The SEC’s Office of Investor Education and Advocacy (OIEA) is informing investors about how they may be able to recover money if they have been harmed by a violation of the federal securities laws.
Every year, thousands of U.S. investors lose money to fraud and other securities law violations. In some cases, harmed investors may be eligible to receive money recovered from fraudsters. A number of different processes exist to help harmed investors, including: SEC fair funds and disgorgement funds; receiverships; brokerage account customer protections; corporate bankruptcy proceedings; and private class action lawsuits.
It is important to understand that not all harmed investors will be able to recover money. Investors who do recover money may receive substantially less than their losses. In addition, even when harmed investors are able to recover money, the process for distributing the money to harmed investors may take a long time.
Fair Funds and Disgorgement Funds
When the SEC brings a successful enforcement action, the court or the SEC may order a wrongdoer to disgorge (give up) the ill-gotten gains resulting from the illegal conduct. The disgorged funds may be distributed to investors who were harmed by securities law violations.
In addition, the court or the SEC may impose a monetary penalty both to punish the guilty party and to deter others from committing similar misconduct. A monetary penalty may only be distributed to investors if the court or the SEC orders that any penalty collected be placed in what is called a “fair fund” for distribution to investors who were harmed by the violation(s).
• In court proceedings, documents filed in the case are generally publicly available. The court must approve an administration and distribution plan before any money can be distributed to harmed investors. Typically, a distribution agent will implement a claims process or other notification process to identify injured investors who may be eligible for distribution from a fair fund or disgorgement fund.
For a list of certain SEC court actions where a distribution of money to harmed investors is occurring or may occur (it may not be a complete list), see the SEC’s webpage: Information for Harmed Investors.
• In an administrative proceeding, the SEC publishes notice of a proposed plan of disgorgement or a proposed fair fund plan. The notice states how to obtain copies of the proposed plan and explains that anyone who desires to comment on the proposed plan may submit their views, in writing, to the SEC.
For a list of these notices, as well as a list of SEC administrative proceedings where the SEC has required a distribution of money to harmed investors, see Distributions in Commission Administrative Proceedings: Notices and Orders Pertaining to Disgorgement and Fair Funds.
When a monetary penalty or disgorgement is not paid as ordered, the SEC’s Division of Enforcement has an Office of Collections that uses every available method to identify, liquidate, and collect assets that can be used to satisfy the delinquent debt. These efforts may include sending a demand letter, negotiating a payment plan, filing a property lien, garnishing wages, or filing a contempt action in federal court.
When the SEC brings a lawsuit in federal court, the SEC may ask the court to appoint a receiver. A receiver is a disinterested officer of the court who works to recover and to protect money and other assets that the defendant obtained in connection with the alleged securities law violation. If the defendant is found liable, the court may order that those assets be distributed to harmed investors.
For more information, read our Investor Bulletin: 10 Things to Know About Receivers. For information about certain receiverships in SEC Enforcement cases (it may not be a complete list), see the SEC’s webpage on Receiverships.
Brokerage Account Protection
SEC rules provide extensive protections to customers of U.S. registered broker-dealers. For example, the Customer Protection Rule requires a broker-dealer to segregate a customer’s securities and cash from the broker-dealer’s securities and cash, with the objective of making customer assets readily available to be returned to customers if the broker-dealer goes out of business.
In addition, if your broker-dealer goes out of business and is a member of the Securities Investor Protection Corporation (SIPC), your cash and securities held by the brokerage firm may be protected up to $500,000, including up to $250,000 protection for cash in the account. You can visit SIPC’s website to find out whether your broker-dealer is a member and, if your broker-dealer is in liquidation under the Securities Investor Protection Act, how you can file a claim form.
Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. The company’s reorganization plan will spell out your rights as an investor, and what you can expect to receive, if anything, from the company.
For more information, read our publication, Corporate Bankruptcy.
Private Class Actions
In some cases, a private party may file a lawsuit on behalf of all harmed investors. This is separate from any enforcement action filed by the SEC. You may be eligible to participate in any recovery obtained through a class action lawsuit. Visit the website of the Securities Class Action Clearinghouse to find out whether a private class action lawsuit relating to your investment has been filed.
Investors who have already been victimized by fraudsters may be at risk of being taken advantage of again. For example:
• Third party asset recovery companies may solicit victims of scams, including investment frauds, with promises to file complaints with regulatory agencies and to help recover victims’ money for a fee. Read What You Should Know About Asset Recovery Companies.
• Government impersonators may target investors who have already been victims of fraud. Often, the impersonators will claim to help investors recover their investment-related losses for a fee. Read Beware of Government Impersonators Targeting Fraud Victims.
Investor Bulletin: SEC Investigations.
In some cases the SEC’s Division of Enforcement may coordinate its investigations with criminal investigations involving the same conduct. The FBI’s Office of Victim Assistance provides services and resources for victims of crimes investigated by the FBI.
Report possible securities fraud to the SEC. Call OIEA at 1-800-732-0330, ask a question using this online form, or email us at Help@SEC.gov. Visit Investor.gov, the SEC’s website for individual investors.
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The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.