NCPA - National Center for Policy Analysis

SEC Flunks In Fraud Collections

January 9, 2001

Stock swindlers are walking away with hundreds of millions of dollars from unwary investors and the Securities and Exchange Commission, the federal government's investment industry regulator, is doing very little about it.

Moreover, the agency does not maintain comprehensive records of how much has been repaid to fraud victims.

  • Last year, the SEC recovered only $12 million out of an estimated $278 million in securities fraud cases -- a recovery rate of just 4.3 percent.
  • That compares with a recovery rate of 42.5 percent as recently as 1996.
  • Since 1995, the SEC has collected just 16.9 percent of the more than $1.7 billion in illegal gains that financial violators have been ordered to hand over.
  • A USA Today analysis found that the agency has not collected one penny in 10 large cases involving violators who collectively owe $540 million under so-called disgorgement orders.

Pleading limited agency resources, SEC chairman Arthur Levitt describes the low collection rate as "really unfortunate." He says that given the choice between putting on more bill collectors or bringing more cases, he'd "opt for the latter."

Asked why there is no comprehensive tracking of refunds repaid to investors, other officials say existing computer systems are "sufficient." A General Accounting Office report that recommended the tracking system has never been updated, and no government or private organizations have raised the issue in recent years.

Source: Kevin McCoy, "Conned Investors May Never See Refunds," USA Today, January 9, 2001.


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