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Each year, the Securities and Exchange Commission receives thousands of letters from investors asking it to investigate the activities of other investors, corporations, broker-dealers, investment companies, stock exchanges and others. These complaints generally suggest some impropriety or misconduct, and sometimes make a plea to the SEC for direct assistance in resolving a grievance.
The SEC has the authority to investigate whether violations have occurred, and its staff makes every effort to evaluate promptly and thoroughly the information provided by investors. However, it cannot guarantee that its review of a situation will result in a further investigation or, if it goes forward, that the investigation will be scheduled for immediate action. While many investor complaints do lead to full investigations and, where warranted, to enforcement action, the SEC receives far more requests for investigations than can possibly be done with its limited resources. Many complaints are referred to the appropriate self-regulatory organizations (such as the securities exchanges and the National Association of Securities Dealers) or to local enforcement agencies.
SEC investigations are normally carried out on a confidential basis, which is necessary for effective law enforcement and to protect people against whom unfounded charges might be made. As a rule, the SEC will not confirm or deny the existence of an investigation unless, and until, it becomes a matter of public record as the result of a court action or administrative proceeding.
When there is proof that someone has violated the securities laws, the sanctions may include a censure, financial penalties, orders to surrender profits, cease and desist orders, and/or an injunction by a court to prevent further violations. Individuals may also be barred by the Commission from working for a securities firm, investment adviser, or investment company. At the request of the SEC, federal courts may also bar individuals from being officers and directors of publicly held companies. In some situations, a case may be referred to the Department of Justice for possible criminal prosecution.
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