As the organization charged with responsibility for overseeing U.S. securities markets at the federal level, SEC’s mission is to protect investors and ensure fair and orderly markets. Within SEC, the Division of Enforcement is responsible for investigating possible violations of the securities laws, litigating against violators in federal civil courts and administrative proceedings, and negotiating settlements. When an investigation reveals a possible violation, SEC can seek a range of sanctions and remedies, including disgorgement. When seeking disgorgement, SEC staff attempt to recover the amount of illegal profits or misappropriated funds as a way of ensuring that securities law violators do not profit from their illegal activities. When possible, SEC also attempts to return these funds to any investors harmed as a result of the violation. When it is not economically practical or efficient to locate and notify investors, the collected amounts are transferred into the general fund of the U.S. Treasury. Disgorgement sanctions are imposed against violators involved in activities such as insider trading, investment adviser fraud, market manipulation, and fraudulent financial reporting. Until 1990, SEC could obtain a disgorgement sanction only by obtaining a court order from a civil suit filed in federal district court. However, in 1990, Congress gave SEC the authority to impose disgorgement sanctions in its administrative proceedings through the Securities Enforcement Remedies and Penny Stock Reform Act of 1990. The majority of disgorgement orders result from suits filed in federal court. The amount to be disgorged in civil and administrative proceedings is based on the amount of the illegal gain, but SEC has discretion to waive all or part of a disgorgement claim. Waivers are granted based on a violator’s inability to pay and are typically granted in settled matters. If SEC believes that a violator is able to pay but refuses to make payments, it can take actions to compel the violator to pay, such as requesting that the court hold the violator in contempt for failure to pay. In addition, SEC may request that the court appoint a receiver, generally a private sector lawyer, to perform certain tasks, such as obtaining and managing a violator’s assets and overseeing the distribution of funds to harmed investors. Receivers are paid out of the funds collected to pay the disgorgement order. After SEC exhausts all practical collection actions, the agency is required to transfer its uncollected debt to the Treasury Department’s Financial Management Service for final collection efforts. As we have stated in two recent reports, SEC faces several challenges in fulfilling its mission. U.S. securities markets have grown tremendously and become more complex and international, increasing the volume and complexity of SEC’s workload. SEC’s staff resources have not increased at a similar rate. For example, between 1991 and 2000, Division of Enforcement staff devoted to investigations increased 16 percent, from 414 to 482 staff years, while the number of cases opened increased 65 percent, from 338 to 558. In addition, the number of cases pending at the end of the year increased 77 percent, from 1,264 in 1991 to 2,240 in 2000. As a result, SEC has been forced to become selective in its enforcement activities and has experienced an increase in the time required to complete certain enforcement investigations. In addition, SEC has been experiencing a staffing crisis that has left it with a large number of less experienced staff. For example, from 1998 to 2000 over 1,000 employees, or about one-third of all staff, left SEC, and in 2000 its overall turnover rate averaged 15 percent—more than twice the rate for comparable positions governmentwide. SEC’s Division of Enforcement has, likewise, had substantial turnover, with 89 professional staff leaving the division during 2000 and 2001, which was about 16 percent of the 553 staff in the division in 2001. SEC’s current collection rate is limited as a measure of the effectiveness of SEC’s collection program for several reasons. First, although its collection rate appeared to decline from prior periods, we found that SEC’s varying success in collecting large individual disgorgement orders caused the rate to differ significantly over time. Second, we found that weaknesses in the processes SEC staff used to enter and update the Disgorgement Payment Tracking System (DPTS), which tracks SEC’s disgorgement collections, have created errors that prevented us from determining the actual disgorgement collection rate. Finally, the collection rate is less useful to measure SEC’s program because factors beyond SEC’s control reduce the likelihood that the agency will be able to collect all disgorgement ordered. As recommended in our 1994 report, SEC now collects aggregate data on the amount of disgorgement ordered, waived, and collected. Our analysis of SEC data found that, as of November 2001, SEC apparently had collected approximately $424 million, or 14 percent, of the $3.1 billion in disgorgement that was ordered from 1995 through 2001 (fig. 1). However, our analysis also found that SEC’s collection rate varied over time and was heavily influenced by large individual disgorgement orders. According to SEC data, the disgorgement collection rate varied greatly from year to year. SEC data show that between 1990 and 1999 SEC was able to collect between 2 and 84 percent of the disgorgement amounts owed, not including amounts waived (fig. 2). An analysis of these collection rates shows that SEC’s success in collecting large individual disgorgement orders can greatly influence the collection rate. For example, figure 2 shows that in 1990 SEC collected approximately 75 percent of the disgorgement ordered (not including waived amounts) in the 2 years after the orders were issued but only 17 percent of the disgorgement ordered in 1991. However, our analysis found that approximately $400 million of the $427 million collected on disgorgement ordered in 1990 came from a single payment made by one violator. Excluding this case, the reported collection rate for 1990 would have been approximately 15 percent. Similarly, SEC’s reported collection rate of 84 percent for 1994 included a disgorgement order of $939 million for a single violator, the majority of which was collected in the 2 years following the order. Excluding this single case, the collection rate for 1994 would have been 23 percent. Similarly, comparing the overall 14 percent collection rate for 1995 to 2001 to the rate we reported in 1994 also is not meaningful as a result of the impact of these large cases. In our 1994 report, we calculated that SEC had collected 50 percent of the $2 billion of disgorgement ordered from 1987 to April 1994. However, if the $400 million 1990 case cited above is excluded from the collection rate for 1987 to 1994, the rate for that period would have been about 38 percent. As a result of the impact that just a few cases can have on SEC’s collection rate, using this rate as a measure of changes in the overall effectiveness of SEC’s collection efforts can be misleading. Another reason that we were unable to use SEC’s reported collection rate as a measure of SEC’s collection efforts is that the data used to calculate that rate are unreliable. According to standards issued by GAO, appropriate internal controls are necessary to ensure that data are accurate and complete. In addition, data about events should be promptly recorded so that they maintain their relevance and value to management. However, weaknesses in SEC’s procedures have resulted in unreliable data in its disgorgement database. As part of our review, we selected a sample of 57 cases and compared information from SEC case files and other documents to entries in DPTS. We found that 18 cases, or approximately 32 percent, contained at least one error in the amount ordered, waived, or collected, or in the status of the case or of the individual violators. Overall, for the 57 cases that we reviewed, DPTS data showed that SEC had collected around $25 million, or approximately 4 percent of the $597 million in disgorgement ordered, not including amounts waived. However, after correcting for the inaccuracies we identified in our review, we found that SEC had actually collected around $55 million, or approximately 11 percent of the disgorgement ordered, not including the amounts waived. Because we judgmentally selected the cases we reviewed, this error rate cannot be projected beyond our sample. SEC’s process for entering data on disgorgement orders into DPTS did not ensure the accuracy or completeness of that data. We found that the sources used as a basis for entering data into DPTS did not always provide the most accurate information. SEC staff in the Office of the Secretary who entered the data into DPTS relied heavily on SEC litigation releases that, according to the staff, may not contain all the details of a disgorgement order. The staff also told us that they do not independently verify the information in the litigation releases. Further, the staff told us that the payment dates recorded in DPTS might not be accurate, because staff used the day entry was made as the payment date if no other date was specified. Finally, we found that it was awkward for staff to accurately record information for individual violators when disgorgement orders were issued to multiple violators. In these instances, payments made by one violator may subsequently reduce the amount all the violators owe. However, the DPTS system does not provide a way to easily enter and track the amounts owed under joint and several liability cases. Instead, staff input the total amount of the disgorgement judgment under one violator and enter a $0 balance for the others, with a notation indicating that each violator is jointly and severally liable with other violators. Payments are recorded under the name of the selected violator, not necessarily the violator making the payment, and a note is made in the system as to which violator had paid. SEC staff said that they entered the data in this way to avoid overstating the amount of disgorgement ordered and paid.