What in the world is the SEC?
By Ed Roche • Bankrate.com

Like the idea of helping people while inspiring fear in those seeking to harm others? Well, have we got a job for you: Securities and Exchange Commissioner.

The SEC's primary mission is to protect investors and maintain the integrity of the financial markets. For those of you who always wanted to catch bad guys but can't quite see yourself in a blue uniform, this could be your ticket. If you know the right people, and a thing or two about the securities industry, you just might have a shot -- as luck would have it, one of the five commissioner seats is vacant right now.

You're guaranteed a job for five years (the length of each commissioner's term). Law-abiding citizens will be impressed that you work for the feds and nefarious evildoers perpetrating financial hoaxes will fear you.

Here's the deal -- first thing you want to do is join a political party. Choose wisely as no more than three of the five commissioners can be from the same party. Second, know the background of some of your colleagues. Your boss, assuming you get hired before June 2003, would be Chairman Arthur Levitt. Appointed by President Clinton in 1993 and currently in his second term as chairman, Levitt's resume includes an 11-year stint (1978-1989) as chairman of the American Stock Exchange. He was also chairman of the New York City Economic Development Corporation (1989-1993) and owned Roll Call, a newspaper covering Capitol Hill. Mr. Levitt clearly knew how to combine the financial with the political.

Once you've positioned yourself with the right people, you'll want to review some of the following for the interview. How did the SEC get started and what exactly does it do? Pay attention, now.

The SEC was created in the wake of the Great Crash of 1929. The Securities Exchange Act of 1934 charged the federal agency with administering U.S. securities laws. The legendary Joseph Kennedy, patriarch of the Kennedy clan and father to, among others, John, Bobby and Teddy, was the first SEC chairman. The act called for full disclosure by firms issuing stocks, bonds or other securities (what the companies do, what the securities are, and the potential risks of investing) and for honesty on the part of those selling the securities, like brokers, dealers and exchanges. Before the crash of 1929, many investors didn't understand just how risky their investments were and, like a bartender continuing to serve drunk patrons, those acting as middlemen kept selling.

Nowadays, most Americans don't fear a financial crash of the 1929 variety, but the SEC still keeps itself busy. The Internet has opened up a new world of possible scams. On Sept. 6, the SEC announced its "fourth Internet sweep," in which it cracked down on 33 companies and individuals that were ripping off investors, primarily through "pump-and-dump" schemes. These scams use the Internet to spread false rumors about a stock, which "pumps" the share price higher. Before the truth comes out (and before the stock price tanks), those spreading the rumors sell, or "dump," their shares for a tidy windfall. But not if the SEC can stop it.

Unfortunately, there are many more scams and scam artists than there are SEC regulators and that's probably the biggest criticism of the SEC -- they tend to catch the scam after some have already fallen prey. The SEC's primary goal of maintaining integrity in the financial markets benefits us all, but that might be a little hard to swallow if you've already lost grandma's inheritance based on an unscrupulous stock tip you got off a message board.

The most effective way to protect investors is to inform them. To that end, companies are regularly required to file information with the SEC, which then posts it on its EDGAR Web site. Maintained by the SEC, EDGAR provides transparency in the market, giving all participants access to important information -- like quarterly and annual reports -- in a timely manner. You might also head to Edgar Online, which does essentially the same thing but is not affiliated with the government and is somewhat easier to peruse. Knowledge is power.

The SEC cannot be expected to prevent every mendacious rascal from preying on the gullible. With about 2,900 staffers and a $300 million budget, the agency has traditionally been understaffed. And experienced investigators are hard to retain, since they're regularly recruited by brokerages that value those who know how to follow (and perhaps how to skirt) SEC rules. Think of these financial cops like you would a regular cop. Neither is expected to prevent all crime, just influence the environment sufficiently to reduce the likelihood of crime occurring and then, to pursue those who refuse to play by the rules.

-- Posted: Sept. 13, 2000