**GAO-10-448R**                      Published: Apr 22, 2010. Publicly Released: Apr 22, 2010.                  

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## Highlights

The Securities and Exchange Commission's (SEC) primary mission is to protect investors and maintain the integrity of securities markets. As a part of its responsibility to protect investors, SEC seeks to ensure that individuals who violate federal securities laws and regulations take responsibility for their misdeeds. Specifically, when individuals or firms are found to have violated securities laws, SEC may order civil monetary penalties and seek ill-gotten financial gains, or disgorgement, from the violators. For its enforcement actions to be successful, SEC must have a collection and distribution program for both civil monetary penalties and disgorgement that functions effectively. In 2002, Congress passed the Sarbanes-Oxley Act to address corporate malfeasance and restore investor confidence in the U.S. securities markets. This legislation established numerous reforms to increase investor protection, including Section 308(a), the Federal Account for Investor Restitution provision, commonly known as the Fair Fund provision. This provision allows SEC to combine civil monetary penalties and other donations to disgorgement funds for the benefit of investors who suffer losses resulting from fraud or other securities violations. Fair Funds may be created through either SEC administrative proceedings or litigation in U.S. District Court, and either SEC or the courts may administer the funds. However, SEC is responsible for general monitoring of all Fair Funds created, reinforcing the need for SEC to have an effective collection and distribution program for both civil monetary penalties and disgorgement so that additional funds collected as a result of the Fair Fund provision can benefit harmed investors. In 2007, SEC created the Office of Collections and Distribution (OCD) to manage the collection of penalties and disgorgement, including Fair Funds, and speed the process of returning funds back to harmed investors. We have issued a number of reports on SEC's Fair Fund program and made a number of recommendations designed to help SEC improve the Fair Fund program management and internal controls. For example, in 2005, we recommended that SEC ensure that management establish a procedure for consistently collecting and aggregating its Fair Fund data to assist in the monitoring and managing of the distribution of monies to harmed investors and establish measures to evaluate the timeliness and completeness of distribution efforts. In 2007, we recommended that SEC establish and implement a comprehensive plan for improving the management of the Fair Fund program, to include (1) staffing the new central Fair Fund office, defining its roles and responsibilities, and establishing relevant written procedures and (2) ensuring the consistency of and analyzing final accounting reports on completed Fair Fund plans. In 2009, we recommended that SEC, to help ensure effective and efficient operation of OCD, consider an alternative organizational structure and reporting relationship for the office. SEC generally has agreed with our recommendations. We have previously reported that SEC continues to make refinements and improvements in many areas but that some recommendations designed to further strengthen their data collection efforts remain open. Because of your interest in ensuring that SEC effectively manages its resources and enforces compliance with securities laws and regulations, you requested that we follow up on our previous work, including updating the information on the status of Fair Funds presented in our 2007 report and SEC's progress in implementing our recommendations related to OCD. Accordingly, this study examines (1) the status of Fair Fund collections and distributions and (2) the actions that SEC has taken to address our previous recommendations regarding SEC's OCD. On March 15, 2010, we briefed staff from your office on the results of this work. This report summarizes the information provided during that briefing.

## Full Report

Full Report (34 pages)

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## GAO Contacts

A. Nikki Clowers
clowersa@gao.gov

(202) 512-4400

## Office of Public Affairs

Sarah Kaczmarek
kaczmareks@gao.gov

(202) 512-4800

## Topics

Financial Markets and Institutions

AccountabilityData collectionDebt collectionDocumentationFederal regulationsFinancial markets regulationFines (penalties)FraudFunds managementGovernment collectionsGovernment information disseminationInternal controlsLossesMonitoringPerformance measuresProgram managementSecuritiesSecurities regulationSecurity policy violationsUse of fundsCompliancePolicies and procedures