SEC Compliant entity strictly adheres to the rules and regulations drawn and enforced by the Securities and Exchange Commission.
SEC compliance is a term used to describe a company or entity that is registered with the Securities and Exchange Commission (SEC) and adheres to all the rules and regulations put in place. To elaborate, being SEC compliant means registering with SEC and following certain regulations before a company begins the process of raising funds through initial public offering (IPO), initial coin offering (ICO) or through other forms of selling securities. These are strict guidelines that every company must follow and adapt to as per the changes.
The SEC guidelines and regulations are enforced to protect the investor from any kind of fraud during the investment process, promote fair trading practices, and ensure full transparency and disclosure of market, company and securities information.
If a company wants to sell its securities and attract investors and shows that they are SEC compliant, it establishes a faith in the investor that the company has passed the check from the SEC and disclosed all the necessary information.
Any company or individual working or operating in the securities industry and dealing with market trading must comply with SEC regulations. Essentially, any company that wants to go public through IPO or ICO to raise capital from investors has to register themselves with the SEC. Furthermore, officers or directors or principal stockholders of public companies also need to register with the SEC.
In a nutshell, all securities offered or sold in the U.S. are necessary to be registered with the SEC or at least qualify for exemption from registration. Whichever the case be, all the details of the securities and risk associated with the trading must be disclosed to the investor so they can make an informed decision to invest or not.
If a company is not SEC compliant and still offering securities it means that they are running a foul or unfair trade deal. If the company does not adhere to all the requirements and full disclosure of current and past financial information along with all the other relevant information, it can result in the company running afoul of federal securities law and the SEC can limit their trading power or selling of stocks.
There are certain degrees of non-compliance and the SEC decides which type of liability will be imposed on a company that has not complied with the regulations. For example, the SEC may ask the company to return all of investors’ money. This is known as rescission.
The SEC can also impose section 12(k) suspension wherein the company will not be allowed to engage in any trading activities for the next ten days. This time frame can be increased if the company does not meet the requirements still. The ultimate penalty that can be imposed by the SEC is the section 12(j) revocation where the company will end all public trading in its stock permanently.
It is mandatory for every company who wants to enter the trading market to register themselves with the SEC and provide all information required. This is done to protect the investor from any fraud and practice fair trading. The SEC rules were imposed after the stock market crash of 1929. Till this day, the SEC continues to monitor and regulate the stock market and keeps a watchful eye on any discrepancies. The SEC is required by law to suspend or ban all trading activities of a company if they have a reason to do so. Hence, companies should always comply with the regulations and establish themselves as SEC compliant.