Investment Regulators Often Fail to Collect Monetary Sanctions


“That’s the easiest $250,000 you’ll never see,” quipped the judge who had just granted a motion for summary judgment in a recent case. Collectibility of judgments is something that private attorneys usually consider in deciding whether to expend resources to pursue a case. The attorneys who work for the U.S. Securities and Exchange Commission and the Commodities Futures Trading Commission often face the same collection issues, according to Jean Eaglesham’s Wall Street Journal article entitled, “Chasing Fraud, Then Cash.” As Ms. Eaglesham put it: “It is easier for regulators to get their man than it is to get their money.”

Since late 2005, the SEC and the CFTC have ordered or obtained court orders against wrongdoers for $12.3 billion in monetary penalties, disgorgement of ill-gotten profits and restitution to investors, but have only collected about $7.7 billion of that, leaving $4.6 billion uncollected and, probably uncollectible, which is line with previous years’ collections, according to the article. The SEC reportedly collected $7.55 billion out of $11.33 billion owed (67%) and the CFTC collected just $257 million out of $1 billion owed (25%).

“It’s one thing to impose fines and hang up the scalps,” said James Cox, a law professor at Duke University in Durham, N.C. “It’s quite another to collect the money.”

“[W]e need to do a better job to get more money back in the hands of defrauded investors,” Bart Chilton, one of the five commissioners who run the CFTC, was quoted as saying.

SEC spokesman John Nester points out that last year the SEC “returned two dollars to harmed investors for every dollar Congress spent on the entire SEC budget.”

Collecting from smaller firms and individuals is more problematic than collecting from larger firms. Individuals can hide themselves and their assets. Smaller firms can shut down and reopen under a new name. Sometimes the assets are simply gone, as is often the case in ponzi schemes.

It is a “good question whether it’s a proper use of the commission’s limited resources to continue to pursue these [Ponzi] cases on a civil basis, rather than simply refer them to the criminal authorities,” Gregory Mocek, the CFTC’s director of enforcement from 2002 to 2008, was quoted as saying.

The SEC and the CFTC would undoubtedly improve their collection rates by shutting down fewer small frauds, but political pressure can be a factor in a government agency’s decision to pursue cases against small firms and individuals that do not have good cost-benefit characteristics.

“A lot of these SEC and CFTC cases are pretty small potatoes. But the agencies come under pressure, from members of Congress who have voters that have been scammed, to go after these schemes,” Professor Cox was quoted as saying.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in investment litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions.