SEC Regulatory Overview Office of Investor Education and Advocacy United States Securities and Exchange Commission February 9, 2016

2 SEC Disclaimer The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed in this presentation do not necessarily reflect the views of the SEC, its Commissioners, or other members of the SEC’s staff.

3 The Mission The Mission of the SEC: Protect Investors Maintain Fair, Orderly, and Efficient Markets Facilitate Capital Formation

4 The main purposes of the Exchange Act, as well as the Securities Act of 1933 (“Securities Act”), can be reduced to two common-sense notions: Companies publicly offering securities for investment must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly. The Mission

5 Accomplishes its Mission by: Administering and enforcing federal securities laws Overseeing brokerage firms and investment advisers Reviewing filings by most public companies

6 Creation of the SEC Congress created the SEC in the Securities Exchange Act of 1934 (“Exchange Act”) Created to restore investor confidence in the capital markets following the crash of 1929 and the Great Depression

7 Independent Agency of the Executive Branch Approximately 3500 Employees Headquarters in Washington, D.C. 11 Regional Offices, including New York, Atlanta, Miami, Boston, Chicago, and San Francisco Organization of the SEC

8 About the SEC Five Presidentially-appointed Commissioners No more than three of same political party Staggered five-year terms The President designates the Chairman

9 5 Major Divisions Division of Enforcement (“Enforcement”) Division of Corporation Finance (“Corp Fin”) Division of Trading and Markets (“TM”) Division of Investment Management (“IM”) Division of Economic and Risk Analysis (“DERA”) Organization of the SEC

10 Division of Enforcement Division of Enforcement staff: Investigate violations of federal securities laws Bring civil actions, negotiate settlements, and refer actions to DOJ for criminal enforcement Types of actions sought, include: trading suspensions sanctions against entities and individuals injunctions and temporary restraining orders bars against officers and directors

11 Division of Corporation Finance Reviews documents that public companies are required to file, including: Registration statements for newly-offered securities 10-K and 10-Q (annual and quarterly filings) Proxy materials Documents concerning tender offers Filings relating to mergers & acquisitions

12 Division of Corporation Finance Provides guidance to registrants, prospective registrants and the public to help them comply with the law Provides administrative interpretations of several of the securities laws that the SEC oversees Issues no-action letters to provide guidance in a more formal manner

13 Division of Investment Management Oversees SEC regulation of: Investment Companies Mutual Funds and ETFs Variable insurance products Money Market Funds Federally registered investment advisers

14 Division of Investment Management Responsibilities include: Reviewing investment company and investment adviser filings Advising the Commission on adapting SEC rules to new circumstances

15 Division of Trading and Markets Establishes and maintains standards for fair, orderly, and efficient markets through oversight of the major securities participants: Securities Exchanges Securities Firms Self-regulatory Organizations (including FINRA) Clearing Agencies Transfer Agents Securities Information Processors Credit Rating Agencies

16 Division of Trading and Markets Oversees Securities Investor Protection Corporation (SIPC) SIPC, private/non-profit, corporations that insures securities and cash in customer accounts of member brokerage firms against failure of firm SIPC does not cover market declines or fraud Division also: Reviews new rules and proposed changes to rules filed by the SROs Assists with establishing rules and interpretations related to the operation of the securities markets Carries out broker-dealer financial integrity program

17 Division of Economic and Risk Analysis Integrates robust economic analysis and rigorous data analytics into the work of the Commission, through two main functions: Economic support of Commission rulemaking and policy development Economic support on matters presenting the greatest perceived risks in litigation, examinations and registrant reviews

18 Division of Economic and Risk Analysis The Division’s functions include: Analyzing the potential economic effects of Commission rulemakings or other Commission actions Providing quantitative and qualitative research and support related to risk assessment Assisting the Division of Enforcement by, for example, providing economic and quantitative analysis and support in enforcement proceedings and settlement negotiations

19 SEC Offices  Office of the General Counsel  Office of the Chief Accountant  Office of Compliance Inspections and Examinations  Office of International Affairs  Office of Investor Education and Advocacy  Office of Credit Ratings

20 SEC Offices  Office of Legislative Affairs and Intergovernmental Relations  Office of the Secretary  Office of Public Affairs  Office of the Chief Operating Officer  Office of Equal Employment Opportunity  Office of the Inspector General  Office of Administrative Law Judges

21 Office of Investor Education and Advocacy OIEA’s duties include: Receiving tips, complaints, and inquiries from the public Respond to questions from public Refer tips when appropriate to Enforcement, OCIE, and others Contact brokers to help resolve account problems Conducting investor education and outreach Issue Investor Alerts and Bulletins Create educational content, including brochures and other publications Speak at conferences and seminars Channels of Communication Investor.gov SEC.gov Twitter Facebook Press releases RSS feeds Speeches

22 Securities Fraud Section 10(b) of the Exchange Act states, in relevant part: It shall be unlawful for any person, directly or indirectly... [t]o use or employ, in connection with the purchase or sale of any security... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. The Commission promulgated Rule 10b-5, which states in relevant part: It shall be unlawful for any person, directly or indirectly... To employ any device, scheme, or artifice to defraud; To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Some Common Types of Securities Fraud Financial Fraud in Periodic Reports Materially false or misleading statements in periodic reports filed with the Commission may violate Section 10(b) of the Exchange Act and Rule 10b-5 where the false statements are made with scienter. Market Manipulation Manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security. Manipulation can involve a number of techniques to affect the supply of, or demand for, a stock. They include: spreading false or misleading information about a company; improperly limiting the number of publicly-available shares; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for a security. 23

Some Common Types of Securities Fraud Affinity Fraud Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are - or pretend to be - members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse. Ponzi Schemes A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. 24

Some Common Types of Securities Fraud Pump and Dump Schemes "Pump and dump" schemes have two parts. In the first, promoters try to boost the price of a stock with false or misleading statements about the company. Once the stock price has been pumped up, fraudsters move on to the second part, where they seek to profit by selling their own holdings of the stock, dumping shares into the market. Foreign Corrupt Practices Act Violations The FCPA, enacted in 1977, added Section 30A to the Exchange Act in order to prohibit public companies from, among other things, making or authorizing payments to any person while knowing that all or a portion of such payments will be offered or given to any foreign official for the purpose of influencing the official’s decision in order to obtain or retain business. 25

Insider Trading Classical theory: Involves an insider and his own corporation. Under the “traditional” or “classical theory” of insider trading liability, Section 10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material nonpublic information in breach of a duty arising from a fiduciary or other relationship of trust or confidence. The classical theory targets a corporate insider’s breach of duty to shareholders with whom the insider transacts, to either disclose his intent to trade on material nonpublic information or to not trade. Misappropriation: Involves an outsider. In misappropriation cases, the insider trader may not have an employment or other business relationship with the issuer of the securities in which he or she trades or tips, but instead gains material nonpublic information because he or she has a fiduciary relationship, or similar relationship of trust and confidence, with someone else. The misappropriation theory outlaws trading on the basis of nonpublic information by a corporate “outsider” in breach of a duty owed not to a trading party, but to the source of the information. 26

27 EDGAR – SEC’s free database Company filings you’ll find in EDGAR Reports: Form S-1:Registration Statement Form 10-K: Annual Report Form 10-Q: Quarterly Report Form 8-K: Current Report Forms 3, 4 & 5: Insider Holdings & Sales Schedule 14A: Proxy Statement

Researching Financial Professionals  BrokerCheck: BrokerCheck is a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives.  (800)  FINRA.org or  Investment Adviser Public Disclosure (IAPD) database: IAPD features professional background information on individuals acting as investment adviser representatives and current and former investment adviser firms.  (800)  SEC.gov or  State Regulators  North American Securities Administrators Association NASAA.orgNASAA.org 28

29 SEC Contact Information Websites: Like OIEA on Facebook at Toll free number:(800) Mail: U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549