Organizational Structure of the SEC

The SEC has 11 regional and district offices, including offices in Chicago, Denver, Los Angeles, and New York City. The headquarters is located in Washington, D.C. The commission consists of four divisions and 18 offices, and employs almost 3,000 people.

At the top of the organizational chart are the commissioners. There are five of them, each serving a five-year terms appointed by the U.S. President with subsequent approval by the Senate. The appointments occur annually and there is one appointment per year, as the terms are on a staggered basis. No more than three commissioners can belong to the same political party. One commissioner serves as chairman, the SEC's top executive, who is also designated by the President. The very first SEC chairman was Joseph P. Kennedy (John F. Kennedy's father) appointed by President Franklin D. Roosevelt. Harvey L. Pitt, who resigned on November 5, 2002, was appointed by President George W. Bush.

Figure 10-1 shows that the four divisions are the pillars of the SEC. The Division of Corporate Finance oversees corporate disclosure, making sure that the public has all of the relevant information necessary to make its investment decisions. Full corporate disclosure encompasses the registration statements of securities for sale, annual and quarterly reports, proxy materials, and annual reports to shareholders. The Division of Market Regulation oversees the participants of the securities markets, such as the brokerage firms and their agents and the stock exchanges. The Division of Investment Management primarily regulates investment companies. Finally, the Division of Enforcement investigates possible violations of the securities laws. The SEC only has civil enforcement authority, but it can play a crucial role in helping federal agencies pursue criminal charges for severe law violations. Each year, the SEC prosecutes between 400 and 500 individuals and companies for wrongdoing, with most of these prosecutions being settled out of court . Most of these violations involve accounting fraud, insider trading, and deception regarding securities.

Figure 10-1. SEC organizational structure.

The 18 offices are mostly for the internal affairs of the SEC, such as personnel, or they are set up to serve as advisors (e.g., general counsel and economists) for the divisions and the SEC commissioners. The other responsibilities of these offices are varied, including the handling of compliance inspections, investor education, and international affairs.