3: Investment Decisionmaking
Encourage and Promote Informed Investment Decisionmaking Other Information:
Investors who have access to information and know what questions to ask will be more likely to invest wisely. Because an educated
investor ultimately provides the best defense against fraud and costly mistakes, the federal securities laws place great emphasis
on ensuring that the issuers of securities provide clear, complete, and truthful information to the investing public. The
Commission helps promote informed investment decisions through two main approaches: its full disclosure program and investor
education initiatives. First, as part of its full disclosure program, the SEC requires issuers to disclose meaningful financial
and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves
if a security is a good investment. The Commission staff review the filings that companies and other entities submit to determine
whether the disclosures are adequate and accurate. Reviews can involve in-depth accounting and legal analysis of a filing’sfinancial
and business discussions as well as any incorporated documents. In connection with a review, the agency may issue comments
to prompt better compliance with applicable disclosure requirements. In response, a filer may revise financial statements
or amend the accompanying narrative to provide additional or improved information. Compliance may avert costly investor litigation
or Commission enforcement action. Most recently, the Sarbanes-Oxley Act requires the Commission to review disclosures made
by reporting issuers and investment companies at least once every three years. The SEC also is refining the disclosure review
program further to ensure that resources are directed toward those issuers, filings,companies, or industries that most warrant
review. On an annual basis, the Commission receives and processes more than 15 million pages of information from corporate,
investment company, and individual filers via the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Because
it is important for investors to have access to meaningful information on which to base their investment decisions, the Commission
requires that almost all of these documents be filed electronically and makes a majority of those filings immediately available
to the investing public through the SEC’s website www.sec.gov. The SEC also works together with self-regulatory organizations
like the National Association of Securities Dealers and the North American Securities Administrators Association (NASAA) to
ensure that the public can access information on stockbrokers and investment advisers. For example in 2001,the SEC began providing
electronic access to the Investment Adviser Public Disclosure (IAPD) website www.adviserinfo.sec.gov. The site contains registration
forms filed by investment adviser firms, including important information about each firm’sbusiness operations and certain
disciplinary events involving the adviser and key personnel. Comparable information on brokers is available on NASD’s website
at www.nasdr.com. The second component of the Commission’s efforts to promote informed investment decisions is investor education.
TheCommission’s investor education staff works closely with numerous federal and state agencies, financial industry associations,
consumer groups, and educational organizations to leverage collective resources and to minimize duplicative efforts. The Commission
uses its materials as a catalyst to help foster investor education initiatives throughout the nation. Over the past decade,
the SEC has developed extensive materials to help investors understand the basics of investing on such topics as: - The risks
and rewards of various products and strategies; - The importance of diversification; - How to research stock brokers and investment
advisers; and - Where to find disclosure and other information about companies. The Commission also undertakes targeted initiatives
to promote informed investment decisions and help investors detect and avoid fraudulent schemes. For example, during 2002
and 2003,the SEC launched a series of fake scam websites designed to warn investors who rush into investment opportunities
on the Internet without fully investigating the offers. Borrowing from the tactics of stock market con artists, the websites
appeared to be investment opportunities offering tremendous financial gains. Despite containing obviously fictitious claims,the
websites have received hundreds of thousands of hits. Individuals who attempt to invest funds land on a warning page that
states: “If you responded to an investment idea like this…you could get scammed!” The page also tells investors how to research
investment offers and where to call for help. In addition to the fake scam websites, other targeted educational initiatives
include: - An investor information page on the SEC website that features a searchable database of answers to frequently asked
questions; dozens of publications on products, strategies, and other investment related topics; interactive quizzes and calculators;
and investor alerts; - Educational events held throughout the U.S.,including elder fraud programs, visits to high schools
and colleges, and investor seminars; - Free publications that educate investors; - A toll-free investor assistance telephone
line; and - Individual responses to investors who contact the SEC with questions or complaints. The SEC’s investor education
program benefits not only individual investors, but also the agency itself. The Office of Investor Education and Assistance
(OIEA) staff collect data from investor questions and complaints and use it to track trends in the securities industry and
to identify problematic brokers, firms, or sales practices. Sharing this information contributes to the agency’s overall approach
to risk assessment and helps target the resources and shape the initiatives of other SEC offices and divisions. Moreover,
a public that learns to recognize securities fraud and knows where to report it promptly can serve as an important early warning
system to help regulators fight fraud. During fiscal year 2003, the OIEA and the Division of Enforcement’s Internet Complaint
Center received nearly 250,000 e-mails, including tips, complaints, questions, and forwarded spam e-mails that contain potentially
fraudulent securities-related solicitations.
Objective(s):
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