Many companies whose securities were traded on stock exchange have committed crimes
related to accounting frauds, providing false information about their securities or other violations of the law. The need of stock exchange regulation originated in 1929 as a result of its big crash. To prevent it from happening again in the future and to regulate this area of the national economy, the U.S. Securities and Exchange Commission was founded.
To achieve its mandate, the commission enforces the statutory requirement that public companies present quarterly and annual reports as well as other periodic reports. In addition to annual financial reports, company executives must present a narrative statement that states the previous year of operations and explains how the company was fared in that time period. Also it usually states future goals and approaches to new projects. In order to level the playing field for all investors, the commission maintains nowadays an online database from which investors can access this and other information filed with the agency.
Since investment in the capital markets is not guaranteed by the federal government, regular reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Such an investment is very tempting due to the potential big revenues. Compulsory disclosure of financial reports and other information about the issuing companies and the securities themselves gives private individuals as well as large investors the same main facts about the company they invest in. Therefore these reports increase public scrutiny while reducing insider trading and fraud which was the case of supposedly Gulf coast western scam.