Regulation

SEC Only Collects Half Of Fraud-Related Fines

New data shows that the U.S. Securities and Exchange Commission (SEC) has only collected 55 percent of the $20 billion in fraud-related fines it imposed over the last five fiscal years.

In addition, agency statistics show that during the previous five years, from 2009 through 2013, the SEC collected 60 percent of $14.6 billion, while in fiscal year 2018 it received 28 percent of almost $4 billion in fines. However, that enforcement rate — the lowest in a decade — was due in part to a $1.7 billion settlement with Brazilian oil company Petrobras that allowed the company to pay Brazilian authorities.

The main reason for the SEC’s collection woes is that it cannot seize a debtor’s property or assets to receive payment. Instead, it relies on the long process of filing liens or going to court for contempt orders, said Brad Bennett, a former enforcement director at the Financial Industry Regulatory Authority.

“It’s difficult, and they have to be especially persistent to get the numbers up,” Bennett said, according to  The Wall Street Journal.

For example, last month the SEC requested that a federal judge in Georgia enforce a five-year-old judgment against investment adviser Ernie Montford who was required to pay more than $360,000 because he failed to disclose a conflict of interest. While Montford paid the SEC in monthly amounts from his Social Security income, that yielded only about $21,000, according to an April 30 court filing submitted by the SEC.

“The SEC stomps on little firms like mine,” said Montford. “If I could have paid more, I would have paid them.”

The SEC can write off unpaid fines as uncollectible after a two-year delinquency. Yet according to Michael Shaub, a professor of accounting and accounting ethics at Texas A&M University, the agency is better off pursuing collection of fines against bad actors.

“From a public-policy perspective, people would rather see bad guys fund the SEC than good guys,” Shaub said.

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