SEC is an independent agency created in 1934 to protect investors; maintain fair, honest, and efficient securities markets; and facilitate capital formation. SEC has a five-member Commission that comprises the Chairman and four commissioners, who are appointed by the President and confirmed by the Senate. The Commission oversees SEC’s operations and provides final approval of SEC’s interpretation of federal securities laws, proposals of new or amended rules to govern securities markets, and enforcement activities. To accomplish its mission, SEC has established four strategic goals: (1) enforce compliance with federal securities laws, (2) promote healthy capital markets through an effective and flexible regulatory environment, (3) foster informed investment decision-making, and (4) maximize the use of SEC resources. Enforcement and the agency’s Office of Compliance Inspections and Examinations (OCIE) share responsibility for implementing SEC’s compliance goal. According to SEC’s 2008 Annual Report, in fiscal year 2008, more than half of SEC’s resources—a total of 2,340 full-time equivalent positions, and more than $595 million—were dedicated to programs to enforce securities laws. In 2002, Congress passed the Sarbanes-Oxley Act of 2002 (Sarbanes- Oxley), following high-profile corporate failures and accounting scandals, and in response to resulting demands that public companies be held more accountable for information reported to investors. The act, which addressed concerns involving corporate governance, auditor independence, and regulation and oversight of the accounting profession, also provided additional resources to SEC. Subsequently, Congress appropriated $716 million for SEC in fiscal year 2003, an increase of 45 percent over its fiscal year 2002 budget. SEC was directed to use this increase both to add personnel and acquire new information technology to increase its effectiveness. Enforcement staff conduct investigations through informal inquiry, interviewing witnesses, examining brokerage records, reviewing trading data, and other methods. At the request of Enforcement staff, the Commission may issue a “formal order of investigation,” which allows the division’s staff to compel witnesses by subpoena to testify and produce books, records, and other documents. Following an investigation, SEC staff present their findings to the Commission for its review, recommending Commission action either in a federal court or before an administrative law judge. On finding that a defendant has violated securities laws, the court or the administrative law judge can issue a judgment ordering remedies, such as civil monetary penalties and disgorgement. In many cases, the Commission and the party charged decide to settle a matter without trial. In these instances, Enforcement staff negotiates settlements on behalf of the Commission. Each year, Enforcement brings hundreds of civil enforcement actions against individuals and companies accused of violating securities laws. The mix and types of actions vary from year to year, based upon market conditions and changes in financial instruments being used. In general, violations could include financial and accounting fraud, insider trading, market manipulation, providing false or misleading information about securities and the companies that issue them, selling securities without proper registration, and violating the broker-dealer responsibility to treat customers fairly. Enforcement personnel are located in SEC’s headquarters in Washington, D.C., and the agency’s 11 regional offices. Enforcement staff located in headquarters include the director and two deputy directors, five investigative groups, or Offices of Associate Directors, and internal support groups (Office of Chief Counsel, Office of Chief Accountant, the trial unit, Office of Collections and Distributions, market surveillance, and Office of Internet Enforcement). An associate director heads each Office of Associate Director and has one or more assistant directors. Branch chiefs report to assistant directors and supervise the work of investigative attorneys assigned to individual investigations, with review and support provided by division management. SEC regional office staff typically are divided between Enforcement and OCIE personnel. Enforcement units in the regional offices have Office of Associate Director structures similar to those in headquarters and report to the Director of Enforcement in Washington, D.C. In 2007, we made four recommendations designed to strengthen Enforcement’s management of its operations, which focused on: Establishing written procedures for reviewing and approving new investigations. We said that establishing such guidance would help focus the review of investigations, reinforce the consistency of those reviews, and assist in communicating new policies to the staff. Establishing written procedures for entering data into the new investigation management information system called the Hub, and establishing a control process for assessing reliability of data in the system. We said that without written guidance and establishment of independent and regular reviews of the accuracy of Hub data, Enforcement was not well-positioned to get reliable program information, and that the system’s capacity to aid management of the investigation process might be limited. Closing inactive investigations. We said that leaving investigations open indefinitely compromises management’s ability to effectively manage its portfolio of cases, and has potentially negative consequences for individuals and companies that are no longer under investigation. Improving management of the Fair Funds program. We noted that because SEC had not yet staffed or defined the roles and responsibilities of a new office being established to administer the Fair Fund program, it was not possible to determine the extent to which the office may better facilitate the distribution of funds to investors harmed by securities fraud and other violations. We also said that in the meantime, the division had not taken other steps to allow it to develop a better perspective on reasonableness of Fair Fund program expenses. SEC has implemented several aspects of these recommendations, but more work is needed for full implementation of the recommendation on the Fair Funds program as it relates to the organizational structure of the new Office of Collections and Distributions. In 2007, we reported that under a largely decentralized approach for approving new investigations, Enforcement was not always able to ensure efficient resource allocation or maintain quality control in the investigative process. Enforcement has now developed written procedures for review and approval of new investigations, which are included in a recently completed enforcement manual. The procedures address various steps in the investigative process, such as handling tips, referrals, and complaints; opening a Matter Under Inquiry, which can be a preliminary step toward opening a full investigation; and opening a full investigation. According to the procedures, the primary consideration for opening an investigation should be whether the inquiry has the potential to substantively and effectively address the potentially improper conduct at issue. Other key factors are the magnitude or nature of the violation, the size of the victim group, and the amount of potential or actual losses to investors. In 2007, we reported that Enforcement planned to start using the Hub system by late in the year. An initial phase of the Hub was planned to provide an ability to interact with the division’s system for tracking Matters Under Inquiry, investigations, and enforcement actions—the Case Activity Tracking System (CATS)—which contains information on these actions. In a second phase, SEC planned to replace CATS and expected the project to be completed in fiscal year 2009. Enforcement management reports that the initial phase is complete. The Hub, as currently implemented, is an interface into CATS, and is intended to provide a management information tool for viewing information stored in CATS. The need arises because CATS was designed to be an information repository, not a system for querying and displaying data. Using the Hub, Enforcement staff can now generate various reports on enforcement activity. For example, the Hub can produce a report of an investigative attorney’s roster of current cases, containing items such as general case information, status, or other case information. Other reports allow queries by case type, and searching for cases by time period. In response to our recommendation that Enforcement provide guidance on the use of the Hub, the division has developed a user manual, and Enforcement management said that staff have had access to training and various demonstrations of the Hub’s capabilities. In connection with the Hub guidance, we recommended that the then- Chairman direct Enforcement to establish a control process for assessing the reliability of data in the Hub system. To the extent that the Hub relies on CATS information, there are already some processes for monitoring entry of information, because the CATS system, which Enforcement officials call their system of record, has controls on data entered into the system. This includes use of case management specialists, whose specific duties include entry of case information. According to Enforcement management, under the current implementation of the Hub, investigative staff are responsible for entering quarterly, narrative-style case updates into the system. Specifically, staff attorneys are to enter this narrative data into the Hub as part of quarterly case reviews that management conducts, plus other Hub-only information not kept in CATS. Enforcement management told us the formal control on entry of this data is that all staff are aware of the management reviews and that the Hub user guide directs that information should be updated at least quarterly. They said that ultimately, it is a manager’s responsibility to make sure the information indeed gets into the Hub system. The officials said that if the narrative case updates are not entered into the system on a timely basis as directed, this information, which is not quantitative data used to track items such as dollar amounts or caseload, is considered to be a low-risk area that will not compromise overall system quality. In 2007, we reported that Enforcement officials characterized CATS as severely limited and virtually unusable as a management tool. In addition, Enforcement officials said that obtaining technical support for CATS could be difficult because the system is proprietary, and the company that created it is no longer in business. According to Enforcement officials, CATS’ deficiencies resulted from the fact that the system was hastily designed to prepare for expected year 2000 technical challenges. As part of this study, Enforcement officials told us that following the departure of an information technology contractor on the Hub project, the division has chosen to reevaluate the entire effort to replace CATS. They told us that the most likely scenario for implementation of a CATS replacement is now 2011 and that availability of funding will be a key factor.