How the SEC Protects Traders in the U.S.

By Michael B. Cohen

Vice President of Global Operations


Traders seek out investment and brokerage services because they want to increase their nest egg, fund college education, a new home or retirement, or if they simply want to make more money. According to a recent Gallup poll, 56% of Americans are invested in the stock market, either through owning individual stocks or through mutual funds or 401(k) plans. To ensure safe investment, the Security and Exchange Commission (SEC) regulates markets and protects consumers from frauds such as forex scams. 

The SEC will regularly warn the public against brokers who are falsely claiming to have licenses. However, with the dramatic increase in online fraud, the SEC’s job has become more challenging and has had numerous successes. Recently, the SEC tracked down a former Wells Fargo broker who robbed $3 million from clients to fund his personal debt. 

Although Kenneth A. Welsh had been dismissed by Wells Fargo as a broker in June 21, 2021, he continued to deceive customers and claimed that he was making trades on their behalf when in fact he was funneling the money into his own account. This is the mechanism of a Ponzi scheme, in which client funds go into the wallet of someone claiming to be a broker and not into investments and continue to operate until the flow of money from new investors can no longer fund the out-payments to existing ones. 

There are many similar schemes like Welsh’s that rob millions from consumers every year. The SEC warns customers and helps deal with the aftermath. Individuals also need fund recovery services and financial services that can provide regulators, including the SEC, with the information they need to pursue a case and recover funds for consumers. 

MyChargeBack experts create intelligence reports that help investigators track down fraudulent brokers. We also provide guidance to consumers who are trying to recover their funds from broker disputes, forex scams, or other types of fraud. Talk to MyChargeBack if you have been the target of a fraudulent scheme or have a broker dispute. 

What Is the SEC? 

The SEC, the Security and Exchange Commission, is often called “the Watchdog of Wall Street.” Investopedia calls it the “Capital Markets Cop.” It was founded in 1934 as a response to the underlying problems that caused the devastating Stock Market Crash of 1929 that ushered in the Great Depression.

The main cause of this calamity was the lack of regulation in capital markets. Brokers had little or no regulation or oversight and they were pushing their clients to buy on the margin. In other words, investors went into debt to buy assets, much like the way leverage works today.

Because the stock market was running on borrowed money, here was no real value pushing assets upward and like a bubble, they burst. The Securities and Exchange Commission was founded to prevent this from happening again. 

The SEC’s job is to ensure that brokers provide transparency and genuine services to customers and that consumers would be protected from unscrupulous brokers. It provides warnings about these dodgy services, settles disputes, helps authorities track down disappearing brokers, and assists in fund recovery to victims. 

What Are the SEC’s Main Principles?

The SEC was founded on two main principles: 

  • Investors have the right to full information and transparency about brokers and the services they provide, who are required to provide their clients with accurate information 
  • Investment services are primarily to benefit their customers and must treat them fairly and ethically

The SEC ensures that these principles are followed closely and that investment services comply fully. They often inspect entities with licenses, warn consumers about unlicensed forex scams and deal with consumer complaints. The SEC works together with financial services, other regulators, and law enforcement to track down investment frauds and to retrieve funds for customers. 

How Does the SEC Help American Consumers? 

When researching brokers, you may have come across warnings from the SEC. These are meant to warn customers against brokers that never had a license, lost their license, or have a counterfeit license. 

There are so many forex scams online in recent years that it is difficult for the SEC to issue warnings about all of them. Instead, the SEC often releases general statements to the public about what to do to avoid fraudulent brokers. 

The SEC, as seen in the case above about the corrupt former Wells Fargo broker, will get involved in tracking down fraudulent activity and assisting other government organizations and law enforcement. The SEC will also review licenses regularly and will determine whether they should be renewed. 

The SEC will also issue warnings about brokers who are operating under licenses that have been revoked. For instance, in the above example, the Wells Fargo broker kept working as a broker for Wells Fargo even though he had been dismissed, but he only lasted for a few months. Since the SEC has complete access to this information, they are valuable in assisting investigators of fraud. 

The SEC also handles complaints from customers who have a dispute with a broker or feel that they have not been provided with the service that was promised. The SEC is reliable in addressing these complaints and is often successful at fund recovery on behalf of clients. 

The SEC’s Role in Fund Recovery

Although there is no guarantee that the SEC will recover all the funds for every victim of broker fraud, it has been effective in many cases. Given the huge number of complaints and cases in the past few years, it is hard to get full fund recovery for individual complaints without advocacy. The SEC can’t necessarily fight hard for every single consumer, and that is where a fund recovery service can be valuable. 

When you file a complaint with the SEC, you also need people on your side that can present information to them in a way that they will pay attention. A solid financial company can create an intelligence report detailing what occurred and demonstrating why your case in particular merits full fund recovery. Going it alone will not yield the same kind of results as hiring a trusted company, like MyChargeBack

Need Fund Recovery? Contact MyChargeBack Experts

If you have lost money in a broker fraud or are involved in a broker dispute, it is important to seek guidance immediately. Consult with MyChargeBack experts, and we will give you advice and draw up an intelligence report to present to regulators and authorities. We will assist investigators and help you with fund recovery.