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. According to SEC data, the disgorgement collection rate varied greatly  from year to year. An analysis of these collection rates shows that SEC’s success in collecting  large individual disgorgement orders can greatly influence the collection  rate. Factors Beyond SEC’s Control Make It Unlikely That SEC Will Collect All Disgorgement

Another limitation in the adequacy of the collection rate as a measure of  the effectiveness of SEC’s disgorgement collection efforts is that factors  beyond SEC’s control limit its ability to collect the full amount of  disgorgement ordered in some cases. Securities law violators can lack the ability to pay for a variety of reasons. SEC Lacks Strategic Guidance, Clear Policies and Procedures, and an Effective Monitoring Mechanism for the Disgorgement Collection Process

Although disgorgement is intended to help deter fraud by forcing violators  of the securities laws to return illegal profits, we found weaknesses in  SEC’s disgorgement collection program. First, SEC lacks clearly defined  strategic objectives and measurable goals for its collection program. However, SEC’s strategic and annual plans do not clarify the  priority disgorgement collection should have in relation to SEC’s other  goals. SEC Has Improved Its Process for Selecting and Monitoring Receivers but Does Not Have a Central Monitoring System

SEC has improved its process for selecting individuals to recommend as  court-appointed receivers. Although we  acknowledge that the collection rate is not likely the best measure for  assessing the effectiveness of SEC’s disgorgement collection activities,  improving the process for entering and updating the information in DPTS  would provide accurate and current information for SEC to use to monitor  progress on individual cases. However, in addition to depriving violators of  their illegally obtained funds, returning money to harmed investors is an  important element of the disgorgement program. We  also spoke with SEC attorneys to learn what actions had been taken to  monitor receivers and to review receiver fee applications.
Why GAO Did This Study

Every year investors lose money to individuals and corporations that violate federal securities laws. One mission of the Securities and Exchange Commission (SEC) is to deter such violations and return lost funds to investors. SEC's primary tool is the disgorgement order, which requires violators to give up money obtained through securities law violations. In order for disgorgement to succeed, SEC must have an effective disgorgement collection program. Although the courts have ordered billions of dollars in disgorgement in the last decade, concerns exist about SEC's success in collecting these funds. For several reasons, SEC's disgorgement collection rate is not an adequate measure of the effectiveness of SEC's disgorgement program.

What GAO Found

First, while SEC data showed a collection rate of 14 percent for the $3.1 billion in disgorgement ordered in 1995-2001--compared with the 50 percent collection rate GAO reported in its 1994 report--GAO found that the rate varied widely from year to year and was influenced by large individual disgorgement orders. Second, the data used to calculate the collection rate was not reliable because of weaknesses in entering and updating information in SEC's disgorgement tracking database. Third, factors beyond SEC's control, including violators' inability to pay, reduce the likelihood that SEC will be able to collect the full amount of disgorgement ordered. To deprive securities law violators of illegally obtained funds, SEC needs an effective collection program with clearly defined objectives and measurable goals, specific policies and procedures for its staff, and systems to allow management to monitor performance. However, SEC's strategic and annual performance plans do not address disgorgement collection or clarify its priority relative to other activities. SEC has improved its process for recommending receivers and has taken steps to monitor receivers' actions, but lacks a mechanism for tracking receiver fees. In response to concerns noted in a recent internal report, SEC also has improved its waiver recommendation process for disgorgement orders.