Division of Enforcement’s 

Disgorgement Waivers 

February 3, 2009 

Report No. 452 
UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

 OFFICE OF 

INSPECTOR GENERAL

M E M O R A N D U M 

February 3, 2009 

To: Linda Thomsen, Director, Division of Enforcement 

From H. David Kotz, Inspector General 

 

Subject: Audit of Disgorgement Waivers, Report No. 452 

This memorandum transmits the Securities and Exchange Commission, Office of 

Inspector General’s (OIG) final report detailing the results of our contractor’s 

audit on Enforcement’s Disgorgement Waiver process. 

The final report consists of 8 recommendations that are addressed to the Division 

of Enforcement. In response to the draft report, responsible management 

officials concurred with all 8 recommendations. 

Your written responses to the draft report, dated February 3, 2009, are included 

in their entirety in Appendix IV. In addition, OIG’s response to management’s 

comments are included in Appendix V. 

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

contact me. During this audit we appreciate the courtesy and cooperation that 

you and your staff extended to our contractors. 

Attachment 

cc: Peter Uhlmann, Chief of Staff, Chairman’s Office 

 Diego Ruiz, Executive Director, Office of the Executive Director 

George Curtis, Deputy Director, Division of Enforcement 

Scott Friestad, Deputy Director, Division of Enforcement 

 Joan McKown, Chief Counsel, Division of Enforcement 

Dick D’Anna, Director, Office of Collections and Distributions, Division of 

Enforcement 

Jim Clarkson, Director of Regional Office Operations, Division of 

Enforcement 

 Michelle Barrans, Senior Attorney, Division of Enforcement 

Darlene L. Pryor, Management Analyst, Office of the Executive Director 

Rick Hillman, Managing Director of Financial Markets and Community 

Investment, GAO 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452

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 EXECUTIVE SUMMARY 

 

Regis & Associates, PC, under contract with the U.S. Securities and Exchange 

Commission’s (the Commission)1 Office of Inspector General, reviewed the 

Commission’s Division of Enforcement’s (Enforcement) Disgorgement Waivers, 

granted in fiscal years 2006 through 2008. The Office of Inspector General (OIG) 

was established in March 1989, as required by the Inspector General Act of 

1978, as amended. The mission of the OIG is to promote, the integrity, efficiency 

and effectiveness of the critical programs and operations of the Commission. 

The OIG independently decides which matters it will audit and investigate. 

The OIG conducted an audit of Enforcement’s disgorgement waivers from 

November 1999 through June 2000 (Disgorgements, Audit 311). The OIG’s 

audit found that improvements were needed in the waiver process in order to 

ensure that the recommended waivers were justified. The OIG’s report 

recommended that Enforcement establish an effective organizational structure 

for reviewing disgorgement waiver requests, hire a contractor to review waiver 

requests, and evaluate the findings and recommendations provided by the 

contractor. 

The OIG conducted a follow-up audit of Enforcement’s disgorgement waivers 

from June 2004 to December 2004 (Disgorgements, Audit 384) to evaluate the 

adequacy of Enforcement’s written procedures for the waiver process, and to 

determine the extent of compliance with those procedures. The follow-up audit 

(Audit 384) found that further improvements were still needed in the internal 

controls and guidance for reviewing disgorgement waivers. Specifically, the 

follow-up audit noted instances where Enforcement’s staff did not obtain the 

required information to corroborate a defendant/respondent’s financial 

statement assertions (e.g., credit reports, income tax returns, Lexis/Nexis or 

other Internet searches). Additionally, the OIG follow-up audit found that 

Enforcement’s guidance did not clearly state whether certain steps were 

required or optional, and did not provide guidance on the handling of cases 

where defendants/respondents did not provide the requested documentation. The 

OIG follow-up audit report contained several recommendations, including that: 

Enforcement should implement adequate internal controls to ensure that all 

required documentation such as tax returns, database searches, and credit 

reports be obtained and reviewed by a Supervisor; Enforcement should consider 

making the Checklist a mandatory item to be completed and placed in the 

waiver file; and Enforcement should implement adequate internal control 

policies and procedures to ensure that that the staff attorneys are trained in the 

disgorgement waiver process. 

 

1

 See Acronyms used in Appendix I. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

ii

 

OIG’s current audit found that while progress has been made in Enforcement’s 

disgorgement waiver process, some concerns (including some deficiencies that 

the OIG previously identified), remain. Our review consisted of 63 investigations 

where 72 defendants/respondents received disgorgement waivers totaling 

$123,070,681.52 that originated between October 1, 2005 and May 31, 2008 

based on their inability to pay. 

The results of our audit are as follows. Our review has identified three cases in 

which full waivers were granted, totaling $841,580, even though the 

defendants/respondents appeared to have the ability to pay at least some portion 

of the disgorgement amounts and thus, either partial payment and/or a payment 

plan should have been considered. Specifically, we determined that these 

defendants/respondents had substantial assets, good credit scores, positive net 

worth, and/or positive monthly net income. 

The audit also revealed two instances where the assets were not accurately 

reported on the sworn financial statements (SFS). The SFS, submitted by 

defendants/respondents, are the foundational documents in the disgorgement 

waiver review process. These documents state the assertions of the 

defendants/respondents regarding their assets, income, liabilities, and expenses. 

Specifically, we identified two defendants/respondents who underreported assets 

totaling at least $386,237.78. Our analysis is based on the inability to reconcile 

the amounts reported on the SFS to the corresponding supporting 

documentation and information obtained through public database searches. 

In addition, our review found that in 56 instances, Enforcement did not follow its 

procedures requiring its staff to obtain adequate supporting documentation for 

the dollar amounts on the defendants/respondents’ SFS.2

 In addition, the staff 

did not document why certain procedures were not followed (e.g., why certain 

documentation was not obtained). Following these procedures is important 

because it helps ensure that waiver requests are only granted to persons with a 

proven inability to pay. 

Assets such as cash, securities, real estate, automobiles, and notes receivable, 

reported on the SFS for seven defendants/respondents, were not supported by 

documentation, such as bank statements and asset titles. The liabilities 

reported on the SFS for 21 defendants/respondents were not supported by 

documentation, such as mortgage statements and credit card statements. 

Furthermore, income and expense information reported on the SFS were not 

always supported by the needed documentation. 

2

 Some individuals may be listed more than once because we found missing documentation with respect to their 

income and expenses, for instance. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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The review found one instance where the SFS was apparently not prepared or 

provided to us. Also, the SFS for one defendant/respondent was not signed and 

notarized. 

The audit further found 24 instances where the checklists that are required for 

maintaining, reviewing and confirming the SFS were either not provided in the 

file, or not signed as required. We also found 34 instances where credit reports, 

bank statements and income tax returns were not provided or obtained, or 

signed as required. 

The review further found that Enforcement had no formal or comprehensive 

training programs for the staff who are responsible for reviewing the 

disgorgement waiver requests. The provision of formal training for those staff 

would provide them with a comprehensive understanding regarding the 

disgorgement waiver review process. Given the complexity and the level of 

sensitivity, it is critical that the staff who review waiver requests are provided 

with the requisite resources, including adequate training in new technology, 

skills, and applicable regulatory standards. 

The audit report contains eight recommendations,3

 including that: Enforcement 

ensure that staff comply with its procedures and consider partial payments 

plans and partial waivers where defendants/respondents have the ability to pay 

some portion of the disgorgement amount; ensure review of 

defendants/respondents’ financial information for accuracy prior to 

recommending a disgorgement waiver; clarify its policies regarding when 

supporting documentation should be obtained; implement adequate internal 

controls to ensure that all required documentation such as tax returns, database 

searches, and credit reports be obtained and reviewed by a supervisor; and 

implement adequate internal control policies and procedures to ensure that the 

staff attorneys are trained in the disgorgement waiver process. 

Based on our review, we noted total cost savings amounting to $386,237.78 

represented underreported assets. These figures are detailed and reported in 

Appendix II of this report. 

The findings and issues noted above are discussed in detail in this report. The 

report provides eight recommendations, which if implemented, would help 

improve controls over the granting of disgorgement waivers.4 

3

 See Appendix III for a list of the recommendations. 

4

 Management’s comments are attached in Appendix IV and our response is in Appendix V. 
TABLE OF CONTENTS

EXECUTIVE SUMMARY............................................................................................i 

INTRODUCTION .......................................................................................................1 

 Background.......................................................................................................1 

 

 Objectives, Scope, and Methodology ................................................................4 

FINDINGS AND RECOMMENDATIONS.................................................................9 

 

APPENDIX

Appendix I – Acronyms Used....................................................................................38 

Appendix II – Schedule of Cost Savings...................................................................39 

Appendix III – List of Recommendations.................................................................40 

Appendix IV – Management Comments ..................................................................42 

Appendix V – OIG Response to Management Comments .......................................61 

Appendix VI – Criteria..............................................................................................63 

 

 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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INTRODUCTION 

Background 

The Securities and Exchange Commission (the Commission) is a United 

States government agency, created by Congress to enforce the federal 

securities laws and regulate the securities market. The Commission was 

created by Section 4 of the Securities Exchange Act of 1934 (1934 Act). In 

addition to the 1934 Act that created it, the Commission enforces the 

Securities Act of 1933, the Trust Indenture Act of 1939, the Investment 

Advisors Act of 1940, the Investment Company Act of 1940, and the 

Sarbanes-Oxley Act of 2002. The Commission is comprised of five 

Commissioners, one of which includes the Chairman, who are appointed by 

the U.S. President, and approved by the Senate. The statutes administered 

by the Commission are designed to promote full public disclosure, and to 

protect the investing public against fraudulent and manipulative practices in 

the securities market. 

The Division of Enforcement (Enforcement) was created in August 1972, to 

consolidate enforcement activities that previously had been handled by the 

various operating divisions at the Commission's headquarters in Washington, 

D.C. The Commission's enforcement staff5

 conducts investigations into 

possible violations of the federal securities laws, and prosecutes the 

Commission's civil suits in the federal courts, as well as its administrative 

proceedings. 

In civil suits, the Commission seeks injunctions, which are orders that 

prohibit future violations. A person who violates an injunction is subject to 

fines or imprisonment for contempt. In addition, the Commission often seeks 

civil monetary penalties and the disgorgement of illegal profits, or losses 

avoided. The courts may also bar or suspend defendants from acting as 

corporate officers or directors. 

The Commission can bring a variety of administrative proceedings, which are 

heard by administrative law judges and the Commission itself, if appealed. 

Proceedings for a cease and desist order may be instituted against any person 

who violates the federal securities laws. The Commission may order the 

respondent to disgorge ill-gotten funds in these proceedings. With respect to 

regulated entities (e.g., brokers, dealers and investment advisers) and their 

employees, the Commission may institute administrative proceedings to 

 

5

 For purpose of this report, “Enforcement staff” includes those staff in the Commission’s Regional Offices. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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revoke or suspend registration, or to impose bars or suspensions from 

employment. In proceedings against regulated persons, the Commission is 

authorized to order the payment of civil penalties, as well as disgorgement. 

The Commission’s Division of Enforcement is responsible for reviewing 

disgorgement waiver requests. Disgorgements represent ill-gotten gains, or 

losses avoided, resulting from individuals or entities violating the federal 

securities laws. The Commission seeks disgorgements in order to ensure that 

securities law violators do not profit from their illegal activities. When 

appropriate, the disgorged funds are returned to injured investors. Penalties 

are also levied on violators of federal securities laws as appropriate. 

Disgorgements and penalties may be ordered in either administrative 

proceedings or civil actions, and the cases may be settled or litigated. 

Enforcement can recommend to the Commission that disgorgements be 

completely or partially waived, based on the defendant/respondent’s 

demonstrated inability to pay, among other policy reasons. In reviewing a 

waiver request, the enforcement procedures require the staff to request 

sworn financial statements. See Recommending Financial Waivers and 

Payment Plans to the Commission revised as of January 14, 2005 

(hereinafter, referred to as “Enforcement’s policies and procedures governing 

the disgorgement waiver process.”) The defendants/respondents are required 

to attach copies of the following documents to the sworn financial statements 

submitted: 

• Federal income and gift tax returns, including schedules and 

attachments associated with them; 

• Bank account statements; 

• Credit card and brokerage account statements, insurance policies, 

mortgage documentation; 

• Any financial statement prepared by the defendant/respondent, 

including bankruptcy schedules; and 

• Documents evidencing current loans. 

Additionally, Enforcement’s staff are required to conduct a credit check on 

the defendants/respondents, and perform Internet or Lexis/Nexis searches on 

the defendants/respondents, as well as their relatives and friends in certain 

instances. These searches are to corroborate the defendants/respondents’ 

stated financial condition and to identify hidden assets, overstated liabilities, 

unreported income, and overstated expenses. The financial statements 

provided by the defendants/respondents show their assets, liabilities, income 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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and expenses. In cases where the Commission waives the disgorgements, 

penalties are not assessed against the defendants/respondents. 

In Fiscal Year (FY) 2006, the Commission initiated 914 investigations, 218 

civil proceedings, and 356 administrative proceedings.6

 These proceedings 

covered a wide range of issues. Major areas of enforcement activity were: 

corporate financial fraud, including abusive backdating of stock options; 

compliance failures at self-regulated organizations and broker-dealers; and 

fraud related to mutual funds. The Commission’s enforcement cases resulted 

in a total of more than $3.3 billion in disgorgements and penalties ordered 

against securities law violators during FY 2006. Whenever practical, the 

Commission sought to return funds to harmed investors, through the use of 

the “fair fund“ provision of the Sarbanes-Oxley Act.7

For FY 2006, FY 2007, and the time period from October 1, 2007 through 

May 31, 2008, the Commission granted waivers in the amounts of $73.5 

million, $67.8 million, and $37.1 million, respectively.8

Based on the OIG’s prior findings involving the disgorgement waiver process 

mentioned above, the OIG contracted Regis & Associates, PC to conduct a 

review of Enforcement’s disgorgement waiver process. 

6

 GAO-07-134 Financial Audit, Securities and Exchange Commission’s Financial Statements for Fiscal 

Years 2006 and 2005. 

7

 Section 308 of the Sarbanes Oxley Act of 2002, 15 U.S.C. § 7246. 

8

 Source: The Phoenix computer system which is maintained by the Division of Enforcement. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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Objectives, Scope and Methodology 

Objectives 

Our review objectives were to: (a) evaluate Enforcement’s disgorgement 

waiver process’ compliance with governing policies and procedures and 

identify possible improvements, (b) determine whether 

defendants/respondents misrepresented their financial position to 

Enforcement in seeking disgorgement waivers, (c) quantify the 

defendants/respondents’ actual amount of undisclosed assets, overstated 

liabilities, underreported income and overstated expenses, versus the stated 

amounts, and (d) follow up on prior OIG recommendations. 

Scope and Methodology 

Regis & Associates, PC, was requested by the Securities and Exchange 

Commission – Office of Inspector General (OIG) to provide professional 

services in conducting a review of the Division of Enforcement’s disgorgement 

waivers. The scope of the professional services was limited to a review of the 

investigative case files for each defendant/respondent included in a sample 

that was judgmentally selected by Regis & Associates, PC in consultation 

with the OIG. Regis & Associates, PC reviewed 63 investigations, which 

represented 72 individual defendants/respondents and entities who received 

either a full or partial disgorgement waiver. Our audit fieldwork was 

performed from July 7 through August 29, 2008, using procedures approved 

by the OIG. The review methodology is detailed below. 

 

Our methodology was designed by utilizing a risk-based approach. The 

review consisted of several processes including: reviewing policies and 

procedures governing the disgorgement waiver process; conducting 

interviews and walk-through procedures with appropriate Enforcement 

personnel to document our understanding and observe the actual processes 

in-place; identifying high risk areas; and, detailed testing of selected 

disgorgement waiver case files. We performed research and also consulted 

with the staff at the Commodities and Futures Trading Commission to 

identify possible best practices in the disgorgement waiver process. 

We held a planning meeting and conducted an entrance conference with 

officials from the OIG and Enforcement. We also obtained and reviewed 

Enforcement’s policies and procedures governing the disgorgement waiver 

process. Based on our preliminary discussions with officials of the 

Commission, we identified potential risk areas regarding the disgorgement 

waiver process. These included: 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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• Inadequate policies or processes for reviewing sworn financial 

statements and other documentation submitted by the 

defendants/respondents during the waiver process (e.g., 

Enforcement had not adopted a comprehensive procedure for 

finding hidden assets, revenues, etc.); 

• Inadequate guidance for the review of disgorgement waiver case 

files; 

• Lack of comprehensive training for staff involved in the 

disgorgement waiver process; 

• The possibility that Enforcement staff could have conducted 

substandard work when reviewing a waiver, in light of incentives to 

close out investigations in a swift and timely fashion; 

• Insufficient documentation supporting disgorgement waiver 

recommendations granted to defendants/respondents; and 

• The inability of Enforcement staff to identify or find hidden 

assets/revenues, and overstated liabilities/expenses of 

defendants/respondents. 

Sample Size Selection 

Enforcement provided the OIG with a list (from Enforcement’s Phoenix 

system) of approved disgorgement waivers that were granted during fiscal 

years (FY) 2006, 2007, and the time period between October 2007 and May 

2008, based on the defendants/respondents’ inability to pay, among other 

policy reasons. The OIG requested that we review approximately 30 percent 

of the waiver cases in both FY 2006 and 2007, and 100 percent of the waiver 

cases in FY 2008 (as of May 31, 2008). This resulted in a total of 63 

investigations, which involved 72 defendants/respondents. The table below 

shows the number and amount of disgorgement waivers granted by 

Enforcement during FY 2006; 2007; and October 1, 2007 to May 2008, based 

on the defendants/respondents’ inability to pay, among other policy reasons, 

and the resulting sample size for each of the three years under review. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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Table 1. Sample Size for FYs 2006 – 2008 

 

Fiscal 

Year 

 

 

 

Total Amount 

Waived 

Approved 

Waiver 

Cases 

Sample 

Percentage 

 

 

 

Sample Size 

Reviewed 

 

 

 

Sample Size 

Amount 

 

 

Sample 

Size 

Percentage

2006 $ 72,647,699.20 62 30% 18 $ 58,132,302.70 80% 

2007 $ 67,814,563.84 61 30% 18 $ 27,795,120.83 41% 

20089 $ 37,143,257.99 27 100% 27 $ 37,143,257.99 100% 

Total $ 177,605,521.03 150 63 $ 123,070,681.52 

 Source: Generated by Regis & Associates, PC, based on information provided by Enforcement. 

The 63 selected files represented disgorgement waivers, totaling 

$123,070,681.52, which is approximately 70% of the $177,605,521.03 in total 

waivers granted, based on inability to pay, among other policy reasons, for 

the period of FY 2006 through May 31, 2008. The case selection for FYs 2006 

and 2007 was based on a combination of high-dollar value disgorgement 

waiver cases and judgmental samples. The case selection also took into 

account the type of case (e.g., insider trading, market manipulation, etc.). 

Enforcement provided us with a population of 153 cases of disgorgement 

waivers, totaling $178,614,289. Based on our review of the applicable Action 

Memoranda detailing Enforcement’s recommendation to the Commission, we 

determined that waivers had actually not been granted for three of those 

cases. We, accordingly, eliminated those three cases from the population. 

This resulted in a new population of 150 cases, totaling $177,605,521.03 in 

actual waivers, granted for the period under review. Based on our 

discussions with the OIG, we further eliminated 14 investigations from the 

population because the investigations in question were particularly 

sensitive.10 This resulted in a new waiver case population of 136, totaling 

$176,406,074.49. The final population for the sample is shown below in Table 

2. 

 

9

 For the period October 1, 2007 to May 31, 2008. 

10 These 14 investigations were described as involving very unique circumstances, e.g., confidential 

informants, that were unrelated to the waivers, and that did not lend itself to this type of expedited review. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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Table 2 Final Population 

 

 

Number of 

Accounts Amount Waived 

FY 2006 49 $ 71,771,321.69 

FY 2007 60 $ 67,491,494.81 

FY 2008 27 $ 37,143,257.99 

Total 136 $ 176,406,074.49 

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

For the 63 case files identified in Table 1, we reviewed the related 

documentation to determine whether the recommendations for the waivers 

were based on well-informed decisions. We also reviewed the case files to 

determine whether the required documentation such as the SFS, the 

Checklists for Reviewing Sworn Financial Statements (the Checklists), and 

the defendants/respondents’ income tax returns, credit reports, bank and 

brokerage statements and bankruptcy schedules (where appropriate) were 

obtained and reviewed by Enforcement staff. We reviewed the SFS to ensure 

that they were signed by the defendants/respondents and notarized. We 

reviewed the checklists for completeness and for evidence of supervisory 

review. We compared the amounts reported on the defendants/respondents’ 

SFS to the related supporting documentation, such as bank and brokerage 

statements, bills, settlement sheets for real estate transfers, tax returns, and 

loan documents. We reviewed the defendants/respondents’ tax returns to 

ascertain any income or indications of assets reported to the IRS, which may 

not have been reported on the SFS. We reviewed bank and credit card 

statements for large transfers from the defendants/respondents’ accounts, 

which may indicate income, purchases, or dispositions of assets, which may 

not have been reported on the SFS. We reviewed the 

defendants/respondents’ credit reports for indications that the 

defendants/respondents may have overstated their liabilities and expenses, 

and to determine their credit standing. 

Use of Computer Processed Data 

We used computer-processed disgorgement waiver data maintained in 

Enforcement’s Phoenix System, which was provided to the OIG. We verified 

the arithmetical accuracy of the computations. We did not test the internal 

controls over the Phoenix System to determine data integrity and reliability. 

We also used the following public databases to search for, to the extent 

possible, financial information relating to the selected 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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defendants/respondents: Choicepoint/Autotrack, Lexis/Nexis, and Westlaw. 

The constraints involved in utilizing the various public databases included 

restrictions imposed by State laws and regulatory institutions on the nature 

and type of financial information about individuals that was allowed on 

public search databases. 

Prior Audit Coverage 

We followed up on recommendations noted in the OIG Audit Reports 31111

and 38412 to determine the corrective measures implemented by Enforcement 

in the disgorgement waiver review process. 

We conducted this review in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

review to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our review objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our review objectives. 

11 Audit Report 311 (Title: Disgorgements) dated January 11, 2001. 12 Audit Report 384 (Title: Enforcement Disgorgement Waivers) dated January 18, 2005. 
 

FINDINGS AND RECOMMENDATIONS 

 

Finding 1: Defendants/Respondents Appear to Have 

the Ability to Pay at Least Some Portion 

of the Disgorgements Waived 

Individuals or entities that violate federal securities laws may be required to 

pay disgorgements and/or penalties. If the individuals or entities assert they 

do not have the ability to pay, they may request a waiver of the amount owed. 

These individuals or entities are required to submit SFS detailing their 

financial condition. Upon receipt, Enforcement staff attorneys review the 

SFS to determine whether they are indeed unable to pay the stated 

disgorgement amount and/or penalties (as appropriate). Our review of 72 

disgorgement waivers identified three instances where the 

defendants/respondents appeared to have some ability to pay at least some 

portion of the disgorgement amounts waived. Specifically, we determined 

that these defendants/respondents had substantial assets, good credit scores, 

positive net worth, and positive monthly net income, yet requested and 

obtained full disgorgement waivers. Table 3 identifies the three cases in 

which the defendants/respondents appeared to have some ability to pay at 

least a portion of the disgorgement. 

 

Table 3. Defendants/Respondents with Ability to Pay. 

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Reference 

Number 

Total Amount 

Waived 

DFD-3(a) 320,000.00

DFD-3(b) 320,000.00

DFD-40 521,580.00

Total $841,580.0013

 Source: Generated by Regis & Associates, PC, 

 based on information provided by Enforcement. 

 

13 Reference number DFD-3 involves two defendants/respondents who were jointly and severally liable for 

the disgorgement amount of $320,000, which was waived, and therefore, this amount was counted once in 

the computation of the total amount waived. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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The specific factors involved in each case are described below: 

For reference number DFD-3(a), we noted that the individual had a positive 

monthly net income of $4,717.54 and a positive net worth of $12,410. 

During our review of the action memorandum, Enforcement’s staff attorneys 

stated, “It is noteworthy that the individual has no prior disciplinary or 

criminal history, and that he was cooperative throughout the litigation and 

expressed remorse to the staff for his wrongdoing.” While we acknowledge 

that Enforcement is entitled to use subjective considerations such as criminal 

history and the level of cooperation of the individual in the recommendation 

for the waiver, based on the individual’s net income and net worth, we 

determined that Enforcement should have considered the possibility of 

arranging a payment plan for the individual to pay at least some portion of 

the disgorgement amount waived. 

For reference number DFD-3(b), we noted that the individual had a positive 

net worth of $481,139.97 and good credit scores of 776, 781, and 797. 14 The 

individual’s net worth included notes receivable totaling $373,704. However, 

in the analysis of the individual’s financial condition with regard to his 

ability to pay the disgorgement, Enforcement excluded the notes receivable of 

$373,704 on the basis that these notes were uncollectible in the near future. 

We were unable to obtain adequate supporting documentation such as the 

audited financial statements of the debtor entities in question to support the 

assertion that they were insolvent, thus, rendering the notes receivable 

uncollectible. 

In recommending the waiver, Enforcement’s action memorandum stated that 

the individual had no prior disciplinary or criminal history, was cooperative 

throughout the litigation, and expressed remorse for his wrongdoing. While 

we note that Enforcement is entitled to use subjective considerations such as 

criminal history and the level of cooperation of the individual, in the 

recommendation for the waiver, based on the individual’s positive net worth 

and good credit scores, we determined that Enforcement should have 

considered the possibility of arranging a payment plan for the individual to 

pay at least some portion of the disgorgement amount waived. 

For reference number DFD-40, we noted that the individual had a positive 

net worth of $18,115 and good credit scores of 697, 709, and 715. In 

recommending the waiver, the Enforcement stated in the action 

14 A good credit score generally indicates that the defendant/respondent is meeting his or her current 

financial obligations in a timely manner. Enforcement stated that they never directed the staff to base their 

waiver recommendation on credit scores. However, we believe that a good credit score is one of the factors 

that indicate that the defendant/respondent may be in a position to pay at least some of the disgorgement. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

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memorandum that the individual had no resources to pay the disgorgement 

amount, and that he had agreed to act as a witness against other individuals 

in another litigation. However, Enforcement’s procedures do not specifically 

allow waivers to be based upon a consideration that the 

defendant/respondent agreed to act as a witness in litigation. Moreover, 

based on the positive net worth and good credit scores identified above, we 

determined that Enforcement should have considered the possibility of 

arranging a payment plan for the defendant/respondent to pay at least some 

portion of the disgorgement amount waived. 

The audit found that in the above-referenced cases, Enforcement should have 

considered arranging payment plans so that some portion of the ill-gotten 

gains (or losses avoided) could be recaptured by the Government and 

provided to injured investors, as appropriate. 

Pursuant to Enforcement’s Recommending Financial Waivers and Payment 

Plans to the Commission (page 12), partial waivers may be combined with 

payment plans. These procedures specifically contemplate situations where a 

defendant/respondent’s net worth and/or potential income is insufficient to 

satisfy the entire disgorgement order and recommends that partial payments 

be made, even if the payment “barely makes an impact on the full amount of 

defendants’ ill-gotten gain.” 

Recommendation 1: 

Enforcement should undertake appropriate actions to ensure that staff 

comply with its procedures and consider payment plans and partial waivers 

in situations where defendants/respondents have the ability to pay some 

portion of the disgorgement amount. 

 

 

Finding 2: Assets Stated on the SFS Were Found to be 

Inaccurate 

Enforcement’s procedures (page 3) require staff attorneys to review 

defendants/respondents’ SFS to reasonably ensure that the information they 

provided is an accurate assessment of their financial condition. The staff 

attorneys are required to obtain documentation to support the 

defendants/respondents’ assets, liabilities, and income.15 The staff attorneys 

are also required to perform public database searches on the 

15This was noted in Enforcement’s policies and procedures governing the disgorgement waiver process (at 

pages 4 and 5). 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

12

defendants/respondents to corroborate their assets, liabilities, and stated 

income. We identified two instances where the assets were not accurately 

stated on the SFS. Specifically, we were unable to reconcile the amounts 

reported on the SFS to the supporting documentation and public database 

searches. 

Assets totaling at least $386,237.78 for two defendants/respondents were 

underreported. Table 4 identifies the two cases in which assets were 

underreported on the SFS. 

 

Table 4. Assets Underreported 

Reference 

Numbers 

Amount 

Waived 

Assets Under 

Reported 

DFD-46 231,633.00 12,533.78

DFD-3(b) 320,000.00 373,704.00

TOTAL $944,018.39 $386,237.78

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

The specific factors involved in each case are described below: 

For reference number DFD-46, we noted that the funds identified on the 

individual’s bank statement were not included in the individual’s final SFS. 

Specifically, the individual’s bank statement identified funds in the amount 

of $12,533.78; however, these funds were not reported on the individual’s 

SFS. This indicates that the subject individual’s financial status was not 

accurately reported on the SFS. 

For reference number DFD-3(b), we noted that Enforcement indicated in the 

action memorandum that notes receivable for the individual in the amount of 

$373,704 were considered to be uncollectible, based on the fact that the 

debtor entities were insolvent, illiquid, and unassignable. However, the 

notes receivable were included as an asset in the individual’s SFS. We were 

unable to obtain adequate supporting documentation such as the audited 

financial statements of the debtor entities in question to support the 

assertion that they were insolvent, thus, rendering the notes receivable 

uncollectible. 

 

Pursuant to the procedures (page 2), “the staff must take special care to make 

sure that it has as much information as it can reasonably obtain about the 

defendant’s financial condition ...and that it has carefully considered whether 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

13

 

a waiver is appropriate.” Additionally, “the staff must analyze the SFS to 

obtain reasonable assurance that it is accurate.” 

We concluded that in the above-identified cases, due to the absence of 

adequate supporting documentation, the defendant/respondent’s assets were 

underreported. As a result, the subject defendants/respondents’ 

disgorgement waiver requests were granted based on the inaccurate financial 

information of the defendants/respondents. 

 

Recommendation 2: 

Enforcement should undertake appropriate actions to ensure that it reviews 

the defendants/respondents’ financial information for accuracy prior to 

recommending a disgorgement waiver. 

Finding 3: Adequate Supporting Documentation for 

Assets, Liabilities, Income, and Expenses of 

all Defendants/Respondents Should be 

Obtained and Retained 

During the disgorgement waiver investigation process, 

defendants/respondents submit supporting documentation for assets, 

liabilities, income, and expenses reported on the SFS. The supporting 

documentation includes bank statements, credit reports, asset titles, vendor 

statements, pay stubs, and receipts. The staff attorneys then review the 

documentation to corroborate the financial assertions stated on the SFS. We 

noted several instances where adequate supporting documentation was not 

provided for the assertions on the SFS. 

Pursuant to the procedures, the Enforcement staff “must assess how the 

specific items on the SFS affect the defendant’s ability to pay and our 

practical and legal ability to collect on a monetary judgment.”16 This 

necessitates the review of adequate supporting documentation to corroborate 

the amounts stated on the SFS. Furthermore, the procedures direct 

Enforcement Staff to obtain information such as bank statements, credit card 

statements, brokerage account statements, insurance policies, and mortgage 

documentation, where appropriate, to support the defendant/respondent’s 

financial assertions. 

16 This was noted in Enforcement’s policies and procedures governing the disgorgement waiver process (at 

page 7). 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

14

Our audit found that adequate supporting documentation for assets, 

liabilities, income and expenses of all defendants/respondents was not always 

retained, and some waivers were granted based on unsubstantiated amounts 

reported on the defendants/respondents’ SFS. The OIG’s Audit Report 384, 

dated January 18, 2005 also revealed similar internal control weaknesses. 

Assets not Supported by Adequate Documentation 

The assets reported on the SFS for seven of the 72 defendants/respondents 

we reviewed were not supported by documentation such as bank statements 

and asset titles. These reported assets included cash, real estate, 

automobiles, and notes receivable. As a result of the unavailability of 

adequate supporting documentation, we were unable to determine the 

validity of assets reported by the defendant/respondent and thus, it is 

possible that the defendants/respondents underreported certain assets. 

Table 5 identifies the seven cases in which assets on the SFS were not 

supported by adequate documentation. 

 Table 5. Assets not Supported by Adequate Documentation 

 

Reference 

Numbers 

Amount 

Waived 

Amount 

Unsupported 

DFD-13 284,385.82 14,900.00

DFD-32(b) 9,941,200.00 3,303,000.00

DFD-42 392,385.39 419,049.00

DFD-27 1,057,542.63 23,315.00

DFD-52 31,266.75 23,595.00

DFD-23 645,945.00 57,860.96

DFD-15 181,822.00 143,780.00

TOTAL $12,534,547.59 $3,985,499.96

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

The specific factors involved in some of the cases are described below: 

For reference number DFD-13, we noted that the action memorandum 

identified a vacant lot, valued at $14,900 in the name of individual. This 

property was not reported in the individual’s SFS. In the action 

memorandum, Enforcement indicated that it excluded the value of the lot in 

the computation of the individual’s net worth because the individual claimed 

that the lot was sold to a partner and that since the individual’s net worth 

was negative, its waiver analysis would not have changed anyway. However, 

Enforcement decided to rely solely on the claim by the individual and did not 

pursue the matter to determine true ownership of the property. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

15

For reference number DFD-32(b), we were unable to locate documentation 

supporting the assets reported by the individual on the SFS. Enforcement 

indicated that this documentation was in the possession of another federal 

entity and that due to the voluminous nature of the records, copies of the 

supporting documentation were not made. 

For reference number DFD-42, the individual’s SFS identified assets totaling 

$419,049.00; however, no supporting documentation such as bank statements 

was provided to support the SFS assertions. 

For reference number DFD-27, the individual had several vehicles, only one 

of which was included on the SFS. We specifically identified three vehicles 

that were not reported on the individual’s SFS. These three vehicles, which 

were registered in the names of either the individual or his spouse, were 

identified through public database searches on the individual. Enforcement 

stated that one of the vehicles was actually a leased vehicle belonging to the 

individual’s spouse. Enforcement stated that the second vehicle was not 

reported because the vehicle in question was a 1984 Nissan that has virtually 

no resale value, and thus, was excluded in the analysis of the individual’s 

financial condition. Enforcement stated that the third vehicle actually 

belonged to the individual’s son, who shared the same name with the 

individual. 

Enforcement maintained that it did not further investigate the claim that the 

son owned the vehicle because of its nominal value, although it did make 

inquiries to confirm the son’s name and that he lived at the same address 

where the vehicle was registered. However, Enforcement failed to explain in 

the action memorandum as to why the vehicle in question was not reported 

by the individual on the SFS. Furthermore, we were unable to obtain 

evidence to support the fact that the third vehicle noted above, belonged to 

the son of the individual. In addition, we were unable to obtain 

documentation to confirm that one of the vehicles noted above was actually a 

leased vehicle. 

For reference number DFD-52, the individual’s SFS identified assets in the 

amount of $23,595, however, no supporting documentation was provided to 

support the SFS’ assertion. 

For reference number DFD-23, the individual’s SFS identified bank and 

brokerage account balances totaling $57,860.96, however, no supporting 

documentation such as bank statements was provided to support the SFS’ 

assertions. Enforcement stated that prior to the individual’s settlement offer, 

he transferred the bulk of his funds ($45,000) to his attorney's trust account 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

16

to pay the disgorgement, and that they discussed the individual’s financial 

condition with the Court-Appointed Receiver. However, no documentation 

was found in the file to support these contentions. 

For reference number DFD-15, the individual’s SFS identified assets in the 

amount of $143,780, however, no supporting documentation was provided to 

support the SFS assertion. 

Liabilities not Supported by Adequate Documentation 

The liabilities reported on the SFS for 21 of 72 defendants/respondents were 

not supported by any documentation such as mortgage and credit card 

statements. These reported liabilities included mortgages, loans, and credit 

card debt. As a result of unsupported liabilities, it is possible that the 

liabilities do not exist or are inflated. Table 6 identifies the 21 cases in which 

liabilities were not supported by documentation. 

 Table 6. Liabilities not Supported by Documentation 

Reference 

Numbers Amount Waived 

Unsupported 

Liabilities 

DFD-2 $ 881,000.00 $ 200,000.00 

DFD-21 1,716,590.00 85,000.00 

DFD-44 351,537.13 18,275.00 

DFD-20 2,564,987.00 11,931.38 

DFD-36 1,573,825.24 186,079.00 

DFD-13 284,385.82 8,000.00 

DFD-32(a) 9,941,200.00 213,221.08 

DFD-32(b) 9,941,200.00 810,515.00 

DFD-52 31,266.75 71,721.00 

DFD-46 231,633.00 3,500.00 

DFD-53 18,308.00 6,663.00 

DFD-3(b) 320,000.00 579,753.00 

DFD-40 521,580.00 31,340.00 

DFD-50 115,000.00 10,051.00 

DFD-41 447,600.00 16,705.00 

DFD-38 906,326.65 14,000.00 

DFD-16 69,004.00 468,083.00 

DFD-33(a) 5,233,746.00 8,044.00 

DFD-30 640,704.00 14,473.00 

DFD-15 181,822.00 143,757.00 

DFD-24 223,665.32 5,500.00 

TOTAL $26,254180.91 17 $2,906,611.46 

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

 

17 Reference number DFD-32 involves two defendants/respondents who received a combined waiver 

amount of $9,941,200.00; therefore, this amount was counted once in the computation of the total amount. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

17

 

The specific factors involved in these cases are described below: 

For reference number DFD-2, Enforcement indicated in the action 

memorandum that the tax liability in the amount of $200,000 reported on the 

individual’s SFS was an estimate because the tax returns were never filed, 

and that they relied on this assertion when computing the individual’s net 

worth.18 However, as a result of our inability to obtain the needed supporting 

documentation, we were unable to determine the validity of the tax liability 

reported by the individual. 

For reference number, DFD-21, the individual reported liabilities totaling 

$85,000 that were unsupported. Of that amount, $65,000 was an estimated 

tax liability while the other $20,000 was for attorney fees. Enforcement 

verified the individual’s non-filing status with IRS, however, documentation 

to support the amount of the individual’s estimated tax liability was not 

provided. Also, we were unable to obtain supporting documentation such as 

invoices to support the attorney fees reported by the individual on the SFS. 

It is worth noting that Enforcement stated that given the individual’s high 

negative net worth, the validity of these unsupported liabilities may not have 

changed the partial waiver recommendation since they had already collected 

every available asset. 

For reference number DFD-44, the SFS identified auto loans in the amount of 

$18,275. However, no supporting documentation was provided. Enforcement 

agreed; although noted that given the individual’s negative net worth, the 

auto loans may not have impacted the waiver recommendation. 

For reference number DFD-20, the SFS identified a liability for Canadian 

property management fees in the amount of $11,931.38. Enforcement stated 

that they provided documentation for this liability, totaling $11,931.38; 

however, we could not find any supporting documentation for the liability in 

the individual’s case file. Enforcement did not believe that its failure to 

obtain documentation for this liability affected their assessment of the 

individual’s financial condition given his significant documented liabilities. 

For reference number DFD-36, we noted a discrepancy between the amount 

of an auto loan listed on the individual’s SFS and the individual’s credit 

report. The individual’s SFS identified an auto loan in the amount of 

$45,000; however, only $25,275 of the total amount of the auto loan was 

supported by documentation. This resulted in a difference of $19,725 that 

was not supported by documentation. We further noted another discrepancy 

18 Enforcement’s procedures (at page 13) require the staff to confirm with the IRS that the returns were 

never filed. We have no evidence to indicate that the staff confirmed this information. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

18

between the credit card debt listed on the individual’s SFS and the 

individual’s credit report. Specifically, the individual’s SFS identified credit 

card debt in the amount of $222,773; however, only $59,857 of the total credit 

card debt was supported by documentation. This resulted in a difference of 

$162,916 that was not supported by documentation. The individual’s SFS 

also identified accrued real estate taxes in the amount of $3,438 that were 

not supported by documentation. We noted that the total amount of auto 

loan, credit card debts, and accrued real estate taxes not supported by 

documentation was $186,079. According to Enforcement, the unsupported 

liabilities in question were mostly the liabilities of the individual’s spouse. 

Enforcement indicated that they were, therefore, unable to obtain the credit 

report of the individual’s spouse since she was not part of the investigation. 

We noted, however, that even though Enforcement claimed that most of the 

unsupported liabilities in question belonged to the spouse of the individual, 

the total amount of the liabilities was included in the computation of the 

individual’s net worth as instructed by the SFS. Enforcement stated that the 

individual’s spouse’s liabilities were included in the individual’s SFS because 

the state in which they reside is a community property state. We further 

noted that the liabilities of the individual and his spouse were not stated 

separately on the SFS; therefore, we were unable to determine whether the 

unsupported liabilities actually belonged to the spouse. 

For reference number DFD-13, Enforcement stated that the individual 

provided supporting documentation for the accrued real estate taxes totaling 

$8,000 that were reported on the SFS. However, Enforcement stated that 

they were unable to provide the supporting documentation because it was in 

the custody of a retired staff member and accordingly, consider the 

supporting documentation in question to be missing. 

For reference number DFD-32(a), the SFS identified credit card debt in the 

amount of $326,400. However, supporting documentation was provided for 

only $192,178.92 of that amount, leaving a remaining balance of $134,221.08 

that was not supported by documentation. The SFS also identified auto loans 

in the amount of $29,000, an insurance loan in the amount of $20,000, and 

another loan in the amount of $30,000. However, no supporting 

documentation was provided. 

For reference number DFD-32(b), the SFS identified a mortgage in the 

amount of $2,224,000. However, supporting documentation was provided for 

only $1,588,485, leaving $635,515 unsupported. The SFS also identified 

other loans and notes payable of $130,000, accrued real estate taxes of 

$35,000, and accrued income taxes of $10,000. Enforcement stated that 

documentation supporting the individual’s assets were currently in the 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

19

possession of another federal entity. Also, Enforcement stated that due to the 

voluminous nature of the records, copies of the supporting documentation 

were not made. 

For reference number DFD-52, the SFS identified auto loans of $3,069, credit 

card debt of $15,152, other loans or notes payable of $4,000, 

judgments/settlements of $500, taxes of $34,000, and legal fees of $15,000. 

However, no supporting documentation was provided. 

For reference number DFD-46, the SFS identified credit card debt in the 

amount of $3,500. However, no supporting documentation was provided. 

For reference number DFD-53, we determined that documentation provided 

to support the credit card debt amounted to $3,727 of the total reported debt 

of $10,390. This resulted in a difference of $6,663 that was not supported by 

documentation. We noted that Enforcement provided partial documentation 

to support the credit card debt; however, the full amount of credit card debt 

reported on the individual’s SFS was considered in the computation of the 

individual's net worth.

For reference number DFD-3(b), the SFS identified credit card debt in the 

amount of $181,617 and a mortgage in the amount of $398,136. However, no 

supporting documentation was provided. 

For reference number DFD-40, the SFS identified credit card debt in the 

amount of $31,340. However, no supporting documentation was provided. 

For reference number, DFD-50, the SFS identified auto loans in the amount 

of $44,730; however, supporting documentation was provided for only $34,679 

of that amount. This resulted in a difference of $10,051 that was not 

supported by documentation. In the absence of adequate supporting 

documentation, we were unable to determine the validity of the auto loan 

reported by the individual. 

For reference number DFD-41, the SFS identified credit card debt in the 

amount of $25,370; however, supporting documentation was provided for only 

$15,515. This resulted in a difference of $9,855 that was not supported by 

documentation. Also, no supporting documentation was provided for medical 

bills in the amount of $6,850. 

For reference number DFD-38, the SFS identified notes payable in the 

amount of $14,000. However, no supporting documentation was provided. 

Enforcement maintained that the lack of documentation was not relevant 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

20

because the staff verified and obtained all of the individual’s assets (except 

for retirement funds and the like). 

For reference number, DFD-16, we noted that liabilities totaling $468,083 

were not supported by adequate documentation. The unsupported liabilities 

consisted of legal fees of $443,000, credit card debt of $24,083, and an 

installment loan of $1,000 from the individual’s mother. Enforcement stated 

that the Commission was notified that the $1,000 loan was disregarded due 

to a lack of adequate supporting documentation for the loan. However, we 

noted that the individual’s SFS presented in the action memorandum 

included this loan in the computation of the individual’s net worth. 

Enforcement stated that this was a partial waiver case where the individual 

had a negative net worth. The payment plan was based on the individual’s 

income and an assumption that the individual had a net worth of zero. 

For reference number, DFD-33(a), the individual reported auto loans totaling 

$56,772 on the SFS. However, the individual’s credit report indicated auto 

loans in the amount of $48,728. This resulted in a difference of $8,044 that 

was not supported by documentation. 

For reference number DFD-30, the SFS identified credit card debt in the 

amount of $12,673 and real estate taxes in the amount of $1,800. However, 

no supporting documentation was provided. According to Enforcement, the 

documents relating to these liabilities have been misplaced as a result of the 

trial counsel’s files being relocated several times during office moves. 

For reference number DFD-15, the SFS identified credit card debt in the 

amount of $74,783; however, supporting documentation was provided for only 

$16,960. This resulted in a difference of $57,823 that was not supported by 

documentation. Also, no supporting documentation was provided for 

installment loans in the amount of $899, loans to a third party in the amount 

of $10,200, a debt to the IRS in the amount of $70,000 and a liability of 

$4,835 for the “Operation of a Business.” 

For reference number DFD-24, the SFS identified legal fees in the amount of 

$4,500 and medical fees in the amount of $1,000. However, no supporting 

documentation was provided. Enforcement stated that they based their 

assessment on the staff attorney’s personal knowledge (e.g., a pretrial 

conference) of the case. 

Monthly Income not Supported by Adequate Documentation 

In addition, the monthly income reported on the SFS for five of 72 

defendants/respondents was not supported by any documentation such as pay 
stubs. The reported monthly income included salaries, wages, and 

commissions and fees. Unsupported income could be problematic because of 

the possibility that a defendant/respondent underreports his/her income. 

Table 7 below identifies the five cases in which monthly income was not 

supported by documentation. 

 Table 7. Monthly Income not Supported by 

Documentation (Annualized) 

 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

21

 

 

 

 

 

 

 

 

 Source: Generated by Regis & Associates, PC, based on information 

 

Reference 

Numbers Amount Waived 

 

Annualized 

Unsupported 

Income 

DFD-2 881,000.00 10,655.94

DFD-37 1,391,715.83 30,000.00

DFD-47 196,367.00 120,000.00

DFD-52 31,266.75 197,892.00

DFD-15 181,822.00 83,004.00

TOTAL $2,682,171.58 $441,551.94

 provided by Enforcement. 

The specific factors involved in these cases are described below: 

For reference number DFD-2, we noted that the individual’s bank statement 

identified four deposits totaling $10,655.94 that were not reported on the 

SFS. Enforcement was unable to provide us with several months of bank 

statements to enable us to determine whether the deposits noted above were 

non-recurring transactions. Subsequent to our detection of the deposits in 

question, Enforcement stated that they contacted the bank and the bank 

confirmed that the deposits were one-time transactions. In the absence of 

three or more months of bank statements, we were unable to independently 

confirm the nature and frequency of those unreported deposit transactions. 

For reference number DFD-37, the SFS identified consulting fees of $2,500 

per month. This income, for which no supporting documentation was 

provided (although, Enforcement stated that documentation had been 

provided), totaled $30,000 when annualized. 

For reference number DFD-47, the SFS identified salaries/wages of $10,000 

per month. No supporting documentation was provided for these 

salaries/wages which, when annualized, totaled $120,000. 

For reference number DFD-52, the SFS identified Spot Forex commissions of 

$15,000 per month, debit card machine receipts of $320 per month, and 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

22

Social Security income of $1,171 per month. This income, for which no 

supporting documentation was provided, totaled $16,491, and when 

annualized, $197,892. 

For reference number DFD-15, the SFS identified salaries/wages of $1,353 

per month, and commissions/advances in the amount of $5,564 per month. 

This income, for which no supporting documentation was provided, totaled 

$6,917, and when annualized, $83,004. Enforcement stated that some 

documentation was provided while other documentation was reviewed by the 

staff during the waiver process but was not retained. 

Monthly Expenses not Supported by Adequate Documentation 

The monthly expenses reported on the SFS for 23 of the 72 

defendants/respondents were not supported by any documentation, such as 

vendor statements and receipts. The reported monthly expenses included 

mortgage, rent, utilities, insurance, and food. In the absence of adequate 

supporting documentation, we were unable to determine the validity of the 

monthly expenses reported by the defendants/respondents. If expenses are 

unsupported, it is possible that they are non-existent or inflated. 

Enforcement stated that most of the expenses seemed reasonable to them, 

and therefore, they did not request or require supporting documentation. 

However, Enforcement’s procedures do not clearly define the parameters for 

reasonable expenses that do not require the submission of supporting 

documentation. We classified the 23 instances of monthly expenses not being 

adequately supported as involving either large or small monthly expense. 

Large Monthly Expenses

As indicated in Table 8(a), we found nine instances where, in our opinion, 

either the total amount claimed or an individual expense was large enough 

that it should have been verified. In these instances, the documentation 

could have included leases, mortgage statements, canceled checks, insurance 

bills/statements, attorney bills/statements, etc. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

23

 Table 8(a). Large Monthly Expenses not Supported by 

Documentation (Annualized) 

Reference 

Numbers 

Amount 

Waived 

Annualized 

Unsupported 

Expenses 

DFD-53 $ 18,308.00 $ 53,448.00

DFD-11 398,288.00 181,776.00

DFD-32(b) 9,941,200.00 231,000.00

DFD-47 196,367.00 78,000.00

DFD-52 31,266.75 211,272.00

DFD-30 640,704.00 54,564.00

DFD-39 553,557.11 124,993.56

DFD-43 377,379.00 123,600.00

DFD-15 181,822.00 95,952.00

Total $12,338,891.86 $1,154,605.56

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

The specific factors involved in these cases are described below: 

For reference number DFD-53, the SFS identified legal fees in the amount of 

$1,000 per month, mortgage payments in the amount of $660 per month, 

credit card payments in the amount of $600 per month, and miscellaneous 

expenses totaling $2,194 per month. These expenses totaled $4,454, and 

when annualized, $53,448. 

For reference number DFD-11, the individual reported monthly expenses 

totaling $15,148, which when annualized, amounted to $181,776, on the SFS, 

for which no supporting documentation was provided. We noted that the 

$15,148 unsupported expenses included legal fee payments of $8,000. 

For reference number DFD-32(b), the individual reported monthly expenses 

totaling $19,250, which when annualized, amounted to $231,000, on the SFS, 

for which no supporting documentation was provided. We noted that the 

$19,250 unsupported expenses included monthly mortgage payments of 

$6,000. 

For reference number DFD-47, the SFS identified mortgage payments of 

$5,000 per month, food expenses of $600 per month, utilities of $1,000 per 

month, and insurance premium of $500 per month. We noted documentation 

(other than for the food expenses) could have been obtained. The 

unsupported expenses, excluding the food, totaled $6,500, and when 

annualized, amounted to $78,000. 

 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

24

For reference number DFD-52, the individual reported monthly expenses 

totaling $17,606, which when annualized, amounted to $211,272, on the SFS, 

for which no supporting documentation was provided. We noted that the 

$17,606 unsupported expenses included monthly rental payments of $4,100. 

Enforcement indicated that they had discussed the individual’s financial 

condition with the Court-Appointed Receiver, but provided no documentation 

to support this contention. 

For reference number DFD-30, the SFS identified mortgage/rent of $1,757 

per month, utilities of $580 per month, loan payments of $1,000 per month, 

real estate taxes of $160 per month, credit card payments of $400 per month, 

and medical expenses of $650 per month. These expenses, for which no 

supporting documentation was provided, but which given the sums involved, 

should have been verified, totaled $4,547, and when annualized, amounted to 

$54,564. 

For reference number DFD-39, the SFS identified utilities of $1,000 per 

month; however the documentation supported only $683.87, leaving $316.13 

unsupported. Also, no supporting documentation was provided for 

mortgage/rent of $1,500 per month, food expenses of $2,000 per month, loan 

payments of $700 per month, real estate taxes of $500 per month, insurance 

premiums of $200 per month, monthly medical expenses of $200, automobile 

expenses of $700 per month, college tuition of $3,900 per month, and health 

insurance premiums of $400 per month. Given the sums involved, 

supporting documentation should have been obtained. These expenses 

totaled $10,416.13 and when annualized, amounted to $124,993.56. 

For reference number DFD-43, the individual reported monthly expenses 

totaling $10,300, which when annualized, amounted to $123,600, on the SFS, 

for which no supporting documentation was provided. We noted that the 

$10,300 unsupported expense included monthly rental payments of $4,000. 

According to Enforcement, they verified that the individual is subject to an 

IRS payment plan ($3,000 per month), reviewed the individual’s credit report 

to determine the reasonableness of the credit card and revolving debt 

($17,000), and verified that the individual rented a home, although they 

provided no documentation to support these contentions. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

25

For reference number DFD-15, the SFS identified mortgage/rent of $915 per 

month, food expenses of $350 per month, utilities of $495 per month, loan 

payments of $988 per month, insurance premiums of $588 per month, 

automobile expenses of $175 per month, and business expenses of $4,835 per 

month. These expenses, for which no supporting documentation was 

provided, but which given the sums involved, should have been verified, 

totaled $7,996 (excluding the food), and when annualized, amounted to 

$95,952. 

Small Monthly Expenses

For the 14 instances listed in Table 8(b), Enforcement stated that the 

expenses appeared to be reasonable. Thus, they did not obtain supporting 

documentation. However, it is worth noting that the Commodity Futures 

Trading Commission (CFTC) requires persons under investigation to provide 

“True and exact copies of all monthly bills/statements for the following 

household expenses for the past 3 months: gas; electric; water; automobile 

and other transportation expenses; telephone; cable; loan payments (car, 

etc.); insurance premiums; subscriptions; tuition; installment payments; and 

dues.”19 

Table 8(b). Small Monthly Expenses not Supported by 

Documentation (Annualized) 

Reference 

Numbers 

Amount 

Waived 

Annualized 

Unsupported 

Expenses 

DFD-36 $ 1,573,825.24 $ 33,000.00

DFD-14 283,097.00 25,164.00

DFD-17 45,584.00 39,600.00

DFD-31 1,615,774.83 32,232.00

DFD-37 1,391,715.83 39,696.00

DFD-42 392,385.39 18,024.00

DFD-46 231,633.00 11,280.00

DFD-40 521,580.00 24,600.00

DFD-41 447,600.00 19,092.00

DFD-23 645,945.00 20,796.00

DFD-12 297,559.00 5,520.00

DFD-7 6,918,335.00 24,300.00

DFD-26 708,521.00 20,676.00

DFD-50 115,000.00 34,680.00

Total $15,188,555.29 $348,660.00

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

 

19 CFTC Form 12, Attachments to Financial Disclosure Statement, approved May 2001 at pages 22-23. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

26

The specific factors involved in these cases are described below: 

For reference number DFD-36, the SFS identified utilities of $1,150 per 

month, lawn care payments of $600 per month, and monthly travel payments 

of $1,000 per month. These expenses totaled $33,000 when annualized. 

For reference number DFD-14, the SFS identified utilities of $625 per month, 

food expenses of $450 per month, insurance premiums of $468 per month, 

medical/dental insurance of $179 per month, auto expenses of $260 per 

month, and other expenses of $115 per month. These expenses totaled 

$25,164 when annualized. 

For reference number DFD-17, the SFS identified mortgage/rent of $1,600 

per month, utilities of $500 per month, insurance premiums of $400 per 

month, automobile expenses of $300 per month, and child care expenses of 

$500 per month. These expenses totaled $39,600 when annualized. 

For reference number DFD-31, the SFS identified mortgage/rent of $1,800 

per month, food expenses of $300 per month, utilities of $150 per month, car 

insurance of $50 per month, and car lease payments of $386 per month. 

These expenses totaled $32,322 when annualized. 

For reference number DFD-37, the SFS identified rent of $1,350 per month, 

food expenses of $600 per month, utilities of $490 per month, insurance of 

$285 per month, restitution of $500 per month, and life insurance premiums 

of $83 per month. These expenses totaled $39,696 when annualized. 

For reference number DFD-42, the SFS identified medical expenses of $400 

per month, automobile expenses of $250 per month, real estate taxes of $152 

per month, income taxes of $500 per month, house maintenance expenses of 

$100, income taxes of $100 per month, and entertainment expenses of $100. 

These expenses totaled $18,024 when annualized. Enforcement stated that 

they discussed the individual’s financial condition with the Court-Appointed 

Receiver, although provided no documentation to support this contention. 

For reference number DFD-46, the SFS identified insurance of $500 per 

month, automobile expenses of $150 per month, and miscellaneous expenses 

of $290 per month. These expenses totaled $11,280 when annualized. 

For reference number DFD-40, the SFS identified utilities of $1,050 per 

month and insurance premiums of $1,000 per month. These expenses totaled 

$24,600 when annualized. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

27

For reference number DFD-41, the SFS identified utilities of $550 per month 

and insurance premiums of $1,041 per month. These expenses totaled 

$19,092 when annualized. 

For reference number DFD-23, the SFS identified utilities of $285 per month, 

real estate taxes of $165 per month, insurance premiums of $331 per month, 

medical expenses of $514 per month, homeowner’s dues of $150 per month, 

and auto loan payments of $288 per month. These expenses totaled $20,796 

when annualized. 

For reference number DFD-12, the SFS identified office utilities of $400 per 

month, and insurance payments of $60 per month. These expenses totaled 

$5,520 when annualized. 

For reference number DFD-7, the SFS identified medical expenses of $200 

per month, real estate taxes of $225 per month, automobile expenses of $400 

per month, church tithes of $550 per month, orthodontist expenses of $150 

per month, and tuition fees of $500 per month. These expenses totaled 

$24,300 when annualized. According to Enforcement, their assessment was 

influenced by the fact that the individual had been sentenced to a substantial 

prison term. 

For reference number DFD-26, the SFS identified mortgage/rent of $406 per 

month, utilities of $250 per month, payments on loans of $265 per month, 

real estate taxes of $100 per month, insurance premiums of $200 per month, 

medical expenses of $450 per month, and telephone expenses of $52 per 

month. These expenses totaled $20,676 when annualized. 

For reference number DFD-50, the SFS identified utilities of $890 per month, 

insurance premiums of $200 per month, medical expenses of $530 per month, 

and transportation expenses of $1,270 per month, which given the sums 

involved, should have been verified. These expenses totaled $2,890, and 

when annualized, amounted to $34,680. 

Recommendation 3: 

Enforcement should clarify its internal control policies and procedures 

regarding when supporting documentation, such as receipts, vendor invoices, 

pay stubs, etc. should be obtained and retained for the assets, liabilities, 

income, and expenses shown in the Sworn Financial Statements and 

undertake actions to ensure that staff comply with these clarified procedures. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

28

Finding 4: Sworn Financial Statements Should be 

Retained, Signed, and Notarized for all 

Defendants/Respondents 

“The SFS is the foundation for deciding to recommend a waiver. Defendants 

who want the Commission to waive payment generally must submit an 

SFS.”20 The SFS are provided in two forms: one for individuals and the other 

for entities. The forms for both individuals and entities list examples of the 

types of assets, liabilities, income, and expenses, and are formatted to 

encourage a defendant/respondent to fill out completely the information 

requested, as well as highlight for the staff any information that is missing. 

The staff is required to check that the defendant/respondent specified the 

date of the statement, filled in all columns of information, signed the 

necessary consent, obtained a notarized signature on the SFS and the 

consents, and attached all required supporting documents. We identified one 

instance where the SFS was not provided as part of the 

defendants/respondents’ case files. We further found that the SFS for one 

defendant/respondent was not signed and notarized. Tables 9 and 10 identify 

the two cases in which the SFS were not included in the case files or signed 

and notarized. 

 Table 9. SFS not Provided 

 

Reference 

Numbers Amount Waived 

DFD-18 $ 5,623,290.00

Total $5,623,290.00

 Source: Generated by Regis & Associates, 

 PC, based on information provided by 

 Enforcement. 

 Table 10. SFS not Signed and Notarized 

 

Reference 

Numbers Amount Waived 

DFD-30 640,704.00 

Total $640,704.00 

 Source: Generated by Regis & Associates, 

 PC, based on information provided by 

 Enforcement. 

 

20 This was noted in Enforcement’s policies and procedures governing the disgorgement waiver process (at 

page 2). 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

29

 

Pursuant to the Commission’s Rule of Practice 630(b),21 “any respondent who 

asserts an inability to pay disgorgement, interest, or penalties may be 

required to file a sworn financial disclosure statement and to keep that 

statement current. The financial statement shall show the respondent’s 

assets, liabilities, income or other funds received, and expenses or other 

payments ....” Additionally, in order for the assertions in the financial 

statements to be recognized as having been provided under oath, the 

defendant/respondent making the assertions must sign the financial 

statements, and must appear before a notary who will attest to their 

identity.22

We found that Enforcement was not always in compliance with its procedures 

for obtaining signed and notarized Sworn Financial Statements, which may 

raise concerns about the reasonableness and reliability of the SFS. In these 

few cases, Enforcement inappropriately recommended the disgorgement 

waivers for the subject defendants/respondents, without utilizing a suitable 

means of verification to validate the defendants/respondents’ request for 

disgorgement waivers. 

Recommendation 4: 

Enforcement should undertake appropriate actions to ensure that Sworn 

Financial Statements from all defendants/respondents who request 

disgorgement waivers are retained. We further recommend that 

Enforcement undertake appropriate actions to ensure that all Sworn 

Financial Statements are signed and notarized. 

Finding 5: The “Checklist for Maintaining, Reviewing, 

and Confirming Sworn Financial 

Statements (SFS)” Should be Retained and 

Signed by a Supervisor 

 

While reviewing the SFS, the “Checklist for Maintaining, Reviewing, and 

Confirming Sworn Financial Statements” (the Checklist) is required to be 

completed and signed by an Enforcement supervisor. The Checklist ensures 

that Enforcement consistently keeps all necessary records and documents the 

scope of the staff review. In addition, a copy of the completed Checklist must 

be maintained in the appropriate office files. Our review disclosed 18 

instances where the Checklists were not provided. Also, we noted six 

21 17 C.F.R. § 201.630(b). 

22This was noted in Enforcement’s policies and procedures governing the disgorgement waiver process (at 

page 4). 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

30

instances where the Checklists were not signed by an Enforcement 

supervisor. Tables 11 and 12 identify the 24 cases in which Checklists were 

not provided or were not signed by the Supervisors. 

Table 11. Checklist not Provided 

 

Reference 

Numbers Amount Waived 

DFD-48 $ 151,898.11

DFD-20 2,564,987.00

DFD-9 1,365,711.00

DFD-19 2,589,987.00

DFD-36 1,573,825.24

DFD-31 1,615,774.83

DFD-13 284,385.82

DFD-32(a) 9,941,200.00

DFD-32(b) 9,941,200.00

DFD-47 196,367.00

DFD-3(b) 320,000.00

DFD-3(a) 320,000.00

DFD-3(c,d) 320,000.00

DFD-33(b) 5,233,746.00

DFD-1 13,591,889.00

DFD-22 845,440.9523

DFD-49 134,524.00

DFD-7 6,918,335.00

Total $47,328,070.95 24

 Source: Generated by Regis & Associates, PC, based on 

 information provided by Enforcement. 

 

23 In this waiver case, the staff relied on the entity’s financial statements and not the SFS and therefore 

maintained that they did not need to complete the SFS checklist. 

24 Reference number DFD-32 involves two defendants/respondents who received combined waivers 

totaling $9,941,200.00. Reference number DFD-3 involves three defendants/respondents who received 

combined waivers totaling $320,000.00. Therefore, these amounts were each counted once in the 

computation of the total amount. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

31

Table 12. Checklist not Signed by Supervisor 

 

Reference 

Numbers Amount Waived 

DFD-21 $1,716,590.00 

DFD-46 231,633.00 

DFD-51 39,848.00 

DFD-29 601,314.62 

DFD-8 2,902,519.00

DFD-15 181,822.00

Total $5,673726.62 

 Source: Generated by Regis & Associates, 

 PC, based on information provided by 

 Enforcement. 

Pursuant to the procedures (page 3), “it is important that the staff document 

its review of the SFS. To that end, while reviewing the SFS, the staff must 

also complete Exhibit 1, the ‘Checklist for Maintaining, Reviewing, and 

Confirming SFS.’ The Checklist will ensure that the Division consistently 

keeps all necessary records and documents the scope of the staff review. A 

copy of the completed Checklist must be kept in the branch files.” 

We found that Enforcement did not implement adequate internal controls to 

ensure proper administration and oversight of its disgorgement review 

process, which requires the Checklists to be always completed and signed by 

a supervisor. 

 

Recommendation 5: 

Enforcement should undertake appropriate actions to ensure that the 

Checklist is always retained and signed by the appropriate supervisor for 

disgorgement waiver cases. 

 

 

Finding 6: Credit Reports, Bank Statements, and/or 

Income Tax Returns for all 

Defendants/Respondents Should be Retained 

and/or Signed 

When recommending a disgorgement waiver, the staff attorneys are required 

to obtain credit reports. The staff attorneys must obtain the 

defendant/respondent’s written consent to obtain the credit report, and then 

compare the information on it to the SFS, and question discrepancies. In 

addition, the bank statements and income tax returns, including the 

schedules and attachments associated with them, are required. The staff 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

32

 

attorneys must compare these documents to the SFS and examine what 

appear to be inconsistencies or issues. Such issues may include tax return 

schedules demonstrating the existence of a safe deposit box, dividend income, 

interest income, capital gains and assets not reported on the SFS. During 

our review of the required supporting documentation, we noted that credit 

reports, bank statements, and income tax returns were not provided for 15 of 

the 72 defendants/respondents. This hampers Enforcement’s ability to 

corroborate a person’s stated financial condition. We further noted 19 

instances where the income tax returns were not signed by the 

defendants/respondents, and as a result, we were unable to determine the 

authenticity of the returns. 

Additionally, we noted that a similar finding was identified in the OIG’s 

Audit Report 384, dated January 18, 2005. Tables 13 and 14 identify 35 

cases in which credit reports, bank statements, and income tax returns were 

not provided or were not signed by the defendants/respondents.25 

With regard to the credit reports, bank statements, and income tax returns 

that were not provided, Enforcement stated that they were sure that most of 

those documents were obtained, however, copies of those documents were not 

retained. 

As a result of the income tax returns being unsigned, we were unable to 

determine the authenticity of those documents. Enforcement stated that 

they did not deem it necessary for the defendants/respondents to submit 

signed copies of their income tax returns because the income tax returns only 

serve as support for the income items reported on the SFS. Thus, as long as 

the SFS are signed and notarized, under penalty of perjury, the 

defendants/respondents would provide authentic income tax returns. 

However, the review found instances where the defendants/respondents 

failed to either provide the SFS or signed and notarized SFS. Thus, it would 

be an added control measure for Enforcement to require 

defendants/respondents to provide signed copies of their income tax returns. 

25 In some cases, Enforcement did not obtain a copy of a tax return because the individual did not have a 

copy either because a return was not filed or kept. Enforcement’s procedures (at page 13, footnote 14) 

require that the staff confirm with the IRS that a tax return was not filed or obtain a copy. This requirement 

was not always followed (e.g., DFD-12). 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

33

 Table 13. No credit reports, bank statements, 

 or income tax returns provided 

 

Reference 

Numbers Amount Waived 

DFD-2 $ 881,000.0026

DFD-20 2,564,987.00

DFD-9 1,365,711.00

DFD-19 2,589,987.00

DFD-24 223,665.32

DFD-31 1,615,774.83

DFD-42 392,385.39

DFD-47 196,367.00

DFD-40 521,580.00

DFD-25 222,040.00

DFD-12 297,559.00

DFD-49 134,524.00

DFD-30 640,704.00

DFD-18 5,623,290.00

DFD-35 2,121,871.76

Total $19,391,446.30

 Source: Generated by Regis & Associates, 

 PC, based on information provided by 

 Enforcement. 

 

26 This exception (i.e., the lack of a tax return) for DFD-2 is also discussed in Finding 3 at Table 6. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

34

 Table 14. Income tax returns not 

 signed by the defendants/respondents27 

 

Reference 

Numbers Amount Waived 

DFD-53 $ 18,308.00

DFD-11 398,288.00

DFD-42 392,385.39

DFD-52 31,266.75

DFD-46 231,633.00

DFD-51 39,848.00

DFD-8 2,902,519.00

DFD-45 315,300.00

DFD-25 222,040.00

DFD-38 906,326.65

DFD-16 69,004.00

DFD-33(a) 5,233,746.00

DFD-33(b) 5,233,746.00

DFD-6 15,565,511.00

DFD-7 6,918,335.00

DFD-35 2,121,871.76

DFD-32(a) 9,941,200.00

DFD-32(b) 9,941,200.00

DFD-36 1,573,825.24

Total $46,881,407.79 28

 Source: Generated by Regis & Associates, 

 PC, based on information provided by 

 Enforcement. 

Pursuant to Enforcement’s procedures (pages 4 through 5), “the staff must 

obtain a credit report on each defendant seeking a waiver.” Furthermore, the 

procedures state, “The SFS requires the defendant to attach copies of the 

following documents to the SFS: 

• Federal income and gift tax returns, including schedules and 

attachments associated with them; 

• Any financial statement prepared by the defendant, including 

bankruptcy schedules; and 

• Loan Documents.” 

 

27 In several instances (DFD-36, DFD-11, DFD-53, DFD-35, and DFD-8), the tax return was signed (or 

stamped) by the preparer, but not by the individual. 

28 Reference numbers DFD-33 and DFD-32 each involve two defendants/respondents who received 

combined waivers totaling $5,233,746.00 and $9,941,200.00 respectively. Therefore, these amounts were 

counted once in the computation of the total amount. 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

35

The procedures also state (page 5), “With respect to a defendant whose 

disgorgement equals or exceeds $100,000, in addition to the documents 

required above, the defendant must provide copies of the following: 

• Brokerage and commodities account statements; and 

• Bank and other financial institution account statements.” 

We found that Enforcement did not always comply with these procedures and 

as a result, in those instances, disgorgement waivers for the subject 

defendants/respondents were based solely on the defendants/respondents’ 

unsupported SFS. 

 

Recommendation 6: 

Enforcement should undertake appropriate actions to ensure that credit 

reports, bank statements, and income tax returns are always retained in all 

defendants/respondents’ case files and comply with its procedures regarding 

obtaining tax returns. We further recommend that Enforcement consider 

requiring the income tax returns to be signed by the defendants/respondents 

to ensure authenticity. 

Finding 7: Public Database Searches Should be 

Performed for the Defendants/Respondents 

Enforcement retained a contractor to provide the staff attorneys with 

information regarding the defendants/respondents from the contractor’s 

database. Access to the information is obtained through Autotrack, which is 

used to perform credit checks on individuals. The company is able to provide 

information such as aliases and name changes, safe deposit box information, 

property ownership, names of ex-spouses, mortgages and property tax 

records, and motor vehicle information. Every office has at least one 

designated Autotrack technician to assist the staff attorneys in obtaining the 

database search information for the defendants/respondents. Additionally, 

the staff attorneys must search Lexis/Nexis and the internet for information 

about the defendants/respondents. These resources provide useful leads to 

further verify the accuracy of the financial information provided by the 

defendants/respondents on the SFS. The staff attorneys must compare the 

information obtained from the database searches to the SFS and question 

discrepancies. 

Our review of the defendants/respondents’ case files identified only one 

instance where a public database search was not performed. In this instance, 
the defendant/respondent’s SFS assertions were not corroborated to a public 

database to question discrepancies and identify hidden assets. Table 15 

identifies the one instance noted where a public database search was not 

performed. 

 Table 15. No Public Database Search

Reference 

Number Amount Waived 

DFD-19 $2,589,987.00

Total $2,589,987.00

 Source: Generated by Regis & Associates, PC, 

 based on information provided by Enforcement. 

 

Pursuant to Enforcement’s procedures (page 4), “the staff must compare 

information from the database to the SFS and question discrepancies.” 

Although overall, Enforcement was compliant with these requirements in all 

but one instance, it may be worthwhile to review its procedures to ensure 

that public database searches are always conducted. 

 

Recommendation 7: 

Enforcement should review its internal control policies and procedures to 

ensure that public database searches are performed for all 

defendants/respondents. 

 

Finding 8: Formal Training Programs Should be 

Instituted for Staff Attorneys Responsible 

for Reviewing the Financial Records of 

Defendants/Respondents 

Based on our discussions with Enforcement personnel, we noted that the staff 

attorneys are not provided formal training on the process of determining 

when waiver recommendations are appropriate. Providing formal training 

for the staff attorneys would build a comprehensive understanding of the 

disgorgement waivers review process. Given the complexity and the level of 

sensitivity, it is critical to provide formal training to explain the different 

aspects of the disgorgement waiver review process and explain how to 

analyze financial information. We further note that a similar condition was 

reported in the OIG’s Audit Report 384, dated January 18, 2005. 

Pursuant to Enforcement’s procedures (at page 2), “during an investigation, 

the staff’s principal focus is on liability and the merits of the case. However, 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

36
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

37

the staff may also begin considering a potential defendant’s financial 

condition and ability to pay.” In order to consider a defendant/respondent’s 

financial condition and ability to pay, the staff attorneys should be trained in 

evaluating the SFS and identifying the facts and circumstances that warrant 

waiver recommendations. 

Enforcement maintained that on-the-job training was adequate preparation 

for the staff attorneys and that they recently included a session on waivers in 

their fall training program. However, without formal periodic training, the 

staff attorneys are unable to properly analyze the financial information and 

make an assessment of the defendants/respondents’ financial position. 

Recommendation 8: 

Enforcement should clarify their internal control policies and procedures to 

ensure that the staff attorneys receive periodic formal training in the 

disgorgement waiver process. 
Appendix I 

Acronyms

 

 

CFTC Commodity Futures Trading Commission 

DFD Defendant/Respondent 

FY Fiscal Year 

OIG Office of Inspector General 

SFS Sworn Financial Statements

 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

38
 

Appendix II 

Schedule of Cost Savings

 

 

 Table 16. Underreported Assets 

 

Reference 

Numbers 

Amount 

Waived Cost Savings

DFD-46 $ 231,633.00 $ 12,533.78

DFD-3(b) 320,000.00 373,704.00

TOTAL $944,018.39 $386,237.78

 Source: Generated by Regis & Associates, PC, based 

 on information provided by Enforcement 

 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

39
Appendix III 

List of Recommendations

Recommendation 1: 

Enforcement should undertake appropriate actions to ensure that staff 

comply with its procedures and consider payment plans and partial waivers 

in situations where defendants/respondents have the ability to pay some 

portion of the disgorgement amount. 

Recommendation 2: 

Enforcement should undertake appropriate actions to ensure that it reviews 

the defendants/respondents’ financial information for accuracy prior to 

recommending a disgorgement waiver. 

 

Recommendation 3: 

Enforcement should clarify its internal control policies and procedures 

regarding when supporting documentation, such as receipts, vendor invoices, 

pay stubs, etc. should be obtained and retained for the assets, liabilities, 

income, and expenses shown in the Sworn Financial Statements and 

undertake actions to ensure that staff comply with these clarified procedures. 

 

Recommendation 4: 

Enforcement should undertake appropriate actions to ensure that Sworn 

Financial Statements from all defendants/respondents who request 

disgorgement waivers are retained. We further recommend that 

Enforcement undertake appropriate actions to ensure that all Sworn 

Financial Statements are signed and notarized. 

 

Recommendation 5: 

Enforcement should undertake appropriate actions to ensure that the 

Checklist is always retained and signed by the appropriate supervisor for 

disgorgement waiver cases. 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

40
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

41

 

Recommendation 6: 

Enforcement should undertake appropriate actions to ensure that credit 

reports, bank statements, and income tax returns are always retained in all 

defendants/respondents’ case files and comply with its procedures regarding 

obtaining tax returns. We further recommend that Enforcement consider 

requiring the income tax returns to be signed by the defendants/respondents 

to ensure authenticity. 

Recommendation 7: 

Enforcement should review its internal control policies and procedures to 

ensure that public database searches are performed for all 

defendants/respondents. 

Recommendation 8: 

Enforcement should clarify their internal control policies and procedures to 

ensure that the staff attorneys receive periodic formal training in the 

disgorgement waiver process. 
Appendix IV 

Management Comments

M E M O R A N D U M 

TO: David Kotz, Inspector General 

FROM: Linda Chatman Thomsen, Director of the Division of Enforcement 

SUBJECT: Enforcement’s Response to Draft Report, Audit of Disgorgement Waivers, 

Report No. 452, dated December 31, 2008 

DATE: February 3, 2009 

This memorandum is in response to Audit Report No. 452 regarding disgorgement 

waivers. Recommending a waiver to the Commission is a matter we take very seriously. 

The Division of Enforcement thoroughly considers all aspects of each case before 

recommending a waiver. We have given guidance to our staff in this area which 

balances the need to assure that the recommendation to the Commission is appropriate, 

with the wise use of our limited resources. In order to receive a waiver, a defendant must 

submit a sworn financial statement, which defendant must sign under penalty of perjury, 

a requirement we administer strictly. We then ask our staff to carefully review the sworn 

financial statements so that we can make an informed judgment as to the appropriate 

recommendation. However, we do not ask the Enforcement staff to enter into a time 

intensive audit of the sworn financial statements of the defendants. 

 

Indeed, considering the large number of urgent matters directed to the Division of 

Enforcement, it seems highly unlikely that the Commission would find it prudent to 

direct us to spend more of our few resources in this area. Waivers make up a relatively 

small percentage of our workload and thus, it is critical that we use our resources in this 

area judiciously. We believe that the balance we have struck is extremely effective and 

useful. We do not believe it is beneficial to use our limited resources chasing 

verification of a few hundred dollars the Defendant spends on reasonable living expenses, 

such as food and which would only prove that a defendant is further in debt. Likewise it 

seems illogical that the Commission would choose to have us litigate a matter, instead of 

settling with a waiver, because a defendant could not document his reasonable food and 

Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

42
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

43

living expenses. In fact, in our guidance to the staff, we do not require our staff to obtain 

documentation for reasonable monthly expenses. 

We – and the Commission- must consider practical issues in making waiver 

decisions, such as the defendant’s overall ability to pay, litigation risk, mitigating 

circumstances and resource considerations. In the first finding, the results properly 

indicate that in 96% of the waivers reviewed, Enforcement granted waivers to individuals 

with no ability to pay any portion of the amount waived. However, the Report then 

focuses on three defendants and cherry picks assets and income of these defendants and 

then determines that based on this narrow analysis these defendants could have paid 

more. For instance the Report states that DFD-40 had a positive net worth of $18,115 

and therefore determines that a payment plan where the defendant paid more money over 

time was a viable option. This conclusion simply ignores the overall ability of this 

defendant to pay more and ignores that Enforcement is already receiving a payment from 

this defendant. This is a partial waiver case where the defendant paid $85,000 and 

therefore was paying more in disgorgement than his net worth. In order to pay this 

amount the individual borrowed from his home equity line of credit. This settlement was 

negotiated before a magistrate judge, who agreed with the defendant’s sworn financial 

statement which showed that the defendant had no present income. It is hard for us to 

understand how the Report can conclude that this individual had an ability to make 

payments overtime which would have to come from an income source that he did not 

have. We continue to view this as an excellent settlement. The limits of the Report’s 

narrow analysis can be seen when viewed in the context of the defendant’s overall ability 

to pay. We take similar issue with the other case listed in the first finding. The case, 

which involved DFD 3(a) and DFD 3(b), is a matter where we had already collected and 

returned over 90% of the investor’s funds. Clearly, this is also a case that when 

considered in its entirety demonstrates the staff’s and the Commission’s proper judgment. 

As analyzed below we disagree with the two items the Report contends are underreported 

in Finding 2. For instance, DFD-46 is a partial waiver case where defendant paid 

$47,000 and $231,633 was waived. In recommending this waiver, staff took into account 

that fact that defendant was unemployed and incarcerated, unlikely to ever regain his preincarceration earning-power, and that his current assets would likely be depleted by 

litigation costs as well as a $75,000 debt to his former employer. The Report states that 

$12,533 in assets in defendant’s bank statement were not included in the individuals final 

SFS. The $12,533 was reflected in defendant’s bank account statements at a date six 

weeks before defendant created his SFS. Staff believes that by the time defendant 

submitted his SFS, he had depleted the $12,533 account balance because defendant was 

unemployed and about to report to prison, and that is why it was not included in his SFS. 

Therefore, we do not believe that these assets were underreported. 

As to the findings regarding adequate documentation of assets, liabilities, income and 

expenses it is not surprising that the lists for assets and income, items against which you 

can collect, are short and the lists for expenses and liabilities are longer. Once the staff 

has determined that a defendant lacks the income and assets from which to pay 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

44

disgorgement or penalties, they generally do not expend unnecessary resources tracking 

down all of the defendant’s expenses, items which can only further prove a defendant’s 

inability to pay. In fact, such an effort seems wasteful. Rather, with expenses, we expect 

our staff to do a cost/benefit analysis and make a reasonable determination as to what 

should be further researched in terms of the defendant’s ability to pay. We think the 

Report’s criticism as to these matters is further evidence of the limitations of its narrow 

analysis that only looks at items in isolation, rather than in the context of the defendant’s 

overall ability to pay. We believe that what the Report has found in Finding 3 is the 

failure of some of our staff to maintain documentation. We note that as to the findings 

for assets and income, four of the seven items for assets, and five of the six items for 

income, come from one office which was not in the habit of retaining documentation 

after reviewing it. We understand that this documentation must be maintained for you to 

audit and we will instruct our staff to maintain all documentation which formed the basis 

of their waiver recommendation. 

All our waiver cases are thoroughly and carefully considered by Enforcement staff and 

by the Commission before they are approved. As further explained elsewhere in this 

letter, our waiver recommendation would not have changed based on anything included 

in this Report. Furthermore, in many of the cases, defendant’s financial condition 

continued to deteriorate after our cases were filed – such as defendants who have since 

filed for bankruptcy and gone to prison. 

Furthermore, since we firmly believe that our waiver recommendation would not 

have changed in any of these matters, we do not agree with the Report’s attribution of 

cost savings to this audit. This statement does not take into account the cost of hiring the 

contractor for this audit or the hundreds of Enforcement staff hours that were spent 

making corrections to prior versions of this Report. Further, we note that only two cases 

are presented as having a cost savings; one item the cost savings is listed as just over 

$12,000 and for the other item the cost savings listed is $50,000 greater than the actual 

amount waived. 

While the Report’s findings would not have changed our waiver recommendations in any 

of the cases cited, the Report’s generally phrased recommendations are actions which we 

believe are appropriate and are, for the most part, actions which we are currently taking. 

Therefore we acquiesce with the Report’s recommendations. 

Case-by-Case Analysis 

The Report lists waivers which it believes are problematic. When Enforcement is 

considering recommending a waiver to the Commission, we look at the case as a whole 

and take into account the defendant’s entire financial condition, litigation risk, mitigating 

circumstances, Commission resources and views of the court and therefore we believe it 

is useful to consider these cases from this broader perspective below. As can be seen, we 
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Report No. 452 

45

do not believe that more money would have been obtained by the Commission in any of 

these matters. 

• DFD-17

o This is a partial waiver case where Defendant paid $65,000 of the total 

disgorgement and prejudgment interest amount of $110,583.80 

(disgorgement of $95,109 and prejudgment interest of $15,474.80). In 

fact, the Defendant effectively paid all of his available savings to satisfy 

the $65,000 portion of the judgment, and had no resources or accessible 

assets to pay the remainder. Defendant was unemployed with no income 

and had been living off of his savings for over one year. The Defendant 

had only $71,000 in assets against which we could collect. 

o The Defendant’s prospect for future employment was uncertain because 

the case against him involved allegations of fraud and he had already been 

terminated from two jobs as an auditor due to the allegations. 

o The Report states that staff did not get documentation to support 

defendant’s monthly expenses of $1,600 for a mortgage, utilities of $500, 

insurance premiums of $400, auto expenses of $300 and child care 

expenses of $500 per month. All of these appear reasonable, and it would 

not have been a wise use of our limited resources to pursue this further. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.

• DFD-53

o This is a case involving a waiver of $18,308 (disgorgement of $10,000 and 

prejudgment interest of $8,308). 

o This Defendant was a 77 year old man with a monthly net income of 

negative ($354) and dubious future earning prospects. Defendant has 

since been barred from the industry and thus no longer receives $1000 per 

month in commissions. Furthermore, his wife was incurring significant 

medical expenses at the time of the waiver.

o The Report states that the Defendant had unsupported credit card liabilities 

of $6,663. The Defendant represented that these constituted amounts 

owed by him and his wife together, and that representation appeared 

reasonable. 

o The Report states that this defendant had large monthly expenses not 

supported by documentation – mortgage/rent of $660 a month, legal 

expenses of $1000 a month, credit card payments of $600 per month, and 

miscellaneous expenses of $2,194 per month. Taking the Defendant’s 

financial condition as a whole, this waiver and the resources we expended 

on it appear reasonable. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.
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Report No. 452 

46

• DFD-11

o This is a partial waiver case where defendant with a negative net worth 

and a negative net income paid $50,000 of the total disgorgement and 

prejudgment interest amount of $448,324 (disgorgement of $408,940 and 

prejudgment interest of $39,384). Although Defendant had a positive net 

worth of $372,033, Massachusetts state law protected his assets with a 

value totaling approximately $514,628, leaving him with a negative net 

worth for purposes of the waiver analysis. Included in the list of assets 

protected from collection by us is his retirement account of $86,781 and 

his primary residence valued at $427,847.

The Report alleges that there are large monthly expenses that are 

undocumented, $15,148 which included $8000 of legal fees per month. 

The staff considered this expense at the time of the waiver 

recommendation and concluded that for legal fees in a litigated matter 

these did not seem exorbitant or suspicious. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD - 13 

o This is a case involving a waiver of $284,385.82 ($225,000 in 

disgorgement and $59,385.82 in prejudgment interest) for a defendant 

with a negative net worth of ($261,082). 

o The Report lists this case as having underreported assets of $14,900. The 

staff found this asset, which was a vacant lot in NJ, through a LEXIS 

search at the time of the waiver analysis. Defendant told staff that he sold 

this property to a partner for $6,000. Staff identified this potential asset in 

a footnote in the Action Memo to the Commission and considered it in 

connection with our recommendation to grant a waiver to Defendant. 

However, since defendant’s net worth not including the property was 

negative ($261,082), the waiver analysis would not have changed even if 

staff included the property as an asset. 

o The $8,000 of unsupported liabilities listed in the Report for this 

Defendant refers to accrued real estate taxes of $8,000. In addition to the 

Choicepoint report and the credit report provided by the defendant, which 

reflect civil judgments, outstanding credit card debts, and other nonmortgage debts, the staff produced a copy of an invoice dated August 

2004 for delinquent real estate taxes in the amount of $6,176.92. The 

Defendant’s final SFS from November 2005 listed the real estate 

obligation at $8,000, which seemed reasonable given that additional taxes 

and interest would have accrued between August 2004 and November 

2005. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 
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Report No. 452 

47

• DFD-31 

o This is a partial waiver case where the Defendants paid $1,805,612.60 of 

the total disgorgement and prejudgment interest amount of $3,421,387.40 

($3,269,459 of disgorgement and pre-judgment interest of $151,928.49).

o The Report notes that small monthly expenses were not documented, rent 

of $1,800, food expenses of $300 per month, utilities of $150 per month 

and car lease payments of $386 per month. This would not have changed 

our analysis and from a cost/ benefit perspective we do not believe it is 

worthwhile for these expenses to be pursued.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate 

• DFD- 40 

o This is a partial waiver case where the Defendant paid $85,000 of the 

total $521,580 in disgorgement. 

o The Report states that Defendant had a positive net worth of $18,115 and 

should have also been considered for a payment plan. At the time the 

settlement was negotiated before a magistrate judge, Defendant stated, and 

his SFS supported the fact, that he had no present income and that he 

would be borrowing from a home equity line of credit to pay this amount. 

This settlement, which was well over his net worth, was a very good 

settlement. 

o Furthermore, the Defendant agreed to act a witness against other 

individuals in our litigation. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD-36

o The Report indicates that defendant had $186,079 in liabilities that were 

not supported by documentation ($19,725 for an auto loan and $162,916 

in credit card debt). However, most of this discrepancy lies in the fact that 

$87,000 of the debt that Defendant listed in his SFS were actually his 

wife’s credit card debts (for which backup was provided). These debts 

would not appear on Defendant’s credit report and since we were not 

suing Defendant’s wife we did not have the legal authority to seek her 

credit report. These debts were included by defendant because the SFS 

instructs individuals to include their spouse’s information. This is 

especially appropriate in California, a community property state. The 

$19,725 is debt on the wife’s car (for which backup was provided). The 

rest of the discrepancy in his liabilities was between $35,000 - $75,000 in 

credit card debt (for which backup was also provided).

o Defendant’s negative net worth on his SFS was ($236,626), so even if he 

had $35,000 - $75,000 less in liabilities, he still would not have had 

money to pay disgorgement. In addition, Defendant was living off his 
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Report No. 452 

48

credit cards because he had no money, so these liabilities were continuing 

to rise. 

o Furthermore, since our case has concluded, Defendant’s house was 

foreclosed on, his car was repossessed, he filed for bankruptcy and the 

trustee found that he had no assets to distribute. In addition, his company 

is out of business. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.

• DFD- 49

o In this partial waiver case, Defendant paid $20,000 and $134,524 was 

waived. The Report states that Defendant had $84,600 in annual expenses 

($7,050 monthly) that were not supported by documentation. We have 

provided bank statements and credit card statements that support this 

amount. 

o Staff provided hundreds of pages of bank statements and tax returns for 

each year Defendant filed tax returns. The single item missing is actually 

the credit report run by the staff after we obtained Defendant’s 

authorization to run a credit report. This report was run but we cannot 

locate it in our files. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD-27 

o We disagree with the Report’s finding of undocumented assets of $23,315 

for this Defendant. The staff took significant efforts to determine which 

vehicles should have been included in the SFS, including conducting its 

own Autotrak public records search, which the Report fails to 

acknowledge and which identified each of the vehicles at issue. The first 

of the three vehicles included in the $23,315 amount is a vehicle leased by 

Defendant’s wife and thus should not be counted as an asset. Contrary to 

the findings in the Report, public record documentation of GMAC as the 

lien holder on the car was provided to OIG. The second vehicle included 

in the $23,315 amount is a vehicle valued at $4,000 that we, in fact, 

counted as Defendant’s vehicle and reported to the Commission in our 

Action Memo. The third vehicle, the Nissan, belongs to Defendant’s adult 

son, who has the same name, who did not reside with his parents, and thus 

should not be counted. In total, we identified and questioned Defendant 

about seven vehicles from public database searches, documents and 

information that Defendant produced and representations made during inperson interviews with Defendant and his counsel.

o Furthermore, this is a small amount given his large negative net worth of 

over ($400,000), and would not have been material to the disgorgement 

amount that the Commission waived. 
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Report No. 452 

49

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD 20 

o The Report states that defendant has "liabilities unsupported by 

documentation" in the amount of $11,931.38 involving property 

management fees on a Canadian condominium. We analyzed this liability 

in the Action Memorandum to the Commission. Based on the mortgage 

documents and payments reflected on defendant's bank statements, as well 

as Defendant's sworn testimony, the staff believes this debt was properly 

documented. Also, as we made clear to the Commission in our Action 

Memo, even if you exclude the Canadian property management fees, 

defendant would still have a negative worth. 

o Furthermore, this is a case where we recommended a partial waiver of 

disgorgement and in fact defendant agreed to pay $25,000 of the 

$2,589,987 in disgorgement and is currently in default on the money 

ordered to be paid. The staff is in the process of referring this matter for 

collection. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD 46 

o In this partial waiver case, defendant paid $47,000 and $231,633 was 

waived. 

o In recommending this waiver, staff took into account that fact that 

defendant was unemployed and incarcerated, unlikely to ever regain his 

pre-incarceration earning-power, and that his then current assets would 

likely be depleted by litigation costs as well as a $75,000 debt to his 

former employer. 

o The Report states that $12,533 in assets in individual’s bank statement 

were not included in the individual’s final SFS. The $12,533 was 

reflected in defendant’s bank account statements at a date six weeks 

before defendant created his SFS. Staff believes that by the time 

defendant submitted his SFS, he had depleted the $12,533 account balance 

and that is why it was not included in his SFS. 

o In light of the defendant’s situation it is hard for us to fathom how the 

Report concludes that we could have collected more money from this 

defendant and that there was some how a “cost savings” of this amount 

from the audit. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 
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Report No. 452 

50

• DFD -24 

o This was a partial waiver case where Defendant paid $25,000 and 

$223,665 was waived. Defendant had a total net worth of negative 

($226,000).

o This is a case where extensive settlement discussions began early but 

broke down. The case was then scheduled to go to trial and on the eve of 

trial defendant attempted suicide. Trial was then postponed and the 

second set of settlement discussions began.

o Defendant’s suicide attempt before the trial left him in a mental state 

where he was unable to work, was unemployed and was meeting his 

current living expenses through credit card debt and gifts from his parents. 

Also, Defendant claimed to suffer from a neurological disorder whose 

treatment caused him to develop a Vicodin addition. 

o The Report notes that “no credit reports, bank statements and income tax 

returns” were provided. However, defendant provided his required tax 

returns during the initial settlement discussions around the time the 

Complaint was first filed. By the time the second round of settlement 

discussions occurred, Defendant had not filed federal income tax returns 

since the first discussions. According to SEC guidelines, staff procured an 

IRS Form 4506-T from Defendant and confirmed this to be the case. 

Additionally, Defendant did provide credit reports and bank statements 

with his SFS. 

o The Report states that SFS identifies undocumented liabilities of: legal 

fees in the amount of $4,500 and medical fees in the amount of $1,000. 

For the medical fees, defendant provided staff with a letter from the 

hospital, stating that the defendant had been admitted in critical condition 

due to a suicide attempt. He also had submitted evidence of ongoing 

psychiatric visits and treatment for his depression. As for the legal fees, 

during the litigation of this case, the individual’s defense attorney made a 

motion with the court to withdraw based on the fact that he was not getting 

paid so staff knew the origin of the liability. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

DFD - 44 and DFD - 48

o In this partial waiver the individual defendant, DFD-44, paid $62,035 

and $351,537 was waived. 

o The Report states that auto loans in the amount $18,275 were not 

documented. However, given that defendant had a negative net worth of 

($251,756) regardless of those loans, it did not seem material to the waiver 

issue. 

o The entity defendant in this matter, DFD- 48, paid $50,525. We did not 

complete a checklist as we should have, however, to place this matter in 

context, the entity was entirely defunct at the point we settled, and had 
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Report No. 452 

51

only one account, which we took in settlement. The funds paid in 

settlement were obtained from an account that was frozen by Court order 

in the litigation, and which constituted the only material cash assets of the 

Defendant.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.

• DFD - 35 

o The Report criticizes this matter for not having bank statements and some 

tax returns. However, Staff did obtain a credit report for defendant as well 

as tax returns for 2003-2006. No bank statements were obtained because 

defendant represented in his SFS that he had no accounts and was unable 

to open any accounts because of prior bank and tax deficiencies. The staff 

was not aware of any evidence contradicting these assertions, nor did 

defendant’s credit report, AutoTrak report or other public records searches 

indicate that defendant had any bank accounts. Moreover, the staff had 

the benefit of reviewing defendant’s Personal Financial Statement 

submitted to the U.S. Probation Department and defendant’s presentence 

report which also failed to disclose the existence of any bank accounts and 

confirmed Defendant’s extremely poor financial condition. We list this 

matter to note that it can not be concluded in all instances where there is 

missing documentation, that we did not have a clear understanding of the 

defendant’s financial condition.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD – 3(a) and (b) 

o The Report states that there is $373,704 in assets underreported in this 

$320,000 waiver case. However, this amount relates to a jointly-held 

interest in a venture that has not produced income and we do not believe it 

is properly listed as underreported. 

o The Report states that staff should have considered a payment plan 

because DFD 3(a) had a positive net worth of $12, 410 and DFD 3(b) had 

a positive net worth and good credit scores. However, in March 2007, 

DFD 3(a) reported to the staff that he had a net monthly income of 

negative ($1,609.54). As of January 2007, DFD 3(b) also had a negative 

monthly income and was the sole provider for a family with several young 

children. DFD 3(b)’s calculated total assets included a heavily 

encumbered residence and illiquid notes receivable. Furthermore, we 

already collected and returned over 90% of the investors’ funds. A 

modest payment plan would not have resulted in any meaningful further 

recovery. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 
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Report No. 452 

52

• DFD 2

o As part of his partial waiver, the staff required defendant to agree to 

make payments totaling $150,000 within two years – an amount much 

higher than his negative net worth of ($67,000) could support. 

o The Report cites unreported income of $10,655.94. This amount does not 

reflect under-reported income. This amount reflects a one-time deposit 

into the defendants’ bank account. We have spoken to bank 

representatives, who confirmed this fact and have supplied this 

information.

o The Report cites a failure to obtain proof that defendant had not filed tax 

returns and to obtain proof of his $200,000 in back taxes. The applicant 

swore on his SFS that he was in the process of preparing those returns and 

told us that the $200,000 liability was an estimate only. Accordingly, we 

explicitly noted on the summary in the Action Memorandum to the 

Commission that the amount was “Estimated.” 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD- 16 

o This is a partial waiver case where the disgorgement was paid pursuant 

to a payment plan. Defendant paid approximately $35,000 and $ 69,004 

was waived.

o The Report states that liabilities totaling $443,000 of legal fees, credit card 

debt of $24,083 and an installment loan of $1,000 was unsupported by 

documentations. Staff did not have documentation for a $1,000 loan from 

his mother and this loan was not included as a liability in the summary 

presented to the Commission. Defendant had a negative net worth of 

($9,429) without these liabilities and as a result staff based the payment 

plan analysis on his income, assuming a zero net worth.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.

• DFD – 52 and DFD - 42 

o In this partial waiver case, one Defendant paid $19,000 and $31,266 was 

waived and the other Defendant received a waiver for $392,385.39. The 

Report states that Defendants have assets not supported by adequate 

documentation for $23,595 (DFD-52) and $419,049 (DFD-42) 

respectively. Valuations of these assets were verified by document 

reviews and by interviews of third parties, however we did not retain these 

documents. The valuation of the one defendant’s home was verified by 

the Court-appointed Receiver. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 
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Report No. 452 

53

• DFD -32(a) and DFD – 32(b)

o In this partial waiver case, one Defendant paid $200,000 and one 

Defendant paid $260,000 and $9,941,200 was waived. The Report states 

that defendant’s assets, liabilities, income and expenses are not supported 

by adequate documentation. 

o Staff obtained documents concerning key assets listed on each defendant’s 

SFS. These documents included valuation opinions of key assets, 

computerized database searches, income tax returns, copies of secured and 

unsecured notes payable and credit card statements. 

o Additionally, documents concerning the defendants’ assets were obtained 

as a part of the staff’s investigation and reviewed for the purpose of 

evaluating the defendants’ representations on their respective SFSs. These 

documents are currently in the possession of another federal authority. 

Finally, explanations concerning the valuations of the defendants’ assets 

were included in the staff’s Action Memo to the Commission. 

o Tax returns for the individual defendants for multiple years were obtained 

and provided. A credit report for Defendant was obtained by the staff. It 

was transmitted electronically to the staff and is maintained in 

computerized form. Bank and brokerage records for defendant and related 

entities were shipped to Defendant’s counsel’s office in or around May 

2007 and reviewed by the staff for the purpose of assessing the accuracy 

of the disclosures on his SFS. Due to the voluminous nature of the 

records, copies were not made. Additionally, bank and brokerage records 

for the individual defendants and their related corporate entities were 

subpoenaed as a part of the staff’s investigation. The documents were 

reviewed for the purpose of evaluating the defendants’ SFS. These 

documents are currently in the possession another federal authority. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD – 15 

o In this $181,822 waiver case, the Report states that monthly income was 

not supported by documentation. The staff personally interviewed both 

defendants to discuss the defendants’ respective monthly income. At the 

meeting, bank records and income receipts were reviewed and discussed. 

Staff retained the documents for further review and thereafter returned the 

originals to the defendants. The staff also reviewed the defendants’ tax 

returns, consumer credit reports and two computerized database searches 

to evaluate the reliability of their stated income; many of these documents 

have been provided. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.
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Report No. 452 

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• DFD – 14 

o In this partial waiver case, defendant paid $40,000 and $223,655 was 

waived. He has paid $8,710 to date and is continuing to make payments 

through Treasury, where the debt has been referred. 

o The Report states that $25,164 in annual expenses was not documented 

($2097 per month). 

o Defendant in this case declared bankruptcy before we submitted our 

partial waiver recommendation to the Commission. This fact is 

discussed in our action memo to the Commission. Also defendant pled 

guilty to criminal charges in connection with this fraud in the criminal 

case. He was also ordered to pay restitution of $119,936 at a rate of $100 

per month in the criminal case.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.

• DFD – 23 

o This is a partial waiver case where Defendant paid $45,000 in 

disgorgement and the remaining balance of $645,945 was waived. The 

Report states that defendant’s assets of $57,860 were not supported by 

adequate documentation. Trial counsel conferred with the court appointed 

receiver in this case regarding the Defendant’s assets and we note that, 

defendant, age 72, and his wife both suffered from health problems and 

were living on social security. Thus, in our recommendation to the 

Commission, we advised that Defendant be allowed to retain some assets 

to cover the shortfall between income and living expenses.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate.

• DFD – 12 

o In this $297,559 waiver case, the Report states that Defendant had 

unsupported monthly expenses of $460 per month for office expenses and 

insurance payments. The staff conducted an asset deposition for 

Defendant regarding assets, expenses and for additional information 

because Defendant was unable to supply certain past tax returns.

o In evaluating Defendant’s monthly expenses, we recommended that the 

Commission consider that Defendant had moved out of his home and was 

living with family members in order to avoid housing costs, and that he 

was voluntarily attempting to pay back some investors with his limited 

funds.

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 
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Report No. 452 

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• DFD- 21 

o This was a partial waiver case where Defendant paid $378,435 and 

$1,716,590 was waived. The Report claims that there are $85,000 in 

liabilities not supported by documentation. In this case, we essentially 

took every asset that Defendant had that was collectable. In light of this 

fact, Defendant’s liabilities become much less important. Significantly, 

even if you back out the $85,000 in undocumented liabilities, Defendant 

still has a negative net worth of ($36,449) and has no additional assets 

with which to satisfy a disgorgement or penalty obligation. 

o With respect to the $85,000 in liabilities, $65,000 of this amount is unpaid 

tax liability. As described in the Action Memo in this case, defendant did 

not pay income tax or file tax returns for years 2003-2005. The staff 

independently verified defendant’s non-filing status with the IRS, and 

submitted documentation from the IRS with respect to that status. Given 

that we verified Defendant’s non-filing status, we accepted his estimate of 

his tax liabilities. However, we specifically notified the Commission that 

the $65,000 figure was an estimate in a footnote of the Action Memo. 

o Also, the Report misstated Enforcement’s position about the unsupported 

liabilities in this case. Enforcement’s position is that given the 

individual’s high negative net worth, the validity of these unsupported 

liabilities would not have changed the partial waiver recommendation 

since Enforcement had already collected every available asset. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

• DFD – 41 and DFD 50

o For DFD 41 the Report states that there are unsupported liabilities of 

$9,855 in credit card debt, $6,850 of medical bills, and $1,591 in monthly 

expenses. At the time we recommended the waiver, this defendant was 

serving a 24 month prison sentence. 

o Furthermore, for DFD-50, the draft Report cites unsupported, annualized 

monthly expenses of $34,680 ($2,890 a month) of $890 in utilities, 

insurance premiums of $200, medical expenses of $530 per month, and 

transportation expenses of $1270. These small amounts would not have 

changed our waiver analysis and we note that at the time of the 

recommendation, the defendant suffered debilitating health issues. 

o Therefore, our waiver analysis remains the same. This waiver was totally 

appropriate. 

Finding 1: 

We disagree with the Report’s conclusion that these three defendants could have paid 

more and we stand by the waivers that were recommended. The Report states that a 

payment plan should have been considered as to these items. In our waiver guidance we 

advise the staff that a payment plan may be appropriate in three instances: (1) when the 
Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Report No. 452 

56

defendant has significant net income, (2) where there are substantial illiquid assets, and 

(3) when there are prospects of significant future income. We do not recommend a 

payment plan merely because a defendant has some ability to pay, rather we require a 

substantial payment up front and the ability to pay on at least a quarterly basis so that it is 

reasonable that the defendant has some ability to pay the amount ordered and so that our 

resources are not wasted on payment plans with little likelihood of success. The Report 

did not demonstrate any significant ability for these defendants to make a substantial 

down payment or consistent monthly or quarterly payments but rather substituted its 

judgment for ours without any concrete examples of how, viewing the defendant’s entire 

financial situation, these defendants could pay pursuant to a payment plan. As to DFD-40 

a partial waiver was in fact obtained. This defendant paid $85,000, which he obtained by 

going into debt, and which is more than his positive net worth. He also had no present 

income. It is hard to imagine how this individual is a candidate for a payment plan as the 

Report suggests. The other item on the Report is a single case involving DFD 3(a) and 

DFD 3(b), a matter where we had already collected and returned over 90% of the 

investor’s funds. These two defendants had negative net incomes, making a payment 

plan, as suggest by the Report, highly unlikely. 

While the Report is critical of our staff for not considering credit scores we have never 

directed our staff to base their recommendation on this information. While a person’s 

ability to take on debt is interesting information to take into account, it does not dictate 

the results of recommending a waiver. 

Recommendation 1: 

While we disagree with the Report’s conclusions in finding one, we will remind our staff 

that payment plans and partial waivers can be appropriate. In fact, in nearly one quarter 

of the waiver cases reviewed (17 cases), Enforcement recommended a partial waiver to 

the Commission. We will also continue to ensure, through our memo review process, that 

cases are appropriately considered for payment plans or partial waivers and comply with 

our procedures. Therefore, we concur with the Report’s recommendation. 

Finding 2: 

The Report next cites two assets that it believes were under-reported. As to DFD-46 the 

Report states that his bank records show $12,533.78 more than identified in his SFS. We 

note that this was a partial waiver in that defendant paid $47,000 of the amount owed 

and he was unemployed and about to report to prison. As noted above, the bank 

statement was from a period prior to the SFS and was likely spent during the weeks 

before the Defendant prepared his SFS, as he had no source of income. As to the other 

defendant in this section, DFD-3(b), the note that the Report highlights was an interest in 

a joint venture that was not producing income and we do not agree that this asset was 

underreported. Therefore, our waiver analysis as to these defendants is unchanged. 
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Recommendation 2: 

While we disagree with the basis for this finding, we agree that it is critical that the 

defendant’s financial information be reviewed for accuracy and therefore concur with the 

recommendation. We believe that this can best be accomplished by reiterating that our 

staff follow the current guidance and appropriately fill out and follow the checklist. 

Finding 3: 

The Report states the staff did not obtain supporting documentation regarding certain 

assets, liabilities, monthly income and expenses. We do not agree that the items listed as 

undocumented assets, represent items from which we could have made collection. As to 

two of the defendants, DFD-13 and DFD-27, whose questioned assets are a vacant lot and 

cars, we fully explained these assets to the Commission in the Action Memo and disagree 

with the Report’s conclusions. As to DFD-23, this was a 72 year old defendant who was 

living on his social security. In the Action Memo to the Commission we suggested that 

this individual should be allowed to live on his few remaining assets. As to the four 

remaining items the Report lists, we did not retain documentation, rather we reviewed it 

and either returned it or gave it to another government agency. We recognize that for 

your auditing purposes we need to maintain these documents and we will instruct our 

staff to do so in the future; however, these were not items for which we never obtained 

documentation. 

Next the Report lists liabilities it believes are unsupported by documentation. For a 

number of these items we had the documentation at the time of the waiver 

recommendation but we failed to maintain it. As with the same issue detailed in the 

paragraph ahead we will make certain that in the future our staff maintains these records. 

We note that the finding as to underreported income contains one example involving a 

single $10,655.94 deposit into Defendant’s checking account. We have explained that 

the bank has stated that this was a one time deposit and therefore was non-recurring 

income. Since the bank is an independent third party, we believe this is adequate 

documentation and we do not agree that further documentation was required as stated in 

the Report. Our waiver guidance explicitly states that “non-recurring income does not 

necessarily increase a defendant’s ability to pay.” For the other four items listed in this 

section they are from an office that previously did not always maintain documentation 

after the waiver was recommended. 

The last issue in this section is monthly expenses. We do not require, and never intended 

to require, documentation for every expense. We will clarify our guidance if necessary 

on this matter to emphasize that we do not want staff spending unnecessary resources 

documenting routine monthly expenses. Instead, our guidance specifically states that we 

require staff to identify situations where defendants have exorbitant expenses which 

indicate that they are living opulent life styles or if Defendant’s SFS shows that 
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Defendant is living way beyond his or her means without suffering some consequence. 

We also want to note that the Report presents expenses as annualized figures, so when it 

lists expenses of $5,520 that is a monthly figure of $460. This hardly seems like a figure 

that would change our waiver recommendation. 

As the Report states many of the unsupported expenses are for items such as food, 

utilities, rent and insurance. In our view from a cost benefit analysis these expenses were 

reasonable and did not need to be documented further than the defendants’ SFS. 

Recommendation 3: 

We agree that adequate supporting documentation must be maintained and we will make 

clear to our staff the importance of doing this. If necessary, we will clarify our guidance 

to staff that it is not necessary to collect supporting documentation for every expense in 

Defendant’s SFS. We believe our controls are adequate. We will reiterate to the staff the 

importance of following the guidance in the checklist and that supervisors ensure this 

review is properly done. 

Finding 4: 

We agree that the sworn financial statements are the cornerstone of the waiver process. 

The Report makes limited findings in this section as to one instance where we were not 

able to produce the SFS and one instance where we were not able to provide a signed and 

notarized version. This finding shows that we must reiterate to our staff the need to 

carefully retain documentation. 

Recommendation 4: 

We concur with your recommendation that we obtain a signed and notarized SFS. Based 

on your limited findings we believe that our current controls are appropriate. 

Finding 5: 

We agree that a checklist must be completed and signed by the supervisor, as it is the key 

to our internal controls. While in most of the instances you cite the procedures in the 

checklist were followed, we agree that this documentation must be maintained. We 

believe that the best way to address this issue is to reiterate to our staff in the Office of 

the Chief Counsel that they must obtain a copy of the signed checklist in all waiver 

recommendations before those matters can be placed on the Commission calendar. We 

will also reiterate to our staff that they maintain a copy of the signed checklist in the case 

files. 
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Recommendation 5: 

We concur in this recommendation and will ensure that the Office of Chief Counsel does 

not allow any matters to be calendared unless they have first obtained a copy of the 

signed checklist. 

Finding 6: 

This finding relates to missing credit reports, bank statements and income tax returns. 

Many of the documents were obtained but we did not maintain a copy. We believe that 

reiterating to our staff the need to follow the checklist and to retain documentation will 

address this issue. To the extent the chart implies that all of these documents were 

missing for all of these matters, we note that typically it was one of these items we could 

not produce, not the entire list. 

The Report also devotes an entire chart to income tax returns which were not signed by 

the defendant. We disagree that only income tax returns physically signed by the 

defendant are acceptable. Many returns are filed electronically by an accountant or 

through computer programs and the copy retained by the defendant may not bear a 

signature. In light of the fact that copies of the tax return are attached to the sworn 

financial statement, and in the signature portion of the sworn financial statement the 

defendant attests to the truthfulness of the document and all attachments, we believe that 

unsigned copies of the defendant’s tax return are sufficient. We believe that asking the 

defendant to sign a tax return which was already filed adds nothing to the waiver 

analysis. 

Recommendation 6: 

We agree with the recommendation that we must obtain credit reports, bank statements 

and income tax returns or clearly state to the Commission that those items are missing 

and explain why it is still appropriate to grant a waiver. We believe that our current 

process of requiring the staff to follow the procedures in the checklist prior to calendaring 

a waiver recommendation is an appropriate internal control. We will consider the 

recommendation that tax returns be signed after the fact. 

Finding 7: 

In this finding the Report cites to a single failure to produce a public database search. 

Recommendation 7: 

We concur in this recommendation. We believe that the procedures in the checklist are 

an adequate internal control as was exhibited in all but one of the items reviewed. 
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Finding 8: 

The Report notes that we did not do any formal training specifically directed at waivers 

and we agree that training is appropriate. In fact, we recently included a mandatory 

session on waivers in our fall training program. During that training we explained the 

Commission’s overall policy on waivers, we reviewed special considerations in making 

these recommendations and we went through the checklist item by item. 

Recommendation 8: 

We agree with this recommendation and have started implementing it. 
Appendix V

 

Office of Inspector General Response to 

Management Comments

We are pleased that the Division of Enforcement (Enforcement) concurred 

with all 8 recommendations but are disappointed and concerned about 

Enforcement’s overall response that they do not need to undertake any 

meaningful action to improve the disgorgement waiver process, stating for 

the most part that their existing controls and procedures are sufficient. Our 

concern is amplified by the fact that this is the Office of Inspector General’s 

(OIG) third audit of this process and there does not appear to have been a 

great deal of recognizable improvement since the last audit conducted in 

January 2005. 

 

Our audit found that there were $177,605,521.03 in total waivers granted 

based on inability to pay among other policy reasons, for the period of FY 

2006 through May 31, 2008. The audit report found many instances where 

Enforcement did not follow its own procedures and failed to ensure that 

defendants provided accurate assessments of their financial condition or 

submitted supporting documentation for assets, liabilities, income and 

expenses reported on defendants’ Sworn Financial Statements. In addition, 

the audit found that Enforcement staff failed to obtain credit reports, bank 

statements, or income tax returns which are necessary to corroborate a 

defendant’s financial status. In light of the large amount of disgorgements 

being waived and the significant findings of this audit report, we strongly 

urge Enforcement to attempt to improve its process by fully implementing all 

of the OIG’s recommendations. 

As we do with all of our audit reports, we provided Enforcement with 

significant time to respond to draft versions of the report and incorporated 

many of Enforcement’s comments and perspectives into later versions of the 

report. In this instance, we provided Enforcement with an initial draft on 

September 8, 2008, and spent the next several months working closely with 

them to ensure that the report was entirely accurate. Notwithstanding this 

effort, the language and tone of Enforcement’s response leaves us 

unconvinced that Enforcement will take the OIG’s findings seriously and 

implement tangible and concrete measures to improve its disgorgement 

waiver process. 

With respect to the particular cases cited by Enforcement in its response, the 

OIG’s audit report explained its reasoning for all of these cases in narrative 

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form in the body of the report, and notes that in nearly all of these examples, 

although Enforcement now attempts to provide ex post facto explanations of 

waiver decisions (which were only provided after reviewing draft versions of 

the audit report), the waiver files do not support these explanations. 

Specifically, in several of these cases, Enforcement seems to have relied upon 

representations made by the defendant, rather than by obtaining supporting 

documentation. For example in case nos. 2, 12, 13, 15, 20, 27, 35 and 40, 

Enforcement acknowledged in its response that it based certain of its 

determinations either upon representations made by defendant or its counsel 

in interviews or depositions, and/or upon defendants’ sworn statements, 

rather than relying upon supporting documentation as is required, and which 

is critical to ensure that these representations made by defendants who 

Enforcement believed violated the securities laws were truthful and accurate. 

In addition, it is worth noting that the majority of the cases cited by the OIG 

in its audit are not disputed in Enforcement’s response or even addressed at 

all. 

We sincerely hope that Enforcement will carefully consider and implement all 

the findings and recommendations in this report in order to ensure that 

waiver requests are being appropriately granted. 
Appendix VI

Criteria

17 CFR Section 201.630: “ Inability to pay disgorgement, interest or 

penalties”. 

“Recommending Financial Waivers and Payment Plans to the 

Commission” revised as of January 14, 2005 

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Audit of Enforcement’s Disgorgement Waivers February 3, 2009 

Audit Request and Ideas

The Office of Inspector General welcomes your input. If you would like to 

request an audit in the future or have an audit idea, please contact us at: 

U.S. Securities and Exchange Commission 

Office of Inspector General 

Attn: Assistant Inspector General, Audits (Audit Request/Idea) 

100 F. Street N.E. 

Washington D.C. 20549-2736 

Tel. #: 202-551-6061 

Fax #: 202-772-9265 

Email: oig@sec.gov

Hotline 

To report fraud, waste, abuse, and mismanagement at SEC, contact the 

Office of Inspector General at: 

Phone: 877.442.0854 

Web-Based Hotline Complaint Form: www.reportlineweb.com/sec_oig

Report No. 452 

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