During the Great Depression, Congress passed the Securities Exchange Act of 1934 creating the U.S. Securities and Exchange Commission (SEC). The 1934 Act was designed to restore confidence in capital markets, setting clear rules and giving the SEC power to regulate the securities industry. Basically, the SEC watches over the securities industry to make sure no illegal activity takes place. To help with that enormous task, the agency sets strict standards for brokers, investors, and publicly traded corporations. Every corporation whose stock trades on a U.S. exchange must be registered with the SEC.

The agency's main goal is to protect investors by making sure the securities markets remain honest and fair. One way the SEC meets this goal is by making sure publicly traded companies disclose enough accurate information for investors to make informed decisions. There's a slew of ongoing paperwork required of all companies whose stocks trade on the public markets, including annual audited financial statements. In addition to keeping close tabs on publicly traded companies, the SEC also regulates any companies involved with trading and any professionals who offer investment advice.

Insider trading is one of the most widely known issues covered by the SEC. Insider trading, or insider information, refers to buying and selling publicly traded securities based on confidential information that has not been released to the general public. Because such information is not available to everyone, those insiders have an unfair advantage. And though it makes for splashy headlines — think Martha Stewart, Enron, and World-Com — a good story does nothing to help investors recoup their losses.

The SEC's Division of Enforcement does just what the name suggests; it makes sure federal securities laws are followed to the letter. This division investigates possible legal violations, and when it finds that laws haven't been followed, it recommends ways to remedy the situation.

Most important, though, the SEC is all about you: protecting you from swindles, providing reliable information, and keeping your broker in line. On its website, you can visit a special section called EDGAR (Electronic Data Gathering, Analysis, and Retrieval), a complete database of all corporate reports (such as 10-Ks and 10-Qs) filed by public companies — all the way back to 1994! It's very easy to search EDGAR for information on any company you plan to invest in, so make this your first stop. In addition to complete financial reports, you'll also find out if any complaints have been filed against a company.