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Compliance : Sarbanes Oxley : SEC : Thought Leader

Remarks to Students at The George Washington University

By Elisse Walter
Elisse Walter
Securities and Exchange Commission

Good evening.  Thank you for that kind introduction, and my thanks to the members of Alpha Kappa Psi – the nation’s largest and oldest professional business fraternity – for inviting me to speak and pulling this event together. Thanks, as well, to all of you for taking the time to attend.  And I’d particularly like to thank my friend Mary Goelzer, who was kind enough to extend the invitation to me.

What I’d like to talk about this evening before I take your questions is something that isn’t always recognized in day-to-day discussion of business and government and their interaction.  That is, the importance of the public sector and those who work in the public sector, like my many dedicated colleagues, to the health of our markets and to a flourishing economy. 

Of course, the regulations we write at the SEC, the examinations we conduct, and the enforcement actions we bring demand time and resources that businesses would rather spend on other things. But, the truth is that the SEC wants the investing public and the businesses in which they invest their hard-earned money to succeed.

That is why the SEC was created in 1934 as part of the effort to lift the American economy out of the rubble of the Great Depression.  Since then, we have worked for nearly 80 years to make our capital markets the strongest and most vibrant in the world.  And we understand that economic growth on a national level is the product of millions of individual financial achievements, so a great deal of our work is focused on facilitating your success:

  • We want you to succeed as entrepreneurs, and to have access to the capital you need to grow your business, and to the kind of securities markets that keeps your stocks liquid.
  • We want you to succeed as investors, and we work to give you access to accurate and timely information that allows you to make informed investment decisions, and to protect you from financial predators.
  • And we want you to succeed in your career and – as individuals interested in the world of business and finance – we hope that you will consider spending time in public service, perhaps even with the SEC. 

That’s what I’d like to talk to you about this evening: our efforts to facilitate your success through financial literacy and investor protection initiatives and – briefly – how you might be able to contribute to our nation’s success by making public service a component of your career.

Financial Literacy
I am sure all of you are aware of the significance of this day – not as April Fools’ Day, but the first day of Financial Capability Month – a broad, national occasion to highlight the importance of financial literacy.

Last summer, the SEC released a report on investor literacy required by the Dodd-Frank Act that unfortunately reached the conclusion that "U.S. retail investors lack basic financial literacy ... have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud."

As Chairman of the SEC, it pains me greatly that, for as much effort as we and others have expended, many retail investors still lack an understanding of basic financial principles. 

Educating Investors
So, in addition to our higher-profile regulatory and law enforcement functions, I strongly support our investor education and outreach efforts.  This is a nationwide program focused on teaching individuals how to make better decisions about investing in our capital markets.  And importantly, it also teaches them how to spot the securities frauds that our Division of Enforcement works so hard to uncover, investigate, and address.

We are fortunate that we don’t have to do this work alone.  We leverage our resources through strategic partnerships.  For example, we are working with the Financial Industry Regulatory Authority – which regulates broker-dealers – AARP and state securities regulators on a campaign designed to reduce investment fraud among Americans.

With our partners, we regularly participate in events that teach investors how to identify common persuasion techniques used by con artists.

We also train attendees on how to “ask and check” about investments and investment professionals before they invest, so they can protect themselves and teach others in their community about effective fraud detection techniques.

Our staff also assists tens of thousands of investors every year with questions and complaints, produces a wide variety of print publications, issues investor alerts and bulletins on topical subjects, and even tweets.

We have a website that is focused exclusively on investor education.  Individual investors can access a wide variety of useful information about investing.  

For example, on, you can research public companies and other filers using our EDGAR database.  You can find, for example, annual corporate filings, mutual fund prospectuses, and information on variable insurance products.  And you can find out how to read them, using materials that explain the disclosures in more detail.

You can conduct background checks on financial professionals you’re considering working with.

You can access information aimed at investors with particular investment needs, such as members of the military, students, teachers, and retirees.

And while we don’t give investment advice on, you can find analyses of different types of investments – the benefits and the risks of investment vehicles including stocks, bonds, mutual funds, and real estate investment trusts.  

Younger Investors
Educating younger investors is especially important to us.  That is one of the reasons why we offer the SEC Graduate Program to teachers and professors in conjunction with NYSE Euronext.  The course provides professional development programs designed to help educators teach students about the financial marketplace and its importance in their lives and the global economy.    

In addition to SEC staff, training sessions are led by, among others, representatives from the White House, the Federal Reserve, the Department of Treasury, the Department of Education, and Commodity Futures Trading Commission. 

The fact is, very few people under 30 are looking very far down the road, and this can lead to fundamental investing errors and missed opportunities.

For example, many young people don’t realize the importance of starting to save and invest early in their careers and the awesome power of compound interest.  Einstein called it the Eighth Wonder of the World. 

If you invest just $100 a month with a 6 percent return, starting at 25, you’ll have around $211,000 in your account at the age of 67 (according to the handy calculator you can find on  If you wait until you’re 45 to start saving and investing, putting aside that same amount at that same return would be worth only around $52,000 when you reach retirement age. By saving for twice as long, you end up with four times the money.

I want people to realize that they should pay themselves first, especially if they can get “free money.” When you are young, relatively care-free and earning a regular, decent, paycheck for the first time, you tend not to worry about retirement as much as paying back that college loan or maybe spending weekends at the beach. 

But a tax-favored retirement fund earns a first-year return equal to your tax rate plus social security deductions. 

And most employers offer a match that can significantly increase your nominal contribution – and it’s free money you can use.  I have never been more proud than when, on starting his first full-time job late in the year, my son ravaged his paycheck to make sure that he maxed out his retirement contribution.

Another thing people don’t consider when investing for the long haul is the impact of fees and expenses.  They may look at the historical returns in the prospectus, but they often don’t consider the long term impact of the seemingly small amounts of money retained by the fund managers.  But that, too, adds up.  You can use FINRA’s Fund Analyzer to compare the fees and expenses of over 18,000 mutual funds. 

And, in an era in which the average worker can expect to change jobs many times over the course of a career, do not yield to the temptation to cash out your 401(k) when you take a new position. And even when confronted with a financial setback, leave your retirement accounts intact if at all possible.  If you do cash out, not only do you take an immediate and substantial tax hit, but you sacrifice years of growth potential.

Think about this: according to a recent report by Fidelity Investments, the average individual on the verge of retirement aged 60-64 has $133,000 in his or her 401(k) plan.  That amount has to last through, hopefully, decades of post-retirement living.  You will likely have the opportunity to do much better than that.  Remember how much just a hundred dollars a month can add up to. I hope you will take that opportunity.

Enforcement and Investor Protection
But even if you make all the right financial moves based on the numbers, the fact is there are scammers out there who will try to take your money.  Given your education, you may feel relatively confident about your ability to make financial decisions and protect yourselves.  Let me admonish you to maintain your skepticism.  Studies have shown that victims of financial scams often are well-educated and even financially sophisticated.

That is why one of the core functions of the SEC is enforcement of the federal securities laws.  For us at the SEC, the flip side of encouraging good investment habits is making sure the environment in which you save and invest is safe.  I consider investor protection our primary mission. 

But, when it comes to preventing, detecting, deterring and punishing financial malfeasance, we’re at a disadvantage.  Often people don’t know that they’ve been robbed until long after the fraud has been committed, giving perpetrators months or even years to cover their tracks, hide the money, or victimize other investors. 

So investor education is not just teaching and informing.  It also is an important part of our investor protection effort.  Informed investors know what to look for and when to tip us that something suspicious is going on.

One emerging area of concern, for example, is the use of social media to support fraudulent schemes – bringing what are called “boiler room” scams into chat rooms, Facebook pages, Twitter feeds, and your inbox. 

Traditionally, high-pressure pitchmen would cold-call your home, touting a penny stock that they said was on the verge of a major price increase, claiming inside information or a brilliant insight into market and economic data that indicated a guaranteed jump.

Of course, after enough investors bought into the stock and pumped the price up, the schemers dumped the stock they were holding, stopped promoting it and disappeared to another boiler room as the price invariably collapsed and victims watched their investment disappear – a classic “pump-and-dump.” 

Today, instead of calling you on the phone, these fraudsters are increasingly likely to send you unsolicited e-mails, lurk in chat rooms talking up favored stocks, or tweet their “inside information.”

Another new approach is to create an online investor newsletter feigning objectivity but, instead, using its apparent authority to boost the price of selected stocks.  These newsletters might even be advertised in legitimate journals.

But they serve the same purpose as the cold calls and chat room tips: to artificially inflate share prices just long enough for someone to take the profit and walk away.

We’re going after all these and many other types of fraud

But, as you know, the Internet is a big place.  So we’re counting on you – the generation that’s been bombarded with Nigerian banking offers, discount prescription drug spam and even misleading personal ads practically since birth – to be our eyes and ears.  We don’t expect each of you to spend your spare time playing amateur SEC investigator.  But in addition to watching out for yourself, we’d love it if you adopted the same security strategy that you see plastered all over the Washington Metro:  “If you see something, say something.”

And we make it easy to say something. All it takes is an online submission and we’ll take it from there. 

Two years ago, the SEC brought online the technology necessary for classifying, analyzing and comparing tips we receive, searching for patterns and actionable data.

Don’t think that your information is too insignificant to send us.  It may prove to be a vital piece of a larger puzzle.

As investors, it’s important that we not only look out for our own interests, but that we keep an eye open for actions that threaten others – a “neighborhood watch goes to Wall Street” effort.

Teaching investors how to spot suspicious practices is one way we work to leverage the SEC’s limited staff and resources.

But there’s another way that we’re expanding our reach: our Whistleblower Program. 

Established by the Dodd-Frank Act, the Whistleblower Program offers rewards of between 10 and 30 percent of the money we collect when high-quality, original information leads to a judgment of at least $1 million against a securities law violator.

Last summer, the SEC paid nearly $50,000 to a whistleblower who helped us stop a multi-million dollar fraud, a figure that could rise considerably as more ill-gotten gains are recovered. 

In the first year of the program, the SEC received more than 3,000 tips from whistleblowers, and there were 143 enforcement judgments and orders issued during fiscal year 2012 that potentially qualify as eligible for a whistleblower award.

Now, I am sure all of you are the kind of ethical people who would never be caught up in an attempt to manipulate financials, trade on inside information, mislead investors, or misrepresent results in official filings.

Nor would you wish to become associated with a company or a firm that would do so.

Entities registered with the SEC are generally honest and committed to the letter and spirit of securities law and regulation.  And that’s why our whistleblower regulations encourage concerned individuals to contact their compliance office before coming to us.

But should you find yourself in an unfortunate situation, we believe that our investor protection mission and your common sense ethics are well-served by encouraging individuals in a difficult position to come to us for support, anonymity, and financial incentives. 

Public Service
As you can see, we’re working to weave a support network for investors – particularly retail investors like you and me – that consists of regulatory organizations like FINRA, advocacy groups like the AARP, and millions of individual investors. 

The SEC is the anchor of that network, as the agency that one of our first Chairmen, William O. Douglas, described as the federal government’s only “investor advocate.”

Although I personally feel that the SEC’s advocacy role is “first among equals,” ours is actually a three-part mission: protection of investors, maintaining the integrity of the markets, and fostering capital formation.  And, at times, our critics claim that these roles priorities conflict or that we neglect one aspect of our mission to fulfill another.

Take, for instance, the JOBS Act.  It’s a law that seeks to remove some of the regulatory requirements placed upon companies seeking to enter the capital markets – a law enacted by Congress that the SEC is charged with implementing.  Some say it could lead to rampant fraud – unless the new regulations are accompanied by significant investor protection measures. Others say any such measures would create unnecessary barriers to capital formation, and slow the growth of the dynamic companies our economy needs. 

I believe that this is a false argument.  In my view, capital formation and investor protection go hand in hand – investors afraid of financial fraud simply won’t contribute the capital entrepreneurs need. 

There is an implicit promise in American life that if you work hard, have a good idea, or have the discipline to put aside some money and make rational decisions, you have a fair chance of earning your own security and even getting rich. What happens to our economy if that sort of optimism fades, and people begin to believe that the kind of opportunity we used to offer can now be found more easily somewhere else? And what will that then do to the fabric of American life?

The challenge of resolving these types of issues in a way that both promotes growth and protects investors is one reason why so many people who are drawn to business and finance end up spending part or most of their career in public service.

I came to the SEC in 1977 thinking that I would spend a few years here and then move along to the next opportunity that arose.  Instead, I came to believe so strongly that the SEC’s mission was so critical to the function of and confidence in the financial system, that I made the SEC the cornerstone and the heart of my career.

Although I am Chairman now and I get to speak in important venues like this one, there was little apparent cachet to the 17 years I spent as an SEC staffer in the Office of General Counsel and the Division of Corporation Finance. Government offices are not plush, there are no stock options, and we fly coach.

But what there was, was the immense satisfaction that came from working on really important matters – projects that that helped keep the U.S. financial markets the most dynamic and also the most stable in the world.  Rulemakings that made it less likely that a family saving for retirement or college for their kids would lose their dreams to a Ponzi scheme or fraudulent accounting.

And there’s an exciting Wall Street/Main Street dynamic: you’re working for both finance professionals moving billions of dollars and a small town teacher putting money into her IRA. It’s a place where you can really make a difference and have a positive impact on businesses and lives.

Working with investors and the financial markets is fascinating, whether you come at them from the private sector or the public sector. 

But I will remind you that the people at the SEC as well as at other federal financial regulators are driven and intelligent and the rewards we earn, though less quantifiable than those of our private sector counterparts, are just as great. At the SEC, you would have the opportunity to serve with individuals with diverse backgrounds, experiences, and thought that come together with the mutual purpose of protecting investors.

Effective agencies need the kind of talent I see in this room to carry out their mission. And I hope at a least a few of you will consider putting that talent to use on behalf of our nation and the American public.

At the SEC, we work with many individuals and organizations in  public, private, and nonprofit sectors to foster wealth creation through a free market system that gives participants large and small a chance to profit.  We have a lot of ways of pursuing that goal – protecting and educating investors, enforcement efforts that discover and deter wrongdoing, and building a regulatory framework for financial dynamism and broad prosperity.

In all of these efforts, I look forward to working with you. 

Whether it’s a comment on a rulemaking, a tip you turn in or a whistle you blow, the opportunity to work alongside you to craft a more stable and responsive financial structure, or seeing you use that structure to raise capital and finance growth, there’s a lot we can do together to make our nation – and your portfolio – stronger. 

Elisse Walter
Securities and Exchange Commission

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