New Government Report: Securities and Exchange Commission (SEC)’s Office of Collections and Distribution and Fair Funds

Securities and Exchange Commission: Information on Fair Fund Collections and Distributions
by A. Nicole Clowers (Paperback, 34 pages, 2010, $20)

The Securities and Exchange Commission’s (SEC) primary mission is to protect investors and maintain the integrity of securities markets.

As a part of its responsibility to protect investors, SEC seeks to ensure that individuals who violate federal securities laws and regulations take responsibility for their misdeeds. Specifically, when individuals or firms are found to have violated securities laws, SEC may order civil monetary penalties and seek ill-gotten financial gains, or disgorgement, from the violators.

For its enforcement actions to be successful, SEC must have a collection and distribution program for both civil monetary penalties and disgorgement that functions effectively. In 2002, Congress passed the Sarbanes-Oxley Act, which established numerous reforms to increase investor protection, including Section 308(a), the Federal Account for Investor Restitution provision, commonly known as the Fair Fund provision.

This provision allows SEC to combine civil monetary penalties and other donations to disgorgement funds for the benefit of investors who suffer losses resulting from fraud or other securities violations.

In 2007, SEC created the Office of Collections and Distribution (OCD) to manage the collection of penalties and disgorgement, including Fair Funds, and speed the process of returning funds back to harmed investors.

This report examines (1) the status of Fair Fund collections and distributions and (2) the actions that SEC has taken to address GAO’s previous recommendations regarding SEC’s OCD. Figures.

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