OCIE Regional Offices’ Referrals to 

Enforcement

 

March 30, 2011

Report No. 493
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

ii

To: Carlo V. di Florio, Director, Office of Compliance Inspections and

Examinations (OCIE)

Robert Khuzami, Director, Division of Enforcement

From: H. David Katz, Inspector General, Office of Inspector General (OI

Subject: OGlE Regional Offices' Referrals to Enforcement, Report No. 493

This memorandum transmits the U.S. Securities and Exchange Commission

DIG's final report detailing the results of our audit on OCIE regional offices'

referrals to the Division of Enforcement. This audit was conducted as part of our

continuous effort to assess management of the Commission's programs and

operations and as a part of our annual audit plan.

The final report contains seven recommendations which if implemented should

strengthen oversight of the enforcement referrals process in the SEC's regional

offices. OCIE and Enforcement concurred with all seven recommendations.

Your written response to the draft report has been included in Appendix V.

Within the next 45 days, please provide the DIG with a written corrective action

plan to address the recommendations that were made to your respective units.

The corrective action plan should include information such as the responsible

official/point of contact, timeframes for completing required actions, and

milestones identifying how you will address the recommendations that are cited

in the report.

Should you have any questions regarding this report, please do not hesitate to

contact me. We appreciate the courtesy and cooperation that you and your staff

extended to our auditor dUring this audit.

Attachment

cc: Kayla J. Gillan, De

Luis A. Aguilar, Co

Troy A. Paredes,

Elisse B. Walter, C

Diego T. Ruiz, Ex

Lorin Reisner, De

John Walsh, Chief

Examinattons

puty Chief of Staff, Office of the Chairman

mmissioner

Commissioner

ommissioner

ecutive Director, Office of the Executive Director

puty Director, Division of Enforcement

Counsel, Office of Compliance Inspections and

MEMORANDUM

March 30, 2011

G#~k

UNITEO STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, O.C. 20S49

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OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

iii

OCIE Regional Offices’ Referrals to 

Enforcement

Executive Summary

Background. The mission of the Office of Compliance Inspections and 

Examinations (OCIE) is to conduct and coordinate the nationwide examination 

program for entities over which the U. S. Securities and Exchange Commission 

(SEC or Commission) has regulatory authority. These include broker-dealers, 

investment advisers, investment companies, transfer agents, nationally

recognized statistical rating organizations, clearing agencies, and self-regulatory 

organizations (SRO). 

While conducting inspections and examinations, OCIE staff review the books and 

records of regulated entities, conduct interviews with management and firm 

employees, and analyze the entities’ operations.1 One goal of the examination or 

inspection is to determine if the registrant is in compliance with federal securities 

laws and regulations.2

 When examination staff identify noncompliance with 

securities laws or internal control weaknesses, the registrant is generally 

provided with a deficiency letter asking that it take steps to remediate the 

deficiencies, and requesting that it provide a written response. When the 

registrant's noncompliance or internal control failures are considered serious, 

such as when OCIE staff believe that investor funds or securities are at risk, the 

staff may refer the matter to the Division of Enforcement (Enforcement). 

Enforcement then determines whether to investigate the matter further and, 

ultimately, whether to recommend an enforcement action to the Commission.3

 

Each year, cases against regulated entities constitute a significant portion of the 

Commission's enforcement actions.4

 Many of these cases are derived from the 

examination program's referrals to Enforcement.

5

 Examinations of brokerdealers may also be referred to the appropriate SRO for further investigation.6

On March 31, 2010, the SEC OIG issued a Report of Investigation entitled 

Investigation of the SEC’s Response to Concerns Regarding Robert Allen 

Stanford’s Alleged Ponzi Scheme (OIG Investigative Report No. 526). The OIG 

found that the SEC’s Fort Worth regional office had been aware since 1997 that 

Robert Allen Stanford was likely operating a Ponzi scheme. The investigation 

also discovered that after a series of OCIE examinations of Stanford Group 

Company (Stanford’s registered investment advisor) in which each examination 

 

1 Examinations by the Securities and Exchange Commission Office of Compliance Inspections and 

Examinations, February 2010, p.12. 2 Id. 3 Id., p.18. 4 Id. 5 Id. 6 Id.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

iv

concluded that the likelihood of a Ponzi scheme or similar fraud existed, the 

SEC’s Fort Worth Enforcement unit did not take significant action to investigate 

or stop such expected fraud until late 2005. The OIG investigation found that 

SEC-wide institutional influences within Enforcement did factor into its repeated 

decisions not to undertake a full and thorough investigation of Stanford, 

notwithstanding staff awareness that the potential fraud was growing. The OIG 

investigation found that senior Fort Worth officials perceived that they were being 

judged on the numbers of cases they brought, so-called “stats,” and 

communicated to the Enforcement staff that novel or complex cases were 

disfavored. As a result, cases like Stanford, which were not considered “quickhit” or “slam-dunk” cases, were not encouraged. 

On September 22, 2010, the U.S. Senate Committee on Banking, Housing, and 

Urban Affairs held a hearing on the SEC’s investigation and response to Robert

Allen Stanford’s alleged Ponzi scheme. The Committee heard testimony from 

SEC officials about the Stanford matter and sought information concerning the

steps the agency was taking to prevent future financial frauds and restore 

investor confidence. Then–Committee Chairman Christopher J. Dodd (D. Conn.) 

expressed concern that there may be other instances in which Enforcement did 

not pursue cases identified by regional office examiners because of the 

perception that SEC headquarters in Washington was only interested in stats and 

“quick hit” cases.7

 Chairman Dodd asked the Inspector General, “[W]ere there 

other matters that are now showing up nationwide that were, quote, ‘novel or 

more complex cases’...that were not brought, because they were novel or 

complex and did not fit into that...slam dunk or quick hit?”8 Chairman Dodd 

requested that the SEC OIG conduct a review to determine if the concerns about 

the Fort Worth Regional office found in the OIG’s Stanford report also existed in 

other SEC regional offices. 

Objectives. The overall objective of the audit was to determine whether and to 

what extent OCIE examiners were frustrated in matters other than Stanford

where Enforcement did not pursue cases identified by examiners in the SEC’s 

regional offices. Other audit objectives were the following: 

• Determining if Enforcement has taken appropriate and sufficient action to 

address referrals received from OCIE examination staff in the SEC 

regional offices. 

• Determining if problematic trends exist where appropriate action was not 

taken based on an OCIE referral and where improvements are needed 

and best practices can be identified to enhance the OCIE examination 

referral process in the SEC regional offices. 

 

7 U.S. Congress, Senate, Committee on Banking, Housing and Urban Affairs, Oversight of the SEC 

Inspector General’s Report on the “Investigation of the SEC’s Response to Concerns Regarding Robert 

Allen Stanford’s Alleged Ponzi Scheme” and Improving SEC Performance; Sep. 22, 2010, Federal News 

Service, Inc. (Lexis-Nexis), p. 11. 8 Id. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

v 

Prior OIG Audit Report. The OIG’s last audit of OCIE referrals to Enforcement

was conducted in 2001 (Compliance Inspection and Examination Referrals to 

Enforcement, Audit No. 322, issued June 28, 2001). The OIG found that 

referrals by OCIE to Enforcement were generally efficient and effective. A 

number of recommendations were made in the report to enhance the referral 

process, including improving OCIE’s communication with Enforcement, the 

interested divisions (i.e., Trading and Markets [formerly Market Regulation], 

Investment Management, and Corporation Finance), and the alleged violator. 

The OIG found that all of the recommendations from Audit No. 322 had been 

closed based on our review of the Audit Recommendation Tracking System 

(ARTS).9

Results. The OIG found that examiners across the SEC regional offices are 

generally satisfied with their Enforcement attorney counterparts. For example, 

the OIG found through a survey of all OCIE examiners throughout the SEC’s 

regional offices that most survey respondents indicated that they are either 

“completely satisfied” or “somewhat satisfied” with actions taken by Enforcement

in response to examination-related referrals. Specifically, the OIG found that 

when combining the responses for “completely satisfied” and “somewhat 

satisfied” for respondents, the majority of SEC regional offices had a combined 

level of satisfaction ranging from 70 to 87 percent.

10 We further found that where 

there was dissatisfaction with the referral process, the level of concern 

dramatically dropped over time and particularly in fiscal year 2010, with some 

respondents identifying the newly created Asset Management Unit in 

Enforcement as having significantly assisted with the acceptance rate of OCIE 

referrals. 

 

We also found that the large majority of examiners do not believe that 

Enforcement will only take referrals that involve high dollar value amounts and 

can easily be brought against the violator. In addition, many of the survey 

participants who did believe that Enforcement was particularly concerned with 

dollar thresholds or “stats” noted that this approach was more evident in the past, 

“prior to Madoff.”

The OIG audit did find certain aspects of the referral process that could use 

improvement. We found that OCIE sometimes presents referrals informally to 

Enforcement prior to proceeding with the formal referral process. As a result, 

there is a concern that not all referral-worthy matters may be captured. We also 

found that internal concerns over incentives and metrics with regard to the 

 

9 The OIG found that during the prior audit, a recommendation was made for an interface between the 

STARS and CATS2000 tracking systems used by OCIE and Enforcement, respectively. During the 

fieldwork for this audit, the OIG found that an interface still does not exist between STARS and CATS2000. 

The OIG found that after the prior audit was completed, the Division of Enforcement launched another case 

tracking system called the HUB, which currently does not have the ability to interface with STARS. 10 The OIG provided Enforcement and OCIE management with information concerning specific situations 

where OCIE examiners had serious concerns that Enforcement action was unsatisfactory, particularly where 

they believed that there was ongoing wrongdoing, for further review and appropriate action. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

vi

percentage of OCIE referrals being accepted by Enforcement may have led 

OCIE senior officials to request that a particular referral not be captured in the 

Tips, Complaints and Referrals (TCR) system to avoid the risk of having large 

numbers of outstanding referrals. We also found that the level of communication 

between OCIE and Enforcement after a referral is not always consistent in the 

regional offices. As a result, a number of examiners expressed that they are 

unaware of the current status of referrals they provided to Enforcement. Further, 

OCIE and Enforcement use different systems to track referrals, and those 

systems do not currently interface with each other. In addition, while the SEC 

established a Home Office Enforcement Referral Review Committee to serve as 

an integral part of the oversight of the referrals process, the lack of full 

cooperation from some regional offices limited its ability to bring more 

transparency and consistency to Enforcement decisions to pursue referrals. 

Summary of Recommendations. This report recommends the following: 

1. OCIE and Enforcement should carefully review the information provided 

from the OIG survey regarding the situations where OCIE examiners 

expressed serious concerns that Enforcement action was unsatisfactory, 

particularly where the examiners believed there was ongoing wrongdoing, 

and take appropriate action, including, potentially reversing previous 

Enforcement decisions, as necessary.

2. OCIE and Enforcement should take appropriate actions to enforce the 

policy in all regional offices that all OCIE referrals be made in writing using 

the standard Enforcement Referral Cover Memorandum or an equivalent 

record as appropriate in light of the new TCR system and other 

programmatic changes. 

3. OCIE should issue policy or guidance requiring OCIE examiners in 

regional offices to formally refer all significant matters to Enforcement, not 

merely the matters that Enforcement has already decided to accept.

4. OCIE should take appropriate actions to enforce its policy in all regional 

offices that all OCIE referrals be uploaded into the TCR system regardless 

of whether Enforcement has accepted the referral.

5. OCIE should ensure that all referrals currently in the Super Tracking and 

Reporting System (STARS) are appropriately and adequately updated

with the information in the Home Office Enforcement Referral Review 

Committee spreadsheet. 

6. OCIE and Enforcement should continue their efforts to establish a 

complete interface between STARS or its equivalent, the HUB, and the 

TCR system. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

vii

7. OCIE and Enforcement should determine what will be the future of the 

Home Office Enforcement Referral Review Committee. If the Committee 

will not continue, they should ensure that its responsibilities are carried out 

by another office or group that will continue to oversee the referral process 

and track outstanding referrals in a meaningful way. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

viii

TABLE OF CONTENTS

Executive Summary.................................................................................................

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Table of Contents ...................................................................................................

Background and Objectives ............................................................................

Background .................................................................................................

Objectives ....................................................................................................

Findings and Recommendations ...................................................................

Finding 1: In Response to the OIG Survey Issued to OCIE Staff, Most 

Examiners Expressed Satisfaction With Enforcement .................................

Recommendation 1.................................................................

Finding 2: Because Some Examination-Related Referrals Are Provided 

Informally, Some Information May Not Be Captured....................................

Recommendation 2 .................................................................

Finding 3: Some Concerns Exist That Not All OCIE Referrals Are Being 

Made and Captured in the Tips, Complaints, and Referrals System............

Recommendation 3 .................................................................

Recommendation 4.................................................................

Finding 4: Tracking of Referrals Could Be Improved Through Better 

Communication and Information Sharing .....................................................

Recommendation 5 .................................................................

Recommendation 6 .................................................................

Finding 5: The Home Office Enforcement Referral Review Committee Had

Limited Success in Fulfilling Its Mission .......................................................

Recommendation 7 .................................................................

Appendices

Appendix I: Acronyms/Abbreviations. ..........................................................

Appendix II: Scope and Methodology...........................................................

Appendix III: Criteria.....................................................................................

Appendix IV: List of Recommendations .......................................................

Appendix V: Management’s Comments .......................................................

Appendix VI: OIG Response to Management’s Comments..........................
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

ix

Charts

Chart 1: SEC Regional Offices’ Satisfaction With Enforcement ..................

Chart 2: Examiners Dissatisfied With Enforcement (by Year) .....................

Chart 3: Percentage of Examiners Who Believe That Enforcement Is 

Overly Concerned With Number of Cases or Statistics, by Regional Office

Chart 4: Percentage of Examiners Seriously Concerned About Ongoing 

Wrongdoing Where Enforcement Action Was Not Satisfactory or No 

Referral Was Made .....................................................................................

Chart 5: Method Used to Provide Examination-Related Referral ................

Chart 6: Formal Policies and Procedures for Providing Enforcement 

Referrals......................................................................................................

Chart 7: Follow-Up With Enforcement After the Referral Was Provided .....

Chart 8: Enforcement Communications for Actions Taken or Not Taken ....

Tables 

Table 1: OCIE Regional Offices’ Referrals to Enforcement (FY 2006–FY 

2010) .........................................................................................................

.......8 

... 9 

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.20

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... 2 

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OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

1 

Background and Objectives 

Background 

The mission of the Office of Compliance Inspections and Examinations (OCIE) is 

to conduct and coordinate the nationwide examination program for entities over 

which the U.S. Securities and Exchange Commission (SEC or Commission) has 

regulatory authority. These include broker-dealers, investment advisers, 

investment companies, transfer agents, nationally recognized statistical rating 

organizations, clearing agencies, and self-regulatory organizations (SRO). OCIE 

has examination staff located in Washington, D.C., New York, Boston, 

Philadelphia, Chicago, Denver, San Francisco, Los Angeles, Miami, Atlanta, Fort 

Worth, and Salt Lake City.11 

While conducting inspections and examinations, OCIE staff review the books and 

records of regulated entities, conduct interviews with management and firm 

employees, and analyze the entity's operations.12 One goal of the examination 

or inspection is to determine if the registrant is in compliance with federal 

securities laws and regulations.13 When examination staff identify 

noncompliance with securities laws or internal control weaknesses, the registrant 

is generally provided with a deficiency letter asking that it take steps to remediate 

the deficiencies and provide a written response. When the registrant's 

noncompliance or internal control failures are considered serious, such as when 

the staff believes that investor funds or securities are at risk, the staff may refer 

the matter to the Division of Enforcement (Enforcement). Enforcement then 

determines whether to investigate the matter further and, ultimately, whether to 

recommend an enforcement action to the Commission. Each year, cases 

against regulated entities constitute a significant portion of the Commission's 

enforcement actions. Many of these cases are derived from the OCIE

examination program's referrals to Enforcement. Examinations of broker-dealers 

may also be referred to the appropriate SRO for further investigation.14 

As shown in table 1, OCIE has provided over 1,100 examination-related referrals 

over the past five years, from fiscal year (FY) 2006 through FY 2010. The total 

number of examination referrals in each FY ranged from 198 in FY 2008 to 272 

in FY 2010. 

 

11 Examinations by the Securities and Exchange Commission Office of Compliance Inspections and 

Examinations, February 2010, p. 1. 12 Id., p.12. 13 Id. 14 Id., p. 18.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

2 

Table 1: OCIE Regional Offices’ Referrals to Enforcement (FY 2006–FY 

2010)

Source: OCIE.

STARS Enforcement Referrals Examination Report. The Office of Inspector 

General (OIG) found that OCIE keeps track of its referrals in the Super Tracking 

and Reporting System (STARS), a computerized tracking system, and generates 

a referrals report that contains such information as the examined entity, lead 

examiner, matter under inquiry (MUI) opened date, MUI number, and comments 

related to the status of the referral. 

Examination Referrals Process. On November 8, 2006, OCIE and

Enforcement issued joint guidance for the processing and tracking of 

examination-related referrals.

15 The memorandum emphasized the importance of 

ensuring that a record existed for all examination referrals that were either

accepted or declined by Enforcement (or accepted and later closed) and the 

reasons why Enforcement accepted or declined the examination referral. The 

memorandum covered the following aspects of the referrals process: 

Making a Referral. The memorandum stated that referrals from 

examinations to Enforcement are generally made via a memorandum from 

examination staff (generally at the assistant or associate level) to 

Enforcement staff (generally to the associate, or to the deputy directors of 

Enforcement in headquarters) and should be made using the standardized 

Enforcement Referral Cover Memo. The memorandum stated that 

Enforcement and examination staff should discuss the referral, including 

its strengths and weaknesses, any novel or unique issues, and whether 

the violation is one that should be highlighted to the industry. The 

memorandum also encouraged consultation with staff in the Division of 

Investment Management (IM) and Division of Market Regulation (now the 

 

15 Memorandum for Field Office Heads and Associates for Enforcement and Examinations, Tracking 

Examination Referrals and Investigations Generated from Referrals, Nov. 8, 2006.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

3 

Division of Trading and Markets [TM]) for insight on referrals involving 

novel fact patterns and/or applications of the law. 

Regional Office Referral Committees. The memorandum stated that all 

regional offices should establish referral committees consisting of at least 

one senior examination staff member and one senior Enforcement staff 

member, with additional membership roles assigned as needed.16 The 

memorandum stated that regional office referral committees would have 

the responsibility of assessing and tracking the status of referrals made 

from the office’s examination staff to the office’s Enforcement staff. 

Additional responsibilities of the regional office referral committees would 

include ensuring that Enforcement and examination staff systems contain 

consistent and accurate information about the status or disposition of open

referrals and discussing the status of examination referrals previously 

made to Enforcement and potential examination referrals. 

Accepting Referrals. The memorandum stated that at the time 

Enforcement accepted a referral from the examination unit, the 

Enforcement supervisor or attorney should communicate with the 

examination staff making the referral to inform them that the referral was 

accepted. Additionally, the Enforcement staff person should provide the 

following information to the examination staff person: 

• whether an MUI or investigation has been opened (including the 

date the MUI or investigation was opened and MUI or investigation 

number);

17 

• a list of Enforcement contacts assigned to the MUI or investigation

and their telephone numbers. 

Following receipt of this information, the examination staff member should 

update STARS with the MUI or investigation number and Enforcement

contact information. In the event a MUI or investigation is opened at a 

later date, Enforcement staff should provide the examination staff with the 

updated information so the examination staff can update STARS. In 

situations where the local Enforcement group is unable to pursue the 

referral due to resource constraints, Enforcement staff should work with 

senior management to identify another Enforcement group to pursue the 

referral. The Enforcement staff should notify the examination staff of the 

other Enforcement group that will investigate the referral, as well as 

 

16 The memorandum provided that one useful function the referral committees could provide was to discuss 

from an Enforcement perspective the types of referrals that are likely to be investigation or result in an 

Enforcement recommendation to the Commission. 17 Upon receipt of a referral, the Enforcement attorneys will generally open a Matter under Inquiry (MUI) 

which may subsequently lead to an investigation. In certain instances, Enforcement may proceed by 

opening a formal investigation and bypassing the MUI stage.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

4 

provide the information described above, so the examination staff can 

update STARS.18

Memorandum. The memorandum stated that in instances where the 

Enforcement staff determined that a referral does not warrant opening a 

MUI or decide not to pursue a referral beyond the MUI stage, the 

Enforcement staff should prepare a brief memorandum explaining the 

declination or closing. This memorandum should be provided to the 

referring examination staff, as well as to the Home Office Enforcement 

Referral Review Committee,

19 whose goal was to examine trends in the 

examination referrals process. The committee was to review referrals 

where the reason for not pursuing a referral was based on resource 

constraints and to determine if assignment to another Enforcement office 

or group was possible.20

Timing. The memorandum provided that decisions on whether to pursue a 

referral must be made within 60 days of the referral. If a decision is made 

not to investigate the referral, a memorandum describing the reasons for 

not pursuing the referral should be prepared and sent to the relevant 

review committee(s), with a copy to examination staff who made the 

referral, within 30 days after the decision to decline or close the matter. In 

a case where an examination referral is declined, the memorandum

should be sent to the examination staff no later than 90 days after the date 

of the referral. 

The memorandum further stated that it was the policy of examination staff 

to send a deficiency letter in all examinations. However, if Enforcement

staff have concerns about the possibility of destruction of documents or 

other such issues, they can request that a deficiency letter not be sent. In 

such instances, communication with examination staff should occur 

promptly upon receipt of the referral. 

Closing and Investigation. The memorandum noted that occasionally a 

closing memorandum prepared in connection with an investigation 

resulting from a referral focuses on the issues tackled in an investigation 

but does not reference the possible violations that gave rise to the referral. 

To address this issue, the memorandum directed that closing memoranda 

be sent to the referring examination staff and the Home Office 

Enforcement Referral Review Committee, and should address the 

essential points of the referral.

 

18 Currently, the Office of Market Intelligence (OMI) should update the TCR system to reflect the 

reassignment.

19 The Home Office Enforcement Referral Review Committee consisted of two interdivisional committees to 

review referrals from the examination program to Enforcement (one for broker-dealer/transfer agent referrals 

and one for investment advisor/investment company referrals). 20 Based on testimonial evidence from discussions with management.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

5 

SEC OIG’s Stanford Report of Investigation. On March 31, 2010, the SEC 

OIG issued a report of investigation entitled Investigation of the SEC’s Response 

to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme (OIG526). The OIG found that the SEC’s Fort Worth regional office had been aware 

since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme. The 

investigation also discovered that after a series of OCIE examinations of the 

Stanford Group Company (Stanford’s registered investment advisor) in which 

each examination concluded that the likelihood of a Ponzi scheme or similar 

fraud existed, the SEC’s Fort Worth Enforcement unit did not take significant 

action to investigate or stop such potential fraud until late 2005. The OIG 

investigation found that SEC-wide institutional influences within Enforcement did 

factor into its repeated decisions not to undertake a full and thorough 

investigation of Stanford, notwithstanding staff awareness that the potential fraud 

was growing. The OIG investigation found that senior Fort Worth officials 

perceived that they were being judged on the numbers of cases they brought, socalled “stats,” and communicated to the Enforcement staff that novel or complex 

cases were disfavored. As a result, cases like Stanford, which were not 

considered “quick-hit” or “slam-dunk” cases, were not encouraged. 

U.S. Senate Banking Committee Hearing. On September 22, 2010, the U.S. 

Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the 

SEC’s investigation and response to Robert Allen Stanford’s alleged Ponzi 

scheme. The committee heard testimony from SEC officials about the Stanford 

matter and sought information concerning the steps the agency was taking to 

prevent future financial frauds and restore investor confidence. Then–Committee 

Chairman Christopher J. Dodd (D. Conn) expressed concern that there may be 

other instances in which Enforcement did not pursue cases identified by regional 

office examiners because of the perception that SEC headquarters in 

Washington was only interested in stats and “quick hit” cases.21 Chairman Dodd 

asked the Inspector General, “[W]ere there other matters that are now showing 

up nationwide that were, quote, ‘novel or more complex cases’...that were not 

brought, because they were novel or complex and did not fit into that...slam dunk 

or quick hit?”22 Chairman Dodd requested that the OIG conduct a review to 

determine if the concerns noted in the OIG Stanford report in the Fort Worth 

regional office existed in other SEC regional offices.

Objectives 

The overall objective of the audit was to determine whether and to what extent 

OCIE examiners were frustrated in matters other than Stanford where 

 

21 U.S. Congress, Senate, Committee on Banking, Housing, and Urban Affairs, Oversight of the SEC 

Inspector General’s Report on the “Investigation of the SEC’s Response to Concerns Regarding Robert 

Allen Stanford’s Alleged Ponzi Scheme” and Improving SEC Performance, Sep. 22, 2010, Federal News 

Service, Inc. (Lexis-Nexis), p. 11. 22 Id. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

6 

Enforcement did not pursue cases identified by examiners in the SEC regional 

offices. Other audit objectives were the following: 

• Determining if Enforcement has taken appropriate and sufficient action to 

address referrals received from OCIE examination staff in the SEC 

regional offices. 

• Determining if problematic trends exist where appropriate action was not 

taken based on an OCIE referral and where improvements are needed 

and best practices can be identified to enhance the OCIE examination 

referral process in the SEC regional offices.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

7 

Findings and Recommendations 

Finding 1: In Response to the OIG Survey 

Issued to OCIE Staff, Most Examiners

Expressed Satisfaction With Enforcement 

The majority of examiners expressed satisfaction with how 

Enforcement handled their examination referrals.

In order to elicit information concerning whether and to what extent OCIE 

examiners in regional offices were frustrated that Enforcement was not pursuing 

their examination referrals adequately, the OIG sent an electronic survey to OCIE 

examiners in SEC regional offices concerning their level of satisfaction with 

actions taken by Enforcement upon receiving examination referrals. The survey 

was also intended to determine if examiners felt that a heavy emphasis on 

statistics and “quick hit” cases might be influencing whether or not Enforcement

attorneys in their respective regional offices accepted referrals from the 

examination unit. The OIG launched its survey on November 19, 2010, sending 

it to over 700 OCIE staff in SEC regional offices. The survey was deployed for a 

two-week period that ended on December 3, 2010. During this period, a total of 

446 respondents began the survey and 337 (75.6 percent) completed it. The 

OIG survey had 23 questions, including several open-ended questions that

allowed respondents to comment freely about a variety of issues related to the 

Enforcement referrals process. Notable survey results are summarized in this 

section. 

Examiners in Regional Offices Are Generally Satisfied With Enforcement. 

The OIG survey found that examiners across the SEC regional offices are 

generally satisfied with their Enforcement attorney counterparts. For example, 

the OIG found that the majority of regional office’s survey respondents indicated 

that they are either “Completely Satisfied” or “Somewhat Satisfied” with actions 

taken by Enforcement in response to examination-related referrals. As shown in 

chart 1, the OIG found that when combining the responses for “Completely

Satisfied” and “Somewhat Satisfied” for respondents, the majority of SEC

regional offices had a level of satisfaction ranging from 70 to 87 percent. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

8 

Chart 1: SEC Regional Offices’ Satisfaction With Enforcement

Source: OIG. 

The OIG found a strong level of general satisfaction with Enforcement’s 

responses. Some examiners, however, expressed dissatisfaction in particular 

instances about Enforcement’s declining a referral or, in their view, taking too 

long to make a decision. We received several comments expressing this view, 

including the following two: 

Generally, I have been very satisfied with Enforcement's 

response to referrals. However, it's disappointing when a 

referral ultimately is not pursued. 

[I’m] generally satisfied as most referrals are taken or at 

least seriously considered. However, investigative action is 

sometimes slow and does not always result in Enforcement 

action. Also, in a couple instances, informal referrals were 

declined.

The OIG also found that some respondents believed that Enforcement declined 

their referral due to increased litigation risk because the examination-related 

referral was considered very complex and highly technical or because the 

amount of investor harm was too small. 

Other respondents indicated that a lack of support from within the SEC’s policymaking divisions (the Division of Investment Management and the Division of 

Trading and Markets) for the examination referral might have led Enforcement 

not to accept the referral. This perspective was reflected in the following 

comments from respondents: 

We are constantly told by OCIE and IM staff that valuation is 

a risk area, yet when we see valuation issues at a firm we 

don't get backing or support from IM Chief Counsel's office 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

9 

and/or Enforcement to properly investigate. 

Enf is still working the matter. We provided good evidence, 

local enf agreed, conferred with Investment Management in 

DC who initially supported the case but then changed their 

mind about what evidence it would take to get approval for 

formal action. The case has languished since.

We requested that respondents who were dissatisfied (either somewhat or 

completely) with Enforcement to indicate the year during which the dissatisfaction 

occurred. The majority of these respondents indicated dissatisfaction during the 

period FY 2006 through FY 2009. As shown in chart 2, for each FY from 2006 

through 2009, 25 to 35 respondents indicated that they were dissatisfied with 

Enforcement concerning referrals made during that year. This number 

dramatically dropped for FY 2010, with only 15 respondents indicating that they 

had experienced dissatisfaction during that year. 

Chart 2: Examiners Dissatisfied With Enforcement (by Year)

Source: OIG. 

Respondents Indicated That the New Asset Management Unit Is More 

Likely to Accept Referrals. According to survey respondents, one of the factors 

that has recently helped with Enforcement’s acceptance rate of referrals is the 

division’s newly created Asset Management Unit. Enforcement created the 

Asset Management Unit in 2010. The unit focuses on investigations involving 

investment advisors, investment companies, hedge funds, and private equity 

funds.

23 Some examiners indicated that the Asset Management Unit is more 

willing to take on referrals that were typically denied in the past. For example, 

one respondent stated the following:

Some exams are not referred because of real and/or 

perceived Enforcement resource constraints. There are 

 

23 SEC Release No. 2010-5; “SEC Names New Specialized Unit Chiefs and Head of New Office of Market 

Intelligence.” See http://www.sec.gov/news/press/2010/2010-5.htm. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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10

exams we would have liked to have referred for recidivist 

conduct, potentially unsuitable sales to seniors, and lack of 

compliance program, however, because the lack of client 

harm or difficulty in proving unsuitable sales to seniors who 

have signed disclosure forms, referrals are not made. In the 

past, unless Enforcement was gift wrapped a referral, it was 

hard to get them to take it...However, this has gotten better 

since the establishment of the Asset Management group in 

Enforcement. It would be very beneficial if the exam staff 

had the power to levy a fine or censure.

Perception That Enforcement Is “Overly Concerned” With Statistics. The 

OIG found that the large majority of examiners did not know whether or did not 

believe that Enforcement will only take referrals that involve high dollar value 

amounts and referrals where a case can easily be brought against the violator. 

As shown in chart 3, the majority of SEC regional office examiners noted that 

they did not know whether or did not believe that Enforcement was overly 

concerned with statistics and the number of cases brought. 

Chart 3: Percentage of Examiners Who Believe That Enforcement Is Overly 

Concerned With the Number of Cases or Statistics, by Regional Office

Source: OIG. 

Some survey participants did believe that Enforcement had been particularly 

concerned with dollar thresholds in the past. For example, one respondent 

stated the following:

Prior to Madoff they were concerned by the number of cases 

brought. Now, there are so many, they do not need to worry 

about this "stat." The driving force behind deciding to bring 

an action continues to be whether the action merits 

additional resources or whether there is too much "litigation 

risk." 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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11

In addition, some survey respondents indicated that certain types of violations 

and fraud schemes are easier for Enforcement to pursue. For example, we 

received the following comment: 

Sometimes it appears that Enforcement prefers to work 

cases that can be resolved in a shorter amount of time, such 

as misappropriation and ponzi schemes, and does not like to 

work regulatory cases that are more difficult to prove – even 

though these type of cases may have more far reaching 

impact on the securities industry.

Other respondents indicated that certain actions by management in evaluating 

performance of attorneys has set the foundation in their mind that statistics are 

the primary metric used to gauge performance and that management may revere 

quantity over quality. For example, one respondent stated the following:

While our office seems to espouse that it is quality over 

quantity that counts, every year the summary reports 

emphasize statistics - # of MUI, # of actions, # of TROs... 

They even go so far as to break it down by # of actions per 

attorney] and other such stats to demonstrate their 

efficiency. To improve these stats they have to focus on 

simple, open and shut cases.

Differing Missions of OCIE and Enforcement. Through discussions with 

management, the OIG discovered that sometimes tension may arise in the 

referrals process due to the differing missions and focuses of OCIE and 

Enforcement. Specifically, OCIE focuses its efforts on assessing whether SEC 

registrants are in compliance with securities laws, while Enforcement’s mission is 

to protect investors and the markets by investigating potential violations of 

securities laws and litigating the SEC’s enforcement actions.

24 In many cases, 

the compliance and examination function may not identify outright fraud but will 

find indicators that fraud or serious violations exist. Some examiners have 

expressed the view that where there are indicators but no outright evidence of an 

existing fraud, Enforcement may be reluctant to pursue the matter and 

investigate if it might be difficult to quickly recapture funds for harmed investors. 

Some examiners also stated that examination staff may feel pressure to identify 

deficiencies because they believe that OCIE puts a heavy emphasis on the 

number of significant findings. The pressure may be originating from use of a 

risk-based examination approach that targets riskier firms for examination, which 

in theory would produce more findings and deficiencies. For some respondents, 

this has increased the risk that some referrals may be underdeveloped and of 

lesser quality. For example, one respondent stated the following:

 

24 Securities and Exchange Commission, Division of Enforcement, Enforcement Manual, Office of Chief 

Counsel, February 8, 2011, p. 1.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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12

All of management is overly focused on statistics. That's why 

Examiners are pushed to refer cases that are undeveloped 

and Enforcement is pushed to take only those cases that will 

quickly and easily result in a case. Anything overly complex 

is problematic because we don't have the time or the 

resources to conduct a proper review.

Similarly, the following respondent expressed a concern about the quality of 

OCIE referrals to Enforcement:

.... I am concerned about the Exam program in my office’s

focus on Enforcement referrals. It seems exam management 

has figured out that no one evaluates the quality of the 

referral made (other than Enforcement saying yes or no). 

This has led to many matters being referred that probably 

should not have been. Management just seems concerned 

with getting more enforcement referrals and not having 

deference to overall Commission (Enforcement) resources. 

Overall, this creates a more dysfunctional process. It is 

makes the exam program almost like the “boy who cried 

wolf'” in that management tries to refer everything, no matter 

how serious the actual issue is. This covers exam 

management ... and inflates their statistics, at the expense 

of jeopardizing] having Enforcement accept a referral when it 

is an actual significant matter.

Although the survey results overall did not show widespread concern among 

examiners about Enforcement’s review of OCIE referrals, there were instances 

where examiners expressed dissatisfaction with Enforcement’s response to their 

referrals or with OCIE’s failure to make referrals. As shown in chart 4, the 

percentage of respondents in SEC regional offices who indicated that they had

serious concern about ongoing wrongdoing where Enforcement did not take what 

the examiner believed was satisfactory action or where a referral was never 

made to Enforcement ranged from 8 to 36 percent. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

13

Chart 4: Percentage of Examiners Seriously Concerned About Ongoing 

Wrongdoing Where Enforcement Action Was Not Satisfactory or No 

Referral Was Made

Source: OIG. 

While the percentage of examiners who expressed concern were relatively low, it 

is important for Enforcement and OCIE management to consider the specific 

situations where OCIE examiners had serious concerns that Enforcement’s

action was unsatisfactory or that a necessary referral to Enforcement was not 

made, particularly where examiners believed there is ongoing wrongdoing. 

Therefore, on March 3, 2011, the OIG provided senior management in 

Enforcement and OCIE with a total of 28 detailed comments for additional 

evaluation and consideration of potential appropriate action. 

The OIG’s review of the survey comments did not reveal any situations that the 

OIG believed warranted an immediate referral to the OIG’s investigative unit. 

The comments included allegations of wrongdoing by investment advisers, such 

as habitually overbilling clients, making false statements in SEC filings, denying 

examiners access to certain required records, and disseminating nonpublic 

information to outside sources who may have engaged in trading on that 

information.

Recommendation 1:

The Office of Compliance Inspections and Examinations (OCIE) and the 

Division of Enforcement should carefully review the information provided 

from the Office of Inspector General survey regarding the situations where 

OCIE examiners expressed serious concerns that Enforcement action was 

unsatisfactory, particularly where the examiners believed there was 

ongoing wrongdoing, and take appropriate action, including potentially 

reversing previous Enforcement decisions, as necessary.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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14

Management Comments. Enforcement and OCIE concurred with the 

recommendation. See Appendix V for management’s full comments.

OIG Analysis. We are pleased that Enforcement and OCIE have 

concurred with this recommendation.

Finding 2: Because Some Examination-Related 

Referrals Are Provided Informally, Some

Information May Not Be Captured 

OCIE sometimes presents referrals informally to 

Enforcement prior to proceeding with the formal referral 

process. As a result, there is a concern that some referralworthy matters may not be captured. 

Respondents Indicated that Informal, Oral Referrals Are A Common 

Occurrence. The standard operating procedures, as codified in the November 

2006 internal guidance for providing and tracking referrals issued by the former 

directors of Enforcement and OCIE, provided that all referrals should be made in 

writing, using the standard Enforcement Referral Cover Memo.

25 

The OIG asked survey respondents to specify the method used for providing 

referrals and found, as shown in chart 5, that the majority made their referrals 

using a formal written memorandum. However, 134 of the respondents indicated 

that they had made one or more referrals by means of an “informal, verbal 

discussion” with Enforcement. 

During the audit, the OIG selected a sample of 30 examination-related referrals 

and tested whether the referral was provided in a written, formal memorandum in 

accordance with Enforcement/OCIE policy. Five of the 30 referrals in our sample

did not have evidence that OCIE provided a written referral to Enforcement. An 

additional 5 of the 30 referrals were provided via e-mail and the standard 

Enforcement memorandum was not utilized. In several other cases, the only 

evidence of the referral was the record of the referral listed in the STARS 

Enforcement Referrals Examinations Report, which is intended to track whether 

a referral has been accepted or declined by Enforcement. 

 

25 Memorandum for Field Office Heads and Associates for Enforcement and Examinations, Tracking 

Examination Referrals and Investigations Generated from Referrals, November 8, 2006, page 2.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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Chart 5: Method Used to Provide Examination-Related Referral

Source: OIG Generated

When a referral is provided orally or through a short e-mail, it may not have all 

the required pertinent information. Therefore, there is risk that Enforcement will 

not obtain all the necessary information required to fully analyze the referral and 

determine if an investigation should be commenced. There is also risk that the 

referral will not be adequately tracked. 

 

Recommendation 2:

The Office of Compliance Inspections and Examinations (OCIE) and the 

Division of Enforcement should take appropriate actions to enforce the 

policy in all the regional offices that all OCIE referrals be made in writing 

using the standard Enforcement Referral Cover Memorandum or an 

equivalent record as appropriate in light of the new Tips, Complaints, and 

Referrals system and other programmatic changes. 

Management Comments. Enforcement and OCIE concurred with the 

recommendation. See Appendix V for management’s full comments.

OIG Analysis. We are pleased that Enforcement and OCIE have 

concurred with this recommendation.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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Finding 3: Some Concerns Exist That Not All 

OCIE Referrals Are Being Made and Captured in 

the Tips, Complaints, and Referrals System 

The OIG found that management has concerns that not all 

examination referrals are being captured in the Tips, 

Complaints, and Referrals (TCR) system. As a result, there 

is a risk that not all referrals will be tracked in the 

agencywide TCR system.

The New TCR System. In March 2010, the interim TCR system was launched 

and has since served as the SEC’s repository for all tips, complaints, and 

referrals, including referrals provided by OCIE to Enforcement.

26 Each regional 

office has a TCR system point of contact responsible for entering referrals into 

the TCR system. Examination referrals are reviewed for issues or conflicts with 

current, ongoing Enforcement investigations or actions. However, given its

interim state, the system is currently unable to generate all the necessary reports 

desired by management to determine if referrals were properly handled.

The SEC launched the new TCR system in 2010 with a goal of enabling the 

newly formed Office of Market Intelligence (OMI) to serve as a “super-user” in 

reviewing and triaging tips, complaints, and referrals reported to various SEC 

divisions and offices to identify recidivists and to help assign tips, complaints, and 

referrals to investigators. OMI was formed to analyze tips according to internallydeveloped risk criteria as well as SEC priorities, and to utilize the expertise of the 

SEC's other divisions, offices, and specialized units to help analyze the tips and 

identify wrongdoing.

27 OMI “is responsible for the collection, analysis, and 

monitoring of the hundreds of thousands of tips, complaints, and referrals that the 

SEC receives each year.”

28

High Acceptance Rate May Be Skewed. Although responses to the OIG

survey indicated that the most common response or action taken by Enforcement 

upon receiving a referral from OCIE was the opening of a MUI and a subsequent 

formal investigation, we found that (1) there is some concern that not all referrals 

are being made and captured in the TCR system and (2) certain data may be 

skewed to give the impression that there is a higher acceptance rate for referrals. 

Further, we found that in some cases referrals are made only after internal, 

informal discussions between OCIE and Enforcement have determined that the 

likelihood of acceptance by Enforcement is high. For example, one survey 

respondent stated the following:

 

26 Referrals that OCIE provides to an outside SRO (e.g., the Financial Industry Regulatory Authority) are 

also captured in the TCR system.

27 SEC Press Release 2010-05, SEC Names New Specialized Unit Chiefs and Head of New Office of 

Market Intelligence,” January 13, 2010, page 2. See http://www.sec.gov/news/press/2010/2010-5.htm. 28 Id., page 1.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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This happens on a somewhat regular basis. Our referral 

acceptance rate is probably quite high because in IA/IC 

[investment adviser/investment company] regulation, we will 

only "refer" something after we have talked with 

Enforcement and they have decided to accept it. For exams 

that we would like Enforcement to take, but they decide not 

to, they often just will not be referred and no Enforcement 

Memo will be written. It would put the exam staff in a better 

position to refer the exams it deems worthy, and let 

Enforcement decide to decline the referral if they deem that 

to be the best course of action. Several exams the staff 

would like to refer to Enforcement are not brought to 

Enforcement's attention based on the Associate in 

Regulation determining that the matter is too small, the harm 

not large enough, or Enforcement does not have the 

resources, or some other mitigating factor that does not 

result in a referral to Enforcement from the Exam staff. There 

were supposed to be, I believe, regular meetings between 

Enforcement and Regulation. I do not know whether these 

occur. There was also supposed to be a group in D.C. that 

would take cases in the regional office staff did not have 

resources. I do not know whether this was ever used. A lot of 

these are judgment calls, but I would like to see us refer 

exams without an agreement from Enforcement that they will 

accept it. Rather we should refer what we feel is worthy.

Another respondent stated the following:

In all cases of referrals, I first speak with Enforcement's 

Associate RD [regional director] who is responsible for 

considering and assigning referrals. If he is interested, we 

write up a referral.

Not All Referrals Are Being Captured in the TCR System. The chief of OMI 

expressed concern to the OIG that not all TCR-worthy referrals are being 

captured in the TCR system because of the processes in place in various 

regional offices that may influence which referrals are actually recorded in the 

TCR system and referred to Enforcement. For example, a regional director may 

have concern that certain referrals are not going to be accepted by the 

Enforcement unit due to resource constraints and may request that the referral 

not be captured in the TCR system to avoid the risk of having large numbers of 

outstanding referrals. The OMI chief stated that variations in office policies for 

processing referrals may contribute to certain disparities in the types of referrals 

being recorded in the TCR system. For example, potential referrals presented 

orally to a regional referral committee may not reach the TCR system if the 

committee rejects them and directs that they not be pursued. He further 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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wondered whether incentives and metrics were appropriate to ensure that TCRworthy referrals are actually recorded in the TCR system and passed along to 

Enforcement. 

We determined that the TCR system is a work in progress. OCIE now has 

procedures (issued June 2010) and updated guidance (issued August 2010) for 

handling and processing examination referrals to Enforcement.

29 After 

completing fieldwork for this audit, the OIG learned that the new TCR Intake and 

Resolution system was deployed on March 14, 2011.30 The updated policy 

requires that all referrals to Enforcement from the examinations program be 

uploaded into the TCR system. 31 Vetting with local regional Enforcement should 

not factor into which referrals are loaded into the system.32 However, 

management remains concerned that the vetting process with regional 

Enforcement units may be influencing the referrals that are being received by 

OMI. OMI acknowledges that policies related to the tracking and processing of 

referrals are in place; however, detailed procedures are needed to ensure that 

the policies are adhered to by the regional offices. Up to this point, OMI has 

primarily seen examination referrals provided in the TCR system indicating that 

the regional Enforcement attorneys have accepted the referral and would like 

OMI to assign it back to the regional office that submitted the referral. There 

have been virtually no instances of examination referrals that were submitted to 

the TCR system that the regional Enforcement units did not take, despite the fact 

that such denials are common. There has also been a lack of examination 

referrals provided in the TCR system that have been rejected by Enforcement. 

The OIG performed a comparison of the examination referrals in the TCR 

repository against the examination referrals listed in the STARS Enforcement

Referral Report (i.e., the universe of referrals) for FY 2010 to determine whether 

all referrals identified by the examination staff were forwarded and captured in 

the TCR system. We found that not all referrals listed in the STARS 

Enforcement Referral Report were listed in the examination referrals in the TCR 

system. For example, in the Boston regional office, there were six broker-dealer 

examination referrals identified from the STARS Enforcement Referral Report. 

Of the six referrals, only two were found in the TCR system. Additionally, in the 

Chicago regional office, we found that there were six broker-dealer examination 

referrals identified from the STARS Enforcement Referral Report. Of the six 

referrals, only four were entered into the TCR system. 

 

29 OCIE, Procedures for Handling Tips, Complaints, and Referrals, version 2.0, June 9, 2010, and Aug.17, 

2010, e-mail from OCIE associate director regarding Enforcement referrals from examination staff and the 

TCR repository. 30 SEC Administrative Notice: Tips, Complaints and Referrals (TCR) Intake and Resolution System 

Implementation, Mar. 13, 2011. 31 OCIE, Procedures for Handling Tips, Complaints, and Referrals version 2.0, June 9, 2010, and Aug. 17, 

2010, e-mail from OCIE associate director regarding Enforcement Referrals from examination staff and the 

TCR repository. 32 Based on testimonial evidence from discussions with management.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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Recommendation 3:

The Office of Compliance Inspections and Examinations (OCIE) should 

issue policy or guidance requiring OCIE examiners in regional offices to

formally refer all significant matters to Enforcement, not merely the 

matters that Enforcement has already decided to accept.

Management Comments. OCIE concurred with the recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OCIE has concurred with this 

recommendation.

Recommendation 4:

The Office of Compliance Inspections and Examinations (OCIE) should 

take appropriate actions to enforce its policy in all the regional offices that 

all OCIE referrals be uploaded into the TCR system regardless of whether 

Enforcement has accepted the referral.

Management Comments. OCIE concurred with the recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OCIE has concurred with this 

recommendation.

Finding 4: Tracking of Referrals Could Be 

Improved Through Better Communication and 

Information Sharing 

The level of communication between OCIE and Enforcement

after a referral has been provided is not always consistent in 

the regional offices. As a result, a number of referrals in 

STARS leave examiners with little information to ascertain 

the current status of the referral.

Respondents Are Not Aware of Internal Policies and Procedures. The 

majority of respondents indicated that they did not know if their regional office or 

OCIE had issued formal, written policies and procedures for handling and 

processing Enforcement referrals that were provided by the examination staff. 

As shown in chart 6, our survey data show that 68 percent of the respondents 

indicated that they did not know whether formal policies existed in FY 2006. Our 

survey data suggest that there have been some improvements in communicating 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

20

internal policies; however, even in FY 2010, almost half of respondents indicated 

that they were unaware of any formal policies. 

 Chart 6: Formal Policies and Procedures for Providing Enforcement

 Referrals

 Source: OIG. 

Some Respondents Indicated Their Own Lack of Follow-Up with 

Enforcement Subsequent to Providing Referrals. The OIG requested survey 

respondents to indicate if, after providing a referral to Enforcement, they sought 

information on the status of referrals from Enforcement. The majority of 

respondents indicated that they reached out to attorneys in Enforcement

subsequent to providing referrals; however, we found that there was some 

disparity at the regional office level. As shown in chart 7, 80 percent or more of 

respondents in the San Francisco, Los Angeles, Fort Worth, Boston, and Denver 

offices responded that they followed up after the referral was provided. In 

contrast, only 45 to 55 percent of examiners in the Atlanta, Chicago, and Miami

offices indicated that they followed up with Enforcement subsequent to providing 

a referral. 
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 Chart 7: Follow-Up With Enforcement After the Referral Was Provided

 Source: OIG Generated

Some survey respondents indicated that they had followed up with Enforcement

after providing the referral because Enforcement requested their involvement 

with the investigation for the referred matter. For example, the OIG learned that

some examiners were asked to be involved in legwork for the investigation, 

including organizing and locating documents, participating in testimony, and 

answering questions posed by the Enforcement attorneys. However, the OIG 

found that some respondents expressed frustration in their attempts to connect 

with Enforcement to gather information on the status of referred matters. A 

number of respondents indicated that communication with attorneys to obtain the 

status of referred matters is limited in their regional office to supervisors and that 

they are discouraged from communicating directly with Enforcement attorneys. 

Respondents Indicated That Enforcement Did Not Always Communicate 

the Reason for Actions Taken or Not Taken. A sizable number of respondents 

indicated that they were unaware of the reason for actions taken or not taken by 

Enforcement upon receiving an examination referral; however, there was a 

considerable disparity across the regional offices. For example, while more than

70 percent of survey respondents in the San Francisco, Denver, and Fort Worth 

regional offices stated that Enforcement communicated the reasons for actions 

taken or not taken upon receiving the examination referral, approximately 50

percent or less of respondents in the Atlanta, Miami, New York, and Philadelphia 

regional offices stated that Enforcement provided the reasoning behind its 

actions related to the referral.

In addition, based on testimonial evidence obtained from select survey 

respondents, we found that in some cases, decisions to refer or not refer matters 

to Enforcement were made by senior-level examiners; however, line-level 

examiners who worked on the examinations that identified potential matters for 

referral to Enforcement were not informed of the reasons behind actions taken or 

not taken in response to the matters referred. 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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As shown in chart 8, the majority of respondents indicated that there was 

communication from Enforcement regarding the reason for actions taken or not 

taken. However, we found there was a wide disparity in responses to this survey 

question among the regional offices. For example, 89 percent of the 

respondents in the San Francisco office indicated that Enforcement

communicated its reasons for actions taken or not taken upon receiving the 

referral, while only 38 percent of the respondents in the Philadelphia office 

acknowledged that such communication occurred for matters referred.

 Chart 8: Enforcement Communications for Actions Taken or Not Taken

 Source: OIG Generated

Lack of Interface Between OCIE and Enforcement Systems. OCIE and 

Enforcement use different systems to track referrals, and these systems currently 

do not interface with each other. Our audit found that the examiners keep a 

repository of their referrals in STARS and that Enforcement tracks its 

investigations in its HUB system. STARS contains information about all referrals 

provided to Enforcement, but it does not always include the status of the referral. 

The HUB system only includes the status of referrals for matters that have been 

accepted by Enforcement and when an MUI or investigation has been opened. 

Thus, examiners who do not have access to the HUB are unaware of the current 

status of their referrals. 

Enforcement recently launched the new TCR system, which now serves as the 

agencywide repository for tips, complaints, and referrals, including those 

provided by the examination function. We were informed that there are plans to 

create an interface between OCIE’s examination tracking system, the HUB, and 

TCR.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

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23

Recommendation 5: 

The Office of Compliance Inspections and Examinations should ensure 

that all referrals currently in STARS are appropriately and adequately 

updated with the information in the Home Office Enforcement Referral 

Review Committee spreadsheet. 

Management Comments. OCIE concurred with the recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OCIE has concurred with this 

recommendation.

Recommendation 6: 

The Office of Compliance Inspections and Examinations and the Division 

of Enforcement should continue their efforts to establish a complete 

interface between STARS or its equivalent, the HUB, and the TCR 

system. 

Management Comments. Enforcement and OCIE concurred with the 

recommendation. See Appendix V for management’s full comments.

OIG Analysis. We are pleased that Enforcement and OCIE have 

concurred with this recommendation.

Finding 5: The Home Office Enforcement

Referral Review Committee Had Limited 

Success in Fulfilling Its Mission 

The Home Office Enforcement Referral Review Committee

was established as an integral piece of the overall oversight 

of the referrals process; however, the lack of full cooperation 

from some regional offices limited its ability to bring more 

transparency and consistency to Enforcement decisions to 

pursue referrals. 

Home Office Enforcement Referral Review Committee. The Home Office 

Enforcement Referral Review Committee was established with the initial goal to

examine trends in the examination referrals process.33 The committee consisted

of senior staff from OCIE, Enforcement, IM, and TM. Subsequent to the 

issuance of guidance for tracking referrals issued on November 8, 2006, a 

 

33 Based on testimonial evidence from discussions with management. 
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24

reconciliation process to track referrals was established. Toward the end of 2007 

and in the beginning of 2008, the reconciliation of outstanding referrals began on 

a quarterly basis. 

The process started with the generation of a STARS report that identified all new 

examination referrals for each regional office since the last quarter. OCIE staff 

on the Home Office Enforcement Referral Review Committee looked through the 

STARS report for referrals where information (e.g., Enforcement assignee, MUI 

number) indicated that the referral was outstanding and had not yet escalated to 

the point of a formal, ongoing investigation. The information from the STARS 

report was exported into an Excel file and separated in worksheet tabs for each 

regional office. The information compiled in the spreadsheet was subsequently 

handed off to the Home Office Enforcement Referral Review Committee so that it

could follow up with the regional office to obtain a status update on the referrals. 

Enforcement requested the regional offices to provide information on the status 

of the referrals, which often consisted of printouts of the status report from the 

HUB, declination memoranda or closing memoranda, an Excel spreadsheet 

created by the regional offices, or an e-mail summarizing the status of the 

referrals identified for the regional office in the reconciliation.

If a declination memorandum was provided from the regional office, the members 

of the Home Office Enforcement Referral Review Committee examination team 

would analyze the content and substance of the memorandum to assess the 

reasonableness of the decision to decline the referral. In certain instances, if the 

committee believed that the explanation did not appear to justify a declination of 

a referral, the committee would provide the declination memorandum to 

Enforcement to facilitate further consideration. Enforcement’s reasons for 

declining referrals ranged from dollar values associated with the securities 

violations that did not merit the use of Enforcements resources, uncertainties 

regarding jurisdiction over the parties or issues involved in the matter, or

existence of an ongoing examination or investigation by another party (an SRO

or U.S. Attorney’s office) of a party or issue identified in the referral. 

OIG Compliance Testing Results. The OIG selected 30 referrals from OCIE’s

examination referrals report and tested for compliance with the internal 

procedures for handling and tracking referrals. We found that upon initial review 

of the information in the STARS Enforcement Referral Report and other 

supporting documents received for each referral in our sample, we were unable 

to ascertain the current status of 10 of the 30 referrals in our sample because no 

MUI number or Enforcement investigation number was listed in the STARS 

Enforcement Referral Report or we did not receive a declination memorandum

indicating that Enforcement had declined the referral. Staff from OCIE and 

Enforcement researched the referrals in our sample for which we were initially 

unable to ascertain the current status and provided additional information to the 

OIG, including the associated MUI number and HUB case report for the referrals 

that had lead to investigations (both active and closed) and a current status 
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

25

update for referrals that were declined, externally referred, or pending 

acceptance by Enforcement. 

Further, we tested whether declined referrals were sent to the Home Office 

Enforcement Referral Review Committee for possible reassignment to another 

SEC regional office if the reason stated for declining by the regional Enforcement

unit was limited resources.34 The OIG found no instances where such referrals 

were sent to the Home Office Enforcement Referral Review Committee for 

reassignment due to resource constraints.

The OIG also tested whether referrals were sent to the Home Office Enforcement 

Referral Review Committee for possible subsequent review for declined referrals 

related to investment advisor/investment company examinations. We found that 

with the exception of those from the Atlanta office, no declination memoranda

were provided to the Home Office Enforcement Referral Review Committee for 

review.

35 

A Number of Outstanding Referrals Still Exist. Home Office Enforcement 

Referral Review Committee members observed disparity in the level of detail 

provided by regional offices. Only a few regional offices that provided declination 

and closing memoranda to the Home Office Enforcement Referral Review 

Committee on a regular basis. The staff identified Atlanta as an example of a 

regional office that did provide frequent updates on the status of referrals. 

However, the large majority of regional offices did not provide declination or 

closing memoranda to the Home Office Enforcement Referral Review Committee

on a regular basis. 

The OIG found that no referral updates had been received from the New York

regional office or the Los Angeles regional office.36 The OIG also found that a 

number of the regional offices had referrals listed in the spreadsheet dating back 

to 2007 that did not have a status indicating whether or not the referral was 

accepted by Enforcement. For example, the OIG found that the New York 

regional office had seven referrals from Examinations occurring in 2008 that did 

not indicate whether the referral had been accepted, declined, or referred 

externally. The longer that these referrals remain outstanding with no update 

regarding the outcome, the greater the risk that securities violations or fraud 

 

34 See Memorandum for Examination and Enforcement Program Managers, Communications About 

Enforcement Referrals, July 31, 2007. This memorandum stated that when referrals are declined due to a 

lack of resources, efforts should be made to locate another Enforcement group to handle the referral and 

that the new regional referral committees should facilitate these communications. It also encouraged the 

regional office committees to communicate directly with the relevant headquarters Enforcement referral 

review committee whenever there might be a close call.

35 From review of the log of declination memoranda reviewed by the Home Office Enforcement Referral 

Review Committee, the OIG found that a total of only two memoranda were reviewed in 2006, five were 

reviewed in 2007, six were reviewed in 2008, three were reviewed in 2009, and two were reviewed in 2010. 

The overwhelming majority that were reviewed were from the Atlanta Regional Office. 36 The OIG also obtained the September 2009 reconciliation and noted that updates were provided in

previous reconciliations by the Los Angeles Regional Office and the New York Regional Office.
OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

26

could continue to persist without an investigation being initiated to bring action 

against such violations or fraud. 

In addition, few formal meetings of the Home Office Enforcement Referral 

Review Committee regarding the reconciliation occurred in the last year.37 In 

November 2010, OCIE issued guidance stating that declination memoranda 

would no longer be required since the TCR system would capture the reasons a 

referral was declined.38 

Recommendation 7: 

The Office of Compliance Inspections and Examinations and the Division 

of Enforcement should determine what will be the future of the Home 

Office Enforcement Referral Review Committee. If the committee will not 

continue, they should ensure that its responsibilities are carried out by 

another office or group that will oversee the referral process and track 

outstanding referrals in a meaningful way. 

Management Comments. Enforcement and OCIE have concurred with 

the recommendation. See Appendix V for management’s full comments.

OIG Analysis. We are pleased that Enforcement and OCIE have 

concurred with this recommendation.

 

37 We understand that a successor committee to the Home Office Enforcement Referral Review Committee

that includes OCIE and Enforcement staff meets regularly to discuss OCIE referrals to Enforcement.. 38 E-mail dated Nov. 29, 2010, from OMI to OCIE assistant director regarding “Policies on OCIE referrals to 

Enforcement.” 
Appendix I 

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493

27

Acronyms/Abbreviations

Enforcement Division of Enforcement

IM Division of Investment Management

MUI Matter under Inquiry

OCIE Office of Compliance Inspections and 

Examinations

OIG Office of Inspector General

OMI Office of Market Intelligence

SEC or Commission Securities and Exchange Commission

SRO Self-Regulatory Organization

STARS Super Tracking and Reporting System

TCR Tips, Complaints, and Referrals 

TM Division of Trading and Markets
Appendix II

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 28

Scope and Methodology

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. 

We determined that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Scope. Our scope for this audit covered all examination referrals provided by 

the regional examination function to regional Enforcement for the period from FY 

2006 through FY 2010. Our audit did not include a review of referrals provided 

by OCIE (examination headquarters in D.C.). Our audit covered information 

contained in the examination unit’s STAR system and Enforcement’s HUB 

system and TCR system to gain an understanding of referrals provided by the 

examination unit to the Enforcement unit. Our audit included distributing a 

survey to staff employed in OCIE in SEC regional offices. The survey requested 

their responses concerning referrals provided to Enforcement for the period from 

FY 2006 through FY 2010. The OIG launched its survey on November 19, 2010, 

sending it to over 700 OCIE staff in SEC regional offices. The survey was 

deployed for a two-week period and closed on December 3, 2010. During this 

period, a total of 446 respondents began the survey and 337 (75.6 percent) of 

employees completed the survey. The OIG survey consisted of 23 questions. 

We conducted our fieldwork from October 2010 to February 2011. 

Methodology. To accomplish our overall audit objective of determining whether 

and to what extent OCIE examiners were frustrated in matters other than 

Stanford, we obtained and reviewed policies for providing and tracking 

examination referrals that were issued jointly by OCIE and Enforcement. 

Additionally, to determine if Enforcement has taken appropriate and sufficient 

action to address referrals received from OCIE examination staff in the SEC’s

regional offices, we identified the universe of examination referrals provided to 

Enforcement for the period FY 2006 to FY 2010 and selected a sample for 

testing compliance with Enforcement’s policies and procedures for handling 

referrals from the examination unit. To meet the objective of determining if 

examiners were frustrated in matters other than the Stanford case and to 

ascertain whether problematic trends existed where appropriate action was not 

taken based on an OCIE referral, we launched an electronic survey to elicit 

feedback from OCIE examiners in SEC regional offices to determine the level of 

satisfaction with actions taken by Enforcement upon receiving referrals from the 

examination function. The survey was also intended to determine if examiners 

felt that Enforcement attorneys in their respective regional office were concerned 

that heavy emphasis on statistics and quick hit cases might be influencing 

whether or not Enforcement accepted referrals from the examination function. 
Appendix II

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 29

We further followed up on responses we received from the survey by contacting 

the survey respondents.

Internal Controls. During our audit, the OIG reviewed internal controls that 

related to our audit objectives. The OIG obtained OCIE’s summary of key 

internal supervisory controls and reviewed management’s internal assessment of 

its key controls and activities. The OIG found that management did not identify 

any significant deficiencies in internal supervisory controls as of September 30, 

2010. 

Use of Computer-Processed Data. We relied on information contained in the 

STARS Enforcement Referral Examinations Report as the universe of OCIE 

referrals in SEC regional offices. The OIG performed testing of the accuracy of 

the STARS Enforcement Referral Examination Report by comparing information 

for a sample of referrals from the report against the referral memoranda, 

information contained in the associated examination reports, and Enforcement 

case reports. 

 

Judgmental Sampling. OCIE provided us with a list of all examination referrals 

generated for the period FY 2006 through FY 2010. The universe of examination 

referrals totaled 1,148 for all the SEC’s regional offices and headquarters. We 

judgmentally selected 30 referrals from across the SEC regional offices and 

across the FYs within our scope, excluding the referrals from headquarters for 

our sample selection. In addition, our selection was made to ensure that

referrals were representative of the various entities under OCIE’s oversight, such 

as broker-dealers, investment advisors, investment companies, and transfer 

agents. Further, we selected a few items in our sample based on examination 

referrals identified by respondents in our survey distributed to examination staff in 

SEC regional offices. We did not try to project the results of the referral samples 

from the regional offices to the entire population, as we did not utilize statistical 

sampling techniques.

For our comparison of reports in STARS and the TCR system for examination 

referrals captured and recorded in FY 2010, we examined referrals from 6 of the 

SEC’s 11 regional offices. We did not try to project the results of the referral 

samples from the regional offices to the entire population, as we did not utilize 

statistical sampling techniques.

Prior Audit Coverage. 

• Compliance Inspection and Examination Referrals to Enforcement, OIG 

Report No. 322, June 28, 2001.
Appendix III

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 30

Criteria

Memorandum for Field Office Heads and Associates for Enforcement and 

Examinations, Tracking Examination Referrals and Investigations 

Generated from Referrals, November 8, 2006. Internal policy document

intended to facilitate the tracking of examination referrals and ensure that there is 

a record of all examination referrals that are both accepted and declined by 

Enforcement (or accepted and later closed), and the reasons why. 

Office of Compliance Inspections and Examinations (OCIE) Procedures for 

Handling Tips, Complaints, and Referrals, version 2.0, June 9, 2010. 

Internal policy document intended to guide the entering of tips, complaints, and 

referrals into the Commission’s interim TCR system and define the roles and 

responsibilities of all examination staff with respect to TCRs.

Memorandum for Examination and Enforcement Program Managers, 

Communications About Enforcement Referrals, July 31, 2007. Internal 

policy document issued jointly by Enforcement and OCIE concerning

communications about Enforcement referrals from examinations.
Appendix IV

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 31

List of Recommendations

Recommendation 1:

The Office of Compliance Inspections and Examinations (OCIE) and the Division 

of Enforcement should carefully review the information provided from the Office 

of Inspector General survey regarding the situations where OCIE examiners 

expressed serious concerns that Enforcement action was unsatisfactory, 

particularly where the examiners believed there was ongoing wrongdoing, and 

take appropriate action, including potentially reversing previous Enforcement 

decisions, as necessary.

Recommendation 2:

The Office of Compliance Inspections and Examinations (OCIE) and the Division 

of Enforcement should take appropriate actions to enforce the policy in all the 

regional offices that all OCIE referrals be made in writing using the standard 

Enforcement Referral Cover Memorandum or an equivalent record as 

appropriate in light of the new Tips, Complaints, and Referrals system and other 

programmatic changes. 

Recommendation 3:

The Office of Compliance Inspections and Examinations (OCIE) should issue 

policy or guidance requiring OCIE examiners in regional offices to formally refer 

all significant matters to Enforcement, not merely the matters that Enforcement 

has already decided to accept.

Recommendation 4:

The Office of Compliance Inspections and Examinations (OCIE) should take 

appropriate actions to enforce its policy in all the regional offices that all OCIE 

referrals be uploaded into the Tips, Complaints, and Referrals system regardless 

of whether Enforcement has accepted the referral.

Recommendation 5: 

The Office of Compliance Inspections and Examinations should ensure that all 

referrals currently in STARS are appropriately and adequately updated with the 

information in the Home Office Enforcement Referral Review Committee 

spreadsheet. 
Appendix IV

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 32

Recommendation 6: 

The Office of Compliance Inspections and Examinations and the Division of 

Enforcement should continue their efforts to establish a complete interface 

between the Super Tracking and Review System (STARS) or its equivalent, the 

HUB, and the Tips, Complaints, and Referrals system. 

Recommendation 7: 

The Office of Compliance Inspections and Examinations and the Division of 

Enforcement should determine what will be the future of the Home Office 

Enforcement Referral Review Committee. If the Committee will not continue, 

they should ensure that its responsibilities are carried out by another office or 

group that will continue to oversee the referral process and track outstanding 

referrals in a meaningful way. 
Appendix V 

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 33

Management’s Comments

MEMORANDUM

TO: David Kotz

Inspector General, Office of Inspector General

FROM: John H. Walsh --'"", oJ

Associate Director - Chief Counsel, Designated Audit Liaison for the Office of

Compliance Inspections and Examinations

CC: Carlo di Florio

Director, Office ofCompliance Inspections and Examinations

RE: Office ofCompliance Inspections and Examinations' Response to the Office of

Inspector General's Report, Regional Offices Referrals to Enforcement

DATE: March 24, 2011

I. Introduction

The Office ofCompliance Inspections and Examinations ("OCIE") submits this memorandum in

response to the Office ofInspector General's ("OIG") draft report entitled "Regional Offices

R~rerrals to Enforcement" ("Report"). Thank you for the opportunity to respond to the Report.

Let me also express our appreciation for the professional courtesy extended by you and your

staffduring the audit.

We are pleased that your audit found that examiners across the SEC regional offices are

generally satisfied with their Enforcement attorney counterparts and intend to continue to work

with the Division ofEnforcement ("Enforcement") to further strengthen our collaboration and

coordination.

You have requested that we indicate whether we "concur" or "non-concur" with each

recommendation. We "concur" with all of your recommendations. However, one ofthe

recommendations (Recommendation 6) directed to OClE and Enforcement will require the

deployment ofsignificant resources. In this case we have indicated that we agree with the

recommendation, but note that it will not be completed until the necessary resources become

available. Otherwise, we state that we "concur" and describe how we intend to implement your

recommendation.

II. RecomJnendations Directed to OCIE

Recommendation 1: The Office ofCompliance Inspections and Examinations (OCIE) and the

Division ofEnforcement should carefully review the information providedfrom the OIG survey

regarding the situations where OelE examiners expressed serious concerns that Enforcement

action was unsatisfactory, particularly where the examiners believed there was ongoing
Appendix V 

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 34

wrongdoing, and take appropriate ac/ion, including. potentially reversing previous Enforcement

decisions. as necessary.

aCIE concurs with this recommendation. We are in the process ofreviewing the infonnation

provided to us by the Inspector General's Office on March 3. 20 11. We have reached out to

I-egional office management, where appropriate, and they have begun to prepare an Action Plan

to address the findings and enhance collaboration and coordination between examiners and

Enforcement staff. In addition, to address this recommendation, aCl£ intends to continue our

review ofthe infonnation provided and anticipates reaching out to Enforcement to discuss the

situations provided to us.

Recommendation 2: The Office ofCompliance Inspections and Examinations (OCIE) and the

Division ofEnforcement should take appropriate actions to enforce its policy in all the regional

offices that all OCIE referrals be made in writing using the standard Enforcement Referral

Cover Memorandum or an equivalent record as appropriate in light ofthe new TCR system and

other programmatic changes.

OCIE concurs with this recommendation and agrees that an ocrn referraJs to Enforcement

should be made in writing. OCIE's revised TCR policies dated March 8, 2011 implement an

equivaJent record ofreference, in that they state that an examination referrals should be made to

Enforcement via !he TCR system. SpecificallY,!he policy reads: "[ilf an OCIE examination

results in a referral to Enforcement it will be entered into the TCR System..... The policies also

state that the TCR will include the examination number, the examination report. and the

enforcement referral memorandum (if applicable).

Recommendation 3: The Office ofCompliance InspectiOns and Examinations (OCIE) should

issue policy or guidance requiring OCIE examiners in regional offices to formally refer all

significant matters to Enforcement, not merely the matters that Enforcement has already decided

to accept.

acrE concurs with this recommendation. We agree that all examination referrals, not just those

!hat Enforcement has already decided to accept, should be referred to Enforcement. OClE will

issue guidance to examination program management highlighting examiners' responsibilities

under aCrE's revised TCR policy dated March 8,2011 to enter all referrals to Enforcement into

!he TCR system.

Recommendation 4: The Office ofCompliance Inspections and Examinations (OCIE) should

take appropriate actions to enforce its policy in all the regional offices that all OClE referrals be

uploaded into the TCR system regardless ofwhether Enforcement has accepted the referral.

OCIE concurs with this recommendation. As noted in our response to Recommendation 2

above, aCrE's current TCR policy provides !hat all OCIE referrals should be uploaded into !he

TCR system. aCrE will develop a process to review referrals for compliance with these

procedures_
Appendix V 

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 35

Recommendation 5: The Office qfCompliance Inspections and Examin.ations should ensure that

all referrals currently in the STARS system are appropriotely and adequately updated with the

information in the Home Qffice Enforcement R~rerral Review Committee spreadsheet.

OCIE concurs with this recommendation. We agree that past referrals currently in the STARS

system should be updated with the appropriate MUI or investigation number and contact

information (if applicable) currently available in the Home Office Enforcement Referral Review

Committee spreadsheet. -

With respect to examination referrals to Enforcement, going forward, the TCR system will

capture the examination numbers, Enforcement's decision to accept or decline the referral, and if

applicable, the MUr or investigation number. The TCR system will be able to track the status of

examination referrals that are entered into the system. We will discuss with the Office ofMarket

Intelligence the possibility of creating a report that tracks all outstanding referrals from the

examination program.

Recommendation 6: The Office ofCompliance Inspections and Examinations and the Division

ofEnforcement should continue its efforts and establish a complete interface between the STARS

system or its equivalent, the HUB and the TCR system.

OCIE concurs with this recommendation. Establishing an interface between the STARS system

or its equivalent, the HUB, and the TCR system is a priority for OCrE, but will not be completed

within this fiscal year due to lack oftechnology resources. We will continue to work with

Enforcement and the Office ofInforrnation Technology to establish this interface as resources

become available.

Recommendation 7: The Office ofCompliance Inspections and Examinations and the Division

ofEnforcement should determine what will be the future ofthe Home Qtfice Referral Review

Committee. Ifthe Committee will not continue. they should ensure that the responsibilities are

still carried out by another office/group. Such office or group shall continue to conduct

oversight ofthe referral process and track outstanding referrals in a meaningful way.

OClE concurs with this recommendation and agrees that a committee formed to oversight the

referral process, made up ofOCrE and Enforcement staff, would provide a valuable service to

the examination program. OCIE and Enforcement have fonned a successor committee to the

Home Office Referral Review Committee and its members will meet regularly to discuss OCrE

referrals to Enforcement. We are working with Enforcement to define the roles and

responsibilities ofthe committee. Additionally, as previously noted, OClE and Enforcement will

be able to track outstanding referrals in the agency's TCR System.
SE

UNITED STATES

CURITIES AND EXCHANGE COMMISSION

100 F Street, N.E.

Washington, DC 20~49

DIVISION OF.

ENFORCEMENT

Appendix V 

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 36 

MEMORANDUM

TO: H. David Kotz, Inspector General, Office oflnspector General

FROM: Robert S. Khuzami, Directo

RE: Division ofEnforcement's Response to the Office ofInspector General's Rep

on Audit No. 493, OClE Regional Ofjices Referrals to Enforcement .

DATE: March· 28,. 2011

r@

ort

I. Introduction

The Division ofEnforcement ("Enforcement") submits this memorandum in response to the draft

report ofthe Office oflnspector General ("OIG") on OIG Audit No. 493 entitled "OCIE

Regional Offices Referrals to Enforcement" ("Report"). We appreciate the opportunity to

respond to the.Report.

You requested that our response indicate whether we "concur or do· not concur" with the

recommendations. Certain ofthe recommendations are directed only to OCIE. With respect to

those recommendations, we therefore defer to OCIE's response, and stand ready to assist OCIE

as appropriate. We "concur" with the various recommendations directed to Enforcement.

II. Recommendations Directed to Enforcement

Recommendation 1: The Office ofCompliance inspections and Examinations (OCIE) and the

Division ofEnforcement should carefully review the information providedfrom the OIG survey

regarding the situations where OCIE examiners expressed serious concerns that Enforcement

action was unsatisfactory, particularly where the examiners believed there was ongoing

wrongdoing, and talee appropriate action, including, potentially reversing previous Enforcement

decisions. as necessary.

Enforcement concurs with this recommendation, and is in the process ofreviewing the abovereferenced infonnation provided by the OIG to OeIE and Enfoccement on March 3, 2011.

Enforcement anticipates coordinating its review, and any additional work, with OCIE to ensure

that we continue to undertake coordinated efforts in response to OCIE referrals to Enforcement.
Appendix V 

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 37

Recommendation 2: The Office ofCompliance Inspections and Examinations (OCIE) and the

Division ofEnforcement should take appropriate actions to enforce its policy in all the regional

offices that all OCIE referrals be made in writing using the standard Enforcement Referral

Cover Memorandum or an equivalent record as appropriate in light ofthe new TCR system and

other programmatic changes.

Enforcement concurs with this recommendation and supports the joint policy ofOCIE and

Enforcement that all OCIE referrals to Enforcement should be made in writing. Enforcement

understands that OCIE recently revised its TCR policies, dated March 8,2011, to state that all

examination referrals should be made to Enforcement via the TCR System. The TCR System

currently provides a mechanism for examination staffto provide written comments, along with

identifying information such as the examination number and report, with each exam referral

made to Enforcement.

Recommendation 6: The Office ofCompliance Inspections and Examinations and the Division

ofEnforcement should continue its efforts and establish a complete interface between the STARS

system or its equivalent, the HUB and the TCR system.

Enforcement concurs with this recommendation; however we recognize that implementation of a

system interface requires extensive infonnation technology resources that the agency currently

does not possess. Establishing an interface between the STARS system or its equivalent, the

HUB, and the TCR system is a priority for Enforcement, but will not be completed within this

fiscal year due to lack oftechnology resources. We will continue to work with OCIE and the

Office ofInformation Technology to establish this interface as resources become available.

Recommendation 7: The Office ofCompliance Inspections and Examinations and the Division

ofEnforcement should determine what will be the future ofthe Home Office Referral Review

Committee. Ifthe Committee will not continue, they should ensure that the responsibilities aTe

still carried out by another office/group. Such office or group shall continue to conduct

oversight ofthe referral process and track outstanding referrals in a meaningfUL way.

Enforcement concurs with this recommendation and agrees that a centralized committee

comprised of aCIE and Enforcement stair-formed to review exam referrals would be of value to

the referral process. Enforcement and OCIE are in the process ofestablishing a successor

committee to the Home Office Referral Review Committee. The successor committee will

regularly review and discuss OClE referrals~ as well as regional office exam referrals. We are

currently working with OCIE to define the roles and responsibilities ofthe successor committee.

We believe that this mechanism for review of examination referrals will enhance the

collaboration between DelE and Enforcement, and assist each division in achieving

programmatic goals.

2
Appendix VI

OCIE Regional Offices’ Referrals to Enforcement March 30, 2011

Report No. 493 

Page 38

OIG Response to Management’s Comments

We are pleased that OCIE and Enforcement have concurred with all of the 

report’s 7 recommendations. We are also pleased that OCIE and Enforcement

intend to work together to address the recommendations that require a joint effort 

for implementation, such as the creation of a system interface between OCIE’s 

STARS application or its equivalent, Enforcement’s HUB system, and the TCR 

system. We encourage OCIE and Enforcement to make available the necessary 

resources to undertake this effort which will significantly improve information 

sharing throughout the referrals process. We believe that the swift 

implementation of all of our recommendations will result in significant 

improvements to the enforcement referrals process and will ensure that all 

referral-worthy matters are appropriately captured and tracked. 

Once all the recommendations are fully implemented, we believe that the

resulting improvements will also help to strengthen oversight of the enforcement 

referrals process in the SEC’s regional offices.
Audit Requests and Ideas

The Office of Inspector General welcomes your input. If you would like to 

request an audit in the future or have an audit idea, please contact us at

U.S. Securities and Exchange Commission

Office of Inspector General

Attn: Assistant Inspector General, Audits (Audit Request/Idea)

100 F Street, N.E.

Washington D.C. 20549-2736

Tel. #: 202-551-6061

Fax #: 202-772-9265

Email: oig@sec.gov

Hotline 

To report fraud, waste, abuse, and mismanagement at the SEC, 

contact the Office of Inspector General at

Phone: 877.442.0854

Web-Based Hotline Complaint Form:

www.reportlineweb.com/sec_oig