Final answer:
The SEC is a governmental regulatory body responsible for overseeing the securities industry, regulating stock exchanges, and preventing securities fraud. It was established to restore confidence in the financial system and protect investors, particularly following several major corporate scandals. The SEC's investigative and regulatory functions are essential components in maintaining the integrity of the financial markets.
Step-by-step explanation:
The U.S. Securities Exchange Commission (SEC) is a key government entity tasked with regulating and supervising the securities industry. This includes overseeing the sale of securities, regulating stock exchanges, and ensuring legal compliance from brokers, dealers, and bankers. As part of its mission, the SEC actively investigates securities fraud, such as the infamous multi-billion dollar Ponzi scheme by Bernard L. Madoff. After severe financial fallout due to major accounting scandals involving corporations like Enron, Tyco International, and WorldCom, legislation such as the Sarbanes-Oxley Act of 2002 was enacted. This act sought to enhance corporate responsibility, increase transparency in financial reporting, and improve auditing functions, all aiming to protect investors from accounting fraud and restore confidence in the financial market.
The foundation of the SEC was laid out in response to the financial crisis during President Roosevelt's era, under the Federal Securities Act and subsequent supporting legislation. The agency's creation was part of a broader effort to restore trust in the financial system, which also included the establishment of the Federal Deposit Insurance Corporation (FDIC) and the Glass-Steagall Act, although the latter was repealed in the 1990s which some argue contributed to the financial crisis of 2008. The SEC's role in regulating 'pooling', insider trading, and borrowing money 'on margin' is pivotal in its mandate to ensure a fair and transparent market for investors.