The SEC’s Office of Investor Education and Advocacy (OIEA) is issuing this Investor Bulletin to inform 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.
Crypto Asset-Related Scams
Federal and state regulators continue to bring enforcement actions involving crypto asset-related scams and misconduct. Investors should be aware that recovering money from fraudsters is difficult due to challencges tracing and recovering funds. For example, fraudsters can use technology to obscure their identities or hide the trail of funds using crypto assets. Recovering your investment from a crypto asset-related scam can also be difficult because fraudsters can quickly send your funds overseas.
Be aware that fraudsters may target you if you already have lost money or crypto assets due to bankruptcy or a scam. They may ask you to send them the private key to access your crypto assets, or to send them additional money or crypto assets, claiming to “help” you recover what you lost. If you pay, you will likely lose everything you send and will have been scammed again. For tips on how to protect yourself from crypto asset-related scams, see the FBI’s Public Service Announcement Fictitious Law Firms Targeting Cryptocurrency Scam Victims Offering to Recover Funds.
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 or profits resulting from the illegal conduct. The disgorged funds may be distributed to investors who were harmed by the securities law violations and suffered losses.
In addition, the court or the SEC may impose a monetary penalty both to punish the wrongdoer 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). Penalties may be distributed in addition to disgorged funds or by themselves through a Fair Fund.
- 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. The distribution agent will calculate each investor’s losses and disburse the funds according to the distribution plan.
- In an administrative proceeding, the SEC publishes notice of a proposed plan of distribution on the SEC’s website at sec.gov. The notice explains how to obtain copies of the proposed plan and invites anyone who desires to comment on the proposed plan to submit their views, in writing, to the SEC within 30 days of publication. Once the SEC appoints a tax administrator to fulfill the tax obligations of the distribution fund and a fund administrator to oversee the distribution of the fund, it will approve the distribution plan and conduct a claims or non-claims process to identify eligible harmed investors and to determine the amount of their losses according to the terms of the distribution plan. The fund administrator will then divide the distribution fund among investors to compensate them for some or all of their losses.
When a monetary penalty or disgorgement is not paid as ordered, the SEC’s Division of Enforcement’s Office of Collections 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.
Receiverships
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 SIPC member. If your broker-dealer is in liquidation under the Securities Investor Protection Act, you can read OIEA and SIPC’s joint investor bulletin on how to file a claim.
Corporate Bankruptcy
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.
- 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.
Additional Resources
Investor Bulletin: How Victims of Securities Law Violations May Recover Money (June 21, 2018 version) in Spanish: Boletín del Inversionista: Cómo las víctimas de los delitos contra el derecho bursátil pueden recuperar dinero
Resources for Victims of Securities Law Violations
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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