The Securities and Exchange Commission’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help investors understand the role of receivers in SEC cases.
1) What is a court-appointed receiver? A court appoints a receiver to protect property controlled by a person sued in a court case. The SEC typically recommends the appointment of a receiver in cases in which the SEC fears a company or an individual may dissipate or waste corporate property and assets. A receiver is a neutral third-party custodian for the property who is granted certain powers by the court. A receiver’s powers generally include taking legal control of and protecting assets, filing claims on behalf of an entity placed into a “receivership,” and, ultimately, distributing assets to defrauded investors, claimants or creditors through a court-approved plan. A receiver has a fiduciary duty to stakeholders and the court, and typically has the discretion to marshal, manage and liquidate the receivership company’s assets, while accounting for all receipts and payments. The SEC is more likely to appoint a receiver in frauds when there is a danger of property being lost, concealed or squandered.
2) Who chooses the receiver? A federal district court judge can appoint a receiver following the SEC’s filing of an application, or petition, with the court. The SEC may provide the names of several qualified candidates for a court to consider in determining who should serve as a receiver in a particular case. The receiver is an officer of the court, not an employee of the SEC, and ultimately answers to the judge.
3) What authority does a receiver have? The court’s order governs the authority of the receiver, and is based on the court’s authority. Federal courts have specific powers, known as “equitable” authority, to order relief to advance the purposes of the federal securities laws, to preserve investor funds, and to ensure that wrongdoers do not profit from their unlawful conduct. Courts typically grant broad powers to receivers, including the authority to sue on behalf of the receivership and to gather, manage and liquidate receivership assets on behalf of potential creditors and harmed investors. Special legal requirements apply to receivers. A receiver must act in “good faith” and perform his or her duties with “reasonable diligence.” A receiver is generally required to account to the court periodically for the property entrusted to him or her.
4) How do I know if there is a receiver in my case? If you have not been contacted with specific instructions from the receiver in your case, you may check the SEC’s “Information for Harmed Investors” page to see if there is a receiver in your case. Some court websites or receiver websites may post the case “docket sheet,” which lists all court filings in an action.
5) What will happen to the assets of the company in an SEC receivership? The receiver will submit to the court a plan to distribute the company’s assets. The court is responsible for considering and approving a distribution plan. The court must conclude that a distribution is fair and reasonable. When making payments to injured investors, courts often favor a proportionate approach based on investors’ net losses. However, courts are free to choose whatever allocation plan is appropriate based on the facts and circumstances.
6) How is the receiver paid? Subject to court approval, a receiver has the right to reasonable compensation for services and reimbursement for costs and expenses. Generally a court pays a receiver from the assets of the receivership estate. To be paid, the receiver submits an itemized report to the court that details the receiver’s fees and expenses. The SEC and other interested parties then have the opportunity to object to the money sought by a receiver. Ultimately, the court determines the amount a receiver is entitled to be paid.
7) If I am entitled to receivership assets, what must I do? If you receive notification that you are a potential claimant, you should carefully follow the directions provided by the receiver. Some receivers require that claim forms be submitted, either electronically or by mail, and there may be additional required steps, such as clicking on a link in a verification email or accepting a determination letter. Claim forms often will require you to provide relevant information, including the amount you invested, the amount you received in interest or repayment of principal, and documentation supporting your claim. Receivers often set a deadline for the submission of claims, so you should follow the instructions carefully to ensure timely submission. Failure to file by a claim deadline typically means that a claim will be denied.
8) Where can I get additional information about my claim or the receiver handling it? The first source of information about your claim is the receiver. If the receiver maintains a website or issues written communications, follow those instructions first and contact the receiver by phone or, if provided, email. If you need contact information for a receiver in your case, you may get it from the court where the case is pending. This information is typically found on the case’s “docket sheet.”
9) If I have concerns about the conduct of a receiver, what should I do? A claimant should first direct any concerns directly to the receiver or receiver’s staff. A claimant can direct unresolved concerns to the court that appointed the receiver.
10) Where can I find additional information about receivers?
- Investor Bulletin: How Harmed Investors May Recover Money.
- Billing Instructions (binding only on receivers recommended by SEC)
For additional educational information for investors generally, see the SEC’s website for individual investors, Investor.gov.
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.