The SEC and BaFin - US and German Capital Market Supervision in Comparision


Doctoral Thesis / Dissertation, 2008

229 Pages, Grade: cum laude


Excerpt

Outline

A. Introduction
a. Motivation
b. Stock market participation in the US and in Germany
c. Necessity of capital market supervision
d. Introduction to capital market law
e. Aim of capital market supervision and criteria for evaluation
f. Effectiveness and efficiency in capital market supervision

B. The US Securities and Exchange Commission (SEC)
a. Historical development
i. Establishment of capital markets and early development
ii. Stock market growth in the 1920s and crash in 1929
iii. Foundation and SEC’s gain of acceptance
iv. Succession of loss of influence and re-surge 1940-1990
v. Stock market crash in 2001/2002
vi. Reinforced authority and today’s security markets
vii. Summary
b. Organizational structure
i. Head of organization
ii. The divisions
iii. The offices
1. Regional offices
2. Functional offices
iv. Funding
v. Congressional control
vi. State partnerships, partnerships with federal agencies and private-public cooperation
vii. International cooperation
viii. Summary
c. Vision, mission and performance measurement
i. Vision and mission
ii. Goals
iii. Values
iv. Performance measurement
v. Summary
d. Governing law and SEC’s authority
i. Applicability of US securities law
ii. Acts instituting the SEC
1. Securities Act 1933
a. Mandatory registration and disclosure
b. Civil liability for misrepresentation
2. Securities Exchange Act 1934
a. Registration of security issuers
b. Registration of exchanges, associations and others
c. Protective provisions for investors
d. SEC authority for further rules and regulation
iii. Further acts governing the work of the SEC
1. Enactments of minor scope
2. Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act 2002
a. Increase of SEC authority and funding
b. Installation of the PCAOB
c. Auditor independence
d. Corporate responsibility
e. Enhanced financial disclosures
f. Increased penalties
iv. Summary
e. Operations and legal means
i. Rulemaking and standard-setting
ii. Registration
iii. Audit control
iv. Counseling and advice
v. Enforcement
1. Investigative power
a. Beginning of investigations
b. Informal investigations (Private hearings)
c. Formal investigations
d. Legal protection of investigated persons/entities
e. End of investigations
2. Sanctioning power
a. Course of civil action
b. Course of criminal proceedings
c. Course of administrative proceedings
d. Range of statutory sanctions
vi. Summary
f. Current challenges
i. Novel types of securities
ii. Current market structure
iii. Continuous market expansion
iv. Growing spread of investors
v. Technological changes
vi. Inconsistency in governing law
vii. Staffing
viii. Summary
g. Effectiveness and efficiency
i. Overall evaluation
ii. Specific criticism
iii. Reasons for efficiency of operations
1. Employment policy and organizational design
2. Administrative approach basing on cooperation
3. High amount of independence
4. Evaluation of action
iv. Recent initiative for further improvement
v. Summary

C. The German Federal Financial Supervisory Authority (BaFin)
a. Historical development
i. Establishment of capital markets and early development
ii. The BAKred 1934-2002
iii. The BAV 1901-2002
iv. The BAWe 1994-2002
v. Institution of the BaFin in 2002
vi. Rationale
vii. BaFin’s development 2002-2007
viii. Summary
b. Organizational structure
i. Head of organization
ii. The directorates
iii. Cross-sectoral and other departments
iv. Offices and employee base
v. Funding
vi. Governmental control
vii. Partnerships and cooperation
1. State partnerships, partnerships with federal agencies and private-public cooperation
2. International cooperation
viii. Summary
c. Vision, mission and performance measurement
i. Vision and mission
ii. Goals
iii. Performance measurement
iv. Summary
d. Governing law and BaFin’s authority
i. European law
ii. German law and applicability
1. Act instituting the BaFin – FinDAG
2. Acts governing the work of BaFin
a. Banking and insurance supervision
b. Securities Trading Act (Wertpapierhandelsgesetz; WpHG)
i. Ad-hoc disclosure
ii. Insider disclosure
iii. Director’s dealing
iv. Publication of interests
v. Prohibition of market price manipulation
vi. Rules for financial services institutions
vii. Rules for financial analyses
c. Securities Prospectus Act (Wertpapier-Prospekt-gesetz, WpPG)
d. Enactments of minor scope
iii. Summary
e. Operations and legal means
i. Rulemaking and standard-setting
ii. Registering
iii. Counseling and advice
iv. Supervisory power
v. Investigative power
1. Beginning of investigations
2. Course of investigations
3. End of investigations
4. Legal protection of investigated persons/entities
vi. Remedial power
vii. Sanctioning power
viii. Enforcement
ix. Summary
f. Current challenges
i. Spread in European capital market supervision
ii. Legislative overflow
iii. No own power of criminal prosecution
iv. Lacking power of exchange supervision and split of responsibility with the German Federal Bank for banking supervision
v. Two sites
vi. Summary
g. Effectiveness and efficiency
i. Overall evaluation
ii. Specific criticism
iii. Possible success factors
1. Structure of cross-sectoral and organizational departments
2. Close cooperation of directorates
3. Long-term planning
4. Supervisory approach
5. Human resources concept
6. Cooperation and authority lending
iv. Summary

D. Comparison and suggestions for improvement
a. Comparison
i. Similarities
ii. Specific differences
1. Historical development
2. Field and amount of competencies
3. Supervisory concept
4. Involvement in integrated supervision
5. Funding
6. Organizational setting
b. Conclusions for further development of BaFin
i. Attribution of standard-setting power
ii. Attribution of power of prosecution
iii. Attribution of sanctioning power
iv. Extension of the use of novel types of sanctioning, especially shaming
v. Extension of competencies into company law, especially cease-and-desist authority
vi. Tighter intertwining of supervision
vii. Extension of funding and staff base
viii. Establishment of a European supervisory authority
c. Summary in 13 theses

A. Introduction

a. Motivation

A free market economy with continuous growth and sufficient economic stability is dependent on a steady influx of capital to sustain investment.[1] In most cases, such capital investments are effectuated over stock markets, and the shareholders[2] need to ensure proper administration of their investment with a company. Government’s interest being a strong economy with stable investment, it assumes responsibility and institutes public authorities to help current and prospective shareholders control that companies – or rather their management – duly administer and foster their investment. Both the US and Germany, being free market economies, established public authorities for such purpose: the Securities and Exchange Commission (SEC) and the Federal Financial Supervisory Authority (BaFin). However, whereas the SEC has been installed already in 1934, BaFin’s predecessor BaWe was only called into existence in 1994, and BaFin itself in 2002. As US capital market law, and its administration, is used as a model worldwide[3], an analysis of both agencies with the aim of their comparison, especially under the efficiency criterion, will lead to suggestions for further development and improvement of the German authority.

The following chapter will pave the way for this analysis in giving a short introduction to the empirical relevance of this topic, the reasons for capital market supervision, the legal means employed and the aims pursued. At last, supervisory efficiency will be defined as to establish common ground for later discussion.

b. Stock market participation in the US and in Germany

Investment in shares has become the favorite saving vehicle of US citizens – over 57 million citizens directly own stock[4], and a much bigger proportion of the population indirectly, so that overall more than 50% of all citizens are engaged in the stock market.[5] This is not only due to the fact that the US social system relies much more on individual financial precautions and thus sets incentives for private investments, but also on the fact that from the very beginnings of industrial activity, companies would rely on own funds (raised by shares) rather than on debt.[6]

On the contrary, Germans are rather reticent in their stock investments: although the spread of stock ownership has been almost doubled since 1997, still only 10.8 million households – or 16.7% of the population – confide their fortunes in the stock market.[7] However, a steady increase is expected for the future: the “’graying’ of the population […] and the resulting need for investment options”[8] will most likely spur share market participation in Germany.

This long-term development is also reflected by the trading volumes: the overall turnover in Germany is less than 1/5 of NASDAQ alone, not counting turnover on NYSE and other US exchanges.[9]

illustration not visible in this excerpt

Chart 1: Exchange turnover of national and foreign stocks

Another measurement is market capitalization of domestic shares as ration of the GDP, which measures the importance of equity markets and its relevance for the economy. Whereas the Euro area, among it Germany, has improved its ration from 21% to 89% in the time frame between 1990 and 2000, the United States has reached a soaring 152% by 2000.[10] Evidently, this is also reflected by the number of listed companies, which is almost one-and-a-half for the United States in comparison with the Euro area[11], whereas both areas comprise roughly the same number of inhabitants.[12]

Thus, empiricism indicates that the US enjoys a far higher level of stock market participation than Germany, and this by various measurements. Whether and how this is linked to the level of capital market supervision, will be one of the theses of this paper.

c. Necessity of capital market supervision

In nearly all economies, capital markets[13] are the most tightly regulated industries[14], whereas regulation, in this sense, must be understood as “the action of binding governmental authority as to avoid the processes and results of an unregulated market”[15].This modification of the free market economy is often justified with the immense importance of the capital market to the economic and financial stability of a country, and the high importance of its integrity to the people, as they rely on the capital market for investing their fortunes. Also, the safeguarding of capital influx – both on the side of national investors and international participants on the capital market – are of high importance for the general economy, and will only be realized if investors confide in the proper functioning of the capital market.[16] At last, economic theory suggests that in each field where market failures arise in high frequency, governmental action is of necessity.[17] As in securities trading, all three asymmetric information (with the relating problems of adverse selection of participants and insider trading), the problem of externalities (such as demand for liquidity, limited competition, the prisoner’s dilemma and principle-agent conflicts between participants) and market power[18] occur, this necessity must be assumed.

In detail, two core concepts of justification for governmental involvement exist: “exit” and “voice”. “Voice” relates to the voting right of the shareholder, which the latter needs to employ to participate in the decision process of the business. All questions of business strategy and, most important, financing, are detailed and executed internally, meaning that management would have to find investors and offer them a right to participate in the business. In this model, information would not have to be published, but rather be distributed among the (few) shareholders, so that the execution of “voice” as the most powerful means of shareholder involvement is a merely internal affair.[19] However, history of stock markets has shown that a mere internal information policy leads to investor discrimination (in both relationship to management and within the group, i.e. between investors with bigger and smaller share proportions) and hinders flexibility, as all questions of strategic and financial relevance would have to be discussed with a huge plenum. In this model, governmental involvement in capital market law would be superfluous, as internal entrepreneurial processes are not subjected to supervision.

“Exit”, on the contrary, allows for financing to be effectuated externally, i.e. on a capital market. Inevitably, such an opening creates a higher spread of investors, more financing flexibility in terms of a higher base of capital offerors and also flexibility in such that old investors are free to exit their investment by sale and new investors may join.[20] Furthermore, external shareholding sets management incentives for diligence and sustainability by the introduction of an additional, i.e. the shareholders’, perspective. However, the “exit” concept will succeed only in the case of investors’ being able to evaluate the business – or, having appropriate information. Thus, information which in the “voice” concept would be spread only internally will now have to be published to the market, and the latter will have to be supervised in order to ensure the compliance with the principles of free and fair trade. The latter as compound are capital market law – and thus call for governmental involvement.[21]

A further – but subordinated – reason for capital market regulation is the protection of investors, who are confronted with several risks[22]: the prudential risk is that of losing the total value of the investment due to a breakdown of the company as a whole, whereas the bad faith risk is realized when the investor is intentionally mislead by the issuer or an intermediary. However, the protective provisions must to be overlooking the fact that participation in the capital market – and the expectation of gains – is the reward for the so-called market risk, so that “retail investors cannot and should not be protected against making losses, taking risks or making mistakes.”[23]

German scholars only slowly come to terms with capital market law: until recently not recognized as a distinct field of law, “problems and questions which capital market law tries to regulate and solve […] have, until recent years, been associated to different sectors of the legal body”[24] such as general civil law, securities law, banking law or – most important – company law and stock exchange law[25]. Thus, until the late 1960s[26], capital market law in Germany consisted exclusively of stock exchanges regulation and company law, and only slowly and through constant involvement of European directives, developed to a market-oriented body of law.[27] However, it must be understood that those links to other fields of law certainly exist and are one of the most striking challenges.

American capital market law, on the very contrary, has seen almost 80 years of contingent legislation and supervision[28] – a time lag that easily explains why much of the European/German capital market law is oriented on the US standard. Thus, although the necessity for a capital market supervisory authority was discussed as early as 1873[29], a supervisory authority for banking was introduced in the 1960 and for securities transactions only in 1994.

The paper does not intend to fully evaluate the capital market law system in both countries, especially as extensive studies in this field exist[30], but rather focuses on the evaluation of securities market supervision. This emphasis on the administration of law – and its supposed link to overall efficiency – is also backed up by a current hypothesis established by empiric researchers: “what really counts is not the content of the substantive law, but the adequacy of the enforcement mechanisms that underlie it”[31].

d. Introduction to capital market law

Capital market law, both in Germany and the US, can be summarized as “all norms and regulations which deal with the public sales and distribution of participations [and] certified monetary claims […] and which ensure functioning of the capital market and investor protection”[32].

German capital market law is so-called cross-sectional law: its norms are not enacted in one coherent codex, but rather dispersed in various legal and sub-legal regulations. The situation in the US is quite the same: whereas securities regulation is covered mainly by two enactments, the Securities Act 1933 and the Securities Exchange Act 1934, multiple other enactments cover questions of accounting, disclosure, corporate governance. Thus, another definition of capital market law describes it as “the compound of all norms and principles which relate to procedures at or beyond exchanges”[33]. In this regard, capital market law is also characterized by the simultaneous regulation of matters in both civil and public law.[34]

Capital market law itself is divided into several sub-categories: organizational law, which covers the structure of exchanges and electronic trading systems, rules for proper conduct and for the conduction of transactions, and finally rules on transparency and disclosure.[35] Other differentiations name, besides organizational law, supervisory law, which is “related to the market procedure according to which all participants and their behavior is controlled”[36]. All in all, those rules relate to two general regulative areas: “the regulation of the sale of securities to investors and second, the regulation of securities markets”[37] as the trading facilities for the transactions.

e. Aim of capital market supervision and criteria for evaluation

The aim of capital market law, both in Germany and US, is the same and is best described as the compound of investor protection and safeguarding of the functioning of capital markets. Thus, capital market regulation serves both a public and private interest: the public interest is such that only efficient and functioning capital market ensures international competitiveness and sufficient resources for business, whereas private interests lie in the protection of the invested funds against fraud and manipulation. However, the latter goal cannot be seen as the core task, but must be understood as supplementary and subordinated to the first[38], which is also underlined in such that investor protection will be rather pursued indirectly by an institutional approach[39] instead of individual protection[40].[41] Additionally, investor protection must be seen as protection of the compound of investors, or the investing public, as such and not as the protection of individual investors.[42]

Thus, the practical approach to reach those goals is two-fold: on the one hand, it consists of the provision of information pertinent to investment decisions[43], on the other hand in the sanctioning of behavior which is likely to impede capital market integrity and stability.[44]

By scholarly definition, such an ideal market reaches scores high in all three transparency, efficiency and integrity.[45] Whereas transparency and integrity are self-explanatory, efficiency can be detailed into three sub-aspects, which run as follows:

Most important is allocative efficiency, i.e. the fact that capital is attributed to those places where it is most urgently needed and receives a compensation appropriate with the risk the investor incurs.[46] The means of reaching such allocative efficiency must therefore be the dissemination of information about the securities traded, because in this fashion, investors will confide in the capital market and be willing to offer capital. Thus, capital market law must ensure that companies disclose valuable, correct and sufficient information about their business and securities offered, and that this information reaches investors in an unabridged and unaltered fashion.

A further point of vivid interest is operational efficiency, or the minimization of the transactional costs[47] (i.e., cost for information gathering and trade) for all three issuers, investors and potential intermediaries. This is also connected to allocative efficiency in such that low transactional costs increase interest, so that investors have a higher incentive for their engagement. Capital market law, in this regard, must strive to avoid barriers for entry into the capital market, and must likewise impose costs to those which are to be deemed the cheapest cost avoiders. Thus, the most relevant actions are the decrease of issuer’s costs for IPOs and further cost of having their securities traded, of investor’s costs for the acquisition and sale of shares[48], whereas those two goals, unfortunately, conflict with each other: the more cost of information gathering is saved to the investor by obliging the issuer to disclose, the higher the costs to the latter grow. Thus, a sensible balance has to be found and maintained.

At last, institutional efficiency is the most effluent category, existing when the “basic principles for and efficient mechanism of market segments”[49] are reached. Vital steps to this are investor confidence in the capital market, easy and free market entry to all participants, and a certain set of typed securities with a high degree of transferability and sufficient liquidity[50]. Rules and regulations relative to institutional efficiency are insider trading prohibition, mechanisms to disclose majority and voting prevalence shareholders, codes of conduct for financial intermediaries and avoidance of conflicts of interests in their fields of work, as well as governmental market supervision.[51]

From all of the above can be derived that the aims of capital market law are closely entangled with allocative, operational and institutional efficiency: the higher those three are realized, the more likely investor protection and functioning of the capital market are to be safeguarded. A further differentiation distinguishes between “external” capital market efficiency, which is based on the valuation of shares on the capital market as in Fama’s famous efficient market hypothesis, and “internal” efficiency, which is evaluated along market organization, transaction costs and transaction time.[52] Also, the key characteristics of the capital market – “flow and distribution of money and securities, [existence of] mechanisms for transactions, evaluation and pricing”[53] will be realized. Empiric studies back up this theory: “the size, depth and liquidity of securities markets [and thus the outcomes of allocative, operational and institutional efficiency] correlates directly with the quality of the legal protections given to shareholders”[54], and thus may serve as indicators for a high level of capital market efficiency[55].

Regardless of which concept is followed, it becomes obvious that the availability of the information, and its correctness, is the key factor for efficiency – and thus, the lever of which regulatory action should turn.

Recent studies established proof that all flourishing capital markets find their success based on two principles, i.e. “that minority shareholders (1) receive good information about the value of a company’s business and (2) have confidence that a company’s managers and controlling shareholders won’t cheat them out of […] the value of their investment”[56]. Others concur as to the information side and add fair behavior on the market[57] or efficient price formation with a reasonable amount of competition[58] as a key success factor for a capital market that is likewise accepted with intermediaries and national and international investors.

However, this activity has to be administered, and this by “a securities regulator [….] that (a) is honest; and (b) has the staff, skill, and budget to pursue complex securities disclosure cases”[59]. Both countries, the USA and Germany, opted for control by a governmental agency, which is independent from the supervised entities in both legal and factual regard.

f. Effectiveness and efficiency in capital market supervision

Whereas capital market law, in the early days of its existence, strived to reach stability, nowadays effectiveness and efficiency are in the focus of both the regulating governments and the administering agencies.[60] The following overview will detail those two principles and outline their meaning in the realm of capital market law. Effective, in this sense, is “an action of doing the right thing”[61], i.e. of fulfilling the above-mentioned aims of capital market law. In organizational theory, effectiveness will not be reached by market powers, as too many counter-incentives exist.[62] Thus, it is the task of a regulator to define effectiveness (or goals) the market should achieve, and to impose and supervise control mechanisms. Effectiveness thus could be defined as achievement of set targets.[63]

After having determined effectiveness, i.e. which of several alternatives would be the most beneficial, efficiency comes into play: efficiency ask for optimization of the relation of costs and benefits, or, whether the same outcome could have been reached with lower expenditures (input/output relation[64] ). In the capital market environment, effectiveness can be analyzed alongside several paths: efficiency of regulation (i.e. is the way of regulation and its supervision most easy to administer and least cumbersome to the supervised entities) and efficiency of regulatory body (i.e. does the agency use its resources to the highest extent).

This paper does not intend to evaluate the effectiveness and efficiency of capital market law as such, as extensive studies in this realm exist.[65] In short, it is often criticized that the legislatively prescribed flow of information by far outweighs the demand of such by the market, creating an information overkill both detrimental to the businesses (due to publishing cost) and the market participants (due to the cost of absorbing the information).[66] Also, this paper is not to analyze the level of acceptance of the specific regulation, which contributes highly to efficiency[67], but is difficult to assess and quantify. Rather, the thesis aims at an evaluation of the two authorities’ administration of their given body of law, and judge on how well they operate under the given conditions, i.e. the efficiency of operation, or whether the approach and the employment of means of one agency supports the achievement of its goal. Thus, the following two chapters will analyze the two agencies along given criteria, and a third chapter will summarize the findings.

B. The US Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC), a US federal agency for capital market supervision, is to protect investors, ensure capital market integrity and efficiency and to facilitate capital formation. Installed already 1934[68], the SEC has collected a wide array of experiences, whose knowledge and analysis is helpful for a comparison with the BaFin’s current path. Thus, the following chapter details the SEC’s historical development from the early 1930s until today, its organizational structure combined with mission and performance measurement. Also, the SEC’s governing laws and the operations and legal means derived from those will be outlined. At last, current challenges of the organization will be determined and the organization’s effectiveness and efficiency will be analyzed.

a. Historical development

The institution of the SEC is the consequence of a huge success story in the 1920s of the last century, and its sudden and dramatic end. The SEC, entrusted with the supervision of the capital market, was to ensure its integrity and efficiency. After a successful beginning and the notion of its excellent functioning, however, public recognition for the SEC, and by consequence its power, sank gradually. By a repetition of history – the soaring stock markets in the 1990s and their downturn in the early 2000s – the power of the SEC was reinforced, and has remained strong since. This chapter will detail the historical events that led to the foundation of the SEC in the 1930s, outline its development from then until the turn of the century and comment on the events in the early 2000s that fortified its position – a continuous “interplay of regulation, deregulation and re-regulation”[69].

i. Establishment of capital markets and early development

The history of US capital markets is as ancient as any: to safeguard the young democracy’s financial means, already the first Congress between 1789 and 1791 issued gilt-edged securities, and allowed for trade with those shares to establish with banks in New York and Philadelphia, and later with professional dealers.[70]

Also, in the late days of the industrial revolution, commercial enterprises grew in size and number. Thus, both the start-ups of those days, especially railway constructors and gold-mining companies[71], and the incumbents discovered need for capital, which could most easily be covered by investors – people who would be willing to assume the risk of business, but unable or unwilling to actively manage a company. New financial instruments were developed and sold, so that the separation of ownership and management allowed for a broad financial basis on the side of the company and for a spread of risk on the side of investors. However, it created need for a market place – capital markets.

As early as 1792[72], the New York Stock Exchange (NYSE) was founded, and enjoyed a rapid growth of participation. Both government and businesspeople were convinced that the exchanges “had a vested interest in maintaining the confidence of investors and thus would see that the activities of their members were honest”[73], so that, in the early days of stock exchanges, no securities regulation was deemed necessary.

Frequently recurring[74] experiences of business “panics”, mostly triggered by manipulation of stock prices and conspiracies[75] by a few investors, taught early investors that their remoteness from the core business significantly increased the need for objectively gathered and verified data disclosure[76]. Crusading reporters, called muckrakers, exposed share scandals and other then common fields of business exploitation[77], and triggered a public uproar, so that Congress saw necessity for action.

Initially, the Federal Trade Commission Act (FTC) 1914 and the Clayton Antitrust Act 1914 established that disclosure of material information about publicly traded companies be mandatory and comprise annual financials.[78] Early attempts of so-called blue sky laws[79], i.e. state regulation for security markets, followed and were enacted mainly in two categories: the prevention of fraud and the enforcement of registration and permission prior to the sale of shares and bonds for brokers and dealers as well as for issuers.[80]

In 1918, it became obvious that state efforts did not pay off[81], however, a suggestion by the Capital Issues Committee, which would have required “the actual licensing of securities issues, subject to penalties”[82], was watered down to a mere investigative duty, and ensuing enactments only covered limited industrial branches[83], but still established, for the first time, national regulation for securities.

ii. Stock market growth in the 1920s and crash in 1929

In the post-war 1920s, the US economy flourished and displayed huge growth potential, which could only be realized by capital investments to enhance production facilities. Close to 20 million[84] Americans, eager to “participate in the booming economy”[85] and to acquire fortune seemingly unreachable by a life of work, placed money in the stock market to realize the promises of “rags to riches”[86]. Securities were especially popular with minor investors, because small denominations made them affordable to everyone, and the dividends, which would often top 20%[87], gave an instant reward for the investment. Also, the high dividends allowed for stock acquisition on credit, as they would assure yearly inflow for credit repayment, so that virtually everyone was able to acquire stock. Thus, the stock market grew exponentially until late 1929 – from 200,000 investors before the First World War to 20 million after, from 511 different shares in 1914 to 6,417 new emissions in 1929[88].

Triggered by large stock sales by traders[89], the stock market crash of October 1929, or so-called Black Friday led to a plummeting compound market value until it reached the bottom with 17% of its height in 1932.[90] The Dow-Jones industry average fell even sharper: 89% in a 5-year period from 1929 till 1933[91].

The reasons for the market crash are widely discussed[92]: unwariness, exaggerated expectations and excessive use of credit financing on the side of the investors, but also intentional misrepresentations and abuse of information on the side of issuers and management, and price manipulation by brokers. Of course, those defrauding practices were only possible because the traders and those administering NYSE were reluctant to investigate into and uncover non-compliance with duties of disclosure or frauds.[93]

The stock market crash not only annihilated close to $ 25 billion in stock worth, but also destroyed huge sums of money with the banking sector[94]: as investors feared that in the current situation, a payback of their savings would not be possible for the banks, they stormed the banks, instantly claiming all their investments in cash and thus provoking bankruptcies.

iii. Foundation and SEC’s gain of acceptance

Naturally, the loss of billions of personal investments led to a huge distrust by both American and foreign investors – as much as 55% of personal savings[95] had been invested in shares during the 1920s, and now had to be realized as losses. Additionally to those personal experiences, the discovery of corporate scandals and the extensive press coverage enhanced the feeling of insecurity and distrust with the capital market, so that most former and potential investors would restrain from further buying stocks and bonds, or even cut back current investments as to prevent further expected losses.

Government had to fear for investment becoming insufficient to cover the demands of the still growing economy, and for public savings being consumed without beneficial results.[96] The individual states’ blue sky laws, as indicated above, had not proven effective, so that demand for a federal, “paternalistic”[97] approach was high. Thus, Government decided to establish federal securities regulation and, shortly later[98], that a succinct administrative institution needed to be created to restore confidence – the SEC, which was founded in 1934.

In its early years, the SEC had to gain insight into the laws it was to administer and control, to establish legal interpretations and to create its administrative structure and processes. As securities regulation was new to the US economy, the industry reacted with denial, so that the SEC had to struggle for the correct and due implementation of law and also to fight for public recognition. To foster those activities, the organization hired to both Commission and high-level executive staff “some of the ablest people in the American public life”[99].

iv. Succession of loss of influence and re-surge 1940-1990

Since the US entry into the war in 1941, the SEC lost severely its influence: securities regulation was considered of minor importance, all resources were re-allocated to foster wart-related agencies, so that the SEC faced a staff cut of 500 and lost their office in Washington, DC for Philadelphia.[100] The next decade, i.e. the 1950s, would not develop more favorably for the SEC: the Republicans, and especially President Eisenhower, did not feel comfortable with a high amount of government regulation, but relied on the economic forces for recovery.[101]

In 1956, a venture was started to uniform the 50 states’ blue sky laws by the promulgation of the Uniform Securities Act 1956 – an enactment covering antifraud provisions, broker/dealer registration, securities registration and a final section of definitions, exemptions and administrative provisions.[102] The states were free to adopt the Uniform Securities Act partially or as a whole, which a majority did. However, some of the most important states[103] as to economic influence did not join in; others modified the proposed textual content, so that an overall unification of codification failed. Moreover, legal interpretation of the statues until today varies from state to state[104], so that – even if statutory uniformity were given – administrative and judicial differences prevail. Nevertheless, the adoption of the Uniform Securities act is deemed beneficial for creating a “much more rational and consistent pattern of regulation”[105].

With President Kennedy’s election in 1960, the SEC resurrected – especially as the president was the first Chairman’s son and thus had a substantial understanding of the agency’s importance. The nomination of three experts – William L. Cary, a professor of law, and two renowned SEC staffers – as Chairmen and Commissioners, the extension of the SEC’s staff base and the conduction of several studies helped the SEC to re-surge from 20 years of public inactivity.[106] Also, the market break of 1962, ending a short period of speculation, reassigned some public importance to the SEC.

However, this was not of long duration: President Johnson opted for cooperation with business instead of control[107], and regulatory restraint[108] was the order of the day, leading to cut-back’s of SEC’s power during the late 1960. The SEC’s strength re-surged in late 1970 by the assignment of new duties, when the bankruptcy of several large NYSE firms proved that stricter and independent regulation was needed.

Under President Reagan, and his politics of stimulating unhindered economic growth by relaxing restrictions, the SEC faced anew cut-backs in budget and influence[109] until the dramatic market decline on October 18th, 1987, on which Dow Jones dropped 22.6%.[110]

In the early 1990s, many formerly unknown technologies spurred financial market growth, as did deregulation[111]. A dramatic expansion of the securities business – measurable in almost every aspect – had happened since the late 1970s, and kept on growing during the early 1990s. Similar to the 1920s, the stock market was en vogue – a money machine, a means to climb from rags to riches. Again, the investing public increased; and again, the same faults would be made: investors would entrust money to both incumbents and start-ups without examining the securities those corporations could provide in exchange for the invested money.

v. Stock market crash in 2001 /2002

The market crash of 2001/2002 was triggered by the scandals around corporate giants, of which the Enron case[112] is one of the most striking examples. After the discovery of their practices, mainly due to an investigation by the SEC, Enron collapsed – as did other corporate giants such as Tyco, WorldCom or Xerox. Also, auditing and accounting companies such as Arthur Andersen and Merrill Lynch faced charges for obstruction of justice and undisclosed relationships with investment banks.[113] After the staggering public disclosure of those events, the Dow Jones dropped severely, and “a market wide dampening of stock prices”[114] was observed ranging over $ 7 trillion[115].

The reasons of the burst of the market bubble are quite similar to the ones that caused the stock market crash in 1929[116]: over-estimation of the importance of the new economy compared to the traditional fields of economic activity, inflated earning and gain expectations, in short: investors’ greed, leading to fraud and intentional misrepresentation of accounting figures[117]. Additionally, management in those times was often compensated by stock or stock options[118], so that a misrepresentation would not only sustain their position, but also enhance their personal fortune. As well, the tremendous growth of the last decades and the long-term bull-market made people forget the risks of the share business and decreased demand for disclosure[119], so that corporate frauds had an easy ground.

In the aftermath of the scandals, investors lost confidence into the capital market, and severe doubts about the “integrity of the entire system of public ownership and accountability”[120] were uttered. Bankruptcies through all industries left shareholders with huge losses, and rapid sales by frightened small investors pushed prices to bottom levels – again, a capitial market crisis.

vi. Reinforced authority and today’s security markets

Like in the early 1930s, government and Congress had to strive to restore investor’s confidence, which was assumed by the legislation of the Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act (SOX) in 2002, with a regulatory emphasis on corporate governance, financial reporting and rules of behavior for investment services entities and persons.[121] Those reforms would, once again, be administered and monitored by the SEC. Beginning in 2003, the SEC worked avidly to effectuate regulation of enhanced disclosure, supervision and auditing within companies, so that after the gradual recovery of the economy in 2003/2004 also the stock market (both exchange markets[122] and over-the-counter markets[123] ) recovered.

vii. Summary

The history of the SEC displays a series of cycles[124] – enthusiastic foundation and early years, several phases of decline and resurges in its growth phase, finally revival and sustained strength in its maturity. Through all its history, crises of the stock market reinforced SEC’s position, especially with the investing public.

As the capital market has grown more complex during the last years, and as this development severely increased the likelihood of defrauding action, it can be expected that, also in the future, the SEC will maintain a strong position within the US political and public landscape.

b. Organizational structure

To gain an understanding of the SEC’s operations and task fulfillment, it is indispensable to first outline the organizational basis for the organization. Thus, the following chapter will detail the SEC’s internal organizational structure of head of organization, divisions and offices, its funding, its reporting responsibility to Congress and finally the public-private and state partnerships the SEC engages in.

i. Head of organization

The SEC is a federal, autonomous[125] regulatory agency headquartered in Washington, DC with 11 regional offices. It is presided by a Commission, whose five members serve 5-year-terms after being nominated by the President and confirmed by the Senate[126]. “Once sworn in, the commissioners cannot be dismissed by the president before the expiration of their […] term”[127], and the five Commissioners’ terms expire in a staggering fashion, so that continuity of SEC’s policy is safeguarded. Non-partisanship is ensured by the demand that not more than three Commissioners belong to the same political party.[128] However, if, during a SEC’s president’s term, a new president of the opposite party is elected, the president will traditionally ask for removal from his position, so that the new president may determine and better cooperate with a chairman of his own political orientation.[129]

Currently, the appointed persons are Chairman Christopher Cox, and Commissioners Paul S. Atkins, Roel C. Campos, Annette L. Nazareth and Kathleen L. Casey.[130] The commission is a deliberative collegial body[131], meaning that the Commissioners hold frequent meetings to exchange opinions, whereas however each of them holds responsibility for a specific resort.

The Chairman, designated by the president, assumes direction of all administrative functions, among them personnel issues, internal organization and fund expenditure.[132] All policy and regulative procedures are decided by the majority vote of the Commission.[133] Main issues of discussion, mostly effectuated in meetings open to the public and the press, are how to “interpret federal securities laws, amend existing rules, and propose new rules to address changing market conditions, and/or enforce rules and laws”[134]. Day-to-day administrative operations lie within the four divisions and 18 offices[135] in Washington, and furthermore with the regional offices.[136]

ii. The divisions

The internal organizational structure encompasses roughly 3,865 employees[137], mainly accountants, examiners, lawyers and security analysts in the following proportion:[138]

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Chart 2: SEC staff distribution relative to qualifications

The employees are assigned to the four divisions and also distributed among the regional offices, whereas approximately two-thirds work in the headquarters.[139] The organizational structure of the SEC, thus, is functional[140] with four divisions disposing of overlapping authority.

The Division of Corporation Finacne is mainly concerned with advising and monitoring financial accounting in private and public enterprises. Thus, it assists the Commission in setting standards for economic and financial reporting, and administers corporations’ compliance.[141]

The primary part of everyday works consists in the revision of company’s registration statements such as prospectuses, quarterly and annual reports (or, so-called 10-K and 10-Q forms[142] ) and sales brochures[143], whereas revision includes investigations, examinations and formal hearings in case of a suspected misrepresentation. The division also offers advisory service to those who fall under the security law it administers, i.e. training for issuers, accountants, lawyers and underwriters[144].

The Division of Market Regulation, by virtue of the SEA[145], is responsible for establishing and maintaining “standards for fair, orderly and efficient markets”[146], which is ensured by regulation of national security exchanges, and of the brokers and dealers acting on those markets under registration according to the Investment Advisers Act 1940 and of the SROs founded on the brokers and dealers behalf.[147] The division also “assumes […] statistical accumulation functions and is generally responsible for policing the securities markets”[148], generally by surveilling both first access to market (by issuance supervision) and current trading[149], also for brokers and dealers.

The Division of Investment Management is entrusted with the supervision of investment companies and dealers under the provisions of the Investment Company Act[150] and the Investment Advisers Act. It conducts investigations and inspections, reviews filings by investment companies and advisors and grants no-action letters or other forms of exemptive relief in case of prior consultation.[151] Additionally, it engages in rulemaking and reviews enforcement matters as concerning investment companies.

At last, the Division of Enforcement does no engage in any supervisory activity, but directs the enforcement activities of regional offices and of its fellow divisions. Thus, with about 500 employees[152], it conducts investigations or supervises investigatory procedures by other Divisions, initiates injunctive actions if need be and decides whether a particular case is supported by sufficient evidence to be successfully pursued in court.[153] It also represents the SEC’s position in a federal or administrative court, and has authority to negotiate settlements on its behalf.[154] Evidence of possible violations come from many sources, mostly the divisions' own surveillance activities, other divisions, the SROs and investor complaints.[155]

iii. The offices

1. Regional offices

As indicated above, the SEC holds eleven offices to serve as field representatives for supervision and enforcement. In detail, five regional offices encompass in their regions also the six district offices[156], so that the following regional distribution of responsibility arises:[157]

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Chart 3: SEC regional and district offices

The Federal Securities Law Report cites the following as functions or regional offices: “Investigate transactions in securities, examine members of exchanges, broker-dealers, transfer agents, investment advisors, and investment companies, prosecute injunctive actions, render assistance to U.S. attorneys in criminal cases […], and make the Commission’s facilities more readily available to the general public of that region.”[158]

Thus, it becomes obvious that the regional offices do not only promote the SEC’s goals within their region and transfer all material work to the headquarters, but have a high degree of power and responsibility. Obviously, this will not relate to nationwide traded securities as much as to brokers and dealer performing their services in the area of a regional SEC office. Additionally to federal law, the regional offices serve as advisors on the individual states’ blue sky laws.

2. Functional offices

Functional offices comprise the Office of the Chief Accountant (head of all activities in the realm of financial accounting and auditing), the Office of the General Counsel (chief legal officer of the SEC), the Office of Compliance Inspections and Examinations (examination and inspection of registered self-regulatory organizations) and the Office of Econommic Analysis (provision of economic, empirical and statistical research, data gathering and compilation). Further support is provided by the Office of Administrative Law Judges, the Office of Legislative Affairs, and the Office of Municipal Securities coordinates SEC activities in the municipal securities markets, i.e. concerning securities raised by states, cities and other political actors.[159] Further internal offices coordinate and organize SEC’s task, whereas a comprehensive overview has already been provided in literature.[160]

iv. Funding

As SEC’s service only benefits some members of the US society[161], Congress felt that the cost of such activity should not be attributed to the general public, but rather to those profiting from SEC’s work. Thus, the SEC’s funding is based on registering fees for initial emission of securities, fees for certain voting right amendments and the re-buy of own securities, and – last but most important – transaction fees for each and every business effectuated at national exchanges.[162] Disgorgements and penalties do not count among the SEC’s funds, but, once collected, are transferred to the General Fund of the Treasury or distributed to harmed investors.[163] Although the percentage amounts seem very low, “the bull market of recent years has boosted the amounts collected dramatically”[164], so that the SEC collected often over five times of their allowed budget:[165]

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Chart 4: SEC comparison of appropriated funding and fees collected

Due to political considerations, the registration fee[166], constituting the main proportion of SEC’s budget, had steadily declined for the last 15 years and was prescribed to continue in such way upon pressure of Congress. A congressional enactment[167] in 2002 prescribed further declines for the years from 2002 to 2007, as the graphic[168] indicates. Fees being the main source of SEC’s budget, this decline will lead to a sharp decrease of SEC’s collected revenue until it equals its budget:[169]

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Chart 5: SEC estimate collections

By the end of those reductions, SEC budget and collections are estimated to equal each other.

Generally, the SEC has to establish its annual budget, and apply for congressional review and approval. Only the granted amount is to be employed, so that over-covering of the budget by the collected revenues does not help the SEC’s budget situation. The SEC’s annual budget has reached $ 913 million in 2006, and the organization prepares annual financial statements to be filed with congress and open to public inspection.[170]

v. Congressional control

The SEC is directly responsible to Congress, which is expressed by the congressional decision about the SEC’s budget appropriation and by the SEC filing an annual report for control and, generally, several special reports on subjects of interest upon request.[171] Financial statement audits have to be prepared in consistency with the Accountability of Tax Dollars Act 2002, involving fair presentation in all material respects and with regard to GAAP, and are conducted by the Government Accountability Office (GAO) since 2005.[172]

Furthermore, the SEC finds itself governed by several rules and regulations for federal agencies, among them the Federal Manager’s Financial Integrity Act 1982 (FMFIA), which requires the agency to “annually evaluate their system of internal control and report to the President and Congress on whether it complies with the standards and objectives set forth”[173], and whether the accounting system complies with the principles of the US Comptroller General. Those informal reviews have been, since installation in 2004, conducted with success[174] and yielded a high level of compliance, whereas, however, some weaknesses[175] have been observed and needed to be corrected. In 2006 audits, all deficiencies were reported to have been erased, so that full compliance is ensured.[176]

Additionally, the SEC decided to voluntarily conduct an organizational assessment with regard to the Federal Information Security Management Act 2002 (FISMA), which concerns the field of IT security, which again resulted in high scores for compliance, but also in the detection of minor deficiencies which called for instant remediation.[177] Other acts under which the SEC is subjected include the Prompt Payment Act 1999 “requires federal agencies to report on their efforts to make timely payments to vendors, including interest penalties”[178] as to ensure that governmental branches are subjected to the same rules as the general economy. The Improper Payments Information Act 2002 is to ensure identification and repayment of erroneous payments, and the Debt Collection Improvement Act 1996 prescribes how the administration, collection, compromise and suspension of collection actions have to be administered.[179] In all those fields, the SEC yielded a superior or above-average performance.

vi. State partnerships, partnerships with federal agencies and private-public cooperation

The SEC, indeed, is integrated into the US administrational system not only by its responsibility to Congress, but also by close ties to other federal and state authorities. Thus, it cooperates with such agencies in order to increase its influence on the market, and to create effects of size and scope while sharing tasks and responsibilities.

On the one hand, this encompasses cooperation with the states in the field of joint examinations and enforcement – an area that has increased in importance with the passing of the National Securities Market Improvement Act (NSMIA) in 1996.[180] This act “eliminates redundant registration of mutual funds by the states, preempts state blue-sky registration of “covered securities”, retains state securities registration of certain securities”[181], so that double-registration and control are avoided and henceforth conferred to the SEC. Regulation of small-size[182] investment advisers, on the contrary, is subjected under state responsibility, whereas with all others, it rests with the SEC.[183] Thus, close cooperation is necessary to ensure that all entities are covered by supervision while avoiding double and triple registration and control.

On the other hand, the SEC also partners with other federal agencies, first and foremost the Department of Justice for all matters of criminal prosecution of security law violations. This is especially pursued with internet-related enforcement efforts[184], as this new field requires joint action of the fact-collecting and specialist department (SEC) with the enforcement side (SEC Division on Enforcement and Department of Justice) to ensure a quick solution. Other examples for non-steady cooperation are the Office of the Comptroller of the Currency for surveys, the Federal Insurance Corporation to examine banking institutions engaged in securities trade, the Commodity Futures Trading Commission (CFTC) and the Treasury Department[185] as well as the Federal Reserve System[186] for a joint effort in the field of banking supervision and introduction of financial modernization.

Especially the Commodity Futures Trading Commission (CFTC) is of high importance. Created by the homonymous act in 1974, regulates commodities exchanges and brokers[187], and thus engages in the very same tasks as the SEC, but on a much narrower field. Also, its structure and organizational design are much alike with the SEC’s, although its staff base is considerably smaller and its mandate more specific. Administering the Commodity Exchange Act 1936, it regulates and supervises the commodities exchanges, but also delegates some of its powers on the National Futures Association, a SRO, and the exchanges.[188] As, in the recent years, many hybrid financial instruments were created, the SEC and the CFTC had to engage into discussions, eventually leading into jurisdictional disputes, whether a certain financial instrument constitutes a security (and is thus monitored by the SEC) or a commodity (and is thus monitored by the CFTC).[189] This overlapping authority makes matching in their respective approaches and cooperation in some fields necessary so as to create a unified regulatory environment to issuers.

Being a relatively small public agency[190] with an exponentially growing number of supervised entities, the SEC earlier than most agencies embraced the idea of private-public partnerships with self-regulated organizations (SROs) to alleviate the workload and create effects of size and scope as well as gain higher acceptance with the supervised entities. Also, the SEC relies on the SROs’ expertise in matters of their scope, and asks advice and recommendation for further legislation and/or administrative action. The system of “shared responsibility and shared regulation”[191] was also extended to market participants and others.

Furthermore, the US capital market system provides for a number of regulatory agencies and private standard-setters, all of which have their own membership criteria, operations and sanctioning procedures, whereas such governing rules are subjected to SEC review.[192] All entities considered national securities associations must register with the SEC[193], and so must their umbrella organizations.

To name, the Financial Accounting Standard Board (FASB) ensures that financial information reaches the public in a uniform and recognizable form. By its Statements of Financial Accounting Concepts (SFAC)[194], it creates the body of Generally Accepted Accounting Principles (GAAP), compliance with which is obligatory to corporations. The EITF, a sub-committee comprised of CPAs and business representatives, issues comments on questions of urgent importance, so that a quick official reaction to business’s concern is ensured.[195] Being a non-governmental agency comprised of businesspeople, academics and accounting professionals, the FASB lacks legal oversight or enforcement authority[196], so that recognized non-compliance is referred and then pursued and sanctioned by the SEC. Additionally, the SEC has the power of endorsement, i.e. correcting FASB’s rules and regulations, and can dictate FASB’s agenda, if they lack rules in a certain area of interest.[197] This necessary cooperation has severely improved SEC’s relationship to the FASB, which, with FASB’s predecessors, had not been very favorable.[198]

Furthermore, the American Institute of Certified Public Accountants (AICPA) unites all Certified Public Accountants (CPAs) in a private professional organization, and as such set standards for accounting (GAAP) and auditing (GAAS) in its Statements of Auditing Standards (SAS).[199] In the aftermath of the numerous accounting scandals in the early 2000s, the AICPA was blamed for failing its role as self-regulating body and thus lost oversight authority over publicly traded companies to the PCAOB. From 2003 on, it serves only as a standard-setter for non-public entities[200] and thus has lost significantly in officially attributed importance; however, the body is still very active in the development of the GAAP.[201]

Its successor, the Public Companies Accounting Oversight Board (PCAOB) was introduced by SOX 2002[202] and oversees firms that conduct audits in publicly traded companies, mostly organizations comprised of CPAs. It is also of high relevance for international auditors intending to work in the US.[203] The SEC sets organizational and authorizing releases for the PCAOB[204] and can overrule the PCAOB’s rules and regulations.[205]

The Securities Investor Protection Corporation (SIPC)[206], a non-profit organization administering a fund for reimbursement of investors in case of bankruptcy or financial breakdown of a brokerage firm, helps the SEC with the liquidation of such cases. They do not only administer the reimbursement of investors, but also the distribution of the available securities among the account holders. As this task which would be genuinely conferred to the SEC, the institution does have supervisory authority over the SIPC and cooperates with it, especially if the SEC was called before court as advisor in a bankruptcy proceeding.

Another cooperation partner is the FINRA[207] (formerly National Association of Securities Dealers (NASD)), whose creation was provided for in an amendment to SEA.[208] Existing since 1938, it is the only self-regulating body for brokerage firms[209] and intends to strengthen the self-regulatory character of the investment industry by ensuring market integrity. Its engagement encompasses education and supervision concerning a voluntary code of business ethics, promotion of “just and equitable principles of trade”[210] and reasonable underwriting fees, engagement in mediation and arbitration[211] and resolution of conflicts of interest between its members (i.e. brokers and dealers) and an issuer. Also, the FINRA has to review and consent to each registration statement and issue a so-called no-objections letter before the SEC can declare it effective.[212] This review also generates the FINRA’s funding: per filed offering, the body demands a filing fee[213] to be paid by the issuer.

To follow, a further SEC auxiliary is the Municipal Securities Rulemaking Board (MSRB), a body comprised of municipal security brokers or bank representatives[214] and installed by SEA[215]. It issues rules relating to the qualifications of brokers and dealers and their staff, internal sanctions for illicit and/or fraudulent behavior and the establishment of codes of best practices and fair and equitable principles of trade[216]. Hereby, it does not only take into account federal securities law, but also the states’ blue-sky laws and the regulations of the individual exchanges.

All in all, the SEC holds a vast array of cooperative partners in the US capital market environment, on which it relies especially in the field of accounting, just occasionally superseding the bodies’ rules by own regulation or disciplining accounting firms in case the professional organizations did not engage in doing so.[217] However, the SEC does not only cooperate in the field of standard-setting, but also shares and partially delegates some tasks of supervision, as by itself, it would not be able to effectuate all day-to-day supervisory work.[218] Despite the cooperativeness, the SEC holds certain authority over the SROs: besides registration, the SEC on the one hand controls the regulations and the enforcement as effectuated by the SROs, on the other hand, those supervised by SROs can appeal with SEC.[219] At last, the SEC can sanction SROs, which is especially important as the SROs are dependent on public recognition and as a critique or even shaming by the SEC would ensue in members fleeing the organization.[220]

The great advantage such boards and professional organizations offer the SEC is that their members are – at least partially – business people and thus peers to the supervised persons. Thus, such peer-by-peer supervision is more respected by the supervised entities than by total strangers to their business, so that compliance and cooperation is more likely. Also, former professionals are intimate with both the practical difficulties, which they will take into account when setting standards, and know the possibilities of fraudulent behavior and improper practices, which they will easier discover when exerting their supervisory authority.

vii. International cooperation

The SEC, of course, also engages in international cooperative circles of securities supervisors, as to share their experience, exchange best practices and reach agreements on cooperation. Indeed, the SEC claims that international cooperation is the most important factor for an effective investigation and enfocement: as money is easily transferred electronically these days, criminals move abroad and connect. As “it takes an network to catch a network”[221], the SEC very readily engages in joint efforts with foreign supervisory and law enforcement regulatories, as well as with international bodies.

Most important, in this regard, is IOSCO: founded already in 1983[222], it resides during annual meetings in Madrid[223] and is an unofficial group without any advising, legislative or other function, and consists of members of 183 countries.[224] The aim is to promote the exchange of information and best practices, as well as to foster active cooperation between the national securities supervisory authorities. By this, supervisory arbitrage is to be avoided and also emerging markets are fostered, so that they will develop into secure and transparent ones.[225]

Therefore, the group has determined resolutions and standards, issues reports[226] on various questions and engages into the process of self-evaluation.[227] Also, the exchange of information and best practices has been a good means of ensuring high standards for both national and the global capital market. In 2005, IOSCO developed a multilateral MOU (MMOU), to be concluded until the end of 2009, which will then determinate all inter-state relationships and make bilateral MOUs unnecessary.[228] Due to the unanimity principle, all participants must be included in the final decision, which also guarantees that bigger states or organizations cannot determine IOSCO’s policies on their own.[229]

Also, the SEC has entered in an array of bilateral agreements which have developed to “a significant means of enforcing domestic securities laws”[230], as foreign supervisory authorities are willing to use their authority to support the SEC’s tasks, if granted help with their enforcement[231]. Although the SEC would be entitled to enforce national securities law against any offender notwithstanding its current place of business[232], practically this poses severe problems, so that cooperation proves advantageous. The most common form to do so are memoranda of understanding (MOUs), which define rules on the sharing of information, the seizing of evidence and help with enforcement. Entitled by a congressional relief do to so[233], the SEC has currently entered into more than 30 of such agreements with states with a large amount of cross-country securities trading, and adherent mutual legal assistance treaties (MLATs).[234]

With the German BAWe, predecessor of the BaFin, the SEC entered into a MOU in 1997, which “addresses cooperation in connection with the enforcement of securities laws and regulations, including […] insider trading, misrepresentation or manipulative practices in connection with the offer, purchase or sale of any security or in the conduct of an investment business”[235]. More specifically, this concerns mutual assistance in interviewing, conducting other investigations and analyzing information as to determine whether and which securities law violation had been committed. Also, regular consultations among the SEC and the German counterpart were prescribed, so as to ensure that both parties would be aware of recent developments in their respective countries.

viii. Summary

The previous chapter detailed the SEC’s internal organizational structure with four divisions, multiple functional and regional offices and a presiding Commission. It furthermore elaborated on the SEC’s funding and responsibility towards Congress, and its outside partnerships with federal and state agencies. Thus, it became obvious that the SEC is tied into a close network of interrelationships involving responsibility, supervision and cooperation that help to ensure the effective fulfillment of its tasks.

c. Vision, mission and performance measurement

Whereas the last chapter detailed the outer organizational basis, the next chapter will elaborate on those soft factors that internally unite the organization and its employees and link the organization to its congressionally prescribed tasks within the US administrative system: the SEC’s vision, its mission with several sub-missions, derived goals and valued for task fulfillment and finally the measurements conceived to evaluate the SEC’s performance.

i. Vision and mission

The SEC defined its vision as follows: “The Securities and Exchange Commission aims to be the standard against which federal agencies are measured. The SEC’s vision is to strengthen the integrity and soundness of U.S. securities markets for the benefit of investors and other market participants and to conduct its work in a manner that is as sophisticated, flexible and dynamic as the securities markets it regulates”.[236]

Vision, defined as “possible and desirable future state of the organization”[237], is a concept of organizational theora and has been deemed crucial for an entity’s success, as it provides employees with a clear strategic orientation on the entity’s intended state and achievements. Thus, staff motivation is higher, and so is performance. Having such proves especially valuable in entities with a multitude of division and/or department with heavily differing tasks, as those might have differing sub-goals and intentions. In this case, a vision serves as strategic focus and presents a consistent internal and public approach. Thus, as well public perception of an entity is stronger and more positive if it is connected to a vision statement.

As the SEC has a very fragmented organizational structure with four divisions, 19 offices, regional sites and headquarters, the definition of a vision for the SEC seems a very diligent approach as to orient all employees, regardless of the field in which they work and the person they report to, to one common goal. Furthermore, the SEC’s vision is an excellent short description of the organization, which helps the general public to rapidly understand the organizational scope and tasks of the organization. Thus, it is also a powerful marketing tool. A short assessment of the SEC’s visions displays that the agency is aware of its primary “clients”, i.e. the investors and other market participants, and puts heavy emphasis on organizational excellence, especially in its rapidly changing environment.

In economic literature, the concept of a mission statement is controversially discussed. Whereas some claim that it is the wording of a business approach, naming the strengths and identity and success factors of a company, whereas others consider it as a philosophic wording of the business’s internal culture.[238] A mission, in the corporate environment, is generally used to determine the purpose of an organization as to orient daily operations on it, and thus serves less as a common denominator of long-term aims, but rather as a practical guide for the effectuation of work.[239]

For the SEC, the following mission statement was conceived: “The Securities and Exchange Commission is a law enforcement agency. Its mission is to administer and enforce the federal securities laws in order to protect investors, and to maintain fair, honest and efficient markets.”[240] Thus, it can be analyzed in its three sub-points:

First of all, this is the protection of investors, which already in early times became apparent, as the SEC was founded to oversee companies whose ownership lies with shareholders, and to protect the latter from misinformation.[241] This comprises the promotion of informed investment decisions by requiring “full and fair disclosure of all material facts concerning securities offered for public investment”[242]. Also, the SEC needs to deter fraud and other illegal activities within the securities industry, and, thirdly, support this goal by educating investors so that the latter help with the prevention and detection of suspected fraud cases.[243] At last, investor protection is safeguarded most in an industry with high standards, so that the SEC actively engages into the establishment, maintenance and control of professional standards and the continuous education within the securities industry.[244]

While pursuing its primary mission, the SEC strives likewise to maintain the integrity of exchange markets[245], which must be seen as complimentary goal to investor protection: if the first is safeguarded, the integrity of the exchange market as a whole will be high. Integrity, for such purposes, is often defined as “fair, honest, and efficient”[246].

For this, the SEC aims at “promot[ing] and enhance[ing] self-regulation of the securities markets as a means of assuring compliance with securities laws”[247], and both on their own and in cooperation with various SROs establish improvements of current market structures so as to increase competition and of operations so as to facilitate supervision. As brokers and dealers as well as clearing agencies manage the majority of market contacts of small investors, integrity of exchange markets must also encompass this stage, so that the SEC supervises financial responsibility and stability as well as adequate capitalization of individual broker-dealers and broker-dealer firms.[248]

However, it must be understood that the integrity of exchange markets is a goal that not only can be pursued by the SEC, as its achievement to a high level depends on the action of various other public authorities. For this reason, the SEC maintains close relationships to federal, state and international authorities in order to enhance understanding of securities law and regulation and to promote assistance.

At last, the SEC must aim at the facilitation of capital formation, because an overregulated capital market too burdensome to serve for issuers is prone to dry out, and thus might severely damage the overall economy. Thus, it lies in the SEC’s interest to choose and adapt the measures taken to foster its first two goals in a way that ensures high participation in the capital market. Thus, the organization watches to “eliminate or streamline existing rules and regulation where possible to reduce unnecessary costs and assist […] capital-raising efforts”[249], and conceives regulations to promote access to foreign issuers and financial intermediaries as demanded by various government initiatives, most importantly by GAO releases[250]. Also, the use of novel financial instruments, of technology used by market participants for their transactions and the continuous effort to maintain the regulatory environment flexible and effective, count among the SEC’s strategies.[251]

ii. Goals

Evolving from its mission, the SEC undertook the effort of determining goals – specific desired outcomes and criteria for the success of mission fulfillment, which read as follows: “To enforce compliance with federal securities law, to sustain an effective and flexible regulatory environment, to encourage and promote informed investment decision making, to maximize the use of SEC resources”.[252] The goals were furthermore subjected to internal discussion, resulting in the definition of an array for outcome measures for each of them[253], so that the SEC is able to monitor its performance. Also, the SEC’s goals have been assigned internal priorities by the way budget and staff resources are distributed:[254]

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Chart 6: SEC obligations by strategic goal

Whereas the first three goals are intuitive consequences from the SEC’s mission, and were already detailed above, resource optimization and ensuing organizational excellence is as well a key goal of the SEC[255], as the organization believes that “an efficient, well-managed, proactive SEC is critical for protecting investors and the markets”[256]. This approach seems to have been successful in the past: the SEC has always been viewed as one of the most successful, approachable and efficient federal agencies – a perception and reputation built on a variety of factors. Most important, in this regard, is the fact that the SEC constantly keeps this goal in mind, and orients its operational and organizational design around. Initiatives for resource allocation optimization, efficient staff assignment and the like are integrated in the SEC’s operational planning, and encounter recognition by both staff and Congress as the SEC’s authorizing body.

iii. Values

For the endeavor of mission fulfillment, the SEC also accomplished a definition of its values – a practice often seen with corporations. Such definition of internal codes sets codes of conduct for employees and facilitates the orientation of daily operations on the broad but somewhat vague picture of organizational excellence. Thus, the SEC relies on the values of integrity, fairness, accountability, resourcefulness, teamwork and commitment to excellence.[257]

The organization interprets its values and their orientation as follows: “integrity” demands staff to observe the principles of personal responsibility and a high ethical standard, “fairness” strives to maintain a healthy balance among the SEC’s powers of regulation and enforcement and their different clients, i.e. investors and market participants, and is to ensure diversity and respect among staff.[258] “Accountability” involves acceptance of the responsibility with which the SEC is charged and personal responsibility to the public, whereas “resourcefulness” expresses the SEC’s commitment to a creative and proactive approach towards the securities market and a thriving for innovation as to ensure effectiveness and efficiency.[259] “Teamwork” is setting standards for employee cooperation, which should be based on “trust, hard work, cooperation and communication”[260], but also relates to the SEC’s relationship with the government, other agencies, SROs, businesses and authorities abroad. At last, “commitment to excellence” expresses that the SEC “demands the highest standards of excellence, integrity, commitment and dedication from its staff”[261].

Whereas the first three values are oriented on contact with the supervised entities and investors, the latter clearly underline the high expectations the SEC has in its staff, so that both the internal and external perspective upon the organization is respected.

iv. Performance measurement

As indicated above, the SEC has developed performance measurements used to assess the agency’s level of goal fulfillment. As stipulated by the Government Performance and Results Act 1993[262], the agency determined quantified indicators, which are all systematically tracked and allow for the determination of current trends and necessary adaptations of processes and/or structures if goal fulfillment is not reached. Those are detailed alongside the SEC’s goals, and measured empirically. For instance, the first goal of “enforcement of compliance with federal securities law”, is measured, among others, with the following parameters:

- Investment advisers and investment companies examined (5-year average: 1493 for investment advisers, declining; 481 for investment companies[263], slowly declining in 2006/2007[264] )
- Percentage of first enforcement cases filed within two years (4-year average 58%[265], increasing to 66% in 2006/2007[266] )
- Enforcement cases successfully resolved[267] (3-year average: 89%[268], stagnating[269] )
- Monetary disgorgements and penalties ordered and the amount and percentage collected by the SEC (ordered 1.9 billion $ , collected 96% in 2005; ordered 1.2 billion $, collected 82% in 2006)[270]
- Number of requests to an by foreign regulators for enforcement action (5-year-average: requests to foreign regulators: 427, requests from foreign regulators: 347[271], both slowly increasing[272] )
- Distribution of cases across core enforcement areas:[273]

illustration not visible in this excerpt

Chart 7: SEC distribution of cases across enforcement areas

Similar is given for all other goals. Although it is a valid anchor for critique that the performance measurement often focus on outputs instead of outcomes[274], it must be underlined that since their installation in 2004, performance measurements within the SEC seem to have raised not only internal, but also public awareness on the extraordinarily high level of task fulfillment and efficiency within the organization. Thus, this approach has paid off and seems a good preparation for challenges to come.

v. Summary

As detailed in the previous chapter, the SEC possesses a strong set of internal points for orientation: its vision and its mission, or the overall strategic orientation and the purpose for its existence, are consistent and oriented towards the organization’s “clients”, i.e. the entities it supervises and the investors it protects. Its goals relate to the mission, and the values drive employee behavior to support the overall strategic orientation. Also, the performance measurements, although somewhat vague, deliver sensible anchors for control of task fulfillment both within divisions and for the SEC as an organization. As the strategic fit and conceptual coincidence of mission and vision are seen as the determinants of organizational excellence, it becomes obvious that, overall, the SEC’s organizational setting is one of the drivers of its efficiency.

d. Governing law and SEC’s authority

The SEC’s power derives uniquely from statutory enactments, as there is not federal common law of securities.[275] Generally, rulemaking in the field of securities law is a two-fold process: at first, it comprises those pieces of legislation Congress passes and the President signs into law[276] – statutes of broad applicability establishing basic principles, goals of legislation and objectives. Then, subsequent regulation by the SEC interprets and clarifies the enactment and amends it to the changing situation in the capital market. These rules and regulations also count among genuine securities law.

In the following, a short introduction of the applicability of US securities law will be given. Furthermore, all relevant enactments governing the work of the SEC will be detailed, and be linked to the rules and regulations the SEC composed out of the authority transferred to it.

i. Applicability of US securities law

The applicability of US securities law is a broad one: all companies whose shares are traded at national security exchanges, in over-the-counter markets or are otherwise widely held, are required to register under US law, whereas non-US companies have to supply additional “home-country information” covering requirements of home country stock exchange regulation, securities law requirements and the like.[277] For all other fields of SEC supervision, the constitutional interstate commerce clause guarantees federal responsibility, which is then transferred upon SEC as federal agency.[278]

In the field of anti-fraud provisions, US securities law is not only applied to any transaction performed in the United States, but also on transactions which have and effect on the US economic situation.[279] Thus, also international transaction partially fall under US securities law, even if they are conducted abroad or via communication networks such as the internet. Thus, the “two classic principles of territorial jurisdiction”[280], i.e. the conduct test and the effects test, allow that the safeguarding of US investors is also guaranteed for a certain number of international transactions. The conducts test, in this regard, means that “a country can assert jurisdiction over significant conduct within its territory”[281], whereas the effects test states that action is justified insofar as the purpose of the relevant body of law, i.e. investor protection in securities law, is affected.

However, the SEC may encounter difficulties in its investigation procedure if data concerning the violation have to be gathered abroad, as certain states[282] have enacted prohibitions of the circulation of financial or accounting information or banking secrecy laws, which both prevent the SEC from conducting investigations. Thus, the organization entered into a vast array of bilateral agreements[283] covering mutual assistance and exchange of information with either countries[284] or their financial agencies.

As to brokers and dealers, their activities automatically fall under US law as soon as interstate – and thus also international – commerce is effectuated, whereas exemptions within SEC regulation exist so that registration is only necessary for sale of US securities within the US territory conducted without a registered second intermediary.[285]

Enforcement of US securities law is conferred upon federal courts, so that they hold the so-called exclusive jurisdiction, for all individual claims arising out of provisions of the Securities Exchange act[286], whereas court actions claiming the lesion of the Securities Act are conferred upon federal and state courts in so-called concurring jurisdiction.[287] However, if a single lawsuit contains claims which would have to be pursued before both federal and state courts, the principle of pendent jurisdiction allows for consolidation of all claims in one lawsuit.[288]

Class actions, a civil lawsuit started by one or several claimants who represent the interest of a bigger group of persons concerned, are also pursued with federal courts.

Claims arising out of the states’ blue sky laws are competing with those arising out of federal law, and thus could be pursued at the same time[289], whereas practically, this is rarely done, as blue sky laws generally have higher requirements relative to the burden of proof.

ii. Acts instituting the SEC

1. Securities Act 1933

The SA, passed as one of the core enactments of President Roosevelt’s “New Deal” politics[290], was meant to protect investors from misinformation by regulating the initial public offering and sale of securities. The Act’s by-name “truth-in-securities-law”[291] indicates that its basic objectives are to ensure the disclosure of all material information, and to prohibit misrepresentation.[292] The process of control only extends to the primary market, i.e. the initial sale of securities, and is two-fold: on the one hand, mandatory filing of a registration statement with the SEC and the provision of a prospectus to potential investors; on the other hand, civil liability in the case of fraud or deceit.[293] The SA 1933 has, on this account, also been entitled a “disclosure statute”[294] regulating the distribution of truthful and pertinent information, but not restraining the exchange of securities or guaranteeing the truth of the disclosure. All of its rules are mandatory in such as they cannot be ceded or otherwise mutated by individual conditions or agreement.[295]

a. Mandatory registration and disclosure

Before offering securities publicly, the issuer has to file a registration statement outlining all material to the SEC, and to provide most of this information also to potential investors. The registration forms require information on “the company’s properties and businesses, a description of the security to be offered for sale; information about the management of the company and financial statements certified by independent accountants”[296].

Only after this statement has become effective, the security is allowed to be sold.[297] This process ensures that the potential investors can make informed choices about a security and its underlying value, whereas the control by the SEC safeguards investors from misrepresentation. Legislative exemptions for certain issuers exist[298] ; also the SEC is entitled[299] to conditionally or unconditionally exempt persons or securities from registration. Thus, the aim of registration is to provide information for the investors so that they can judge the value of a security, and it is not to prevent speculative securities from appearance on the market, or safeguard against securities backed up by doubtful values.[300] As long as information in due form is given, the SEC will not prevent the market entry of any security. Furthermore, such a process cannot guarantee that the published information corresponds with the actual truth – the amount of information is impossible for the SEC to verify. However, severe penalties for the distribution and registration of misstatements have proven effective in preventing issuers from disclosing false or misleading information; and the right to claim losses through legal action protects investors sufficiently.

[...]


[1] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, Preface vii.

[2] As so-called “absentee owners”; Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, Preface vii.

[3] Hirte, in Hirte/Möllers, Kölner Kommentar zum WpHG, 2007, Introduction, marginal 129, p.62.

[4] Securities and Exchange Commission, 2006 Performance and Accountability Report, p.2.

[5] The economist, online-version, http://www.economist.com/finance/displaystory.cfm?story_id=9217849 (page impression of June 11th, 2007); Securities and Exchange Commission, SEC Performance Budget for 2008, http://www.sec.gov/about/2008budgetperform.pdf (page impression of August 1st, 2007), p.144 speaks of 48%.

[6] Indeed, several surveys prove that a business’s site of business determines the level of debt, and that the latter is much lower in the US (due to a higher share quorum) than in Germany; Frankfort/Rudolph, Zur Entwicklung der Kapitalstrukturen in Deutschland und in den Vereinigten Staaten von Amerika, in zfbf 1992 1059, p.1060 et seq. The same is revealed by the high importance of IPOs in the US and other so-called market-based financial systems; Möllers, Creating Standards in a Global Financial Market – the Sarbanes-Oxley Act and her Activities: What Europeans and Americans could and should learn from each other“, in ECFR 2007 173, p.174.

[7] Deutsches Aktieninstitut e.V., DAI Kurzstudie 3/2005; available on http://www.dai.de (page impression of April 7th, 2007)

[8] Kung, The Regulation of Corporate Bond Offerings: A Comparative Analysis, in 26 U Pa. J. Int’l Econ. L. 409, p.453.

[9] Data derived from Deutsches Aktieninstitut e.V., DAI Factbook 2006, 06-3-3-a; available on http://www.dai.de (page impression of April 7th, 2007)

[10] European Central Bank, The Euro Equity markets, online publication 2001; http://www.ecb.int/pub/pdf/other/ euroequitymarketen.pdf (download July 12th, 2007), p.10.

[11] 7,194 for the US and 4,914 for the Euro area at the end of 2000, European Central Bank, The Euro Equity markets, online publication 2001; http://www.ecb.int/pub/pdf/other/ euroequitymarketen.pdf (download July 12th, 2007), p.11.

[12] As of 2006, 316,600,000 for the Euro area, as detailed in Eurostat, The new EU of 27 and the Euro area of 13,

http://www.eds-destatis.de/en/tdm/downloads/2007_07/167-2006-12-19.pdf (download July 12th, 2007); 302,372,675 for the US, as detailed on US Census Bureau, U.S. and World Population Clocks – POPClocks, http://www.census.gov/main/www/popclock.html (downloaded July 18th, 2007). Numbers for 2000 have been comparable in their difference.

[13] For an in-depth discussion and definition of the term, see Höhns, Die Aufsicht über Finanzdienstleister, 2002, p.30; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.3.

[14] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.6; Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.1.

[15] Gemberg Wiesike, Wohlverhaltensregeln beim Vertrieb von Wertpapier- und Versicherungsdienstleistungen, online-edition 2004, p.24.

[16] Kress, Effizienzorientierte Kapitalmarktregulierung: eine Analyse aus institutionenökonomischer Perspektive, 1996, p.81; Kümpel, Zur Neugestaltung der staatlichen Börsenaufsicht – von der Rechtsaufsicht zur Marktaufsicht, in WM 1992 381, p.383.

[17] Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.5; Hirschmann, Exit, Voice and Loyalty, 1970, p.31; Akerlof.: The Market for "Lemons": Quality Uncertainty and the Market Mechanism, 84 Q J Econ 488, p. 497, 499.

[18] Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.18 et seq.

[19] Hirschmann, Exit, Voice and Loyalty, 1970, p.30ff.

[20] Hirschmann, Exit, Voice and Loyalty, 1970, p.21ff, 28f.

[21] Hirschmann, Exit, Voice and Loyalty, 1970, p.29; Heinze, Europäisches Kapitalmarktrecht – Recht des Primärmarkts, 1999, p.4.

[22] This description follows Caspari, Anlegerschutz in Deutschland im Lichte der Brüsseler Richtlinien, in NZG 2005 98, p.98.

[23] Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.27.

[24] Lenenbach, Kapitalmarkt- und Börsenrecht, 2002, p.1; Höhns, Die Aufsicht über Finanzdienstleister, 2002, p.39.

[25] Buxbaum/Hopt, Legal Harmonization and the Business Enterprise, 1988, p.191 et seq.

[26] Or even later – even the late 1980 according to Möllers, Creating Standards in a Global Financial Market – the Sarbanes-Oxley Act and her Activities: What Europeans and Americans could and should learn from each other“, in ECFR 2007 173, p.176.

[27] Bartsch, Effektives Kapitalmarktrecht – zur Rechtsfolgenseite der Richtlinien im Europäischen Kapitalmarktrecht, online-edition 2005, p.9. However, it must be mentioned that only some other European member states, such das Belgium or France, developed a body of capital market law earlier; Buxbaum/Hopt, Legal Harmonization and the Business Enterprise, 1988, p.189 et seq.

[28] Kümpel/Hammen/Ekkenga, Kapitalmarktrecht, loose-leaf compilation as of 2006, p.6.

[29] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.1.

[30] Some claiming that common law legal systems – especially in the mattters of capital market law – generally outperform civil law legal systems; some claiming that the individual embodiment is pertinent. For an overview, see Coffee, Privatization and Corporate Governance: the Lessons from Securities Market Failure, in 25 Iowa J. Corp.L. 1, p.1.

[31] Coffee, Privatization and Corporate Governance: the Lessons from Securities Market Failure, in 25 Iowa J. Corp.L. 1, p.3.

[32] Schwarz, Kapitalmarktrecht – ein Überblick, in DStR 2003 1930, p.1930; Hirte, in Hirte/Möllers, Kölner Kommentar zum WpHG, 2007, Introduction, marginal 4, p.3.

[33] Schwarz, Kapitalmarktrecht – ein Überblick, in DStR 2003 1930, p.1930.

[34] Hirte/Möllers, Kölner Kommentar zum WpHG, 2007, marginal 6, p.5.

[35] Schwarz, Kapitalmarktrecht – ein Überblick, in DStR 2003 1930, p.1931 et seq.

[36] Hirte, in Hirte/Möllers, Kölner Kommentar zum WpHG, 2007, Introduction, marginal 5, p.5.

[37] Kitch, in Buxbaum et al., European Business Law – Legal and Economic Analyses on Integration and Harmonization, 1991, p.46.

[38] Möllers, Thomas M.J.: Anlegerschutz durch Aktien- und Kapitalmarktrecht – Harmonisierungsmöglichkeiten nach geltendem und künftigem Recht, in ZGR 1997, 334, p. 337, 354; Lenenbach, Kapitalmarkt- und Börsenrecht, 2002, p.18.

[39] Such as rules for accounting, publication and disclosure.

[40] Such as claims for damages, which is only granted in a limited number of situations with a narrow range of requirements; Kümpel/Hammen/Ekkenga, Kapitalmarktrecht, loose-leaf compilation as of 2006, p.25.

[41] Lenenbach, Kapitalmarkt- und Börsenrecht, 2002, p.383.

[42] Bartsch, Effektives Kapitalmarktrecht – zur Rechtsfolgenseite der Richtlinien im Europäischen Kapitalmarktrecht, online-edition 2005, p.25; Kress, Effizienzorientierte Kapitalmarktregulierung: eine Analyse aus institutionenökonomischer Perspektive, 1996, p.79.

[43] Which is multi-layered: initial information through prospectuses timed at the market entry, periodical information about the development of business, and information for special events if need be; Büche, Die Pflicht zur Ad-hoc-Publizität als Baustein eines integeren Finanzmarkts, 2005, p.35 et seq.

[44] Köhler et al., Umsetzungsstand des 10-Punkte-Plans der Bundesregierung zur Stärkung des Anlegerschutzes und der Unternehmensintegrität, in BB 2004 2623, p.2623. However, it must be understood that both aims are tightly intertwined: by ensuring investor protection, e.g. with imposing liability of issuers and managers to investors, also capital market integrity is enhances by the deterring effect of such liability. Indeed, studies suggest that “private enforcement” (i.e. by liability) is more effective that “public enforcement” (i.e. by sanctioning only); Black, The Legal and Institutional Preconditions for Strong Securities Markets, in 49 UCLA L. Rev. 781, p.800.

[45] Büche, Die Pflicht zur Ad-hoc-Publizität als Baustein eines integeren Finanzmarkts, 2005, p.29.

[46] Lenenbach, Kapitalmarkt- und Börsenrecht, 2002, p.19; Kümpel, Zur Neugestaltung der staatlichen Börsenaufsicht – von der Rechtsaufsicht zur Marktaufsicht, in WM 1992 381, p.383; Möllers, Thomas M.J.: Effizienz als Maßstab des Kapitalmarkts, ACP 208 (in printing), p. 7.

[47] Lenenbach, Kapitalmarkt- und Börsenrecht, 2002, p.20.

[48] Kümpel/Hammen/Ekkenga, Kapitalmarktrecht, loose-leaf compilation as of 2006, p.20 et seq.

[49] Kümpel/Hammen/Ekkenga, Kapitalmarktrecht, loose-leaf compilation as of 2006, p.15.

[50] Measured as broath (variety of offers) and depth (number of investors and amount of capital) of the capital market; Lenenbach, Kapitalmarkt- und Börsenrecht, 2002, p.20; Kümpel, Zur Neugestaltung der staatlichen Börsenaufsicht – von der Rechtsaufsicht zur Marktaufsicht, in WM 992 381, p.387.

[51] Kümpel/Hammen/Ekkenga, Kapitalmarktrecht, loose-leaf compilation as of 2006, p.17 et seq.; in Germany, the principle of market supervision instead of mere legal compliance control was introduced only with the foundation of BAW; Bundesminister der Finanzen, Konzept Finanzplatz Deutschland, in WM 1992 420, p.423.

[52] Kress, Effizienzorientierte Kapitalmarktregulierung: eine Analyse aus institutionenökonomischer Perspektive, 1996, p.39.

[53] Heinze, Europäisches Kapitalmarktrecht – Recht des Primärmarkts, 1999, p.7.

[54] Coffee, Privatization and Corporate Governance: the Lessons from Securities Market Failure, in 25 Iowa J. Corp.L. 1, p.1; Black, The Legal and Institutional Preconditions for Strong Securities Markets, in 49 UCLA L. Rev. 781, p. 834.

[55] Möllers, Thomas M.J.: Effizienz als Maßstab des Kapitalmarkts, ACP 208 (in printing), p. 2, 4.

[56] Black, The Legal and Institutional Preconditions for Strong Securities Markets, in 49 UCLA L. Rev. 781, p.781.

[57] Caspari, Anlegerschutz in Deutschland im Lichte der Brüsseler Richtlinien, in NZG 2005 98, p.98.

[58] Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.24.

[59] Black, The Legal and Institutional Preconditions for Strong Securities Markets, in 49 UCLA L. Rev. 781, p.790, also Coffee, Privatization and Corporate Governance: the Lessons from Securities Market Failure, in 25 Iowa J. Corp.L. 1, p.4; Heinze, Europäisches Kapitalmarktrecht – Recht des Primärmarkts, 1999, p.360.

[60] Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.1.

[61] Bartsch, Effektives Kapitalmarktrecht – zur Rechtsfolgenseite der Richtlinien im Europäischen Kapitalmarktrecht, online-edition 2005, p.24.

[62] E.g, market participants would be able to reap extraordinary gains by not fulfilling actions commonly deemed as effective, and thus strive to hinder their achievement, whereas a free market economy with sufficient competition is a key actor for achievement of efficiency; Radermacher, Globalisierung gestalten, 2006, p.18.

[63] Radermacher, Globalisierung gestalten, 2006, p.18.

[64] Radermacher, Globalisierung gestalten, 2006, p.18.

[65] A listing is contained in Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/ hastef0482.pdf (download June 6th, 2007). For the efficiency of international/European regulation; specifics are treated in Bartsch, Effektives Kapitalmarktrecht – zur Rechtsfolgenseite der Richtlinien im Europäischen Kapitalmarktrecht, online-edition 2005, but also Kress, Effizienzorientierte Kapitalmarktregulierung: eine Analyse aus institutionenökonomischer Perspektive, 1996 and Heinze, Europäisches Kapitalmarktrecht – Recht des Primärmarkts, 1999, p.363 et seq.

[66] Heinze, Europäisches Kapitalmarktrecht – Recht des Primärmarkts, 1999, p.362.

[67] Niemeyer, An Economic Analysis of Securities Market Regulation and Supervision: Where to Go after the Lamfalussy Report?, online publication 2001; http://swopec.hhs.se/hastef/papers/hastef0482.pdf (download June 6th, 2007), p.33.

[68] By means of the Securities Exchange Act 1934.

[69] Becker, in Hopt et al., Börsenreform – eine ökonomische, rechtsvergleichende und rechtspolitische Untersuchung, 1997, p.762.

[70] Altendorfer, Die US-amerikanische Kapitalmarktaufsicht (SEC) – Ein Modell für Österreich? 1995, p.3; Koslow, The Securities and Exchange Commission, 1990, p.17.

[71] Altendorfer, Die US-amerikanische Kapitalmarktaufsicht (SEC) – Ein Modell für Österreich? 1995, p.4.

[72] Koslow, The Securities and Exchange Commission, 1990, p.18; Becker, in Hopt et al., Börsenreform – eine ökonomische, rechtsvergleichende und rechtspolitische Untersuchung, 1997, p.761.

[73] Koslow, The Securities and Exchange Commission, 1990, p.19.

[74] Most notably, in the years 1837, 1853, 1857, 1869, 1873, 1893, 1907; Koslow, The Securities and Exchange Commission, 1990, p.20.

[75] Expecially, the so-called bear raids, or collective short selling of securities, which would drive market prices down, so that the short-seller would reap benefits at the expense of other shareholders; Koslow, The Securities and Exchange Commission, 1990, p.20.

[76] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.28; for deliberation on the theoretical background of this conflict of interest, see Frankfort/Rudolph, Zur Entwicklung der Kapitalstrukturen in Deutschland und in den Vereinigten Staaten von Amerika, in zfbf 1992 1059, p.1060.

[77] Koslow, The Securities and Exchange Commission, 1990, p.22.

[78] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.29; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.44.

[79] Called such after Hall v. Geiger-Jones, 242 U.S. 539, 550 (1917), which denounced some current practices as “speculative schemes which have no more basis than so many feet of blue sky”. Kansas, in 1911, was the first state to regulate securities trade, and 22 more states followed until 1913; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.46.

[80] Ratner, Securities Regulation, 2nd edition 1980, p.5.

[81] Reasons were the incontinuency of law, which allowed for improper operations across state borders, vast exemptions and lax enforcement, as well as investor’s willingness to settle prior to a judgment.

[82] Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.26.

[83] Such as the Transportation Act 1920 for railway transport, or the Federal Water Power Act 1920; Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.27.

[84] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction vii; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.45.

[85] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.1.

[86] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction vii.

[87] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.31.

[88] Altendorfer, Die US-amerikanische Kapitalmarktaufsicht (SEC) – Ein Modell für Österreich? 1995, p.5.

[89] Koslow, The Securities and Exchange Commission, 1990, p.24.

[90] Data derived from Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.28.

[91] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.32.

[92] A comprehensive overview can be found in Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.1.

[93] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.46.

[94] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction vii.

[95] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.32.

[96] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.32.

[97] Kitch, Proposals for Reform on Securities Regulation: an Overview, online publication http://papers.ssrn.com/sol3/papers.cfm?abstract_id=269126 (page impression as of 6th of June, 2007), 2001, p.2; Ratner, Securities Regulation, 2nd edition 1980, p.10.

[98] Prior to this, the Securities Act 1933 was administered by the FTC; Koslow, The Securities and Exchange Commission, 1990, p.33.

[99] Ratner, Securities Regulation, 2nd edition 1980, p.11.

[100] Koslow, The Securities and Exchange Commission, 1990, p.50.

[101] Koslow, The Securities and Exchange Commission, 1990, p.52.

[102] Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.10; Altendorfer, Die US-amerikanische Kapitalmarktaufsicht (SEC) – Ein Modell für Österreich? 1995, p.7.

[103] To name, New York, California, Illinois, Texas; Ratner, Securities Regulation, 2nd edition 1980, p.6.

[104] Ratner, Securities Regulation, 2nd edition 1980, p.6.

[105] Ratner, Securities Regulation, 2nd edition 1980, p.6; Buxbaum/Hopt, Legal Harmonization and the Business Enterprise, 1988, p.131.

[106] Koslow, The Securities and Exchange Commission, 1990, p.54.

[107] Koslow, The Securities and Exchange Commission, 1990, p.58 .

[108] Hall, A Legal Solution to Government Gridlock, 2nd edition 1998, p.109.

[109] Koslow, The Securities and Exchange Commission, 1990, p.67.

[110] Mainly triggered by high market volatility, trading strategies based on derivatives and lax control of corporate information; Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.33.

[111] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.2.

[112] Featuring, among others, increased revenue forecasts by overstated forecasting assumptions, selling of deficient businesses to “outside investors” – mainly sub-companies belonging to Enron itself – for inflated prices, and finally the reporting of large, but totally fictitious profits. External auditors seemingly did not discover those improper practices, or failed to disclose them due to conflicts of interests, Enron being one of their main customers.

[113] Seligman, The Transformation of Wall Street, 3rd edition 2003, p.623.

[114] Seligman, The Transformation of Wall Street, 3rd edition 2003, p.623.

[115] As indicated by the drop of the Wishire Total Market Index from $ 17.25 trillion to $ 10.03 trillion between March 2000 and July 2002; Seligman, The Transformation of Wall Street, 3rd edition 2003, p.624.

[116] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.2.

[117] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.3.

[118] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.6.

[119] Seligman, The Transformation of Wall Street, 3rd edition 2003, p.623.

[120] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.5.

[121] Regelin/Fisher, Zum Stand der Umsetzung des Sarbanes-Oxley Act aus deutscher Sicht, in IStR 2003 276, p.276; Atkins, Speech at Cologne University on Februray 5th, 2003, http://www.sec.gov/news/speech/spch0205 03psag.htm (page impression of March 28th, 2007)

[122] On which stocks are traded in a physical facility. Currently, five exchanges are active in trading: the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Chicago Stock Exchange (CHX), the Philadelphia Stock Exchange (PHLX), the Boston Stock Exchange (BOX); Altendorfer, Die US-amerikanische Kapitalmarktaufsicht (SEC) – Ein Modell für Österreich? 1995, p.17.

[123] On which stocks are traded without direct contract, generally over a telephone and/or internet communication network, most importantly NASDAQ. Over-the-counter-markets were subjected to SEC’s supervision in 1938 by the so-called Maloney Act, which introduced Securities Exchange Act 1934, sec. 15 (a).

[124] Hall, A Legal Solution to Government Gridlock, 2nd edition 1998, p.10.

[125] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.214.

[126] Securities Exchange Act 1934, sec. 4 (a).

[127] Koslow, The Securities and Exchange Commission, 1990, p.75.

[128] Bloomenthal/Wolff, Securities and Federal Corporate Law, 2nd edition 2005, p.150.

[129] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.43, 127.

[130] http://www.sec.gov/about/commissioner.shtml (page impression of November 7th, 2006)

[131] Soderquist/Gabaldon, Securities Regulation, 4th edition 1999, p.9.

[132] Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.57.

[133] Koslow, The Securities and Exchange Commission, 1990, p.75.

[134] http://www.sec.gov/about/whatwedo.shtml (page impression of November 7th, 2006) sub “Organization of the SEC”.

[135] http://www.sec.gov/about/whatwedo.shtml (page impression of November 7th, 2006) sub “Organization of the SEC”.

[136] For a detailed description, see below.

[137] Securities and Exchange Commission, 2005 Performance and Accountability Report, p.6.

[138] Data of 1999, derived from http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “Resources Required to Meet the Plan’s Performance Goals”.

[139] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.38.

[140] Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.58; for discussion of the concept, see Scholz, Strategische Organisation: Prinzipien zur Vitalisierung und Virtualisierung, 1997, p.149.

[141] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.40.

[142] http://www.sec.gov/about/whatwedo.shtml (page impression of November 7th, 2006) sub “Organization of the SEC”.

[143] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.40.

[144] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.40.

[145] Securities Exchange Act 1934, sec. 2 and internal task distribution.

[146] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xvi.

[147] http://www.sec.gov/about/whatwedo.shtml (page impression of November 7th, 2006) sub “Organization of the SEC”.

[148] Herz et al., The Coopers & Lybrand SEC Manual, 7th edition 1997, p.25.

[149] Koslow, The Securities and Exchange Commission, 1990, p.83.

[150] Investment Company Act 1940, sec.1 i-iii and internal task distribution.

[151] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xvii.

[152] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.34.

[153] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.41.

[154] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xviii.

[155] http://www.sec.gov/about/whatwedo.shtml (page impression of November 7th, 2006) sub “Organization of the SEC”.

[156] Bloomenthal/Wolff, Securities and Federal Corporate Law, 2nd edition 2005, p.148.

[157] Securities and Exchange Commission, Annual Report 2003, p.99. Publication by courtesy of the SEC, as granted in 17 U.S.C. 105.

[158] Federal Securities Law Reports, Vol.I, quoted according to Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.42.

[159] Whereas those can be either obligation securities, covered by full faith and credit of taxing power, or revenue securities covered by the revenue of a specific project such as an airport, a bridge and the like; Seligman, The Transformation of Wall Street, 3rd edition 2003, p.613.

[160] For a comprehensive overview of all offices and their functions, see Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxi et seq.

[161] I.e. those investing in publicly traded shares, and those corporations who engage as issuers.

[162] A percentage of the value (1/300 of 1%; Securities Exchange Act 1934, sec. 31) of stock and stock option sales effectuated on exchanges or over-the-counter markets, to be paid by the seller, and a percentage of the value (1/50 of 1%; Securities Act 1933, sec. 6 (b)) of new stocks and bonds, to be paid by the issuer. In addition, corporate takeovers and tender offers are charged with a percentage value[162] (1/50 of 1%; Securities Act 1933, sec. 6 (b)) of the proposed transaction. For a detailed outline, see Jickling in Wilder, The Securities and Exchange Commission (SEC), 2003, p.21 and Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.98.

[163] Securities and Exchange Commission, 2006 Performance and Accountability Report, p.33.

[164] Jickling in Wilder, The Securities and Exchange Commission (SEC), 2003, p.21.

[165] Securities and Exchange Commission, Annual Report 2003, p.141. Publication by courtesy of the SEC, as granted in 17 U.S.C. 105.

[166] Registration fee is comprised of: securities registered under the Securities Act 1933 (75%), transaction of covered exchange-listed securities (17%), tender offer and merger filings (7%) and other (1%); Wilder, The Securities and Exchange Commission (SEC), 2003, Preface ix.

[167] National Securities Market Improvement Act 1996, sec. 104-290.

[168] Data derived from Bloomenthal/Wolff, Sarbanes-Oxley Act in Perspective, 2nd edition 2005, p.121.

[169] Data derived from Jickling in Wilder, The Securities and Exchange Commission (SEC), 2003, p.25.

[170] Securities and Exchange Commission, 2006 Performance and Accountability Report, p.33.

[171] Koslow, The Securities and Exchange Commission, 1990, p.76.

[172] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.31.

[173] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.35.

[174] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.36.

[175] Such as lacking internal information exchange about penalties and disgorgement collection management, or lacking technical safeguards for the protection of information; Securities and Exchange Commission, 2004 Performance and Accountability Report, p.36-39.

[176] Securities and Exchange Commission, 2006 Performance and Accountability Report, p.3.

[177] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.40.

[178] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.40.

[179] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.41.

[180] http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “State Partnerships”

[181] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxxiii.

[182] I.e. under $ 25 million of managed capital.

[183] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxxiii.

[184] http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “Partnerships with Federal Agencies”

[185] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxxiv.

[186] http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “Partnerships with Federal Agencies”

[187] Including “futures commission merchant, floor broker, commodity trading advisor, commodity pool operator, commodity option dealer, leverage transaction merchant; Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.222.

[188] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.222.

[189] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.222.f

[190] http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “Public-Private Partnerships”

[191] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxxii.

[192] Hazen, Federal Securities Law, 2nd edition 2003, p.5.

[193] Securities Exchange Act 1934, sec. 15 (a).

[194] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.223.

[195] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.53.

[196] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.21.

[197] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.54.

[198] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.53.

[199] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.223.

[200] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.21.

[201] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.50.

[202] For a detailed description, see below.

[203] Lanfermann/Maul, Auswirkungen des Sarbanes-Oxley Acts in Deutschland, in DB 2002 1725, p.1725.

[204] Such as the PCAOB Release No. 2003-07, which prescribed registration of accounting firms with the board, or the PCAOB Release No. 2003-19, which conferred the authority of inspection onto the PCAOB.

[205] Hamilton/Trautman, Sarbanes-Oxley Act of 2002, 2002, chapter 706.

[206] For a detailed description of the body and its authority, see above.

[207] For a description of the authority’s name change, see http://www.finra.org/AboutFINRA/CorporateInformation/index.htm (page impression of October 4th, 2007).

[208] Budd/Wolfson, Securities Regulation, 1984, p.5.

[209] http://www.nasd.com (page impression of October 20th, 2006) sub “About us”; Gemberg-Wiesike, Wohlverhaltensregeln beim Vertrieb von Wertpapier- und Versicherungsdienstleistungen, online-edition 2004, p.119.

[210] Budd/Wolfson, Securities Regulation, 1984, p.5.

[211] http://www.nasd.com (page impression of October 20th, 2006) sub “About us”

[212] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.219.

[213] Currently equalling $ 500 + 0.01% of the gross dollar amount of the offering, up to a maximum of $ 30,500; Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.219.

[214] Bloomenthal/Wolff, Securities and Federal Corporate Law, 2nd edition 2005, p.155.

[215] In detail, Securities Exchange Act 1934, sec. 15 (b).

[216] Bloomenthal/Wolff, Securities and Federal Corporate Law, 2nd edition 2005, p.155.

[217] Ratner, Securities Regulation, 2nd edition 1980, p.17.

[218] Most notably, the Division of Market Regulation pursues its task of supervision of brokers and dealers by supervising their self-regulated organizations, such as the FINRA (former NASD).

[219] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.63.

[220] For example, in 1996, the SEC sanctioned NASD (today’s FINRA) for non-stringent supervision of market makers and requested reforms; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.63.

[221] Mr. Scott Birdwell of SEC during an interview on October 3rd, 2007.

[222] Strupp, Aktien-, börsen- und wertpapierrechtliche Fragen des Umlaufs von Aktien an ausländischen Börsen, online-edition 2003, p.65; http://www.iosco.org/about/ (page impression of June 11th, 2007) sub “IOSCO Historical Background”.

[223] Bundesanstalt für Finanzdienstleistungsaufsicht, Annual Report 2003, p.33.

[224] http://www.iosco.org/about/ (page impression of June 11th, 2007) sub “IOSCO Historical Background”; for a detail of founding procedure, see Kung, The Regulation of Corporate Bond Offerings: A Comparative Analysis, in 26 U Pa. J. Int’l Econ. L.409, p.411.

[225] Sommer, IOSCO: Its mission and achievement, in 17 NW. J. Int’l L. & Bus. 15, p.20; Kung, The Regulation of Corporate Bond Offerings: A Comparative Analysis, in 26 U Pa. J. Int’l Econ. L.409, p.410.

[226] Not only of importance for individual states, but have consulted by governemts for legislation, e.g., those reports have been consulted during the European process of developing the prospectus directive; Seitz, Die Integration der europäischen Wertpapiermärkte und die Finanzmarktgesetzgebung in Deutschland, in BKR 2002 340, p.345.

[227] http://www.iosco.org/about/ (page impression of June 11th, 2007) sub “IOSCO Historical Background”, Bergsträsser in Ferrarini, European Securities Markets – the Investment Services Directive and Beyond, 1998, p.373.

[228] Bundesanstalt für Finanzdienstleistungsaufsicht, Annual Report 2005, p.59; http://www.iosco.org/about/ (page impression of June 11th, 2007) sub “IOSCO Historical Background”.

[229] Sommer, IOSCO: Its mission and achievement, in 17 NW. J. Int’l L. & Bus. 15, p.22f.

[230] Mann/Barry in Grabar, Foreign Issuers & the US Securities Laws 2006, 2006, p.184.

[231] SEC is entitled to grant such help by Securities Exchange Act 1934, sec. 21 a, even if the reason for the investigation (i.e. the alleged securities law violation) would not constitute such in US securities law.

[232] Or, as stated by Securities Exchange Act 1934, sec. 22a, proceed against “wherever the defendant may be found”.

[233] Under the Securities Fraud Enforcement Act 1988; Soderquist/Gabaldon, Securities Law, 2nd edition 2004, p.195.

[234] A specific example is Switzerland, with which no MOU could be reached, but an MLAT allows for “obtain[ing] information located in Switzerland, including detailed banking information”; Mann/Barry in Grabar, Foreign Issuers & the US Securities Laws 2006, 2006, p.184.

[235] Mann/Barry in Grabar, Foreign Issuers & the US Securities Laws 2006, 2006, p.191.

[236] Securities and Exchange Commission, 2006 Performance and Accountability Report, p.4.

[237] Campbell/Devine/Young, Vision, Mission, Strategie, 1992, p.60.

[238] Campbell/Devine/Young, Vision, Mission, Strategie, 1992, p.34.

[239] Campbell/Devine/Young, Vision, Mission, Strategie, 1992, p.60.

[240] http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “SEC Mission”

[241] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.7.

[242] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.34; http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “SEC Mission Statement”.

[243] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxxix.

[244] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xl.

[245] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.7.

[246] http://www.sec.gov/about/gpra1999-2000.shtml (page impression of November 7th, 2006) sub “SEC Mission Statement”.

[247] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xli.

[248] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xlii.

[249] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xliii; Securities and Exchange Commission, 2004 Performance and Accountability Report, p.10, 13.

[250] Among others, also Hillman, Preliminary Observations on SEC Spending and Strategic Planning, in GAO-03-969T 2003, p.8.

[251] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xliv.

[252] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.9.

[253] Examples include, for the goal of compliance with securities law, the number of investment advisers and investment companies examined and the number of requests to and by foreign regulators for enforcement assistance; Securities and Exchange Commission, 2004 Performance and Accountability Report, p.57-60. For a detailed outline, see below.

[254] Data derived from Securities and Exchange Commission, 2004 Performance and Accountability Report, p.12.

[255] Hillman in Wilder, The Securities and Exchange Commission (SEC), 2003, p.85.

[256] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.9.

[257] Securities and Exchange Commission, 2004 Performance and Accountability Report, p.8.

[258] Securities and Exchange Commission, Annual Report 2003, p.1.

[259] Securities and Exchange Commission, Annual Report 2003, p.2.

[260] Securities and Exchange Commission, Annual Report 2003, p.2.

[261] Securities and Exchange Commission, Annual Report 2003, p.2.

[262] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.37.

[263] Data derived from Securities and Exchange Commission, SEC Performance Budget for 2006, http://www.sec.gov/about/2006budgetperform.pdf (page impression of August 1st, 2007), p.4.

[264] Securities and Exchange Commission, SEC Performance Budget for 2008, http://www.sec.gov/about/ 2008budgetperform.pdf (page impression of August 1st, 2007), p.137.

[265] Data derived from Securities and Exchange Commission, SEC Performance Budget for 2006, http://www.sec.gov/about/2006budgetperform.pdf (page impression of August 1st, 2007), p.5.

[266] Securities and Exchange Commission, SEC Performance Budget for 2008, http://www.sec.gov/about/ 2008budgetperform.pdf (page impression of August 1st, 2007), p.134.

[267] I.e. resulting in a favourable or default judgment or a settlement.

[268] Data derived from Securities and Exchange Commission, SEC Performance Budget for 2006, http://www.sec.gov/about/2006budgetperform.pdf (page impression of August 1st, 2007), p.5.

[269] Securities and Exchange Commission, SEC Performance Budget for 2008, http://www.sec.gov/about/ 2008budgetperform.pdf (page impression of August 1st, 2007), p.134.

[270] Securities and Exchange Commission, SEC Performance Budget for 2008, http://www.sec.gov/about/ 2008budgetperform.pdf (page impression of August 1st, 2007), p.157.

[271] Data derived from Securities and Exchange Commission, 2006 Performance and Accountability Report, p.42.

[272] Securities and Exchange Commission, SEC Performance Budget for 2008, http://www.sec.gov/about/ 2008budgetperform.pdf (page impression of August 1st, 2007), p.135.

[273] Securities and Exchange Commission, SEC Performance Budget for 2006, http://www.sec.gov/ about/2006budgetperform.pdf (page impression of August 1st, 2007), p.8; no recent data available.

[274] For a detailed analysis, see below.

[275] Ratner, Securities Regulation, 2nd edition 1980, p.18.

[276] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xv.

[277] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.3.

[278] Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.64.

[279] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.217.

[280] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.217.

[281] Soderquist/Gabaldon, Securities Law, 2nd edition 2004, p.193; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.88.

[282] E.g. France, the United Kingdom, Canada, Switzerland, Liechtenstein; Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.218.

[283] Most important, in this regard, are Memoranda of Understanding (MOU), covering problems of international securities transactions such as insider trading or supervision; Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.218.

[284] Among them Australia, Brazil, Canada, China, France, the United Kingdom; Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.218.

[285] Bartos, United States Securities Law: A Practical Guide, 2nd edition 2002, p.228.

[286] Securities Exchange Act 1934, sec. 27.

[287] Securities Act 1933, sec. 22 (a).

[288] Becker, in Hopt et al., Börsenreform – eine ökonomische, rechtsvergleichende und rechtspolitische Untersuchung, 1997, p.857.

[289] Securities Act 1933, sec. 22 a; Becker, in Hopt et al., Börsenreform – eine ökonomische, rechtsvergleichende und rechtspolitische Untersuchung, 1997, p.859 displays a specific reasoning on this question.

[290] Soderquist/Gabaldon, Securities Regulation, 4th edition 1999, p.2.

[291] http://www.sec.gov/about/whatwedo.shtml (page impression of November 7th, 2006) sub “The laws that govern the securities industry”; Kiefer, Kritische Analyse der Kapitalmarktregulierung der U.S. Securities and Exchange Commission, 2003, p.48.

[292] Budd/Wolfson, Securities Regulation, 1984, p.2.

[293] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxvi.

[294] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.50.

[295] Securities Act 1933, sec. 14.

[296] Wilder, The Securities and Exchange Commission (SEC), 2003, Introduction xxvi.

[297] Ratner, Securities Regulation, 2nd edition 1980, p.7.

[298] Such as offerings to a limited number of persons possessing private information, offerings limited to the territory of one state, securities issued by state authorities, offerings below a certain amount in “small business investment companies”; as detailed in Securities Act 1933, sec. 3; Soderquist,Gabaldon, Securities Regulation, 4th edition 1999, p.4.

[299] National Securities Markets Improvement Act 1996, sec. 28; Loss/Seligman, Fundamentals of Securities Regulation, 4th edition 2003, p.38.

[300] Skousen, An introduction to Corporate Governance and the SEC, 5th edition 2005, p.50.

Excerpt out of 229 pages

Details

Title
The SEC and BaFin - US and German Capital Market Supervision in Comparision
College
University of Augsburg  (Prof. Dr. Möllers)
Course
Rechtsvergleichung; Kapitalmarktrecht
Grade
cum laude
Author
Year
2008
Pages
229
Catalog Number
V131567
ISBN (eBook)
9783640368440
ISBN (Book)
9783656873921
File size
1905 KB
Language
English
Notes
Vergleich der Kapitalmarktaufsicht in Deutschland und den USA
Tags
Kapitalmarktaufsicht ;, BaFin;, Bundesamt für Finanzdienstleistungsaufsicht;, SEC;, Securities and Exchange Commission;, Kapitalmarktrecht
Quote paper
Dipl. oec. iur. univ; MBA (University of Dayton) Veronka Fischer (Author), 2008, The SEC and BaFin - US and German Capital Market Supervision in Comparision, Munich, GRIN Verlag, https://www.grin.com/document/131567

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