts. The FASB and IFRS create rules for privately held company while the PCAOB establishes the accounting framework for public companies.

What Does SEC Mean?

The Securities Exchange Act of 1934 originally created the SEC in 1934. It’s sole job until 2002 was to enforce the Securities Act of 1933. This was a legislative effort to regulate the financial markets in order to prevent another stock market crash.

Since then, the SEC has also been charged with enforcing the Sarbanes-Oxley Act or SOX of 2002 which was enacted to prevent fraudulent reporting by public companies and further punish the executives who allow legal practices to thrive in their firms.

The SEC now requires quarterly and annual audited financial statements as well as other financial reports like management discussion and analysis from all publicly traded companies.


Although the SEC is in charge of enforcing the stock regulators law, it doesn’t have the power to prosecute firms and individuals criminally. Instead, does oversee and bring civil suits to individuals and companies that have defrauded the public. Other federal criminal enforcement agencies prosecute individuals and firms on a criminal basis.

In the last two decades, the Securities and Exchange Commission has come under increasing scrutiny for its lack of controls and ability to find and punish fraud. The scandals of the early 2000s including Enron, the 2008 banking crisis, and the Madoff scene weren’t originally detected or stopped by the SEC. In fact, there is evidence that suggests that the SEC had reasonable knowledge of all of these scandals before they broke but intern did nothing.