a

GAO

United States Government Accountability Office

Report to Congressional Requesters

August 2005 SEC AND CFTC 

PENALTIES

Continued Progress 

Made in Collection 

Efforts, but Greater 

SEC Management 

Attention Is Needed

GAO-05-670
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-670. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Richard J. 

Hillman at (202) 512-8678 or 

hillmanr@gao.gov. 

Highlights of GAO-05-670, a report to 

congressional requesters 

August 2005

SEC AND CFTC PENALTIES 

Continued Progress Made in Collection 

Efforts, but Greater SEC Management 

Attention Is Needed 

In response to GAO’s previous recommendations, SEC has taken positive 

steps to improve its tracking of collection data, such as discontinuing its use 

of an unreliable tracking system, modifying its existing Case Activity 

Tracking System (CATS) to capture financial data, and establishing a policy 

for improved data entry. GAO’s review of 45 cases tracked in CATS revealed 

that SEC complied with its policy for improved data entry, a step that 

contributes to improving the overall reliability of SEC’s collection data. 

However, GAO identified additional actions that SEC can take to enhance 

CATS’s usefulness for key users, such as attorneys, collection monitors, and 

case management specialists in the Division of Enforcement. SEC is 

currently addressing this issue through a multiyear effort to 

comprehensively upgrade CATS. Agency officials estimate that the upgrade, 

which will be completed in phases, will be fully complete in 2008. 

SEC has also addressed some previous recommendations made to 

strengthen management of its collection program, such as increasing its 

collection staff and referring eligible delinquent cases to the Department of 

the Treasury’s (Treasury) Financial Management Service (FMS) on a timely 

basis. However, SEC must take further steps to address other 

recommendations designed to enhance management’s evaluation of program 

performance. During this review, GAO identified new issues that warrant 

SEC management attention. For example, although SEC has increased the 

number of staff devoted to collection efforts, the agency has neither 

developed a method to ensure that adequate and consistent supervision is 

provided to them, nor has it formally assessed whether its additional 

resources are being used effectively. SEC also has not developed a 

procedure by which to ensure that two key units, both responsible for 

tracking collection activity, are effectively communicating and coordinating 

with one another. 

Since implementing Section 308(a) of the Sarbanes-Oxley Act of 2002, 

(commonly known as the Fair Fund provision), SEC has instructed its staff 

to aggressively use the provision and estimates designating over $4.8 billion 

for return to harmed investors as a result of the provision’s enactment. 

However, to date, only a small amount of the funds have been distributed. 

According to SEC, distribution is often a lengthy process that can be further 

complicated by external factors such as a pending criminal indictment on 

the violator. GAO also found that SEC lacked a reliable method by which to 

identify and collect data on Fair Fund cases. SEC took action to address this 

issue, but efforts were still in their early stages. SEC has yet to analyze the 

data it has collected in order to fully determine the provision’s effectiveness 

in returning an increased fund amount to harmed investors. 

CFTC implemented both recommendations from previous GAO reports 

related to controls over fingerprinting procedures and timely referral of 

eligible delinquent cases to Treasury’s FMS. 

The Securities and Exchange 

Commission (SEC) and Commodity 

Futures Trading Commission 

(CFTC) impose penalties, 

disgorgements, and restitution on 

proven and alleged violators of the 

securities and futures laws, 

respectively. GAO has issued a 

number of previous reports on 

agency collection efforts and made 

numerous recommendations for 

improvement. 

This report follows up on open 

issues from the previous reports 

and (1) discusses SEC’s progress in 

improving its tracking of penalty 

and disgorgement collection data, 

(2) assesses the steps SEC has 

taken to improve collection 

program management, (3) 

evaluates SEC’s implementation of 

the Fair Fund provision in the 

Sarbanes-Oxley Act of 2002, and 

(4) describes CFTC’s actions to 

address previous GAO 

recommendations. 

What GAO Recommends

In this report, GAO makes six 

recommendations to SEC, three of 

which are designed to ensure that 

collection staff members have the 

necessary tools and support and 

are used effectively, and the other 

three are designed to ensure that 

SEC’s collection program meets its 

goal of deterring securities law 

violations and returning funds to 

harmed investors. SEC agreed with

these recommendations. 
Page i GAO-05-670 SEC and CFTC Penalties

Contents

Letter 1

Background 3

Results in Brief 9

SEC Has Made Progress in Improving the Accuracy and Usefulness 

of Data It Collects, but Continued Attention Is Needed 12

SEC Has Made Progress in Managing Its Collection Program but 

Needs to Take Further Steps 15

SEC Emphasizes Its Commitment to Implementing the Fair Fund 

Provision but Has Been Slow in Distributing Funds and Assessing 

Results 28

CFTC Has Added Controls to Fingerprinting Procedures and Begun 

Making Timely Referrals to FMS 32

Conclusions 33

Recommendations for Executive Action 34

Agency Comments and Our Evaluation 35

Appendixes

Appendix I: Objectives, Scope, and Methodology 37

Appendix II: CFTC’s Penalty and Restitution Collection Rates 42

Appendix III: Comments from the Securities and Exchange Commission 44

Appendix IV: GAO Contact and Staff Acknowledgments 47

Tables Table 1: Types of Remedies Available for SEC and CFTC 

Violations 5

Table 2: Status of Recommendations Related to SEC’s Management 

of its Collection Program from 1998 to 2003 GAO 

reports 16

Table 3: SEC’s Collection Rates for CMPs Levied on All Cases and 

Closed Cases Only, September 2002– December 2004 23

Table 4: SEC’s Collection Rate for Disgorgement Levied on All 

Cases and Closed Cases Only, September 2002–December 

2004 24

Table 5: CFTC’s Collection Rates for CMPs Levied on All Cases and 

on Closed Cases Only, September 2002–December 2004 42

Table 6: CFTC’s Collection Rate for Restitution Levied on All Cases 

and on Closed Cases Only, September 2002–December 

2004 43
Contents

Page ii GAO-05-670 SEC and CFTC Penalties

Figure Figure 1: Overview of SEC’s Case Tracking Process 6

Abbreviations

CATS Case Activity Tracking System

CFTC Commodity Futures Trading Commission

CMP civil monetary penalties

CMS case management specialist

DCIA Debt Collection Improvement Act of 1996 

DPTS Disgorgement Payment Tracking System

FBI Federal Bureau of Investigation

FMS Financial Management Service

GAAP generally accepted accounting principles

MUI Matters Under Inquiry

NASD National Association of Securities Dealers

NFA National Futures Association 

NYSE New York Stock Exchange

OCIE Office of Compliance Inspections and Examinations

OIG Office of Inspector General

OIT Office of Information Technology

OMB Office of Management and Budget

OFM Office of Financial Management

PCA Private Collection Agency

SEC Securities and Exchange Commission

SOX Sarbanes-Oxley Act of 2002

SRO self-regulatory organizations

TOP Treasury Offset Program

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Page 1 GAO-05-670 SEC and CFTC Penalties

United States Government Accountability Office

Washington, D.C. 20548

A

August 31, 2005 Letr

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce

House of Representatives

The Honorable Barney Frank

Ranking Minority Member

Committee on Financial Services

House of Representatives

The Honorable Paul E. Kanjorski

Ranking Minority Member

Subcommittee on Capital Markets, Insurance,

 and Government Sponsored Enterprises

Committee on Financial Services

House of Representatives

The Securities and Exchange Commission’s (SEC) primary mission is to 

protect investors and maintain the integrity of the securities markets. 

Similarly, the Commodity Futures Trading Commission (CFTC) protects 

market users and the public from fraud, manipulation, and abusive 

practices related to the sale of certain commodity interests, including 

futures and options. As a part of their responsibility to protect investors, 

the agencies seek to ensure that individuals who violate federal securities 

or futures laws and regulations take responsibility for their misdeeds.1

 For 

their enforcement actions to be successful, however, both agencies must 

have collection and distribution programs that function effectively. 

In 2002, Congress passed the Sarbanes-Oxley Act (SOX) 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 

(CMP) and disgorgement amounts collected in enforcement cases to 

1

For purposes of this report, the term “securities law” has the meaning as ascribed to such 

term in Section 3(a)(47) of the Securities Exchange Act of 1934, as amended, and the term 

“futures laws” refers to the Commodity Exchange Act, as amended. 
Page 2 GAO-05-670 SEC and CFTC Penalties

establish a fund for the benefit of victims of securities law violations. 

Disgorgement is a remedy designed to deprive defendants of their ill-gotten 

gains derived from their illegal activities. Before the law was implemented, 

any CMPs collected were remitted directly to the Department of the 

Treasury (Treasury), and only the amount of the actual disgorgement was 

available to establish a fund for the benefit of victims. The new provision 

reinforces the need for SEC to have an effective collection and distribution 

program for both CMPs and disgorgement so that additional funds 

collected as a result of the Fair Fund provision can benefit harmed 

investors.

GAO has issued a number of reports, including follow-up reports, on SEC 

and CFTC’s collection efforts and has made numerous recommendations 

designed to help the agencies optimize their collection programs.2

 Our 

previous studies have shown that each agency continues to make 

refinements and improvements in many areas but that some 

recommendations designed to further strengthen their collection efforts 

remained open. This study, responds to your requests that we reexamine 

SEC and CFTC’s actions to address 12 recommendations that remained 

open from prior studies, but focuses primarily on SEC’s activities because 

SEC handles significantly more cases than CFTC and had the majority of 

open recommendations. Specifically, this report (1) discusses SEC’s 

progress in addressing recommendations aimed at improving the tracking 

of penalty and disgorgement collection data, (2) assesses the steps SEC has 

taken to address recommendations on its management of the collection 

program and other related issues, (3) evaluates SEC’s implementation of 

the Fair Fund provision, and (4) describes the actions CFTC has taken to 

address previous recommendations.

To evaluate SEC and CFTC’s efforts to enhance their tracking of collection 

data, we conducted a case file review at SEC to test the accuracy and 

completeness of their data and reviewed CFTC’s process for tracking and 

managing its data. To obtain additional insight into each agency’s collection 

2

GAO, SEC and CFTC Fines Follow-up: Collection Programs Are Improving, but Further 

Steps are Warranted, GAO-03-795 (Washington, D.C.: July 15, 2003); SEC Enforcement: 

More Actions Needed to Improve Oversight of Disgorgement Collections, GAO-02-771

(Washington, D.C.: July 12, 2002); SEC and CFTC: Most Fines Collected, but Improvements 

Needed in the Use of Treasury’s Collection Service, GAO-01-900 (Washington, D.C.: July 16, 

2001); Money Penalties: Securities and Futures Regulators Collect Many Fines but Need to 

Better Use Industrywide Data, GAO/GGD-99-8 (Washington, D.C.: Nov. 2, 1998); and 

Securities Enforcement: Improvements Needed in SEC Controls Over Disgorgement 

Cases, GAO/GGD-94-188 (Washington, D.C.: Aug. 23, 1994).
Page 3 GAO-05-670 SEC and CFTC Penalties

program, we reviewed pertinent documents, including flowcharts, 

collection guidelines, position descriptions, court dockets, 

computer-generated documents, memorandums of understanding, and 

related laws. Further, we interviewed the appropriate management and 

staff members at SEC and CFTC on their respective agency’s collection and 

data tracking processes. We also obtained and reviewed documents on 

delinquent case referrals from Treasury’s Financial Management Services 

(FMS). To assess SEC’s efforts regarding performance measures and 

oversight of self-regulatory organizations (SRO) and SEC and CFTC’s 

fingerprinting initiatives, we interviewed key officials at both agencies 

regarding actions they were taking to address the weaknesses identified 

and reviewed relevant documents. In regard to the Fair Fund provision in 

SOX, we obtained relevant documentation and discussed SEC’s 

implementation approach with the appropriate officials. To calculate each 

agency’s penalty and disgorgement collection rate, we obtained 

information on monies ordered and collected from SEC and CFTC for the 

period beginning September 1, 2002, and ending December 31, 2004. We 

conducted our work from August 2004 to August 2005 in Washington, D.C., 

in accordance with generally accepted government auditing standards. 

Appendix I describes the objectives, scope, and methodology of our review 

in more detail.

Background SEC was created in 1934 to protect investors and maintain the integrity of 

the securities market. To accomplish its mission, the agency established 

four strategic goals: (1) to enforce compliance with federal securities laws, 

(2) to sustain an effective and flexible regulatory environment, (3) to 

encourage and promote informed investment decision making, and (4) to 

maximize the use of SEC’s resources. 

CFTC, established in 1974, performs a comparable role in the futures 

industry. Its primary mission is to protect market users and the public from 

fraud, manipulation, and abusive practices related to the sale of commodity 

futures and options and to foster open, competitive, and financially sound 

commodity futures and options markets. CFTC has set three strategic goals 

to support its mission: (1) to ensure the economic vitality of the commodity 

futures and option markets; (2) to protect market users and the public; and 

(3) to ensure market integrity in order to foster open, competitive, and 

financially sound markets. 

Both SEC and CFTC are independent agencies that have five-member 

presidentially-appointed commissions that are led by chairmen who are 
Page 4 GAO-05-670 SEC and CFTC Penalties

designated by the President. SEC and CFTC’s headquarters are located in 

Washington, D.C.; SEC has a combination of 11 regional and district offices; 

CFTC has 5 regional offices.

In keeping with its mission, each agency has a regulatory responsibility to 

protect investors by ensuring the integrity of the securities and commodity 

futures markets. Once SEC or CFTC staff conducts an investigation and 

determines that a person or company has violated the law and should be 

charged, the agency authorizes a civil suit against the alleged violator in 

federal district court or a proceeding before an administrative law judge. 

On finding that a defendant has violated securities or futures laws, the 

court or the administrative law judge can issue a judgment ordering 

sanctions such as CMPs, disgorgement, and/or restitution.3

 However, the 

agencies may decide not to seek disgorgement or restitution because it is 

found to be unwarranted—for example, if a violator did not make a profit 

from the illegal activity. Table 1 provides more information on some of the 

remedies available to a federal district court or an administrative law judge.

3

A judgment is a ruling on how much the violator should pay as a result of their misdeeds. 

CMPs are based on the “level of egregiousness” of the underlying conduct and the violator’s 

ability to pay. Disgorgement and restitution are based, respectively, on the extent to which 

the wrongdoer profited, and the victim lost as a result of the violations, and do not take into 

account ability to pay. 
Page 5 GAO-05-670 SEC and CFTC Penalties

Table 1: Types of Remedies Available for SEC and CFTC Violations

Sources: GAO analysis of SEC and CFTC data. 

a

Although restitution is available to SEC, the agency typically imposes CMPs and disgorgement.

SEC and CFTC both have collection programs and designated staff to track, 

collect, and manage CMPs and disgorgement or restitution orders. 

Specifically, as shown in figure 1, staff in SEC’s Division of Enforcement 

(Enforcement) use the Case Activity Tracking System (CATS) to track 

investigations, enforcement actions, and matters under inquiry (issues that 

have the potential to turn into investigations).4

Remedy

Available to 

SEC

Available to 

CFTC

Civil monetary penalty: A remedial measure aimed at 

deterring future misconduct. X X

Disgorgement: An equitable remedy aimed at 

preventing a wrongdoer from unjustly enriching himself 

from his wrongs; deprives violators of “ill-gotten gains” 

linked to the wrongdoing. SEC/CFTC do not have to 

prove an exact amount but must show the estimate is 

reasonable. X X

Disgorgement Fund: A fund created for the benefit of 

harmed investors from the collection of a disgorgement 

order imposed on a securities law violator. If a 

disgorgement fund is not created, the proceeds from 

disgorgement are remitted to the Treasury. X X

Fair Fund: A disgorgement fund that also includes a 

civil monetary penalty imposed on the disgorged 

violator. X

Restitution: An equitable remedy to attempt to make 

the victims whole. Requires proof of specific damages 

to the victims. Xa X

Reparation: A compensatory award to harmed 

investors in a private proceeding before CFTC hearing 

officials. X

4

CATS is not integrated with other databases at SEC but serves as a source of data for an 

agencywide search engine that staff use to perform searches on individuals or companies 

under investigation. 
Page 6 GAO-05-670 SEC and CFTC Penalties

Figure 1: Overview of SEC’s Case Tracking Process

 CMS enters 

investigation record in 

CATS and generates the 

required reports based on 

entry forms from 

Enforcement attorneys 

(i.e., case opening report; 

case closing recommendation) for the attorneys' 

review, signatures, and 

submission for 

processing.

FORM1

MUI

CATS

CMS

Initiation Investigation

STOP

Is evidence strong? If yes, 

If no, Enforcement 

attorneys initiate Matters 

Under Inquiry (MUI) after 

receiving leads (based on 

press reports, exams, 

complaints, SROs, etc.).

Settlement/litigation/

judgment

Once a party has settled, 

the CMS enters the 

outcome information into 

CATS; generates the 

audited financial forms for 

Enforcement attorneys to 

complete; and submits the 

forms and documentation 

to OFM for entry of financial information. If the debt 

becomes delinquent, the 

collection/recovery process 

begins (i.e., TOP letters; 

leins; referal to Treasury; 

etc.); the CMS coordinates 

with the Collections Monitor 

and enters the collection 

information under the Debt 

Collection section in CATS.

Note: Parties include 

defendants, respondents, 

and subjects in SEC 

enforcement actions.

Enforcement Management 

recommends civil or 

administrative action based 

on evidence (witness interviews, review of subpoenaed documents, 

etc.) 

obtained 

by staff

attorneys 

during an investigation.

Commission authorizes staff to take civil or administrative action.

CMS 

reviews 

the MUI 

form that Enforcement 

attorneys complete and enters data into CATS; within 

60 days of the MUI's opening, Enforcement attorneys 

must decide whether to 

open an investigation; SEC 

is currently in transition between the old and new MUI 

process.

On May 3, 2005, a new 

electronic system for 

opening MUIs was created. 

This new process allows 

Enforcement attorneys to 

complete a data entry form 

online and send the form 

electronically to their 

Associate Director for 

approval; once approved by 

the Associate Director, the 

MUI form is electronically 

submitted to CATS. 

Entering the data on the 

form, CATS assigns a 

number to the MUI, and the 

staff and CMS are notified 

of the newly opened MUI. 

Upon notification that the 

MUI is opened, the CMS 

reviews the data for 

accuracy, making any 

appropriate corrections.

MUI

CATS

CATS

 CMS monitors the Commission calendar 

 for approval of authorized actions. Once 

 the action is authorized, the CMS 

 contacts Enforcement attorneys for 

information needed to enter the authorized action in CATS. Upon 

filing the action, the CMS prints the appropriate audited financial 

forms and provides them to the Enforcement attorney for 

completion and submission to the Office of Chief Counsel, along 

with the appropriate documentation for review and processing.

STOP

STOP Commission can drop case due to lack of evidence.

Civil action 

(recommended)

Administrative action 

(recommended)

Civil action 

COMMISSION

AUTHORIZED

Administrative

action 

AUTHORIZED

Case

folder

CMS

1 2 3

SEC's 

Administrative 

Law Judge

or 

Federal/District 

Court Judges

Decided by: 

Judgment

Judgment

CMS

Source: GAO analysis of SEC's case tracking process.

go to
Page 7 GAO-05-670 SEC and CFTC Penalties

• Money goes to SEC/ 

 Treasury or third-party 

 receiver for distribution to 

 harmed investor, or to 

 court registry. 

• If payment comes to 

 SEC, OFM logs receipt of 

 payment in cash receipt 

 log.

• Separate OFM staff 

 person enters payment 

 from cash receipt log into 

 money paid field of CATS.

• Attorney makes decision 

 on whether to close case 

 (or keep it open due to 

 unrelated circumstances).

• Enforcement staff 

 manages the closeout 

 process in CATS.

Delinquent

CMS sends copy of Form 

2 and documentation for 

each party to OFM for 

entry into CATS. Once 

OFM has entered the 

information, CMS checks 

for accuracy. If the record 

is accurate, the CATS 

screens are printed and 

added to the file. If errors 

are found, OFM is notified 

and asked to correct the 

entries. 

Case referred to 

Collection Monitor 

(CM) 5 days after 

delinquency (case 

becomes delinquent if 

not paid by due date, 

which is typically 10 

days after the 

judgment/money is 

ordered).

Treasury Offset Program (TOP): Collection by Enforcement 

 attorneys; TOP demand letter mailed.

Judgement Recovery Plan (JRP): If case remains delinquent 

after 60 days, Enforcement attorneys draft a JRP.

CMS 

continues 

to monitor 

case.

e.g., Contempt 

proceedings, wage 

garnishments, writ 

of execution

e.g., Execution on 

real property, writ 

of garnishments, 

installment 

payment orders 

pursuant to 

FDCPA

STOP STOP Collection activities cease once money is paid. STOP

Tracking monies

ordered and collected

4 5 Collection/enforcement

OFM

Judgment

information

Money collected

CATS

CMS

CATS

CMS

CMS

OFM

In-house litigation

Disgorgement

judgments

Penalty

judgments

Refer to FMS who 

attempts collection. If FMS 

is unsuccessful, then FMS 

turns collection over to a 

private collection agency 

(PCA) and at times the 

Department of Justice for 

collection.

180

 days

60

 days

or

SEC, Courtappointed receiver, 

or Court

A B

$

$

$

Distribution of collected funds

SEC staff, or an 

external designee 

(e.g., a receiver), 

develops the 

distribution plan.

Typical steps in the distribution process:

a) Identify harmed parties.

b) Draft distribution plan.

c) Allow time for comments from Court, Commission, 

 and/or defendants.

d) Publish plan.

e) Invite claims.

f) Review and categorize claims.

g) Distribute collected funds based on the amounts

 of the claimed losses.

6 Case closed (or attorney maintains 

"open" status until all issues are resolved)

7

$

STOP

If FMS, PCA, and/or Justice are 

unsuccessful in their collection 

efforts, they will return the debt 

to the SEC as uncollectible. The 

SEC will then decide whether to 

terminate or discharge the debt. 

Once the debt is either collected, 

terminated, or discharged, the 

action can be closed.

30-60

 days
Page 8 GAO-05-670 SEC and CFTC Penalties

When a case has been delinquent for at least 10 days, SEC and CFTC staff 

can send a demand letter to a violator. The Debt Collection Improvement 

Act of 1996 (DCIA)5

 requires all federal agencies, including SEC and CFTC, 

to refer non-tax debt more than 180 days delinquent to the Secretary of the 

Treasury for purposes of centralized administrative offset. Once such a 

referral is received, Treasury’s FMS activates the Treasury Offset Program 

(TOP), under which outstanding debts, including amounts due to SEC or 

CFTC as a result of judgments or settlement agreements, are collected by 

the withholding of federal payments that the government owes the debtor, 

such as tax refunds.6

 During its collection efforts, FMS may negotiate 

compromise offers with debtors unable to pay the entire amount of a 

judgment and may accept less than the full amount if doing so is the only 

way to ensure that the violator pays at least some of the debt owed.7

 SEC 

and CFTC must approve such offers for violators under their purview and 

may reject an offer or ask for further information if the supporting 

documentation is not satisfactory.

In general, when a disgorgement fund is established, SEC attorneys can 

propose appointing a receiver to develop and administer a distribution plan 

to facilitate the collection of disgorgement and, in the case of Fair Funds, 

both CMPs and disgorgement, and the distribution of those funds to 

harmed investors.8

 Receivers act independently of SEC and defendants in 

conducting their prescribed duties. They have primary responsibility for 

establishing the distribution plan, including a description of the actions 

that will be taken to identify harmed investors, and for ensuring that the 

appropriate taxes are deducted from the monies collected. 

5

Pub. L. No. 104-134. Title III. Ch. 10. 110 Stat. 1321-358 (Apr. 26, 1996).

6

31 U.S.C. § 3716(c)(6); 31 C.F.R. § 901.3(b). With some exceptions, agencies are also 

required to transfer all non-tax debts over 180 days delinquent to FMS for purposes of debt 

collection. Administrative offset is one type of tool used for collection, therefore, the 

transferring of the debt simultaneously satisfies the referral requirement for purposes of an 

administrative offset. 31 C.F.R. § 285.12(g).

7

In many instances, the financial circumstances of violators make it unlikely that they will 

be able to pay the full amount of a judgment—for instance, some violators are jailed and are 

thus are unable to generate income, while others may have filed for bankruptcy.

8

Receivers can be appointed at any stage of the litigation process by the court to perform 

duties such as identifying and seizing assets but may also be appointed for the sole purpose 

of developing and administering the distribution plan. 
Page 9 GAO-05-670 SEC and CFTC Penalties

Before Congress passed SOX, SEC could return only funds collected from 

disgorgement to persons who had suffered financial harm from securities 

violations. However, Section 308 (a) of the act allows SEC to add CMPs to 

disgorgement funds. Section 308 (c) of the act also requires SEC to report 

on the approaches the agency used, before the Fair Fund provision, to (1) 

provide compensation to harmed investors and (2) to improve the 

collection rates for CMPs and disgorgement, in order to establish a 

benchmark for further action. 

Results in Brief SEC has made a variety of improvements to its system for tracking data on 

penalty and disgorgement collections, consistent with our previous two 

recommendations. However, the agency could take additional actions to 

improve its financial reporting controls and the usefulness of its system for 

key users. Since our last report in 2003, SEC has stopped using an 

unreliable tracking system, modified CATS to capture penalty and 

disgorgement financial data, and established and implemented a policy 

designed to make data entry into CATS more accurate. Although SEC has 

made progress in addressing data reliability concerns we had in the past, it 

must take additional steps to improve inadequate controls in the recording 

and reporting of penalty and disgorgement transactions, as discussed in 

our recent audit of SEC’s financial statements for fiscal year 2004.9

 SEC 

plans to strengthen internal controls and policies over its existing 

recording and reporting process and is beginning a multiyear project to 

replace CATS. Furthermore, we found—and SEC agreed—that it could take 

additional action to ensure that CATS better meets the needs of key users, 

such as attorneys and other collection staff. The agency is in the process of 

upgrading CATS to address the needs of a broader range of users, and 

expects the project to be complete in 2008.

SEC has taken actions addressing five open recommendations made in 

prior studies that were designed to improve some collection activities but 

has not fully addressed three remaining recommendations regarding 

management’s evaluation of program performance. Specifically, SEC has 

9

In GAO, Financial Audit: SEC’s Financial Statement for Fiscal Year 2004, GAO-05-244

(Washington, D.C.: June 25, 2005), we identified inadequate controls in the recording and 

reporting of penalty and disgorgement information related to manual procedures that SEC 

employed in transferring penalty and disgorgement data from CATS to subsidiary 

accounting ledgers. For this report, our assessment of the steps SEC has taken to improve 

the tracking of penalties and disgorgement focused on those designed to ensure the 

reliability of the initial data entered into CATS. 
Page 10 GAO-05-670 SEC and CFTC Penalties

(1) referred eligible delinquent cases to FMS in a more timely manner, (2) 

established controls for fingerprinting procedures to help prevent 

inappropriate persons from being admitted to the securities industry, (3) 

begun to review the consistency of disciplinary actions taken by SROs, (4) 

made more timely decisions on compromise offers, and (5) increased the 

number of staff devoted to ensuring timely and successful collection 

efforts.10 However, SEC is still working to address one long-standing open 

recommendation related to improving the tracking of the amounts of 

disgorgement ordered, collected, and distributed, and the appropriateness 

of receiver fees on both an aggregate and individual basis. During this 

review, we found that SEC had recently expanded its CATS database to 

begin capturing the necessary information but had yet to centrally monitor 

subsequent distribution activities. Similarly, SEC has not fully addressed an 

open recommendation that it implement alternative performance measures 

for evaluating its overall collection program. The agency continues to rely 

on its collection rate as a measure of success; however, SEC itself 

acknowledges this measure does not effectively demonstrate the 

effectiveness of its collection program. The collection rate can be 

significantly affected by factors such as the agency’s success or failure to 

collect on a few large cases. In addition, SEC has responded to an earlier 

recommendation by establishing policies and procedures to provide 

collection staff with guidance on the type, timing, and frequency of 

collection activities they should follow. Despite this, the agency has not 

effectively monitored staff’s implementation of these guidelines, partly 

because collection staff in regional offices have been supervised by 

regional managers who are not always familiar with the collection process. 

As a result, SEC management cannot readily determine whether sufficient 

and appropriate collection efforts are being made. Finally, we identified 

new concerns related to some of the changes SEC had made to its 

collection program. First, SEC does not have a formal mechanism to assess 

whether its additional collection resources are being used effectively. 

Although SEC management believes that the new resources have alleviated 

the need for staff attorneys to do some of the administrative duties related 

to collections, SEC cannot validate such benefits without more formal 

evaluation. SEC staff said that they plan to direct more attention to this 

issue once the collection program becomes more stabilized after a year of 

10In addition to SEC and CFTC oversight, the U.S. securities and futures markets are 

regulated under their respective statutes by SROs, which include the New York Stock 

Exchange (NYSE), American Stock Exchange, National Association of Securities Dealers 

(NASD), Chicago Board of Trade, Chicago Mercantile Exchange, and National Futures 

Association (NFA), among others.
Page 11 GAO-05-670 SEC and CFTC Penalties

changes made in preparation for the agency’s first external financial audit. 

Second, some of the collection staff pointed to the need for management to 

provide them with more guidance or training on new collection procedures 

and data entry protocols to help them better perform their duties and thus 

improve the program’s effectiveness. Third, we found that the two SEC 

units that are responsible for tracking and maintaining the collection data 

in CATS did not always communicate and coordinate with one another on a 

timely basis, potentially leading to inefficiencies that could affect the 

collection process. 

We also found that while SEC emphasizes its commitment to implementing 

the Fair Fund provision of SOX, the agency has not formally assessed the 

impact of the provision. In particular, SEC staff demonstrated support for 

the provision by promoting an aggressive approach in seeking, where 

appropriate, disgorgement orders in cases where CMPs are also being 

sought. For example, attorneys have obtained disgorgement for as little as 

$1 in settlements in order to obtain authorization from the SEC 

Commission to create a Fair Fund. SEC estimates that, as of April 2005, it 

had designated over $4.8 billion in CMPs and disgorgement to be returned 

to harmed investors. Nevertheless, SEC did not have a reliable method to 

identify these monies because CATS predates the Fair Fund provision and 

thus cannot readily identify Fair Fund cases or collect related data. A lack 

of reliable and meaningful data could hinder SEC’s ability to (1) ensure that 

the maximum amount possible is returned to harmed investors and (2) 

develop effective measures of the program’s success. SEC recognizes the 

need to track Fair Fund data and has recently added fields to CATS to 

identify these cases and track their distribution. Finally, as required by 

SOX, SEC has issued a report on actions it has taken to collect funds to be 

returned to harmed investors and methods it has used to maximize investor 

recovery. 

As part of this review, we also found that CFTC implemented actions that 

were consistent with the two remaining recommendations in our 2003 and 

2001 reports. Specifically, we determined that CFTC, like SEC and 

consistent with our 2003 recommendation, had participated with other 

securities and futures regulators in initiatives designed to improve controls 

over fingerprinting procedures for applicants seeking admission to the 

futures industry. Further, CFTC has also developed a process for referring 

eligible delinquent cases to FMS on a timely basis, as we recommended in 

our 2001 report. 
Page 12 GAO-05-670 SEC and CFTC Penalties

This report includes six new recommendations to the SEC Chairman to 

ensure that SEC’s collection staff have the appropriate tools to carry out 

their duties and to improve SEC’s ability to manage its collection program. 

We requested comments on a draft of this report from the Chairmen, SEC, 

and CFTC. SEC provided written comments that are reprinted in appendix 

III. SEC agreed with all of our recommendations and plans to take action to 

address them. SEC’s comments are discussed in more detail at the end of 

this report. CFTC provided technical comments, as did SEC, which have 

been incorporated where appropriate.

SEC Has Made 

Progress in Improving 

the Accuracy and 

Usefulness of Data It 

Collects, but 

Continued Attention Is 

Needed 

Our previous reports contained two recommendations that remained open 

related to SEC’s tracking of collection data. First, in 2002, we 

recommended that SEC develop appropriate procedures to ensure the 

accuracy and timeliness of information maintained in the Disgorgement 

Payment Tracking System (DPTS), which was the tracking system SEC 

used at the time to monitor disgorgement that had been ordered, waived, or 

collected. Second, in 2003, we recommended that SEC take the steps 

necessary to implement an action plan to replace DPTS with a new and 

improved collection tracking system. SEC has made progress in addressing 

these two recommendations by discontinuing its use of DPTS, modifying 

CATS to capture financial information, and establishing an improved 

procedure for entering data into CATS. Nevertheless, our fiscal year 2004 

audit of SEC’s financial statements disclosed inadequate internal controls 

over its reporting of penalty and disgorgement transactions. SEC plans to 

address this finding by strengthening its policies and its internal controls 

over existing processes. In addition, we found, and SEC agreed that 

opportunities exist to improve CATS’s usefulness. The agency is in the 

process of upgrading CATS to address the needs of a broader range of 

users, but the project is in its early stages. Agency staff estimate that it will 

not be fully complete until 2008. 

SEC Discontinued DPTS, 

Modified CATS, and 

Established a Policy to 

Improve Tracking of 

Collection Data

In 2002, we reported that weaknesses in SEC’s procedures for entering and 

updating data in DPTS resulted in the system containing unreliable data. 

Our 2002 review of a sample of 57 enforcement cases found that 18 cases, 

or approximately 32 percent, contained at least one error in the amount of 

disgorgement ordered, waived, or collected, or in the status of the case or 

of the individual violators. We found that the sources used as a basis for 

entering data into DPTS did not always provide the most accurate 

information. For example, we reported that staff in SEC’s Office of the 
Page 13 GAO-05-670 SEC and CFTC Penalties

Secretary, who were responsible for entering data into DPTS, relied heavily 

on SEC litigation releases that, according to the staff, did not contain all the 

details of a disgorgement order. The staff also said that they did not 

independently verify the information in the litigation releases. In January 

2003, an independent accountant confirmed that information in DPTS was 

not current and complete and reported that the system could not be relied 

upon for financial accounting and reporting purposes.11 As of October 2003, 

SEC discontinued its use of DPTS. 

SEC began using CATS to capture the financial information that DTPS had 

tracked. This change was part of larger modifications to CATS made in 

response to a legislative requirement that SEC prepare audited financial 

statements for submission to Congress and the Office of Management and 

Budget (OMB). SEC modified CATS by adding fields to capture the 

necessary financial data—such as the amount of CMPs and disgorgement 

ordered, collected, and distributed—and established a policy of entering 

data on the amount of disgorgement and CMPs only if valid supporting 

documentation was available.12 SEC staff said they began collecting 

original source documents—copies of signed and stamped final judgments, 

administrative orders, and court dockets—from SEC’s headquarters, 

regional, and district offices. SEC staff also told us that they entered 

financial data only for those cases with an open enforcement action as of 

October 1, 2002, the beginning of fiscal year 2003.13 As of February 2005, 

SEC staff said that they had entered data on almost all of the approximately 

4,500 enforcement cases, which involved over 12,000 defendants and 

respondents that met SEC’s criterion. 

We reviewed a sample of 45 cases tracked in CATS and determined that 

SEC had complied with its policy for improving data entry, which is

11U.S. Securities and Exchange Commission’s Office of Inspector General, Financial 

Management Systems Controls: Independent Accountant’s Report. Audit No. 362, 

(Washington, D.C.: Jan. 31, 2003). 

12As a result of the enactment of the Accountability of Tax Dollars Act of 2002, SEC is 

required to prepare and submit to Congress and OMB audited financial statements. 31 U.S.C. 

§ 3515. Fiscal year 2004 was the first year SEC prepared its first complete set of financial 

statements pursuant to this requirement.

13An enforcement action occurs when SEC files a complaint against an alleged violator of 

federal securities laws in federal district court or before an administrative law judge. 
Page 14 GAO-05-670 SEC and CFTC Penalties

consistent with our previous recommendation.14 Specifically, we found 

supporting source documents for each of the 45 case files we reviewed and 

were able to compare information from the source documents with the 

data in CATS (as reflected in a March 2005 printout). However, our 

comparison identified one $300,000 discrepancy on the amount of 

disgorgement ordered and entered in CATS. 

Although SEC has made progress in improving the reliability of CATS 

collection data, in May 2005, we reported that SEC had inadequate controls 

over its penalty and disgorgement activities, which increased the risk that 

such activities would not be completely, accurately, and properly recorded 

and reported for management’s use in decision making.15 In response to our 

findings, SEC stated that the agency plans to strengthen internal controls 

and policies over its existing recording and reporting process and has 

begun a multiyear project to upgrade CATS. 

Opportunities Exist to 

Improve CATS’s Usefulness

During this review, we found—and SEC agrees—that opportunities exist to 

further improve CATS’s usefulness for key system users, including 

attorneys, case management specialists, and collection monitors in 

Enforcement. Specifically, we found that CATS does not allow the 

attorneys in Enforcement to perform customized searches or generate 

tailored reports on the status of their cases. According to SEC staff, certain 

search and reporting capabilities are available to a handful of management 

level staff in the division but not to attorneys, who constitute the bulk of 

the division’s workforce. By not meeting the attorneys’ needs, CATS does 

not allow SEC to fully leverage its existing resources, and attorneys are not 

able to efficiently address their multiple and sometimes competing 

investigation, litigation, and collection duties. 

Similarly, we found that CATS currently does not meet all the needs of case 

management specialists and collection monitors. Some staff, whose 

positions were recently established to better track and report collection 

activities, have expressed concerns about CATS’s limited reporting and 

search capabilities. To compensate for these limitations, we found that 

collection staff in each of SEC’s headquarters, district, and regional offices 

14We selected and examined data for only one individual defendant or respondent within a 

case. One case can have multiple defendants and respondents. 

15GAO-05-244.
Page 15 GAO-05-670 SEC and CFTC Penalties

are using their own ad hoc collection database—outside of and separate 

from CATS—to track the status of delinquent cases. According to the 

collection staff, these databases allow for faster reporting and retrieval of 

information than CATS but, because they also require the staff to enter 

some data twice, using additional databases could lead to inefficiencies. 

To address the various concerns of key users, including attorneys, case 

management specialists, and collection monitors, and to strengthen the 

inadequate internal controls identified in the 2004 financial statement 

audit, SEC has begun a multiyear effort to upgrade CATS. SEC staff said 

that they are trying to transform what is essentially a case tracking system 

into a case management system that would be useful to a broader range of 

users. For example, as part of the upgrade effort, SEC is seeking to allow 

attorneys to generate customized reports on their cases, search for 

information in memorandums, and establish a system that would notify 

staff and remind them of deadlines in their cases. According to SEC’s Office 

of Information and Technology, the upgraded system is also expected to 

address the needs of case management specialists and collection monitors 

by capturing and reporting data they require, eliminating the need for the 

separate databases. In December 2004, SEC released a draft requirements 

analysis for the upgraded system that contained steps to address the 

concerns of SEC’s user community. SEC approved funding for the first 

phase of the project in June 2005 and, according to staff, the project will be 

fully complete in 2008. 

SEC Has Made 

Progress in Managing 

Its Collection Program 

but Needs to Take 

Further Steps

SEC has taken actions consistent with five of eight open recommendations 

from our previous studies (table 2). The open recommendations that SEC 

addressed were aimed at improving collection activities—for example, 

SEC’s practices for referring delinquent cases to FMS—and addressing the 

need for additional collection resources. However, further actions are 

needed to fully address three remaining open recommendations, which are 

designed to improve SEC’s performance measures and program 

evaluations. Moreover, we identified three new concerns related to SEC’s 

management of collection staff, including (1) the lack of a formal process 

for assessing the impact of collection staff efforts, (2) the need for 

additional routine training and guidance to ensure the effectiveness of 

collection staff’s efforts, and (3) the need for more formal communication 

and coordination protocols between the two units that track and maintain 

CATS data in order to improve the efficiency of collection activities. 
Page 16 GAO-05-670 SEC and CFTC Penalties

SEC Has Taken Actions to 

Improve Some Collection 

Activities 

Our review indicated that, since 2003, SEC has made more timely referral 

of delinquent cases to FMS and developed a strategy for referring 

pre-guideline cases—that is, cases that existed at SEC before Enforcement 

implemented its internal collection guidelines in 2002. The agency has also 

worked with the SROs to establish fingerprinting guidelines and has begun 

analyzing data on SROs’ sanctions. In addition, SEC has worked to ensure 

that the agency makes timely decisions on compromise offers presented by 

FMS and has increased the resources for handling collections and related 

tasks.

Table 2: Status of Recommendations Related to SEC’s Management of its Collection Program from 1998 to 2003 GAO reports 

Sources: GAO and SEC. 

Note: For further information, see GAO-03-795, GAO-02-771, GAO-01-900, and GAO/GGD-99-8.

SEC Refers Delinquent and 

Pre-Guideline Cases to FMS on a 

Timely Basis

Our 2001 report found that SEC staff lacked clear procedures to follow 

when referring delinquent cases to FMS for collection, as required by the 

DCIA. As a result, eligible delinquent debts were not promptly being 

referred to FMS, in turn hampering FMS’s efforts to collect on SEC’s behalf. 

Status

Previous open recommendations Addressed

Not fully 

addressed

The SEC Chairman should:

Develop a formal strategy for referring pre-guidelines cases to FMS and TOP that prioritizes cases 

based on collectability and establishes implementation time frames. X

Address weaknesses in controls over fingerprinting procedures that could allow inappropriate 

persons to be admitted to the securities industry. X

Analyze data collected on the SROs' disciplinary programs and establish a time frame for 

implementing the new disciplinary database that is to replace the current one. X

Continue working with FMS to ensure that compromise offers are approved in a timely manner. X

Complete the evaluation of options for addressing the competing priorities and increasing workload 

faced by SEC's Enforcement staff, including (1) assessing the feasibility of contracting certain 

collection functions and (2) increasing the number of staff devoted to collections. X

Ensure that management uses information on the distribution of disgorgement, including the 

amounts due to and received by investors and the fees paid to receivers, to monitor the distribution 

of disgorgement. X

Ensure that disgorgement and the collection of disgorgement are addressed in SEC’s strategic and 

annual performance plan, including developing appropriate performance measures. X

Ensure the prompt implementation of collection guidelines that specify the various collection 

actions available, explain when such activities should be considered, and stipulate how frequently 

they should be performed, and develop controls to ensure that staff follow these guidelines. X
Page 17 GAO-05-670 SEC and CFTC Penalties

In 2003, Enforcement implemented procedures to ensure more timely 

referrals of delinquent cases, but not enough time had elapsed at the time 

of our 2003 study to evaluate the effectiveness of the new procedures. 

However, during this review, we did find that SEC was making referrals to 

FMS before the 180 day time frame expired. Specifically, from a random 

sample of 45 cases, we identified and reviewed 6 delinquent cases that 

were eligible for referral and were able to verify that SEC had referred each 

of those cases before the 180 day limit.16

Our 2003 study also found that SEC staff had not identified a strategy for 

referring pre-guideline cases to FMS and did not know the extent to which 

the pre-guideline procedures for referring cases were being followed. We 

recommended that SEC staff establish a strategy that prioritized cases 

according to their collectability. During this review, SEC management said 

that all eligible delinquent cases had been referred to FMS for collection 

when SEC switched from tracking cases in DPTS to tracking them in 

CATS.17 Based on our review, we determined that SEC had not prioritized 

the cases but had assessed all outstanding cases for possible referral to 

FMS and sent forward the appropriate paperwork when applicable, 

including for pre-guideline cases. As part of our recent review of 45 

randomly selected cases, we examined the referral status of 10 

pre-guideline cases and found that only one case was eligible for referral 

and that SEC staff had referred it to FMS before 180 days expired.18

SEC Has Enhanced Controls for 

Fingerprinting Procedures

During our 2003 study, we examined the application review process for 

individuals seeking employment in the securities industry. During that 

review, we found that SEC’s statute did not mandate that SROs such as 

NASD and NYSE require their member firms to ensure that fingerprints 

sent to the Federal Bureau of Investigation (FBI) as part of criminal history 

checks actually belonged to the applicants submitting them. Because this 

16Under SEC’s internal collection guidelines, which are intended to assist the Enforcement 

staff in ensuring compliance with the DCIA of 1996, eligible debts that have been delinquent 

for more than 180 days should be prepared for referral to FMS unless (1) a case is still in 

litigation, (2) an entity has become defunct, (3) a defendant/respondent is deceased, 

incarcerated or a foreign national residing abroad, or (4) a bankruptcy is pending.

17Some SEC delinquent cases were ineligible for referral because they were on appeal, in 

postjudgment litigation, or had a receiver appointed to marshal and distribute assets.

18Of the remaining nine cases, three had already been collected in full; three were closed, 

meaning no further action was warranted; two had been terminated; and one had been 

waived by the court.
Page 18 GAO-05-670 SEC and CFTC Penalties

lapse in oversight could have allowed inappropriate persons to enter the 

securities industry, we recommended that SEC establish controls to ensure 

that fingerprints sent by SROs to the FBI actually belong to the applicants. 

In July 2004, SEC and CFTC formed a task force with representatives from 

several of their SROs to enhance controls over existing fingerprinting 

guidelines. Using the FBI’s guidance on the best practices for preventing 

fingerprinting fraud in civil and criminal cases, the task force developed a 

set of improved fingerprinting guidelines, including a suggestion that 

applicants present two forms of identification instead of one immediately 

before fingerprints are taken or submit an attestation form in addition to 

the standard U4 attestation form.19 NASD made the fingerprinting 

guidelines available to its member firms on May 29, 2005.

SEC Has Begun Analyzing SROs’ 

Disciplinary Actions

In 1998, we found that SEC was not analyzing industrywide data on 

disciplinary sanctions imposed by SROs to identify possible disparities that 

might require further review. We recommended that SEC conduct such an 

analysis and find ways to improve the SROs’ disciplinary programs. 

Consistent with this recommendation, SEC developed a database to collect 

information on the SROs’ disciplinary actions, but our 2003 study found 

that problems with the database were hampering SEC’s ability to analyze 

the data. For example, the database did not capture multiple violations or 

multiple parties in a single case and did not support multiple users. We 

made a follow-on recommendation in our 2003 report that SEC analyze the 

data that had been collected on the SROs’ disciplinary programs, address 

any findings that resulted from the analysis, and establish a time frame for 

implementing a new database. 

As we recommended, SEC has begun analyzing data on disciplinary actions 

that the SROs took in 2003 and 2004. According to SEC staff, the analyses 

have shown that sanctioning practices among SROs differ primarily 

because the facts and circumstances of the cases vary—for instance, the 

number of defendants involved or presence of other violations.20 SEC staff 

said that SEC will use the results of the analyses to determine the scope 

and timing of future SRO inspections. Also, as we recommended, SEC’s 

19For any person seeking NASD registration, the attestation would be in addition to the 

attestation on the Form U4 and would require that the applicant attest to the completeness 

and accuracy of the information submitted on the form.

20The analyses involve the following types of violations: misrepresentation or material 

omissions of fact, failure to respond truthfully and completely, outside business activities, 

net capital violations, conversion, and continuing education requirements. 
Page 19 GAO-05-670 SEC and CFTC Penalties

Office of Compliance Examinations and Inspections has sought assistance 

from the agency’s Office of Information Technology to develop a new, more 

reliable Web-based database that is scheduled to be deployed in September 

2005. According to SEC staff, using the new database, SROs will be able to 

submit data to SEC online, an innovation that is expected to reduce data 

entry errors and increase the amount of time SEC staff have to spend on 

mission-related work such as inspecting SROs and examining 

broker-dealers. The new database is also expected to provide virtually 

unlimited storage capacity, improved reporting capability, and greater 

stability.

SEC Has Made More Timely 

Decisions on Compromise Offers

In 2001, we found that SEC had not always made prompt decisions on 

compromise offers submitted by FMS, reducing the likelihood of collecting 

on the debts. At that time, we recommended that SEC continue to work 

with FMS to ensure that compromise offers presented by FMS were 

approved in a timely manner. During this study, we found that SEC had 

been accepting or rejecting compromise offers within 30 days of receiving 

them from FMS, as required by SEC’s internal policy. To ensure more timely 

responses, SEC management assigned one staff member to monitor and 

track compromise offers, maintain a schedule log, and serve as a liaison 

with FMS to handle missing documents or other problems. According to 

SEC data, SEC received 12 compromise offers via e-mail between July 16, 

2003, and January 6, 2005, and was able to decide on 7 of them within 30 

days. The other five compromise offers were held up because of problems 

with missing documentation. SEC’s procedures require staff to use a 

variety of documents in assessing compromise offers, including credit 

bureau reports, recent financial statements, and tax returns for the 

preceding 3 years. However, until early 2005, FMS did not require its staff to 

submit tax returns to SEC along with compromise offers. The cases that 

were held up at SEC because of lack of documentation all involved tax 

returns—in one case, the returns were illegible, and in four they were 

missing altogether.21 On February 5, 2005, FMS issued a technical bulletin 

that directed staff to submit copies of tax returns for the 3 relevant years to 

SEC with all compromise offers. According to FMS, these new instructions 

should resolve any problems with missing documents and enable SEC to 

meet the 30-day deadline for deciding on compromise offers. 

21SEC eventually accepted the offer with the illegible tax return after receiving legible copies 

but rejected the remaining four offers because of the missing returns.
Page 20 GAO-05-670 SEC and CFTC Penalties

SEC Increased Its Collection 

Resources to Address Competing 

Priorities and Growing Workload

In past studies, we found that SEC’s Enforcement staff attorneys, who are 

responsible for collecting disgorgement, had other duties and competing 

priorities that hindered their collection efforts. For example, depending on 

the office to which they were assigned, attorneys were responsible for a 

variety of functions, including investigating potential violations of 

securities law, recommending actions SEC should take when violations 

were found, prosecuting SEC’s civil suits, negotiating settlements, and 

conducting collection activities for CMPs levied. We recommended in 2002 

that SEC consider contracting out some collection activities and increase 

its collection staff. Consistent with our recommendation, in 2003 SEC 

assessed the feasibility of contracting with private collection agents and 

proposed legislative changes that would allow the agency to contact with 

private collection agents.22 Furthermore, SEC created and filled over 20 

positions, including collection attorneys, paralegals, monitors, and case 

management specialists in its headquarters, district, and regional offices to 

assist in implementing collection guidelines that the agency created in 

response to our 2002 recommendation that it establish such criteria, so that 

collections could be maximized. Below are brief descriptions of the 

collection staff’s roles and duties:

• SEC hired three attorneys to pursue collection efforts in headquarters. 

These attorneys review the evidence from initial asset searches to 

determine whether SEC should continue with collection activities or 

refer the case to FMS, and they advise SEC’s regional staff attorneys on 

their collection cases. The lead attorney also manages SEC’s collection 

unit, develops policies (including the agency’s collection guidelines), 

and trains staff on the collection process.

• In 2003, SEC created 13 case management specialist positions to assist 

attorneys with administrative tasks associated with their investigations. 

The specialists perform data entry tasks and track enforcement matters. 

Depending on the location, the number of attorneys that each specialist 

supports varies from smaller to larger caseloads. For example, in one 

region, a specialist supports 21–24 staff attorneys and in another 

approximately 50.

22The feasibility assessment was part of a study done in response to SOX, SEC: Report 

Pursuant to Section 308(c) of the Sarbanes Oxley Act of 2002 (Washington, D.C., January 

2003). The Securities Fraud Deterrence and Investor Restitution Act was introduced in the 

108th Congress as H.R. 2179 and contained provisions that, if adopted, would strengthen 

SEC’s enforcement capabilities and assist defrauded investors. Congress has not taken 

action on this bill. 
Page 21 GAO-05-670 SEC and CFTC Penalties

• To help resolve delinquent cases, SEC also designated existing staff in 

each of the 11 regional offices to monitor collection activities as a 

collateral duty and created and filled two collection paralegal positions 

for headquarters.23 The monitors are responsible for keeping staff and 

collection attorneys apprised of upcoming deadlines, assisting in 

referring delinquent cases to FMS, and maintaining a collection 

database that is separate from CATS for the Enforcement Division. 

SEC Management Has Not 

Completed Actions to 

Evaluate the Performance 

of Its Collection Program 

We found that SEC had made some progress in addressing our remaining 

three open recommendations related to (1) establishing performance 

measures to better track the effectiveness of SEC’s collection efforts; (2) 

tracking, on an aggregate and individual basis, both receivers’ fees and the 

amounts distributed to harmed investors to ensure that investor recovery is 

maximized; and (3) implementing collection guidelines and developing 

controls to ensure that staff follow the guidelines. However, as part of this 

review, we found that the agency could take further action on these 

management practices to improve these areas.

SEC Has Established, but Not 

Implemented, an Alternative 

Performance Measure for Its 

Collections Activities

Under the Government Performance and Results Act, federal agencies are 

held accountable for achieving program results and are required to set 

goals and measure their performance in achieving them.24 We reported in 

2002 that SEC’s strategic and annual performance plans did not clearly lay 

out the priority that disgorgement collection should receive in relation to 

SEC’s other goals and did not include collection-related performance 

measures. Further, we identified several limitations in using the agency’s 

disgorgement collection rate as a measure of the agency’s effectiveness. 

For example, the rate is heavily influenced by SEC’s success in collecting 

or not collecting on a few large cases and by factors that are beyond a 

regulator’s control, such as violators’ ability to pay. We suggested other 

measures that SEC could consider, including tracking the percentage of 

disgorgement funds returned to harmed investors, measuring the 

timeliness of various collection actions, and tracking the number of 

violators ordered to pay disgorgement who go on to commit other 

23According to SEC management, SEC is in the process of combining the duties of the 

collection monitors with those of the case management specialists. 

24GAO, Managing for Results: The Statutory Framework for Performance-Based 

Management and Accountability, GAO/GGD/AIMD-98-52 (Washington, D.C.: Jan. 28, 1998).
Page 22 GAO-05-670 SEC and CFTC Penalties

violations. The last measure would help determine whether the agency’s 

disgorgement orders were having a deterrent effect.

During this review, we found that SEC had developed a performance 

measure for timeliness and included it in the agency’s 2004 annual 

performance plan but had not collected data on this measure or reported 

on its results. The agency’s timeliness measure, according to SEC’s 2004 

Performance Plan, is the “number and percent of defendants/respondents 

subject to delinquent disgorgement orders during the fiscal year for which 

the Enforcement staff did not formulate a judgment recovery plan within 60 

days after the debt became delinquent.” This measure could potentially be 

useful in tracking staff efforts to recover delinquent debt and comply with 

SEC’s recently established collection guidelines. However, in its 2004–2009 

Strategic Plan and 2004 Performance and Accountability Report, SEC 

continued to use only the collection rate as its sole measure of collection 

performance. SEC staff acknowledged—and we have previously 

noted—that using only the collection rate had inherent limitations but 

added that the agency continued to use it because Congress and other 

agencies had come to expect that SEC would report the measure. While 

reporting the collection rate may serve other goals, it is not a meaningful 

performance measure and, as a result, SEC cannot fully determine the 

effectiveness of its collection program.

During this review, we calculated SEC’s collection rate for all cases (open 

and closed), as well as a separate rate for closed cases only.25 As shown in 

table 3, SEC’s penalty collection rate for closed cases between September 

2002 and December 2004 ranged from 72 percent to 100 percent and for all 

cases from 34 percent to 86 percent. 

25For our calculations, we defined open cases as “cases with a final judgment order that 

remained open while collection efforts continued” and closed cases as “cases with a final 

judgment order for which all collection actions were completed.” 
Page 23 GAO-05-670 SEC and CFTC Penalties

Table 3: SEC’s Collection Rates for CMPs Levied on All Cases and Closed Cases Only, September 2002– December 2004

Source: GAO analysis of unaudited SEC data.

a

Amounts included for 2002 are for September only. Amounts for the previous months in fiscal year 

2002, totaling $81.6 million, were reported in a prior report. SEC levied a total of $85 million in 2002. 

The collected amounts include penalties that were due to SEC, courts, and court-appointed receivers. 

While the percentage collected is a limited measure, as noted above, these 

rates represent a significant increase from the 40 percent collection rate for 

CMPs SEC averaged from January 1997 through August 2002. During 2003, 

SEC imposed about $1 billion in penalties, up from about $85 million in 

2002. According to SEC staff, from September 2002 through August 2004, 

SEC brought enforcement actions against large, well-financed entities such 

as mutual funds and major corporations that had been accused of financial 

fraud. Because SEC collected most of the penalties imposed in these large 

cases, its collection rate was significantly higher than in previous years. 

SEC management told us that the agency’s collection rate is heavily 

influenced by the nature of the entity that the agency sues and noted that, if 

SEC sued companies or issuers that were not well-financed, its collection 

rate would likely fall. 

As shown in table 4, for disgorgement levied on closed cases between 

September 2002 and August 2004, SEC’s collection rate ranged from 56 

percent to 100 percent and from 13 percent to 34 percent for all cases 

during the same period. 

Total CMPs on all (open and closed) cases Total penalties on closed cases only

Fiscal year Amount levied

Amount

collected

Percentage

collected Amount levied

Amount

collected

Percentage

collected

2002a $3,770,872 $1,277,004 34% $319,986 $244,986 77%

2003 1,030,602,290 726,830,024 71 360,000 260,000 72

2004 1,206,475,410 1,041,613,639 86 1,190,000 1,190,000 100

Total $2,240,848,572 $1,769,720,667 79% $1,869,986 $1,694,986 91%
Page 24 GAO-05-670 SEC and CFTC Penalties

Table 4: SEC’s Collection Rate for Disgorgement Levied on All Cases and Closed Cases Only, September 2002–December 2004

Source: GAO analysis of unaudited SEC data.

a

Amounts included for 2002 are from September only. Amounts for the previous months in fiscal year 

2002 were reported in a prior report. The collected amounts include disgorgements that were due to 

SEC, courts, and court-appointed receivers.

These rates also represent a substantial increase over the collection rate of 

14 percent for all cases involving a disgorgement order between 1995 and 

November 2001. We reported in 2002 that the collection rate for CMPs 

tends to be higher than the collection rate for disgorgement because SEC 

can take into account a violator’s ability to pay when imposing a penalty 

but cannot do so when imposing a disgorgement. We also reported that 

many violators ordered to pay a penalty are members of the securities 

industry and are motivated to pay their CMPs in order to maintain their 

reputation within the industry. However, we reported that many violators 

ordered to pay large disgorgement orders are either not members of the 

securities industry or have no desire to remain so. As we have discussed in 

previous reports, these factors make using the disgorgement collection rate 

as the sole performance measure problematic and highlight the need for 

SEC to continue its efforts to develop alternative performance measures 

for collection activities. 

SEC Is Working to Capture Data 

on Amounts Distributed and 

Receivers’ Fees 

In previous GAO reports, we determined that SEC did not have a 

centralized system for monitoring information on distribution amounts and 

receiver fees, making it difficult for the agency to assess the overall 

effectiveness of distribution efforts and ensure that harmed investors 

received the maximum amount of recovered funds. We recommended that 

SEC better manage disgorgement cases by tracking this information on 

both an aggregate and individual case basis. In the past, SEC stated that it 

did not believe that aggregating this data would help determine how well it 

was managing collection cases or that being able to assess the 

reasonableness of receiver fees would necessarily provide information on 

whether defrauded investors should have or could have received more 

Total disgorgement on all (open and closed) cases Total disgorgement on closed cases only

Fiscal year Amount levied

Amount

collected

Percentage

collected Amount levied

Amount

collected

Percentage

collected

2002a $25,065,891 $3,141,592 13% $514,617 $288,700 56%

2003 1,028,469,833 249,750,377 24 28,919 28,919 100

2004 2,298,441,773 773,725,175 34 72,413 72,413 100

Total $3,351,977,497 $1,026,617,144 31% $615,949 $390,032 63%
Page 25 GAO-05-670 SEC and CFTC Penalties

funds. SEC had also identified a number of obstacles that hampered its 

ability to address our recommendation—for example, the CATS database, 

which was designed to track individual case information but not to 

aggregate it. Further, we were told that the agency lacked the information 

necessary to identify the amounts allocated to defrauded investors and 

receivers’ fees, and SEC staff told us that they did not always know how 

much receivers were paid. As a result, the agency has had to rely on the 

courts to provide this information, but the courts have not consistently 

provided it. 

During our work for this report, we learned that, despite its concerns about 

these obstacles, SEC had begun to make some progress in addressing this 

open recommendation. Specifically, SEC has updated CATS to identify 

distribution data and is in the process of drafting a standard form that will 

be used to request information from the courts on receivers’ fees. If the 

courts respond to SEC’s requests for this information, the agency should be 

better able to assess how well overall distribution efforts are working and 

whether harmed investors are being reimbursed the maximum amounts 

possible for actions taken against them by securities law violators. 

Uneven Supervision Reduces 

Assurance That Staff Are 

Following Collection Guidelines 

In our 2002 study, we found that SEC’s collection program lacked clear 

policies and procedures specifying the actions that staff should take to 

pursue collections. We commented that the lack of such guidance affected 

both staff and management, since staff were not held accountable to any 

clear standards and management could not determine whether staff took 

all collection actions promptly, or ensure that opportunities to maximize 

collection were not missed. We recommended that SEC develop and 

implement collection guidelines and develop controls to ensure that staff 

follow them. Consistent with the first part of this recommendation, SEC 

has developed and implemented collection guidelines that specify the 

various collection actions staff can take, explain when such activities 

should be considered, and stipulate how frequently they should be 

performed. SEC has also hired additional resources to perform specific 

tasks outlined in its collection guidelines. However, uneven supervision has 

reduced the assurance that staff are following these guidelines. 

According to SEC management, the primary control in place to ensure that 

staff followed these guidelines is a periodic review, conducted by the lead 

collection attorney, of the 12 individual collection databases that collection
Page 26 GAO-05-670 SEC and CFTC Penalties

staff use to track delinquent cases.26 However, this periodic review may not 

be timely or effective since it could result in noncompliance with the 

guidelines or errors being undetected for an unspecified amount of time. 

Further, we found that some of the individuals involved in the collection 

process in some of SEC’s regional offices—specifically monitors and case 

management specialists—have supervisors who are not directly involved 

and may lack detailed knowledge of the collection guidelines.27 In addition, 

the level of supervision varies by location. For example, one of the regional 

case management specialists told us that an associate regional director 

oversees her work by reviewing a weekly CATS report that she generates. 

At another location, a case management specialist also told us that an 

assistant district administrator supervises her but does not formally 

monitor her work. 

Additional Concerns Could 

Impede SEC’s Progress in 

Realizing the Benefits of 

Improved Collection Efforts

We identified three additional new areas of concern that could impede 

SEC’s progress in realizing the benefits of improved collection efforts. 

Specifically, we found that SEC lacks (1) a formal mechanism to monitor 

the effectiveness of the collection staff, (2) appropriate guidance and 

training for some collection staff, and (3) effective communication and 

coordination between two key units responsible for tracking collection 

activity. First, SEC does not have a formal mechanism to assess whether 

the increased collection resources are being used effectively. SEC 

management believes that the new collection resources have increased 

overall collection efforts and allowed enforcement attorneys to devote 

more time to investigating potential violations by reassigning some 

collection-related administrative duties. However, without a formal process 

for determining the effectiveness of the increased resources, SEC cannot 

validate these benefits. SEC management explained that they have focused 

their attention on making changes to the collection process in preparation 

for the first external financial audit and thus have not yet been able to focus 

on assessing the effectiveness of the collection staff’s activities. As SEC’s 

collection process stabilizes, a formal approach to gathering and analyzing 

input from Enforcement staff attorneys that have interacted with collection 

26As mentioned earlier, collection staff in SEC’s headquarters, district, and regional offices 

are using ad hoc collection databases that are separate from CATS, in order to track the 

status of delinquent cases. 

27The collection paralegals in headquarters are supervised by the lead attorney in the 

collection unit, who has detailed knowledge of the guidelines and ensure that they are 

followed.
Page 27 GAO-05-670 SEC and CFTC Penalties

staff would help determine whether the new staff positions were being 

used effectively and whether any improvements could be made.

Second, our interviews with some of the case management specialists and 

collection monitors disclosed that some of the staff felt that they had not 

received sufficient guidance or training on new protocols for the collection 

procedures. SEC management told us that the agency had periodically 

added new protocols to the established procedures for tracking penalty 

and disgorgement data to help the agency prepare for its first external 

financial audit. In particular, SEC staff said that they had revised some 

internal controls and policies and procedures related to data entry and 

added additional data entry screens to CATS. Although new protocols 

addressing these changes have been communicated to the collection staff 

through various methods such as e-mails, monthly meetings, and monthly 

notifications, some of the collection staff identified the need for additional 

guidance. Moreover, some of them said that they would like to receive 

training on issues addressed in policy updates, as well as receive more 

formal training in how to interpret legal documentation such as judgments 

and how to work with FMS on collection issues. SEC management said that 

the agency has planned a workshop for the staff in late 2005 to provide 

information on these and related issues and anticipates that it will help 

meet some of the needs that staff have identified. Such attention should 

help the collection staff perform their duties more effectively.

Third, since August 2004, Enforcement and the Office of Financial 

Management (OFM) staff have shared responsibility for tracking and 

maintaining penalty and disgorgement data in CATS, but the units lack 

formal procedures to ensure that their staffs communicate and coordinate 

activities. To prepare for the external financial statement audit, SEC 

transferred responsibility for entering financial data in CATS from 

Enforcement to OFM, since penalty and disgorgement activity are recorded 

in SEC’s financial statements. Under the terms of the transfer, Enforcement 

would still enter most of the case-related data into CATS, such as the 

names of defendants and dates of judgments and orders, and OFM would 

enter data on the amounts of money ordered, collected, and distributed. 

However, this division of responsibilities has not always been effective. For 

instance, Enforcement staff need timely and complete information on 

amounts that have been collected in order to take appropriate collection 

actions, but communication with OFM staff is not always consistent and 

timely, making coordination difficult. As an example, when OFM staff enter 

financial data into CATS, they do not always notify Enforcement, so that 

Enforcement staff must periodically check CATS to find out whether 
Page 28 GAO-05-670 SEC and CFTC Penalties

money has been collected and, in some instances, must contact OFM to 

determine the status of a case. Further, OFM is not always timely in 

entering data, resulting in delays that could hinder Enforcement staff’s 

collection efforts.

SEC Emphasizes Its 

Commitment to 

Implementing the Fair 

Fund Provision but Has 

Been Slow in 

Distributing Funds and 

Assessing Results

SEC demonstrated its commitment to effectively implementing the Fair 

Fund provision of SOX by taking several steps. First, agency management 

has issued clear guidance to staff on how to generate Fair Fund monies 

from penalized offenders. As of April 2005, SEC has designated almost $4.8 

billion to be returned to harmed investors although, as of the date of this 

report, very little of it had been distributed, primarily because of time 

consuming tasks that have to be completed before distribution can take 

place. Second, we found that SEC staff had begun to collect and aggregate 

Fair Fund data to help in assessing the agency’s performance in distributing 

funds to harmed investors. Finally, SEC has begun to address reporting 

requirements in its efforts to collect funds for distribution and in the 

methods it is using to maximize investor recovery.

SEC Has Issued Guidance 

on Implementing the Fair 

Fund Provision

According to SEC staff, the agency is committed to using the Fair Fund 

provision, which allows money from CMPs to be added to disgorgement 

amounts, to help defrauded investors obtain more of the funds owed to 

them. SEC has issued guidance to its staff on interpreting and applying the 

provision—for example, explaining that ordering a disgorgement for as 

little as $1 can qualify a case as a Fair Fund case and make CMPs eligible 

for distribution. Among other cases, SEC applied this method in SEC v. 

Lucent Technologies, in which the company agreed to pay a settlement of 

$25 million in CMPs and $1 in disgorgement.28 In this particular case, SEC 

charged the company and 10 individuals with fraudulently and improperly 

recognizing approximately $1.148 billion of revenue and $470 million in 

pretax income during fiscal year 2000—a violation of generally accepted 

accounting principles (GAAP). 

28Securities and Exchange Commission v. Lucent Technologies, Inc., et al., No. 04-CV-2315 

(May 17, 2004). One of the other defendants also agreed to pay disgorgement of $109,505, 

representing profits gained as a result of the illegal conduct alleged in the complaint. SEC 

stated that it expected the penalties and disgorgement received from the four defendants of 

the settlement agreement to be distributed pursuant to the Fair Fund provision. See SEC 

Litigation Release No. 18715 (May 17, 2004).
Page 29 GAO-05-670 SEC and CFTC Penalties

The guidance also highlights several other important aspects of the Fair 

Fund provision. It discusses the legal and practical aspects of seeking 

disgorgement, including estimating the amount the defendant obtained 

illegally.29 It also instructs staff to include language preserving SEC’s ability 

to establish a Fair Fund at a later date in cases that are settled early before 

it has been decided whether the Fair Fund provision will be invoked. 

Finally, SEC requires that language be added to judgments in all Fair Fund 

cases prohibiting violators from using amounts collected under a judgment 

to offset potential later judgments levied in third-party lawsuits. Because 

allowing such offsets could reduce the amount of money investors received 

in these lawsuits, the SEC language also stipulates that even if a court 

allows offset language in later judgments, the violator is obligated to pay 

the difference. This language is intended to aid attorneys in fairly and fully 

applying the Fair Fund provision and to help ensure that violators do not 

sidestep the intent of the Fair Fund provision. 

SEC Has Successfully Used 

Fair Funds, but Distribution 

Has Been Slow

According to agency documents, SEC staff have successfully applied the 

Fair Fund provision in at least 75 cases since 2002 and, as a result of these 

efforts, more than $4.8 billion in disgorgement and CMPs were designated 

for return to harmed investors as of April 2005. At the time of our review, 

although SEC has collected money for 73 of the 75 cases they identified, 

approximately $60 million from only three cases have been distributed to 

harmed investors, and funds totaling about $25 million from only one other 

case were being readied for distribution. 

SEC’s rules regarding Fair Funds and disgorgement funds states that 

“unless ordered otherwise, the Division of Enforcement shall submit a 

proposed plan no later than 60 days after the respondent has turned over 

the disgorgement....”30 However, SEC staff observed that appointing a 

receiver to establish a plan for distributing funds can sometimes be a 

lengthy process that can be further complicated by factors beyond the 

agency’s control. For example, in one case, an analysis of an extensive 

trading history had to be conducted, in order to determine issues such as 

the extent to which funds were diluted and the shareholders were harmed, 

and to determine how to deal with tax considerations for the distribution 

29SEC has the burden of showing that the amount that is sought in a disgorgement is a 

reasonable approximation of profits causally connected to the violation.

3017 C.F.R. § 201.1101.
Page 30 GAO-05-670 SEC and CFTC Penalties

recipients. In another instance, a company agreed to pay $80 million in 

disgorgement, CMPs, and interest, but a pending criminal indictment 

prevented SEC from distributing any funds until the criminal case is 

resolved. SEC acknowledged that the agency has an obligation to distribute 

funds to harmed investors in a timely manner and that SEC collection 

attorneys have begun to take on some of the tasks associated with 

distribution in an effort to expedite the distribution process. The collection 

attorneys also told us that they are working to develop a more standardized 

process for distributing funds to help ensure that staff attorneys perform 

this function properly. 

SEC Has Started to Collect 

and Aggregate Fair Fund 

Data

During this review, we found that SEC implemented the Fair Fund 

provision without having a method in place to systematically track the 

number and amount of monies ordered, collected, and distributed, in part 

because CATS was not initially designed to identify this information. To 

gather information on Fair Fund cases, SEC management has had to 

request that staff attorneys submit ad hoc summaries of these cases, but 

the lack of a standard reporting format means that the information may be 

inconsistent. SEC management also has used data from CATS, Treasury’s 

Bureau of Public Debt database, and discussions with attorneys to compile 

information on Fair Fund cases, but this method also has limitations 

because it does not employ a reliable data entry process using source 

documents that account for all the cases. Without reliable, accessible data, 

SEC is limited in its ability to evaluate the overall effectiveness of its 

implementation of the Fair Fund provision. 

During this review, we found that SEC had started to take steps to track 

data on Fair Fund cases by adding fields to CATS that allow case 

management specialists to enter appropriate data, including receivers’ fees, 

amounts distributed for Fair Fund and disgorgement cases, and amounts 

returned to Treasury. In addition, SEC staff said that information on all Fair 

Fund cases created before these modifications would be retroactively 

entered into the system. According to SEC management, SEC plans to 

compile and aggregate Fair Fund data, such as the number of cases and the 

associated monetary amounts, in order to better assess the provision’s 

impact. 

We also learned that SEC was using the amounts designated for return to 

harmed investors as an indicator of the program’s success. For example, 

when describing the Fair Fund program in SEC’s 2006 budget request, 

issued in February 2005, the agency stated that over $3.5 billion in 
Page 31 GAO-05-670 SEC and CFTC Penalties

disgorgement and CMPs had been designated for this purpose. However, 

these amounts alone may not be appropriate measures of the program’s 

success since harmed investors do not necessarily receive all the money. A 

more comprehensive indicator could include the amount of CMPs ordered 

as a direct result of the Fair Fund provision, the actual amounts distributed, 

and the length of time required to distribute the funds. SEC management 

told us that the agency plans to add an indicator on Fair Fund distribution 

to its agencywide performance “dashboard” that tracks the amount of 

funds returned to harmed investors.31 Such an indicator would be a useful 

output measure but would not provide complete feedback on the 

effectiveness with which SEC executed its responsibilities. Nevertheless, 

to calculate its planned measure, SEC would have to collect data on how 

much money was actually returned to investors once taxes, fees, and other 

administrative costs were subtracted from the total amount collected. 

SEC Has Complied with Other 

Aspects of Section 308

As required by Section 308(c) of SOX, SEC issued a report in January 2003 

detailing the agency’s efforts in collecting funds to be returned to harmed 

investors and the methods used to maximize this recovery.32 The 

approaches involved “real time” enforcement initiatives such as temporary 

restraining orders, asset freezes, and the appointment of receivers to 

maximize recovery. SEC’s report also suggested some legislative changes 

that would assist the agency in maximizing recovery for defrauded 

investors, including the following three:

• technical amendment to the Fair Fund provision that would permit SEC 

to include CMPs in Fair Funds for distribution to harmed investors in 

cases that do not involve disgorgement; 

• proposal that excludes securities cases from state law property 

exemptions, so that violators could not use these “homestead” 

exemptions to shield their assets from judgments and administrative 

orders; and

31The purpose of SEC’s “dashboards” initiative is to regularly track divisions’ and offices’ 

progress in achieving programmatic, operational, staffing, and budgetary objectives. These 

management reports form the basis for SEC management to gauge performance, exchange 

ideas on common problems, and adjust operations and resources as necessary.

32SEC’s Report to Congress: Report Pursuant to Section 308 (c) of the Sarbanes Oxley Act 

of 2002, January 2003.
Page 32 GAO-05-670 SEC and CFTC Penalties

• grant of express authority to SEC to contract with private collection 

agents.

These proposed changes, in addition to others pertaining to enhancing 

enforcement capabilities and assisting defrauded investors, were included 

in H.R. 2179, the Securities Fraud Deterrence and Investor Restitution Act 

of 2003, which was introduced in the 108th Congress. The bill was reported 

favorably to the full House by the House Financial Services Committee, but 

no vote took place.33

CFTC Has Added 

Controls to 

Fingerprinting 

Procedures and Begun 

Making Timely 

Referrals to FMS

In our 2001 report, we recommended that CFTC take steps to ensure that 

delinquent CMPs were promptly referred to FMS. In our 2003 report, we 

also recommended that CFTC work with SEC and the SROs to address 

weaknesses in fingerprinting procedures to ensure that only appropriate 

persons are admitted to the futures industry. As part of this review, we 

found that CFTC fully addressed these remaining open recommendations. 

We also updated our calculation of CFTC’s collection rates since our 2003 

report (see appendix II).

In 2001, we recommended that CFTC implement its Office of Inspector 

General’s (OIG) recommendation to create formal procedures to ensure 

that delinquent CMPs were sent to FMS within the required time frames. In 

an April 2001 report, CFTC’s OIG found that CFTC staff were not referring 

the delinquent debts to FMS in a timely manner, potentially limiting FMS’s 

ability to collect the monies owed. In 2004, CFTC’s OIG followed up on this 

issue and determined that for the period from 2001 through 2004, CFTC had 

consistently complied with DCIA by referring delinquent debt to FMS 

within the allowable 180 days for collection services. CFTC’s OIG reviewed 

21 uncollected penalty cases out of a universe of 187 CMPs that were 

eligible for referral between October 1, 2001, and August 31, 2004. Of the 21 

cases, 8 were excluded from referral to FMS because they were either 

referred to the Department of Justice for further review or were in 

litigation. CFTC’s OIG found that of the remaining 13 cases, CFTC had sent 

33However, in regards to state law property exemptions, Section 322 of the Bankruptcy 

Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23, 

96-97 (April 20, 2005), imposes a limitation on the value of exempt property that can be 

claimed by Chapter 11 debtors pursuant to state law, if the debtor owes a debt arising under 

a violation of federal securities laws. Section 322 will become effective in October 2005, but 

applies to Chapter 11 filings made on or after the date of enactment of the act.
Page 33 GAO-05-670 SEC and CFTC Penalties

12 to FMS within the required time frame. One case was not received by 

FMS due to an undetected facsimile transmission error. CFTC officials have 

stated that their Enforcement division has changed the way it transmits 

information when referring cases and now uses certified mail, which 

provides a receipt to confirm that the information has been delivered.

During our 2003 study, we found that CFTC’s statute, like SEC’s, did not 

mandate that SROs such as NFA require member firms to ensure the 

validity of fingerprints submitted to the FBI by applicants of the futures 

industry. In response to our recommendation that CFTC address this 

weakness, CFTC, like SEC, worked with futures and securities regulators 

to prepare recommended guidance for best practices for fingerprinting 

procedures. According to CFTC officials, the agency agrees with the other 

task force members that issuing “best practices” guidance to the futures 

and securities industries could help prevent applicants from using someone 

else’s fingerprints as their own. CFTC officials said that NFA made some 

adjustments to the fingerprinting guidelines developed by the task force to 

tailor them to the futures industry and that the updated guidance was made 

available to NFA members on July 29, 2005. 

Conclusions Over the past 2 years, SEC has undertaken a number of initiatives to 

enhance its ability to collect and track CMPs and disgorgement data and, to 

a lesser extent, monitor program effectiveness. SEC’s initiatives represent a 

significant investment by the agency to improve its program. However, our 

recent audit of SEC’s 2004 financial statement and this follow-up review 

showed that SEC needs to continue improving various aspects of its 

collection program. In response to our financial audit report, SEC has 

planned a number of corrective actions to address the identified control 

weaknesses related to the recording and reporting of penalty and 

disgorgement transactions. While SEC continues to address these internal 

control issues, it could also take steps to further maximize the 

effectiveness of its additional collection resources and strengthen the 

management of its collection program. Overall, SEC staff lacks some of the 

tools and support it needs to conduct collection and track collection data. 

In particular, the inadequacies that exist within the CATS database, uneven 

supervision of collection staff, and weak coordination between the two 

units responsible for tracking collection data collectively reduce the 

efficiency with which SEC staff carry out their responsibilities.

Just as important, SEC management also does not have the appropriate 

tools to evaluate the effectiveness of the agency’s collection activities. 
Page 34 GAO-05-670 SEC and CFTC Penalties

Since expanding its collection staff, SEC has not formally assessed how 

additional resources have assisted in the collection process and alleviated 

staff attorneys’ responsibilities. Without a formal approach, SEC is not able 

to determine whether its resources are being optimally utilized. SEC also 

still does not have meaningful performance measures to assess the 

effectiveness of the agency’s collection activities, inhibiting management’s 

ability to identify and make adjustments as needed. Finally, SEC 

management has started to collect data to centrally monitor distribution 

activities to assess how well it is returning disgorgement funds to harmed 

investors, but these actions have not yet been completed. 

The Fair Fund provision has allowed for the potential for greater return of 

monies to harmed investors from securities laws violators. SEC has 

demonstrated its commitment in using this provision, and its 

implementation efforts are noteworthy. Nevertheless, to date, the majority 

of the monies collected under the provision have not been distributed to 

harmed investors. We recognize that, as with other distribution funds, the 

complexity and circumstances of a case could contribute to the lapse in 

time between the collection of the monies and subsequent distribution. 

However, because of SEC’s traditional focus on deterring fraud and the 

relatively few distributions that have taken place, we are concerned that 

SEC may not be able to ensure the timely distribution of the growing sum 

of money that has been collected as a result of the establishment of Fair 

Funds. At a minimum, SEC should have reliable and meaningful data 

available to monitor the timely and complete distribution of Fair Fund 

monies.

Recommendations for 

Executive Action

SEC has taken actions to strengthen its data tracking and management 

practices for its penalty and disgorgement collection program. However, 

the agency could take additional steps to ensure that collection staff 

members have the necessary tools and support to carry out their 

responsibilities efficiently and are being used effectively. Therefore, we 

recommend that the Chairman, SEC, take the following three actions: 

• Develop a method to ensure that case management specialists and 

collection monitors in Enforcement receive consistent supervision and 

the necessary monitoring and guidance to carry out their duties and that 

SEC management can ensure that staff are following the collection 

guidelines. 
Page 35 GAO-05-670 SEC and CFTC Penalties

• Establish procedures for staff in the OFM to notify Enforcement staff on 

a timely basis about data entered into CATS. 

• Determine the effectiveness of new case management specialists, 

collection monitors, and collection attorneys by using formal 

approaches such as periodically surveying staff attorneys that interact 

with collection staff to evaluate the assistance the staff provides.

In addition, we recommend that the Chairman, SEC, take the following 

three actions, including two that we have previously recommended, to 

continue to ensure that the collection program meets its goal of effectively 

deterring securities law violations and returning funds to harmed investors:

• Continue to identify and establish appropriate performance measures to 

gauge the effectiveness of collection activities and begin collecting and 

tracking data to implement the timeliness measure presented in SEC’s 

2004 annual performance plan, if SEC still considers that measure 

appropriate. 

• Ensure that management determines, on an aggregate basis, (1) the 

amount of disgorgement distributed each year to harmed investors, (2) 

the amount of CMPs sent to Treasury, and (3) the amount of receivers’ 

fees and other specialists’ fees and that the agency uses this information 

to more objectively monitor the distribution of monies to harmed 

investors.

• Ensure that management establishes a procedure for consistently 

collecting and aggregating its Fair Funds data to assist in the monitoring 

and managing of the distribution of monies to harmed investors and 

establishes measures to evaluate the timeliness and completeness of 

distribution efforts.

Agency Comments and 

Our Evaluation

We requested comments on a draft of this report from SEC and CFTC. Both 

agencies provided technical comments, which we have incorporated into 

the final report, as appropriate. SEC also provided written comments that 

are reprinted in appendix III. In its comments, SEC acknowledged that the 

Division of Enforcement’s efforts in data tracking and management 

practices are still in their early stages, but said that the agency is working 

diligently to strengthen its collection program. SEC also expressed 

agreement with our findings and all six of our recommendations and said 

that it is working to implement each of the recommendations.
Page 36 GAO-05-670 SEC and CFTC Penalties

Specifically, SEC is in the process of (1) developing reports and training 

programs that will allow for consistent monitoring of the collection 

program nationwide, (2) developing a system by which OFM can notify 

Enforcement about data entered into SEC’s case tracking system, (3) 

determining the effectiveness of new collection processes and staff, (4) 

revising current performance measures to more effectively determine 

program performance, (5) collecting information on the amount of 

penalties and disgorgement distributed to investors and paid to receivers, 

and (6) developing systems to collect data on Fair Fund cases. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time we will provide copies of this report to the 

Chairmen and Ranking Minority Members of the Senate Committee on 

Banking, Housing, and Urban Affairs and its Subcommittee on Securities 

and Investment; the Chairmen, House Committee on Financial Services and 

its Subcommittee on Capital Markets, Insurance, and Government 

Sponsored Enterprises; and other interested congressional committees. We 

will also send copies to the Chairman of SEC, the Chairman of CFTC, and 

other interested parties. We also will make copies available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me 

at (202) 512-8678 or hillmanr@gao.gov. Contact points for our Office of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix IV.

Richard J. Hillman

Managing Director, Financial Markets

 and Community Investment
Page 37 GAO-05-670 SEC and CFTC Penalties

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

To discuss the Securities and Exchange Commission’s (SEC) progress in 

addressing recommendations made in our 2002 and 2003 reports that were 

aimed at improving the agency’s tracking of data on civil monetary 

penalties (CMP) and disgorgement, we interviewed staff in SEC’s Division 

of Enforcement (Enforcement), Office of Financial Management (OFM), 

and Office of Information Technology (OIT) to obtain information on 

efforts they have made to implement the recommendations.1

 To gain 

further information on SEC’s activities in upgrading its tracking system, we 

reviewed relevant documents, such as an internal Case Activity Tracking 

System (CATS) data entry guide (with associated procedures), sample data 

entry forms completed by Enforcement attorneys, a draft systems 

definition document for an upgraded case tracking system prepared by an 

SEC-hired contractor, an assessment of the accuracy and completeness of 

CATS data conducted by SEC’s Office of Inspector General, and GAO’s 

audit of SEC’s financial statements for fiscal year 2004.2

 To assess the 

reliability of penalty and disgorgement data that SEC provided for the 

calculation of its collection rate, we interviewed staff in Enforcement and 

OFM about the new policies and procedures for entering data into CATS. 

We selected a random sample of 45 cases tracked in CATS to test the 

improved procedures by (1) reviewing case files for valid supporting 

source documents maintained by Enforcement staff, including final 

judgments, administrative orders, and court dockets, and (2) verifying data 

accuracy for penalty and disgorgement amounts ordered by comparing 

data recorded in source documents with data entered in CATS as of March 

2005. We concluded that for purposes of this report, the data provided by 

SEC were sufficiently reliable. 

To assess the steps SEC has taken to address our earlier recommendations 

on its management of the collection program and related issues, we 

conducted relevant testing of procedures, including those related to 

referrals and approvals of compromise offers, interviewed staff from SEC 

and other agencies involved in SEC’s collection activities, and reviewed 

pertinent documents.3

 Specifically, to evaluate the effectiveness of SEC’s 

procedures for referring delinquent cases to the Department of the 

Treasury’s (Treasury) Financial Management Service (FMS) both before 

1

GAO-03-795 and GAO-02-771.

2

Securities and Exchange Commission, Office of the Inspector General: CATS 2000 Data, 

Audit No. 331 (Washington, D.C.: Jan. 30, 2002) and GAO-05-244.

3

GAO-03-795, GAO-02-771, and GAO-01-900.
Appendix I

Objectives, Scope, and Methodology

Page 38 GAO-05-670 SEC and CFTC Penalties

and after the collection guidelines were established, we interviewed SEC 

staff to discuss the activities they took recently to refer delinquent cases to 

FMS.4

 Using our sample of 45 cases, we identified those that met the 

criteria for referral and used FMS’s records to verify that the cases had 

been referred and determine how quickly SEC submitted the referrals. 

Next, to assess SEC’s efforts to address our 2003 recommendation that the 

agency work with the securities and futures self-regulatory organizations 

(SRO) to address weaknesses in controls over fingerprinting procedures, 

we interviewed SEC staff to discuss actions taken since we made our 

recommendation and the status of the fingerprinting guidelines. We also 

obtained a draft copy of the guidelines and reviewed the additional controls 

that had been proposed to prevent inappropriate persons from being 

admitted to the securities industry.

To assess SEC’s progress in tracking SROs’ disciplinary actions and in 

implementing a new database to track them—a recommendation from our 

2003 report—we reviewed the results of the analyses that SEC’s Office of 

Compliance Inspections and Examinations (OCIE) conducted of these 

actions, as of May 2005, and an internal planning document that OIT had 

prepared. We also interviewed OCIE and OIT staff about the efforts each 

office had made to address the recommendation. Further, to address a 

recommendation related to approval of compromise offers from FMS, we 

assessed SEC’s efforts to improve its timeliness by obtaining and analyzing 

data from SEC and FMS on all of the 12 compromise offers presented by 

FMS between July 15, 2003, and January 6, 2005, to determine whether SEC 

had met its internal time frame. We also interviewed SEC and FMS staff to 

discuss the effectiveness of SEC’s policies and procedures and to obtain 

information on SEC’s efforts to work with FMS to ensure the timely 

approval of offers. 

In addition, to determine whether SEC had implemented our 2002 

recommendation that it complete an evaluation of options for addressing 

its competing priorities and increasing workload by assessing the 

feasibility of contracting out certain collection functions or increasing staff 

devoted to collections, we reviewed SEC’s study pursuant to a mandate in 

Sarbanes-Oxley Act of 2002 (SOX) to obtain the results of the feasibility

4

We included both pre- and post-collection guideline cases for penalties and disgorgement, 

because the collection guidelines apply equally to both. 
Appendix I

Objectives, Scope, and Methodology

Page 39 GAO-05-670 SEC and CFTC Penalties

assessment.5 We also reviewed and followed up on the status of the 

Securities Fraud Deterrence and Investor Restitution Act, introduced in the 

108th Congress, which included a number of legislative proposals that SEC 

had recommended in its study, such as contracting with private collection 

agencies to collect delinquent debt owed to the agency.6

 Further, we 

interviewed SEC staff to discuss recent measures taken by the agency to 

increase its collection staff. Moreover, to determine if SEC had established 

alternative measures to its collection rates, as recommended in our 2002 

report, we reviewed the agency’s 2004-2009 Strategic Plan, 2004 

Performance Plan, and 2004 Performance and Accountability Report for 

collection indicators and interviewed staff in Enforcement to obtain their 

views on using alternative measures. In addition, to determine whether 

SEC had promptly implemented its collection guidelines and taken action 

to ensure that staff followed them, we reviewed the collection guidelines 

and job descriptions for case management specialists. We conducted 

structured interviews with nine collection staff members, including two 

attorneys, one regional collection monitor, one paralegal, and five case 

management specialists, three of whom also perform collection monitors’ 

duties, to discuss their duties in relations to the collection guidelines and 

their views on the level of training they have received. SEC management 

selected these individuals based on our criteria that we speak with onethird of the new collection staff. These staff members worked in 

headquarters and regional offices in Atlanta, Boston, Denver, and Miami. 

Finally, we reviewed collection checklists and screen printouts from the 

databases used by collection staff and interviewed SEC officials who 

manage the collection program and staff to discuss their role in SEC’s case 

tracking and collection process. 

To evaluate SEC’s implementation of the Fair Fund provision, we reviewed 

Section 308 (a–c) of the act and performed a legislative search and legal 

analyses. To determine how and when SEC applies the provision, we 

reviewed information from SEC’s Web site, the agency’s CATS database, a 

sample of distribution plans and rulings on cases to which the Fair Fund 

provision had been attached, and SEC’s Rules on Fair Fund and 

Disgorgement Plans and interviewed relevant SEC staff. Further, to 

determine the number of cases and the amount of CMPs and disgorgement 

5

The feasibility assessment was part of a study done in response to SOX, SEC: Report 

Pursuant to Section 308(c) of the Sarbanes Oxley Act of 2002 (Washington, D.C.: January 

2002).

6

H.R. 2179.
Appendix I

Objectives, Scope, and Methodology

Page 40 GAO-05-670 SEC and CFTC Penalties

ordered and collected since the SOX was implemented in 2002, we 

reviewed two internal documents that summarized Fair Fund cases and 

amounts dated June 30, 2004, and April 22, 2005, and interviewed SEC staff 

on their use of the data. In addition, to gain a better understanding of the 

distribution process, we interviewed SEC staff on the data and controls 

they used to ensure that appropriate amounts were being returned to 

harmed investors. Moreover, Section 308(c) of SOX required that SEC 

report on (1) enforcement actions that SEC took to obtain CMPs or 

disgorgement for the 5-year period prior to the act’s implementation and (2) 

methods SEC used to ensure that injured investors were being fairly 

compensated. SEC issued this report in January 2003, and we reviewed it to 

determine if SEC had met the legislation’s requirement. We also performed 

a legal analysis to assess whether receiving Fair Funds affected a harmed 

investor’s ability to sue a violator through private litigation. 

To describe the actions CFTC has taken to address previous 

recommendations, we interviewed relevant CFTC staff, reviewed collection 

documents they provided and relied on CFTC’s Office of Inspector 

General’s (OIG) work. Specifically, to determine whether CFTC had 

complied with the Debt Collection Improvement Act of 1996 by referring 

delinquent debt to FMS, we relied primarily on CFTC OIG’s findings 

associated with this recommendation. In particular, we reviewed the OIG’s 

2004 and 2001 audit reports and supporting work papers for our 

assessment of the timeliness of referrals. We also reviewed CFTC’s 

documents describing its collection workflow and processes and 

interviewed CFTC’s OIG staff and CFTC staff to discuss CFTC’s procedures 

on referring debt to FMS. Furthermore, to assess the actions CFTC has 

taken to address our recommendation on strengthening fingerprinting 

controls, we conducted our work on CFTC and SEC simultaneously. We 

obtained a copy of the draft for the new fingerprinting guidelines and 

reviewed them for additional controls to preclude inappropriate individuals 

from being admitted to the futures industry. 

Finally, to calculate SEC’s collection rates for CMPs and disgorgement and 

CFTC’s collection rates for CMPs and restitution, we requested data from 

each agency on the amount of these sanctions ordered from September 

2002 through August 2004 and collected through December 2004. We chose 

September 2002 as the beginning of our time period in order to pick up 

where our 2003 report ended. As with our 2003 report, we limited our 

review to CMPs, disgorgement, and restitution ordered through August 

2004 to allow SEC and CFTC through December 2004 (4 months) to attempt 

collections. Also consistent with our 2003 report, we calculated SEC’s and 
Appendix I

Objectives, Scope, and Methodology

Page 41 GAO-05-670 SEC and CFTC Penalties

CFTC’s collection rates for all cases (open and closed cases) and closed 

cases only.7

 For purposes of our calculation, we defined open cases as 

“cases with a final judgment order that remained open while collection 

efforts continued” and closed cases as “cases with a final judgment order 

for which collection actions were completed.” We relied on SEC and CFTC 

to categorize cases as being open or closed, consistent with the above 

definition. We did not independently verify either SEC or CFTC’s 

classification of a case as being open or closed. For data provided by both 

agencies, we performed basic tests of the data’s integrity, such as checks 

for missing records and obvious errors. We concluded that the data 

provided by SEC and CFTC, for purposes of this report, were sufficiently 

reliable.

We conducted our work from August 2004 to August 2005 in Washington, 

D.C., in accordance with generally accepted government auditing 

standards.

7

In our 2003 report, we also calculated the penalty collection rate for nine self-regulatory 

organizations, in addition to SEC and CFTC.
Page 42 GAO-05-670 SEC and CFTC Penalties

Appendix II

CFTC’s Penalty and Restitution Collection 

Rates ApendxiI

We calculated the Commodity Futures Trading Commission’s (CFTC) civil 

monetary penalties (CMP) and restitution collection rates to provide 

updated information on CFTC’s activities through December 2004. As in 

our 2003 report, we calculated CFTC’s collection rate for all cases (open 

and closed) and closed cases only.1

 As shown in table 5, from September 

2002 through December 2004, CFTC’s CMPs collection rate for all cases 

ranged from 38 percent to 100 percent and for closed cases only from 98 

percent to 100 percent. 

Table 5: CFTC’s Collection Rates for CMPs Levied on All Cases and on Closed Cases Only, September 2002–December 2004

Source: GAO analysis of CFTC’s data.

a

Amounts included for 2002 are from September only. Amounts for the previous months in fiscal year 

2002 were reported in a prior report. According to data CFTC provided, during 2003 there were 12 

cases totaling $5,557,680 that were neither open nor closed but were on appeal for which CFTC 

collected $0. Similarly, during 2004, there were two cases totaling $626,000 that were neither open nor 

closed but were on appeal for which CFTC collected $0. 

Like the Securities and Exchange Commission (SEC), CFTC also imposed 

significantly larger amounts of CMPs from September 2002 through 

December 2004 compared with previous years. For example, during 2003 

CFTC imposed about $137 million in CMPs, up from $15.6 million in 2002. 

According to CFTC officials, there were three reasons for the increase. 

First, in 2002, CFTC was reorganized to leverage the Enforcement’s 

investigation and litigation resources. This reorganization allowed the 

division to file more cases and ultimately it entered into an increased 

number of judgments imposing a penalty. Second, by 2003, the 

Enforcement division was engaged in an industrywide investigation of the 

energy sector concerning attempted manipulation and false reporting 

conduct, and settlements in these cases resulted in the imposition of 

1

For purposes of our calculations, we defined open cases as “cases with a final judgment 

order that remained open while collection efforts continued” and closed cases as “cases 

with a final judgment order for which all collection actions were completed.” 

Total CMPs on all (open and closed) cases Total CMPs on closed cases only

Fiscal year Amount levied

Amount

collected

Percentage

collected Amount levied

Amount

collected

Percentage

collected

2002a $225,000 $225,000 100% $225,000 $225,000 100%

2003 137,313,266 87,410,107 64 78,697,174 77,307,229 98

2004 320,889,522 121,899,500 38 121,889,500 121,769,500 99.9

Total $458,427,788 $209,534,607 46% $200,811,674 $199,301,729 99%
Appendix II

CFTC’s Penalty and Restitution Collection 

Rates

Page 43 GAO-05-670 SEC and CFTC Penalties

approximately $250 million in CMPs. Third, following reauthorization in 

2001, CFTC’s jurisdiction over investigations of foreign exchange fraud was 

clarified; since that time, CFTC has begun to file more actions in this area. 

In one case, according to CFTC officials, a court entered separate 

judgments against the named defendants, imposing approximately $75 

million in CMPs. 

However, unlike SEC’s collection activity, CFTC’s collection rate for CMPs 

did not significantly increase over previous years. For example, from 

September 2002 through December 2004 CFTC’s CMPs collection rate for 

all cases was 46 percent. From January 1997 through August 2002, the 

agency’s collection rate was 45 percent. 

As shown in table 6, CFTC’s collection rate for restitution ranged from 4 

percent to 8 percent for all cases and was 100 percent for closed cases only.

Table 6: CFTC’s Collection Rate for Restitution Levied on All Cases and on Closed Cases Only, September 2002–December 2004

Source: GAO analysis of CFTC’s data.

Note: According to data CFTC provided, during 2003, one case totaling $219,250 was on appeal and, 

therefore, CFTC has not yet collected anything. Similarly, during 2004, one case totaling $276,557 was 

on appeal and so far has netted CFTC nothing. CFTC did not collect any restitution for closed cases 

during 2004.

a

Amounts included for 2002 are for September only. Amounts for the previous months in fiscal year 

2002 were reported in a prior report.

Total restitution on all (open and closed) cases Total restitution on closed cases only

Fiscal year Amount levied

Amount

collected

Percentage

collected Amount levied

Amount

collected

Percentage

collected

2002a 0 0 0 00 0

2003 $77,133,613 $6,461,706 8% $83,260 $83,260 100%

2004 102,169,341 3,772,249 4 0 0 0

Total $179,302,954 $10,233,955 6% $83,260 $83,260 100%
Page 44 GAO-05-670 SEC and CFTC Penalties

Appendix III

Comments from the Securities and Exchange 

Commission ApendxiI
Appendix III

Comments from the Securities and Exchange 

Commission

Page 45 GAO-05-670 SEC and CFTC Penalties
Appendix III

Comments from the Securities and Exchange 

Commission

Page 46 GAO-05-670 SEC and CFTC Penalties
Page 47 GAO-05-670 SEC and CFTC Penalties

Appendix IV

GAO Contact and Staff Acknowledgments ApendxiIV

GAO Contact Richard J. Hillman (202) 512-8678

Staff 

Acknowledgments

In addition to the individual named above, Karen Tremba, Assistant 

Director, Emily Chalmers, Ronald Ito, Grant Mallie, Bettye Massenburg, 

Marc Molino, David Pittman, Carl Ramirez, Omyra Ramsingh, and Cheri 

Truett made key contributions to this report.

(250214)
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