This is the accessible text file for GAO report number GAO-14-213R 
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Years 2013 and 2012 Financial Statements' which was released on 
December 16, 2012. 

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correction of certain unaudited information in its agency financial 
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GAO-14-213R: 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

December 16, 2013: 

The Honorable Mary Jo White: 
Chair:
United States Securities and Exchange Commission: 

Financial Audit: Securities and Exchange Commission's Fiscal Years 
2013 and 2012 Financial Statements: 

Dear Ms. White: 

This report transmits the GAO auditor's report on the results of our 
audits of the fiscal years 2013 and 2012 financial statements of the 
United States Securities and Exchange Commission (SEC) and its 
Investor Protection Fund (IPF),[Footnote 1] which is incorporated in 
the enclosed U.S. Securities and Exchange Commission Fiscal Year 2013 
Agency Financial Report. 

As discussed more fully in the auditor's report that begins on page 54 
of the enclosed agency financial report, we found: 

* the financial statements are presented fairly, in all material 
respects, in accordance with U.S. generally accepted accounting 
principles; 

* SEC maintained, in all material respects, effective internal control 
over financial reporting as of September 30, 2013, although internal 
control deficiencies regarding information security exist that merit 
attention by those charged with governance; and: 

* no reportable noncompliance in fiscal year 2013 with provisions of 
applicable laws, regulations, contracts, and grant agreements we 
tested. 

The Accountability of Tax Dollars Act of 2002 requires that SEC 
annually prepare and submit audited financial statements to Congress 
and the Office of Management and Budget.[Footnote 2] The Securities 
Exchange Act of 1934, as amended in 2010 by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act), requires SEC to 
annually prepare and submit a complete set of audited financial 
statements for IPF to Congress.[Footnote 3] We agreed, under our audit 
authority, to audit SEC's and IPF's financial statements. Section 963 
of the Dodd-Frank Act further requires that (1) SEC annually submit a 
report to Congress describing management's responsibility for internal 
control over financial reporting and for assessing the effectiveness 
of such internal control during the fiscal year, (2) the SEC Chairman 
and Chief Financial Officer attest to SEC's report, and (3) GAO attest 
to and report on the assessment made by SEC.[Footnote 4] Accordingly, 
this report also includes our reporting in response to the requirement 
under the Dodd-Frank Act. 

We are sending copies of this report to the Chairmen and Ranking 
Members of the Senate Committee on Banking, Housing, and Urban 
Affairs; the Senate Committee on Homeland Security and Governmental 
Affairs; the House Committee on Financial Services; and the House 
Committee on Oversight and Government Reform. We are also sending 
copies to the Secretary of the Treasury, the Director of the Office of 
Management and Budget, and other interested parties. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have questions about this report, please contact 
me at (202) 512-3133 or dalkinj@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. 

Sincerely yours, 

Signed by: 

James R. Dalkin:
Director:
Financial Management and Assurance: 

Enclosure: 

Footnotes: 

[1] IPF was established in 2010 by section 922 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act to fund the activities of 
SEC's whistleblower award program and the SEC Office of Inspector 
General suggestion program. IPF is a separate SEC fund and its 
financial statements present SEC's financial activity associated with 
its whistleblower and Inspector General suggestion programs. 
Accordingly, IPF's financial transactions are also included in SEC's 
overall financial statements. 

[2] 31 U.S.C. § 3515. 

[3] Section 21F(g)(5) of the Securities Exchange Act of 1934, 15 
U.S.C. § 78u-6(g)(5). 

[4] Dodd-Frank Act, Pub. L. No. 111-203, § 963(a), (b)(2), 124 Stat. 
1376, 1910 (2010), codified at 15 U.S.C. § 78d-8(a), (b)(2). 

[End of section] 

U.S. Securities And Exchange Commission: 

Fiscal Year 2013 Agency Financial Report: 

About This Report: 

The U.S. Securities and Exchange Commission’s (SEC) fiscal year (FY) 
2013 Agency Financial Report (AFR) provides financial and high-level 
performance results that enable the President, Congress and the public 
to assess the SEC’s accomplishments and understand its financial 
picture. This report satisfies the reporting requirements contained in 
the following laws and regulations: 

* Accountability of Tax Dollars Act of 2002; 

* Chief Financial Officers Act of 1990, as amended by the Reports 
Consolidation Act of 2000; 

* Dodd-Frank Wall Street Reform and Consumer Protection Act Section 
922 Whistleblower Protection, and Section 963 Annual Financial 
Controls Audit; 

* Federal Financial Management Improvement Act of 1996; 

* Federal Managers Financial Integrity Act of 1982; 

* Government Management Reform Act of 1994; 

* GPRA Modernization Act of 2010; 

* Improper Payments Information Act of 2002, as amended by IPERA and 
IPERIA; 

* Office of Management and Budget Circular A-123, Management’s 
Responsibility for Internal Controls; 

* Office of Management and Budget Circular A-136, Financial Reporting 
Requirements; 

* Recovery Auditing Act, Section 831, Defense Authorization Act, for 
2002. 

For the second year in a row, the SEC is producing an AFR, with a 
primary focus on financial results, and an Annual Performance Report 
(APR), which focuses on strategic goals and performance results, in 
lieu of a combined Performance and Accountability Report. The FY 2013 
APR will be included in the SEC FY 2015 Congressional Budget 
Justification in February 2014. Additionally, SEC will publish a 
Summary of Performance and Financial Information (SPFI), also to be 
released in February 2014. This AFR and prior year SEC AFRs are 
electronically available at [hyperlink, 
http://www.sec.gov/about/secreports.shtml]. To comment on this report, 
email SECAFR@sec.gov. 

Certificate of Excellence in Accountability Reporting: 

For the seventh year in a row, the SEC received a Certificate of 
Excellence in Accountability Reporting from the Association of 
Government Accountants. The award is presented to Federal Government 
agencies whose annual reports achieve the highest standards 
demonstrating accountability and communicating results. 

Contents: 

Message from the Chair: 

Introduction to the Agency Financial Report: 

Management’s Discussion and Analysis: 

Vision, Mission, Values and Goals: 

History and Purpose: 

Organizational Structure and Resources: 

FY 2013 Year in Review: 

Looking Forward: 

Financial Highlights: 

Performance Highlights: 

Verification and Validation of Performance Data: 

Strategic and Performance Planning Framework: 

Performance Achievements: 

Management Assurances: 

Annual Assurance Statement: 

Financial Section: 

Message from the Chief Financial Officer: 

Report of Independent Auditors: Enclosure I: Management’s Response to 
Audit Opinion: 

Financial Statements: 

Notes to the Financial Statements: 

Required Supplementary Information (Unaudited): 

Investor Protection Fund Financial Statements: 

Notes to the Investor Protection Fund Financial Statements: 

Other Information: 

Schedule of Spending: 

Inspector General’s Statement on Management and Performance Challenges: 

Management’s Response to Inspector General’s Statement: 

Summary of Financial Statement Audit and Management Assurances: 

Improper Payments Elimination and Recovery Act Reporting Details: 

Appendices: 

Appendix A: Chair and Commissioners: 

Appendix B: Major Enforcement Cases: 

Appendix C: SEC Divisions and Offices: 

Appendix D: Glossary of Selected Terms: 

Appendix E: Acronyms: 

Available on the Web at [hyperlink, 
http://www.sec.gov/about/secafr2013.shtml]. 

To contact the SEC, please see www.sec.gov or “Contact Us” at 
[hyperlink, http://www.sec.gov/contact.shtml]. 

To comment on this report, email SECAFR@sec.gov. 

For further information on selected terms and topics, please see “Fast 
Answers” at [hyperlink, http://www.sec.gov/answers.shtml]. 

[End of section] 

Message from the Chair: 

Over the past year, the men and women of the Securities and Exchange 
Commission continued to demonstrate an unyielding commitment to our 
core mission of protecting investors, promoting fair, orderly and 
efficient markets and facilitating capital formation. 

Today, we can take pride in our many accomplishments in fiscal year 
2013. We, among many other achievements: adopted significant rules to 
help reduce systematic risks in our financial system and rules 
intended to increase the flow of capital to smaller businesses while 
maintaining important safeguards for investors; successfully and 
aggressively pursued hundreds of enforcement actions covering a broad 
range of misconduct and market participants; and exploited new 
technology to bolster the integrity of our markets. 

Through actions like these, and many others, the SEC is helping to 
ensure that the U.S. securities markets remain the envy of the world. 

One of our major areas of activity was to implement the rules mandated 
by two landmark pieces of legislation—-the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act) and the Jumpstart 
Our Business Startups Act (JOBS Act). 

Under the Dodd-Frank Act, the Commission moved closer toward 
finalizing an entirely new regulatory regime that will bring 
transparency to the multi-trillion dollar over-the-counter derivatives 
market and, for the first time, place major players in that market 
under regulatory supervision. The Commission also joined with several 
other federal agencies in proposing rules that would require sponsors 
of securitization transactions to retain a portion of the risk in the 
product being sold. The Commission acted as well to improve the 
supervision of clearing agencies; put in place a new regulatory regime 
for municipal advisors; and adopted the Volcker Rule, which will 
restrict banking entities from engaging in proprietary trading or from 
owning or sponsoring certain funds. 

Under the JOBS Act, the Commission adopted new rules and advanced 
others intended to make it easier for small and emerging companies to 
raise funds, while also taking steps to ensure investors are protected 
in the process. We also provided guidance to companies, investors and 
other market participants navigating through the changes brought by 
the JOBS Act. 

In addition to progressing towards implementation of Congressional 
rulemaking mandates, the Commission pursued other rules to protect 
investors and our financial system, including rules that would reform 
the way money market funds operate, as well as rules that would 
protect customers from the consequences of the financial failure of a 
broker-dealer. 

Our enforcement program was very active in the past year, and we took 
steps to further enhance our robust program. We, for example, began to 
demand admissions of wrongdoing in certain cases where an added 
measure of public accountability was considered necessary. During the 
fiscal year, the agency also broadened our coverage of market 
participants, pursuing actions against a range of individuals and 
entities, including gatekeepers, like accountants and fund directors; 
exchanges and other trading platforms that lack required system 
controls; and municipal advisers, to name a few. By the end of the 
fiscal year, the agency obtained total penalties and disgorgements of 
$3.4 billion, an increase from the $3.1 billion awarded the year 
before. 

There was also intensified focus on market structure issues, with the 
Commission taking a series of steps to further bolster the integrity 
of the markets. Among other things, the Commission proposed 
requirements for exchanges and other market platforms to develop 
reliable systems, to regularly test those systems and to correct and 
disclose irregularities that disrupt operations. Our market experts 
also continued to harvest and analyze millions of data inputs from the 
markets, using that data to inform further regulatory measures. 

But our accomplishments were not confined to these areas. Our 
professionals across the entire agency worked to make our markets 
safer and more robust and efficient – from our information technology 
experts to our investor education staff; from our examiners and 
inspectors to our disclosure review teams who scour filings; and our 
administrative assistants to our financial experts who allow us to 
function effectively in so many areas. 

I am pleased to report that the SEC’s independent auditor, the 
Government Accountability Office, issued an unmodified audit opinion 
on the SEC’s financial statements and has affirmed that the agency’s 
financial statements are presented fairly in all material aspects, in 
conformity with the U.S. generally accepted accounting principles. The 
auditor report further indicated that we have remediated the two 
significant deficiencies identified in the prior year. A new 
significant deficiency was identified related to information security, 
for which we are implementing corrective actions. Based on our review, 
we can confirm that the financial and performance data presented in 
this report are complete, reliable and conform to the Office of 
Management and Budget guidance. 

We continually look at our practices and processes in an effort to 
meet the ever-evolving challenges before us. Last year, as in prior 
years, the SEC rose to the occasion, and we must always strive to do 
more and do it better and more efficiently. I know that the staff of 
the SEC will continue to perform in an exemplary fashion in the coming 
year. 

Signed by: 

Mary Jo White: 
Chair: 

December 12, 2013: 

[End of section] 

Introduction to the Agency Financial Report: 

The SEC Agency Financial Report (AFR) is organized in the following 
three major sections, and supplemental appendices. 

Management’s Discussion and Analysis: 

This section provides an overview of SEC’s history, mission, 
organization, strategic goals and objectives, year in review, forward 
looking information, performance highlights and a summary of financial 
information. This section concludes with management’s assurance on 
internal controls, financial systems and controls, and compliance with 
laws and regulations. 

Financial Section: 

This section contains a message from the Chief Financial Officer 
followed by the independent auditor’s report on our principal 
financial statements, management’s response to the audit report, 
audited financial statements and accompanying notes, and required 
supplementary information. Concluding this section are stand-alone 
comparative financial statements and accompanying notes for the 
Investor Protection Fund as required by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. 

Other Information: 

This section contains the statement prepared by the agency’s Office of 
Inspector General (OIG) summarizing what the OIG considers to be the 
more serious management and performance challenges facing the agency 
followed by the SEC Chair’s response outlining the agency’s progress 
in addressing the challenges. Also included are a Summary of Financial 
Statement Audit and Management Assurances listing internal control 
material weaknesses and financial systems non-conformances; a schedule 
of spending showing how and where the SEC spends its funds; and a 
detailed explanation of any significant erroneous payments as required 
by the Improper Payments Information Act of 2002, as amended. 

Appendices: 

This section includes biographies of the SEC Chair and Commissioners, 
a summary of the SEC’s major enforcement cases, a listing of the SEC 
divisions and offices, a glossary of selected terms, and a list of 
acronyms used within the AFR. 

[End of section] 

Management’s Discussion and Analysis: 

The U.S. Securities and Exchange Commission’s (SEC) Management’s 
Discussion and Analysis (MD&A) serves as a brief overview of this 
entire report. It provides a concise description of the agency’s 
performance measures, financial statements, systems and controls, 
compliance with laws and regulations, and actions taken or planned. It 
also provides an assessment of the SEC’s programs and financial 
performance, and the efficiency and effectiveness of the SEC’s 
operations. 

Information presented in this section satisfies the requirements for 
reporting on internal controls in Office of Management and Budget 
Circular A-123, Management’s Responsibility for Internal Control. 

Vision, Mission, Values and Goals: 

Vision: 

The SEC strives to promote a market environment that is worthy of the 
public’s trust and characterized by transparency and integrity. 

The mission of the SEC is to protect investors; maintain fair, 
orderly, and efficient markets; and facilitate capital formation. 

Integrity: As the Federal agency entrusted with regulating and 
conducting enforcement for the U.S. securities markets, each member of 
the SEC’s workforce has a responsibility to demonstrate the highest 
ethical standards to inspire confidence and trust. 

Accountability: The SEC embraces the responsibility with which it is 
charged. In carrying out its mission, SEC employees hold themselves 
accountable to the public and take responsibility for achieving the 
SEC’s goals. 

Effectiveness: The SEC strives to work creatively, proactively, and 
effectively in assessing and addressing risks to the securities 
markets, the public, and other market participants. The staff is 
committed to finding innovative and flexible approaches to the 
Commission’s work and using independent judgment to explore new ways 
to fulfill the SEC’s mission in the most efficient and effective 
manner possible. 

Teamwork: The SEC recognizes that its success depends on a diverse, 
coordinated team committed to the highest standards of trust, hard 
work, cooperation, and communication. The staff is committed to 
working together and coordinating effectively with investors, 
businesses, governments, and other organizations in the U.S. and 
abroad. 

Fairness: In exercising its regulatory and enforcement powers, the SEC 
treats investors, market participants, and others fairly and in 
accordance with the law. As an employer, the SEC seeks to hire and 
retain a skilled and diverse workforce, and to ensure that all 
decisions affecting employees and applicants are fair and ethical. As 
professionals, the staff treats all with respect and dignity. 

Commitment to Excellence: The SEC is committed to the highest 
standards of excellence in pursuit of the agency’s mission. The 
investing public and the U.S. securities markets deserve nothing less. 

Strategic Goals and Outcomes: 

Strategic Goal 1: Foster and enforce compliance with the Federal 
securities laws. 

Outcome 1.1: The SEC fosters compliance with the Federal securities 
laws. 

Outcome 1.2: The SEC promptly detects violations of the Federal 
securities laws. 

Outcome 1.3: The SEC prosecutes violations of Federal securities laws 
and holds violators accountable. 

Strategic Goal 2: Establish an effective regulatory environment. 

Outcome 2.1: The SEC establishes and maintains a regulatory 
environment that promotes high-quality disclosure, financial 
reporting, and governance, and that prevents abusive practices by 
registrants, financial intermediaries, and other market participants. 

Outcome 2.2: The U.S. capital markets operate in a fair, efficient, 
transparent, and competitive manner, fostering capital formation and 
useful innovation. 

Outcome 2.3: The SEC adopts and administers rules and regulations that 
enable market participants to understand clearly their obligations 
under the securities laws. 

Strategic Goal 3: Facilitate access to the information investors need 
to make informed investment decisions. 

Outcome 3.1: Investors have access to high-quality disclosure 
materials that are useful to investment decision making. 

Outcome 3.2: Agency rulemaking and investor education programs are 
informed by an understanding of the wide range of investor needs. 

Strategic Goal 4: Enhance the Commission’s performance through 
effective alignment and management of human, information, and 
financial capital. 

Outcome 4.1: The SEC maintains a work environment that attracts, 
engages, and retains a technically proficient and diverse workforce 
that can excel and meet the dynamic challenges of market oversight. 

Outcome 4.2: The SEC retains a diverse team of world-class leaders who 
provide motivation and strategic direction to the SEC workforce. 

Outcome 4.3: Information within and available to the SEC becomes a 
Commission-wide shared resource, appropriately protected, that enables 
a collaborative and knowledge-based working environment. 

Outcome 4.4: Resource decisions and operations reflect sound financial 
and risk management principles. 

History and Purpose: 

During the peak of the Depression, Congress passed the Securities Act 
of 1933[Footnote 1] (Securities Act). This law, along with the 
Securities Exchange Act of 1934[Footnote 2] (Exchange Act), which 
created the SEC, was designed to restore investor confidence in our 
capital markets by providing investors and the markets with more 
reliable information and clear rules of honest dealing. The main 
purposes of these laws were to ensure that: 

* Companies publicly offering securities for investment dollars must 
tell the public the truth about their businesses, the securities they 
are selling, and the risks involved in investing. 

* People who sell and trade securities – brokers, dealers and 
exchanges – must treat investors fairly and honestly, putting investors’
interests first. 

The SEC is responsible for overseeing the nation’s securities markets 
and certain primary participants, including broker-dealers, investment 
companies, investment advisers, clearing agencies, transfer agents, 
credit rating agencies, and securities exchanges, as well as 
organizations such as the Financial Industry Regulatory Authority 
(FINRA), Municipal Securities Rulemaking Board (MSRB), and Public 
Company Accounting Oversight Board (PCAOB). Under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act[Footnote 3] (Dodd-Frank 
Act), the agency’s jurisdiction was expanded to include certain 
participants in the derivatives markets, private fund advisers, and 
municipal advisers among other changes. 

The SEC consists of five presidentially appointed Commissioners, with 
staggered five-year terms. One of them is designated by the President 
as Chair of the Commission (see Appendix A: Chair and Commissioners). 
President Franklin Delano Roosevelt appointed Joseph P. Kennedy to 
serve as the first Chairman of the SEC. 

By law, no more than three of the Commissioners may belong to the same 
political party. The Commission convenes regularly at meetings that 
are open to the public and the news media unless the discussion 
pertains to confidential subjects, such as whether to begin an 
enforcement investigation. 

Each year, the SEC brings hundreds of civil enforcement actions 
against individuals and companies for violation of securities laws. 
Examples of infractions include insider trading, accounting fraud, and 
providing false or misleading information about securities or the 
companies that issue them. One of the major sources of information 
that the SEC relies on to bring enforcement action is investors 
themselves – another reason that educated and careful investors are 
critical to the functioning of efficient markets. To help inform 
investors, the SEC offers the public a wealth of educational 
information on its website at [hyperlink, http://www.investor.gov], as 
well as an online database of disclosure documents at [hyperlink, 
http://www.sec.gov/edgar/searchedgar/companysearch.html] that public 
companies and other market participants are required to file with the 
SEC. 

Organizational Structure and Resources: 

SEC Office Locations: 

The SEC’s headquarters are in Washington, DC, and the agency has 11 
regional offices located throughout the country. The regional offices 
are responsible for investigating and litigating potential violations 
of the securities laws. The offices also have examination staff, who 
inspect regulated entities such as investment advisers, investment 
companies and broker-dealers. The map below shows the locations of the 
regional offices, and the states that are included in each region. 

Chart 1.1: SEC Headquarters and Regional Office Locations: 

[Refer to PDF for image: illustrated U.S. map] 

SEC Headquarters: 
Washington, D.C. 

New York Regional Office: 
New York, New Jersey. 

Boston Regional Office: 
Connecticut, Maine, Massachusetts, New Hampshire, Vermont, Rhode 
Island. 

Philadelphia Regional Office: 
Delaware, Maryland, Pennsylvania, Virginia, West Virginia, District of 
Columbia. 

Miami Regional Office: 
Florida, Mississippi, Louisiana, U.S. Virgin Islands, Puerto Rico. 

Atlanta Regional Office: 
Georgia, North Carolina, South Carolina, Tennessee, Alabama. 

Chicago Regional Office: 
Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, 
Ohio, Wisconsin. 

Denver Regional Office: 
Colorado, Kansas, Nebraska, New Mexico, North Dakota, South Dakota, 
Wyoming. 

Fort Worth Regional Office: 
Texas, Oklahoma, Arkansas, Kansas (except for the exam program which 
is administered by the Denver Regional Office). 

Salt Lake Regional Office: 
Utah. 

Los Angeles Regional Office: 
Arizona, Hawaii, Guam, Nevada, Southern California (zip codes 93599 
and below, except for 93200-93299). 

San Francisco Regional Office: 
Washington, Oregon, Alaska, Montana, Idaho, Northern California (zip 
codes 93600 and up, plus 93200-93299). 

[End of chart] 

SEC Organization Structure: 

The SEC is an independent Federal agency established pursuant to the 
Exchange Act. It is headed by a bipartisan five-member Commission, 
comprised of the Chair and four Commissioners, who are appointed by 
the President and confirmed by the Senate (see Appendix A: Chair and 
Commissioners). The Chair serves as the chief executive. The agency’s 
functional responsibilities are organized into five divisions and 23 
offices, each of which is headquartered in Washington, DC. The SEC 
also has 11 regional offices which are comprised primarily of staff 
from the national enforcement and examination programs. 

In fiscal year (FY) 2013, the agency employed 4,023 full-time 
equivalents (FTE), including 3,929 permanent and 94 temporary FTEs. 
The SEC organization chart below is as of September 30, 2013. 

Chart 1.2: SEC Organization Chart: 

[Refer to PDF for image: Organization Chart] 

Top level: 
Chairman (Office of the Chairman); 
Associated with the Office of the Chairman: 
* Commissioners (4). 

Second level, reporting to the Office of the Chairman: 
* Enforcement: 
* Corporation Finance: 
* Investment Management: 
* Trading and Markets: 
* Risk, Strategy, and Financial Innovation: 
* Executive Director: 
* General Counsel: 
* Secretary: 
* Chief Operating Officer: 
* Credit Ratings; 
* Ethics Counsel; 
* Chief Accountant: 
* Investor Education and Advocacy: 
* Compliance Inspection and Examinations: 
* Administrative Law Judges: 
* Equal Employment Opportunity: 
* Information Technology: 
* Inspector General: 
* International Affairs: 
* Legislative and Intergovernmental Affairs: 
* Investor Advocate; 
* Municipal Securities; 
* Public Affairs: 
* Office of Minority and Women Inclusion. 

Third level, reporting to the Chief Operating Officer: 
* Financial Management: 
* Human Resources: 
* Acquisitions: 
* Support Operations; 
* Information Technology. 

Fourth level: regional offices: 
* New York: 
* Boston: 
* Philadelphia: 
* Atlanta: 
* Miami: 
* Chicago: 
* Fort Worth: 
* Denver: 
* Salt Lake: 
* Los Angeles: 
* San Francisco: 

[End of chart] 

SEC Programs: 

The SEC organizes its divisions and offices under the 10 major 
programs outlined below in Table 1.1, SEC Programs and Program 
Descriptions. 

Table 1.1: Sec Programs and Program Descriptions: 

Program: Enforcement; 
Divisions and Offices: 
Division of Enforcement and enforcement staff within the SEC’s 
regional offices; 
Program Descriptions: 
This program investigates and brings civil charges in Federal district 
court or in administrative proceedings based on violations of the 
Federal securities laws. An integral part of the program’s function is 
to seek penalties and the disgorgement of ill-gotten gains in order to 
return funds to harmed investors. Also organized within the 
Enforcement program is the new Office of the Whistleblower, created 
under the Dodd-Frank Act to administer the SEC’s Whistleblower Program 
that rewards individuals who provide the agency with tips that lead to 
successful enforcement actions. 

Program: Compliance Inspections and Examinations; 
Divisions and Offices: 
Office of Compliance Inspections and Examinations and examinations 
staff within the SEC’s regional offices; 
Program Descriptions: 
This program conducts the SEC’s examinations of registrants such as 
investment advisers, investment companies, broker-dealers, self-
regulatory organizations (SROs), credit rating agencies, transfer 
agents, and clearing agencies. 

Program: Corporation Finance; 
Divisions and Offices: 
Division of Corporation Finance; 
Program Descriptions: 
This program performs functions to help investors gain access to 
materially complete and accurate information about securities, and to 
deter fraud and misrepresentation in the public offering, trading, 
voting, and tendering of securities. 

Program: Trading and Markets; 
Divisions and Offices: 
Division of Trading and Markets; 
Program Descriptions: 
This program conducts activities to establish and maintain standards 
for fair, orderly and efficient markets, while fostering investor 
protection and confidence in the markets. 

Program: Investment Management; 
Divisions and Offices: 
Division of Investment Management; 
Program Descriptions: 
This program seeks to minimize the financial risks to investors from 
fraud, mismanagement, self-dealing, and misleading or incomplete 
disclosure in the investment company and investment adviser segments 
of the financial services industry. 

Program: Risk, Strategy, and Financial Innovation; 
Divisions and Offices: 
Division of Risk, Strategy, and Financial Innovation; 
Program Descriptions: 
The division provides economic analyses as part of Commission’s 
rulemaking process; supports its rule review, examination and 
enforcement programs with data-driven, risk-based analytical methods; 
and oversees its Tips, Complaints and Referrals (TCR) and interactive 
data programs. 

Program: General Counsel; 
Divisions and Offices: 
Office of the General Counsel; 
Program Descriptions: 
The Office of the General Counsel (OGC) serves as the chief legal 
officer of the Commission and provides independent legal analysis and 
advice to the Chairman, Commissioners, and operating divisions on all 
aspects of the Commission’s activities. The General Counsel also 
defends the Commission in Federal district courts, represents the 
Commission in all appellate matters and amicus curiae filings, and 
oversees the SEC’s bankruptcy program. 

Program: Other Program Offices; 
Divisions and Offices: 
* Office of the Chief Accountant;
* Office of Investor Education and Advocacy;
* Office of International Affairs; 
* Office of Administrative Law Judges;
* Office of the Investor Advocate
* Office of Credit Ratings; and; 
* Office of Municipal Securities 

Program Descriptions: 
These offices are responsible for: 

* Serving as the chief advisor to the Commission on all accounting and 
auditing policy and overseeing private sector standards setting; 

* Serving investors who contact the SEC, ensuring that retail investors’
perspectives inform the Commission’s regulatory policies and 
disclosure program, and improving investors’ financial literacy; 

* Administering the rules of the Commission with respect to the 
practices of municipal securities brokers and dealers, municipal 
advisors, and investors in municipal securities, and the practices of 
nationally recognized statistical rating organizations (NRSRO), 
including examinations of NRSROs; 

* Advancing international regulatory and enforcement cooperation, 
promoting converged high regulatory standards worldwide, and 
facilitating technical assistance programs in foreign countries; and; 

* Adjudicating allegations of securities law violations. 

Program: Agency Direction and Administrative Support;
Divisions and Offices: 
* The Chairman and Commission;
* Office of Legislative and Intergovernmental Affairs;
* Office of Public Affairs;
* Office of the Secretary;
* Office of the Chief Operating Officer;
* Office of Financial Management;
* Office of Information Technology;
* Office of Human Resources;
* Office of Acquisitions;
* Office of Support Operations;
* Office of the Ethics Counsel;
* Office of Minority and Women Inclusion; and; 
* Office of Equal Employment Opportunity 
Program Descriptions: 
The Chairman is responsible for overseeing all aspects of agency 
operations, and the Chairman and Commissioners are responsible for the 
review and approval of enforcement cases and formal orders of 
investigation and the development, consideration, and execution of 
policies and rules. The other offices in Agency Direction and 
Administrative Support are responsible for:
* Working with Members of Congress on issues that affect the Commission;
* Coordinating the SEC’s communications with the media, the general 
public, and foreign visitors; 
* Reviewing all documents issued by the Commission, and preparing and 
maintaining records of Commission actions;
* Maximizing the use of SEC resources by overseeing the strategic 
planning, information technology, financial management, records 
management, human resources, and administrative functions of the 
agency; 
* Ensuring that the SEC is an equal opportunity employer in full 
compliance with all Federal equal employment opportunity laws; and
* Enhancing the diversity of the SEC’s workforce, contractors, and 
regulated entities in accordance with existing Federal laws and 
regulations. 

Program: Inspector General; 
Divisions and Offices: 
Office of Inspector General; 
Program Descriptions: 
The Office of Inspector General (OIG) is an independent office that 
conducts audits of programs and operations of the SEC and 
investigations into allegations of misconduct by staff or contractors. 
The mission of OIG is to detect fraud, waste, and abuse and to promote 
integrity, economy, efficiency, and effectiveness in the SEC’s 
programs and operations. 

[End of table] 

As shown in the Statements of Net Cost on page 65, the SEC presents 
its net costs of operations by the programs outlined above, consistent 
with the presentation used by the agency in submitting its budget 
requests. 

Footnotes: 

[1] Securities Act of 1933 [hyperlink, 
http://www.sec.gov/about/laws/sa33.pdf]. 

[2] Securities Exchange Act of 1934 [hyperlink, 
http://www.sec.gov/about/laws/sea34.pdf]. 

[3] Dodd-Frank Wall Street Reform and Consumer Protection Act 
[hyperlink, http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf]. 

[End of section] 

Fiscal Year 2013 in Review: 

Continuing the Commitment to Excellence: 

In fiscal year (FY) 2013, under the leadership of three separate 
Chairs, the SEC continued to pursue an aggressive rulemaking agenda, 
strengthen its enforcement and examination programs, and enhance its 
technological capabilities to better oversee the increasingly complex 
and rapidly changing securities markets. 

At the same time, the SEC continued to carry out the many day-to-day 
responsibilities that often go unnoticed but, nevertheless, are a 
critical part of its ability to fulfill its mission to protect 
investors, ensure that markets operate fairly and efficiently, and 
facilitate capital formation. 

Throughout the fiscal year, and with renewed intensity following the 
appointment of Mary Jo White as the 31st Chair of the SEC, one of the 
agency’s top priorities has been the completion of the many rulemaking 
mandates stemming from the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (Dodd-Frank Act) and the Jumpstart Our Business 
Startups Act (JOBS Act). This legislation brought sweeping changes to 
the financial markets and charged the SEC with implementing a myriad 
of rules to address a diverse set of challenges. 

Over the past fiscal year alone, the SEC moved forward with rules 
designed to, among other things, address the application of U.S. 
regulation of security-based swaps to the cross-border activities of 
U.S. and non-U.S. market participants, ease capital access for 
companies without putting investors at risk, regulate for the first 
time municipal financial advisors, and provide disclosure about the 
ratio of a Chief Executive Officer’s (CEO’s) compensation to the 
median compensation of the company’s workforce. 

The SEC’s major rulemaking efforts, however, extended beyond the 
Congressional mandates. Most notably, the agency also advanced rules 
that would reform the money market fund industry to make funds less 
susceptible to runs and enhance the financial responsibility of broker-
dealers through improved capital requirements and protections for 
customer assets. 

In FY 2013, the SEC also implemented new policies and practices 
designed to ensure that its enforcement and examination programs 
continue to be as vigorous and aggressive as possible. For example, 
the agency began to insist on admissions in certain cases and employ 
cutting-edge analytics created in-house to identify potentially 
fraudulent conduct. The SEC also pursued violations of all shapes and 
sizes, including complex cases stemming from the financial crisis, to 
send a strong message of deterrence. 

In addition, the SEC took steps during the past fiscal year to bolster 
the integrity of the securities markets. Among other things, the 
agency continued to implement a variety of controls intended to reduce 
extraordinary volatility and proposed new rules to increase the 
operational integrity of the technology and systems that are at the 
core of today’s securities markets. The SEC also developed a new 
website designed to promote a better understanding of equity market 
structure and help inform future regulatory activity by providing wide-
ranging market data and analyses to investors and other market 
participants. 

The SEC continued to employ robust data analytics that have reaped 
benefits across the agency in the areas of rulemakings, enforcement 
actions, examinations, and many other responsibilities central to the 
SEC’s mission. 

Finally, the SEC continued to educate investors about risky 
investments, coordinate with foreign counterparts, modernize agency 
technology, and scrutinize disclosures to ensure that investors are 
getting appropriate information. 

Building on the many achievements and internal reforms of the recent 
past, the SEC has established a broader and more effective presence 
through the use of innovative strategies, new technology, and the work 
of experienced, talented experts throughout the agency. 

An Intensified Rulemaking Program: 

In FY 2013, the SEC intensified its efforts to advance a broad 
rulemaking agenda. This included continuing its commitment to 
executing the mandates of the Dodd-Frank Act and JOBS Act, the most 
significant changes to the regulation of financial markets in decades. 
At the same time, the agency pursued important new rules addressing 
other issues critical to its mission, including money market funds, 
the financial responsibility of broker-dealers and the operational 
integrity of the financial markets. 

These rulemaking efforts have been supported by comprehensive 
implementation of the SEC staff guidance on economic analysis. The 
guidance supports a determined, agency-wide effort to craft 
regulations that create strong and effective safeguards for investors, 
while maintaining efficiency and avoiding undue burdens on market 
participants. 

The Dodd-Frank Act: 

The Dodd-Frank Act contains more than 90 provisions that require SEC 
rulemaking. Over the past fiscal year, the SEC has continued to build 
on its implementation effort with rules addressing the over-the-
counter derivatives market, clearing agencies, the municipal markets, 
securitization, and other areas. 

Derivatives: 

The SEC continued to advance a broad-based rulemaking program to 
implement Title VII of the Dodd-Frank Act, which requires the creation 
of an entirely new regulatory framework for over-the-counter 
derivatives. To date, the SEC has proposed substantially all the core 
rules required by Title VII, adopted a number of final rules and 
interpretations, provided a “roadmap” to implementation of Title VII, 
and taken other actions to provide legal certainty to market 
participants during the implementation process. 

In the past fiscal year, the SEC took a major step forward by 
proposing rules and interpretive guidance regarding the application of 
Title VII to cross-border security-based swap transactions. These 
rules are designed to clarify the governing regulatory requirements 
for parties to a transaction that occurs in part outside the United 
States. The proposal also would provide guidance regarding the 
requirements for trading platforms and clearing agencies to register 
with the Commission. 

As part of its effort to create the new regulatory framework, the SEC 
also proposed financial responsibility requirements for security-based 
swap dealers and major security-based swap participants. If adopted, 
these rules would determine the amount of capital that dealers in 
security-based swaps need to hold; when and how these dealers need to 
collect collateral or margin to protect against losses from 
counterparties; and how these dealers segregate and protect funds and 
securities held for customers. 

Clearing Agencies: 

In FY 2013, the SEC took a number of steps to improve the supervision 
of clearing agencies, with particular focus on those designated by the 
Financial Stability Oversight Council as systemically important. These 
steps included the adoption of new standards focused on the risk 
management practices of all registered clearing agencies, expansion of 
the agency’s resources focused on clearing agency supervision, and the 
implementation of new consultation practices with the Federal Reserve 
Board in connection with planning annual compliance examinations and 
reviewing certain rule filings by clearing agencies. 

Municipal Markets: 

In the municipal markets area, the SEC adopted rules implementing a 
new regulatory regime for municipal advisors. These rules require 
individuals who provide advice to municipal entities and obligated 
persons regarding municipal financial products and bond issuances to 
register with the Commission and be subject to a fiduciary duty. 
Before the Dodd-Frank Act, these individuals were largely unregulated 
in their capacity as municipal advisors. 

Securitization: 

The SEC, along with five other Federal agencies, revised a proposed 
rule from 2011 requiring sponsors of securitization transactions to 
retain risk in those transactions. The re-proposed rule would provide 
sponsors of asset-backed securities with several options to satisfy 
the risk retention requirements. To inform the development of the re-
proposed rule, agency staff prepared a white paper analyzing the 
effect of loan and borrower characteristics on serious delinquencies 
among securitized private label mortgages. 

Investor Advisory Committee: 

The SEC’s Investor Advisory Committee (IAC), established by the Dodd-
Frank Act, advises the Commission on regulatory priorities, the 
regulation of securities products, trading strategies, fee structures, 
the effectiveness of disclosure, and on initiatives to protect 
investor interests and promote investor confidence and the integrity 
of the securities marketplace. In FY 2013, the IAC submitted its 
initial recommendations for review and consideration by the 
Commission. These recommendations addressed universal proxy ballots, 
data tagging, target date mutual funds and implementation of the JOBS 
Act rulemaking mandate to remove the ban on general solicitation in 
private offerings. 

Additional Dodd-Frank Act Activities: 

In FY 2013, the SEC engaged in a number of additional rulemaking and 
other activities under the Dodd-Frank Act: 

* The SEC proposed a rule that would require public companies to 
disclose the ratio of the compensation of its CEO to the median 
compensation of its employees. The rule would not prescribe a specific 
methodology for companies to use in calculating this ratio, but would 
provide a company with the flexibility to determine the median annual 
total compensation of its employees in a manner that suits its 
individual circumstances. 

* The SEC adopted rules required by the Dodd-Frank Act disqualifying 
convicted felons and other “bad actors” from participating in 
securities offerings under Rule 506 of Regulation D including 
offerings that use general solicitation and advertising under new 
rules adopted by the Commission as required by the JOBS Act. 

* The SEC adopted rules allowing broker-dealers to continue to engage 
in retail foreign exchange transactions while the Commission studies 
the practices of broker-dealers and investors in the foreign exchange 
market. 

* The SEC adopted rules requiring broker-dealers to conduct searches 
for holders of securities with whom they have lost contact. 
Previously, these types of searches were required only of 
recordkeeping transfer agents, who are the intermediaries between 
clearing agencies and broker-dealers. 

* The SEC and the Commodity Futures Trading Commission (CFTC) adopted 
rules designed to improve the integrity and privacy of investors’ 
personal information by requiring broker-dealers, mutual funds and 
investment advisers, among others, to adopt and administer programs to 
identify and respond to “red flags” that may indicate potential 
identity theft. 

* The SEC staff completed a report to Congress regarding matters 
related to assigning credit ratings for structured finance products, 
including a discussion of potential regulatory or statutory changes 
that the Commission could consider if it determines to implement such 
assignments or an alternative. 

* The SEC issued a public request for data and other information 
seeking input from all interested parties concerning the benefits and 
costs of the current standards of conduct for broker-dealers and 
investment advisers. The request was a follow-up to a 2011 staff study 
making two principal recommendations: that the Commission develop 
rules to implement a uniform fiduciary standard of conduct for 
investment advisers and brokers-dealers when they provide personalized 
investment advice about securities to retail investors; and that the 
Commission consider harmonization of regulatory requirements for 
broker-dealers and investment advisers when it would add meaningfully 
to investor protection. 

The JOBS Act: 

The JOBS Act requires the SEC to implement rules and issue studies in 
a number of areas designed to promote initial public offerings (IPOs) 
of smaller companies and small business capital formation. The SEC 
worked diligently throughout the year to complete these mandates. 

General Solicitation: 

The SEC adopted JOBS Act-mandated rules eliminating the prohibition 
against general solicitation and general advertising in securities 
offerings under Rule 506 of Regulation D and Rule 144A. This market 
continues to be a significant source of capital, with more than $900 
billion of unregistered offerings reported in 2012. 

In conjunction with these new rules, the SEC also proposed additional 
amendments to Regulation D and certain other rules to enhance its 
ability to evaluate the development of market practices following the 
elimination of the ban on general solicitation and general 
advertising. The rule proposal would require issuers to provide 
additional information about these offerings, implement a new 
mechanism for enforcing compliance with certain filing requirements 
and mandate certain legending requirements. 

Additional JOBS Act Activities: 

Beyond rulemaking, the SEC’s Division of Corporation Finance 
(Corporation Finance) continued to simplify the process for submitting 
draft registration statements for confidential non-public review, as 
permitted by the JOBS Act. Corporation Finance also provided 
interpretive guidance to issuers and their advisors on the 
implementation and application of the JOBS Act. 

In addition, the SEC staff issued a required report on the authority 
to enforce certain Exchange Act rules that require certain issuers to 
file periodic and current reports with the Commission. The staff 
concluded that the enforcement tools currently available to the 
Commission are sufficient to enforce the anti-evasion provision of 
Rule 12g5-1, and that legislative recommendations regarding 
enforcement tools were unnecessary. 

Other Major Rulemaking Initiatives: 

Beyond the many Dodd-Frank Act and the JOBS Act rulemaking mandates, 
the SEC continued to advance significant rulemaking efforts to better 
protect investors and maintain market integrity. 

Money Market Funds: 

Drawing on legal expertise, economic analysis, and regulatory 
experience from across the agency, the SEC proposed measures to reduce 
the risk of contagion from rapid, heavy money market fund redemptions. 
The Commission’s proposal included two principal alternative reforms 
that could be adopted alone or in combination: requiring a floating 
net asset value for prime institutional money market funds; and 
facilitating the use of liquidity fees and redemption gates in times 
of redemption stress. The Commission’s proposed rulemaking was 
informed by a comprehensive staff study addressing three major issues: 
the determinants of investor behavior and its effect on money market 
fund performance during the 2008 financial crisis; the effect of the SEC
’s 2010 money market fund reform rulemaking; and how potential future 
reforms could affect the demand for investments in money market funds 
and their substitutes across different markets. 

Broker-Dealer Financial Responsibility: 

The SEC also took significant steps to enhance the financial 
responsibility framework for broker-dealers. This framework helps to 
protect customers from the consequences of the financial failure of a 
broker-dealer by, among other things, requiring the safeguarding of 
customer securities and funds held by the broker-dealer. 

* The SEC adopted amendments to the net capital, customer protection, 
books and records, and notification rules for broker-dealers. The 
amendments are designed to better protect a broker-dealer’s customers 
and enhance the SEC’s ability to monitor and prevent unsound business 
practices. 

* The SEC adopted amendments to certain broker-dealer annual 
reporting, audit and notification requirements to better facilitate 
audits of broker-dealers conducted in accordance with Public Company 
Accounting Oversight Board (PCAOB) standards, as required by the Dodd-
Frank Act. The PCAOB subsequently approved two new attestation 
standards tailored to the SEC’s amendments that substantially 
strengthen the audit requirements for broker-dealers. 

Further, the SEC proposed amendments to the financial responsibility 
rules that would raise current capital requirements for certain larger 
broker-dealers and subject such broker-dealers to new liquidity 
standards. 

A More Aggressive Enforcement Effort: 

The SEC’s strong performance in financial crisis-related enforcement 
actions carried over into the post-financial crisis environment. While 
continuing to bring important cases related to the financial crisis, 
the agency also dedicated resources to pursuing cases involving other 
ongoing threats to investors and the markets. In building an 
impressive record of successful actions on a number of these fronts, 
the SEC sent notice to institutions, investors, and would-be violators 
that the SEC is a strong and sophisticated enforcer, ready to take 
swift and forceful action against violators of the securities laws. 
The message conveyed to the market was clear: no institution is too 
large to be held to account and no violation is too small to escape 
scrutiny. 

The SEC ended the fiscal year with 686 enforcement actions, including 
402 in the last six months of the year. These numbers do not, however, 
reflect the outstanding quality of the enforcement actions brought 
during the year. In FY 2013, the Division of Enforcement (Enforcement) 
brought groundbreaking cases across the range of substantive priority 
areas, uncovered and pursued sophisticated wrongdoing, obtained 
meaningful and targeted remedies, including industry and officer and 
director bars, and recovered billions of dollars for investors. 

Enforcement’s breadth consistently spans the entire industry spectrum 
and FY 2013 was no exception. The fiscal year was marked by the 
pursuit of institutions and individuals whose misconduct led to or 
exacerbated the financial crisis, strategic prosecution of “smaller” 
violations in an effort to send a broader deterrent message, novel 
investigation of market structure issues and improper conduct by 
exchanges, relentless focus on those who trade illegally based on 
material non-public information, and enhanced attention to 
gatekeepers, misconduct in the municipal securities market, investment 
advisors, and activities occurring beyond U.S. borders that have an 
impact in the United States. 

Of course, deterrence remains the most effective enforcement strategy. 
Therefore, in addition to pursuing creative, aggressive strategies for 
conducting investigations and bringing actions, Enforcement increased 
the deterrent value of its actions in a number of ways: developing new 
tools that expanded the agency’s reach; seeking stronger penalties, 
which raised the opportunity cost of malfeasance; crafting more 
focused remedies, including conduct-based injunctions and requiring 
admissions in certain cases; and coordinating more closely with other 
SEC divisions and offices, as well as with other regulatory and law 
enforcement agencies, to identify suspicious activity more rapidly and 
investigate it more effectively. 

The SEC’s enforcement presence has helped to foster a market 
environment that bolsters investor confidence and enhances market 
integrity. 

Increased Deterrence: 

Enforcement sent a strong deterrent message through its aggressive 
pursuit of monetary penalties and other remedies. In the fiscal year, 
total penalties and disgorgement ordered increased to $3.4 billion, up 
from $3.1 billion in the prior fiscal year. Notable matters included: 

* Hedge fund advisory firm CR Intrinsic Investors LLC, an affiliate of 
S.A.C. Capital, agreed to the largest insider trading settlement in 
SEC history, settling charges that it participated in an insider 
trading scheme involving a clinical trial for an Alzheimer’s drug. 
Under the terms of this historic settlement, CR Intrinsic was required 
to pay more than $600 million, including disgorgement of almost $275 
million, $52 million in prejudgment interest, and a $275 million 
penalty. 

* The SEC charged J.P. Morgan Chase & Co. with misstatements of its 
financial results and a lack of effective controls to prevent or 
detect a scheme to conceal the extent of massive trading losses. J.P. 
Morgan settled the charges, admitting publicly that it had violated 
Federal securities laws and paying a $200 million penalty. 

* Total S.A. disgorged $153 million in illicit profits obtained 
through bribes paid to intermediaries of an Iranian government 
official in exchange for his assistance in obtaining valuable 
contracts with the National Iranian Oil Company. 

* Nasdaq Stock Market, LLC paid a $10 million penalty, the largest 
ever against a stock exchange, after being charged with securities 
laws violations resulting from its poor systems and decision-making 
during the IPO and secondary market trading of Facebook shares. 

In FY 2013, in a significant departure from past practice, the SEC 
announced that it would require admissions of facts and misconduct in 
cases where there is a heightened need for public accountability, 
particularly where the misconduct is egregious, involves large numbers 
of investors, or poses serious risks to the markets. The SEC made 
clear that it would be prepared to proceed to trial if alleged 
violators refuse to admit or acknowledge what they did. 

* In the SEC’s first settlement implementing this policy shift, New 
York-based hedge fund adviser Phillip A. Falcone and his advisory 
firm, Harbinger Capital Partners, admitted to multiple acts of 
misconduct that harmed investors and interfered with the normal 
functioning of the securities markets. The defendants also agreed to 
settle the SEC enforcement action by paying more than $18 million in 
disgorgement, interest and fines, and Falcone agreed to be barred from 
the securities industry for five years. 

* In the settlement with J.P. Morgan Chase & Co. referenced above, the 
SEC required J.P. Morgan to admit to a 15-page statement of detailed 
facts and that its conduct violated Federal securities laws. 

Financial Crisis Cases: 

In FY 2013, the SEC continued to hold accountable individuals and 
entities whose misconduct contributed to the worst financial crisis 
since the Great Depression. Through the end of the fiscal year, the 
SEC has filed 96 separate enforcement actions against 161 individuals 
and corporate entities relating to the financial crisis. These cases 
resulted in $2.73 billion in disgorgement, penalties, and other 
monetary relief. Most of this money has been or will be distributed to 
harmed investors. 

Of the individuals charged in the financial crisis cases, 66 were 
CEOs, CFOs or other senior corporate executives, and 70 percent of the 
105 individuals in these actions were charged in litigated complaints 
or administrative proceedings, demonstrating that the SEC is ready and 
willing to litigate. Of these individuals, 36 have been barred from 
the securities industry or from serving as officers or directors of 
public companies. 

* The SEC won its jury trial against Fabrice Tourre, a former Goldman, 
Sachs & Co. employee charged with fraud for his role in assembling a 
complicated financial product without proper disclosure of the risks 
involved. In July 2010, Goldman settled charges in the same case by 
paying $550 million and undertaking to reform its business practices. 
Tourre, however, did not settle. Consequently, with significant 
support from its Office of International Affairs (OIA), the SEC 
pursued this complex case through three years of pretrial proceedings 
before proceeding to trial and winning a multi-week jury trial, 
highlighting the strength of the agency’s trial unit. 

* The SEC continued to pursue cases against the largest and most 
powerful financial institutions for their role in the financial 
crisis, including cases against Bank of America, Capital One 
Financial, Credit Suisse Securities, J.P. Morgan Securities and UBS 
Securities. Together, these matters resulted in penalties and 
disgorgement of more than $468 million. 

Pursuing Smaller Violations: 

Even with a number of headline-making actions, Enforcement maintained 
an eye on smaller technical and compliance-related violations. When 
minor violations are overlooked or ignored, they can feed bigger 
violations and foster a culture where laws are treated as mere 
guidelines. Accordingly, the SEC moved to pursue smaller infractions 
through streamlined investigative and settlement approaches. For 
example, the SEC obtained disgorgement – ranging from $4,000 to more 
than $2.5 million – from nearly two dozen firms for violations of Rule 
105, an anti-manipulative rule that prohibits firms from improperly 
participating in public offerings soon after short-selling those same 
stocks. Other noteworthy examples are the cases arising from an 
initiative spearheaded by Enforcement’s Asset Management Unit in 
coordination with the SEC’s Office of Compliance, Inspections and 
Examination’s (OCIE) examination program. The initiative is designed 
to address repeated compliance failures at registered investment 
advisers that may lead to bigger problems, by having Enforcement’s 
Asset Management Unit work proactively with OCIE examiners to ensure 
that firms have viable compliance programs in place, as required by 
law, and by pursuing appropriate enforcement actions when they do not. 

Market Structure and Exchanges: 

As the technologies on which the financial system relies grow 
increasingly complex and intertwined, Enforcement must be focused on 
engaging with exchanges and alternative trading systems that do not 
have the required controls over their trading functions, do not treat 
all investors fairly or do not provide equal access to critical market 
information. Enforcement actions in this area, which are critical to 
ensuring public confidence in our securities markets, included the 
following: 

* The SEC charged Boston-based dark pool operator eBX LLC with failing 
to protect its subscribers’ confidential trading information and 
failing to disclose to all of its subscribers that eBX LLC allowed an 
outside firm to use the subscribers’ confidential trading information. 
eBX had informed its subscribers that their flow of orders to buy or 
sell securities would be kept confidential and not shared outside of 
its alternative trading system. eBX agreed to pay an $800,000 penalty 
to settle the charges. 

* The SEC obtained its first-ever financial penalty for violations 
related to an exchange’s failure to discharge its regulatory oversight 
obligations. The penalty resulted from an action against the Chicago 
Board Options Exchange and its affiliate, C2 Options Exchange, in 
which the SEC alleged that there were various systemic breakdowns in 
their regulatory and compliance functions as a self-regulatory 
organization, including a failure to enforce or even fully comprehend 
rules to prevent abusive short selling. 

Insider Trading: 

The SEC continued its relentless pursuit of individuals who trade 
unlawfully on material, nonpublic information, which undermines 
investor confidence and threatens the level playing field that is 
fundamental to the integrity of the markets. During the fiscal year, 
the SEC brought 44 insider trading actions against a wide range of 
entities and individuals sending a resounding message of deterrence. 

* The SEC charged Scott London, the former partner in charge of KPMG’s 
Pacific Southwest audit practice, and his friend, Bryan Shaw, with 
insider trading on nonpublic information about KPMG clients. London 
allegedly tipped confidential details about five KPMG audit clients 
and enabled Shaw to make more than $1.2 million in illicit profits by 
trading ahead of earnings or merger announcements. London allegedly 
provided the tips in exchange for cash, jewelry, meals and tickets to 
entertainment events. Shaw allegedly traded on this information at 
least a dozen times and grossed more than $714,000 in illicit profits. 

* In a matter related to the CR Intrinsic case, the SEC charged hedge 
fund manager Steven A. Cohen, who managed S.A.C. Capital, for failing 
to supervise former portfolio managers Matthew Martoma and Michael 
Steinberg to prevent them from engaging in insider trading. The SEC 
alleged that Cohen received information that should have caused any 
reasonable hedge fund manager to investigate the basis for the trades. 
Cohen’s hedge funds earned profits and avoided losses of more than 
$275 million as a result of the illegal trades. 

Gatekeepers: 

As part of the effort to enlarge its footprint, Enforcement focused on 
potential violations by gatekeepers, such as attorneys, accountants 
and fund directors. Gatekeepers play a critical role in the securities 
industry and have special duties and responsibilities to ensure that 
investor interests are safeguarded. The risks posed to investors by 
fraud, compliance breakdowns or other regulatory failure increases 
significantly when gatekeepers fail to perform their duties and 
responsibilities. 

* Eight former regional directors of certain Morgan Keegan mutual 
funds, which were invested heavily in securities backed by subprime 
mortgages, were charged for failing to ensure that those assets were 
appropriately valued. 

* The SEC filed an action against KPMG – the auditor of TierOne Bank – 
alleging that KPMG failed to scrutinize appropriately management’s 
allowance for loans and lease losses. Even though the allowance 
related to one of the highest-risk areas of the audit, KPMG’s auditors 
allegedly failed to act on numerous red flags or obtain sufficient 
support for management estimates of the fair value of the collateral 
underlying the bank’s troubled loans, relying instead on stale 
appraisals and management’s uncorroborated representations. 

Municipal Securities: 

In FY 2013, the SEC’s enforcement actions relating to the municipal 
securities market garnered significant attention as the agency 
remained focused on violations in this multi-trillion dollar 
marketplace. The SEC charged the full panoply of market participants, 
including municipalities, government officials, financial advisors and 
underwriters. 

* The SEC charged the State of Illinois with securities fraud for 
misleading investors by failing to inform them of the impact of 
problems with a pension funding schedule prior to offering and selling 
more than $2.2 billion in municipal bonds. 

* The SEC charged the City of Harrisburg (Pennsylvania) with 
securities fraud for making misleading public statements at a time 
when its financial condition was deteriorating, and for providing 
financial information to investors in its municipal bonds that was 
either incomplete or outdated. This action marked the first time the 
SEC charged a municipality for misleading statements made outside of 
its securities disclosure documents. 

* The SEC charged the City of Miami (Florida) and its former budget 
director with securities fraud for making materially false and 
misleading statements and omissions about certain interfund transfers 
in three 2009 bond offerings totaling $153.5 million. They also 
allegedly made false and misleading statements in the city’s fiscal 
year 2007 and 2008 annual financial reports. The budget director 
allegedly orchestrated the transfers from the city’s capital 
improvement fund to its general fund to mask increasing deficits in 
the general fund, a key indicator of financial health. 

Investment Advisers: 

A large number of individuals and institutions invest a significant 
amount of assets with investment advisers, making oversight of these 
financial professionals critical to the securities markets. The SEC 
continued to pursue actions against investment advisers who engage in 
fraudulent conduct, who lack effective compliance programs, who 
misrepresent their investment returns and who breach their fiduciary 
duties to their clients. 

* The SEC charged former hedge fund advisory firm Yorkville Advisors 
LLC, its founder and President Mark Angelo, and CFO Edward Schinik 
with scheming to overvalue assets under management and exaggerate the 
reported returns of hedge funds they managed in order to hide losses 
and increase the fees collected from investors, which included pension 
funds. The defendants also allegedly misrepresented the safety and 
liquidity of the investments made by the hedge funds, and charged at 
least $10 million in excessive fees to the funds based on fraudulently 
inflated values of Yorkville’s assets under management. 

* The SEC charged Oppenheimer & Co. and former Oppenheimer portfolio 
manager Brian Williamson in separate actions with misleading investors 
about the valuation and performance of a fund consisting of private 
equity funds. Oppenheimer agreed to pay more than $2.8 million to 
settle the charges. 

* The SEC charged Charles Dushek, Sr., his son, Charles Dushek, Jr., 
and their Illinois-based investment advisory firm, Capital Management 
Associates, Inc., with violations of the Federal securities laws for 
defrauding its clients in a “cherry picking” scheme that garnered the 
Dusheks nearly $2 million in illicit profits. The SEC alleged that the 
Dusheks placed securities trades without designating in advance 
whether they were trading their personal funds or the funds of the firm’
s clients, and delayed allocating the trades until they knew whether 
the trades would be profitable. The Dusheks then allegedly allocated 
winning trades to their personal accounts and dumped losing trades on 
the firm’s unwitting clients. 

* The SEC charged the CEO of Chicago-based investment advisory firm 
Simran Capital Management with lying to clients, including the 
California Public Employees’ Retirement System, and potential clients 
about the amount of assets under management. 

International Enforcement: 

In today’s global financial markets, where securities fraud crosses 
borders, international cooperation, particularly as it relates to 
enforcement matters, is paramount to ensuring transparency and public 
confidence in the markets. In FY 2013, Enforcement continued to 
improve its international enforcement efforts on several fronts. 

* The SEC charged Eli Lilly and Company for violations of the Foreign 
Corrupt Practices Act (FCPA) for improper payments its subsidiaries 
made to foreign government officials to obtain millions of dollars of 
business in Russia, Brazil, China and Poland. The SEC alleged that the 
pharmaceutical company’s subsidiary in Russia used offshore “marketing 
agreements” to pay millions of dollars to third parties chosen by 
government customers or distributors. These offshore entities rarely 
provided any services and, in some instances, were used to funnel 
money to government officials in order to obtain business for the 
subsidiary. The SEC further alleged that after the company became 
aware of possible FCPA violations in Russia, it failed to curtail the 
subsidiary’s use of the marketing agreements for more than five years. 
Eli Lilly subsidiaries in Brazil, China, and Poland also made improper 
payments to government officials or third-party entities associated 
with government officials. Eli Lilly agreed to pay more than $29 
million to settle the SEC’s charges. 

* As noted above, the SEC charged France-based oil and gas company 
Total S.A. with violating the FCPA by paying $60 million in bribes to 
intermediaries of an Iranian government official in exchange for his 
assistance in obtaining valuable contracts with the National Iranian 
Oil Company for Iran. Total S.A. agreed to pay disgorgement of more 
than $153 million in illicit profits and to retain an independent 
compliance consultant to review and consult on its compliance with the 
FCPA. 

In addition, the SEC’s Cross-Border Working Group continued to focus 
on companies with substantial foreign operations that are publicly 
traded in the United States. The working group’s efforts have 
contributed significantly to the filing of fraud cases against more 
than 65 foreign issuers or executives, and the deregistering of 
securities of more than 50 companies. 

* The SEC alleged that China-based China MediaExpress and its CEO 
fraudulently misled investors about the company’s financial condition 
by touting cash balances that were millions of dollars higher than the 
actual amounts. China MediaExpress was charged with violations of 
reporting, books and records and internal control provisions, and its 
CEO was charged with a violation of the SEC’s rules prohibiting lying 
to auditors and with making false certifications in filings required 
by the Sarbanes-Oxley Act. The agency sought financial penalties, 
permanent injunctions, disgorgement, and an officer and director bar 
against the CEO. 

OIA also continued to improve coordination and cooperation with 
foreign securities regulators and other overseas regulators and law 
enforcement agencies. During the fiscal year, OIA made 717 outgoing 
requests for assistance and responded to 508 incoming requests. 

* OIA obtained documents, bank account and brokerage records, and 
Internet service provider information in a variety of cases, and 
advised SEC litigators on international service of process and cross 
border discovery mechanisms. 

* OIA experts helped trace, freeze and repatriate proceeds of 
securities fraud that were transferred offshore, coordinating with 
receivers in foreign litigation, foreign criminal authorities and 
financial intelligence units. In FY 2013, OIA assisted in freezing 
approximately $72 million and repatriating approximately $36 million. 

Supporting Enforcement Efforts: 

In FY 2013, the SEC expanded its use of technology and analytical 
tools to produce an unprecedented quantity of high-quality cases – 
using data to determine ill-gotten gains, harm to investors, 
materiality, valuation and market manipulation. 

* The SEC’s Division of Economic and Risk Analysis (DERA) provided 
expert testimony in support of Enforcement’s successful request to 
freeze assets and protect investor funds in a $150 million scheme 
allegedly orchestrated by Anshoo R. Sethi to defraud foreign investors 
seeking profitable returns and a legal path to U.S. residency through 
a Federal visa program. 

* Economists provided valuable assistance in several market 
manipulation investigations by creating algorithms to analyze the 
order and transaction files of high-speed traders and quantify the 
extent of abusive trading. In one action, the founders of a Canadian 
broker-dealer, Biremus, were barred and the broker-dealer’s 
registration revoked after analysis revealed that brokers repeatedly 
engaged in a manipulative practice called “layering.” 

* DERA staff also assisted the Federal prosecutors who charged Level 
One Global Investors co-founder Anthony Chiasson and former 
Diamondback Capital Management portfolio manager Todd Newman with 
insider trading, by analyzing evidence of materiality, and by 
supporting the cross-examination of expert witnesses retained by the 
defendants. The testimony proffered by defendants’ experts was largely 
excluded and ultimately both defendants were found guilty. 

* The recently formed Center for Risk and Quantitative Analytics 
(CRQA) supports and coordinates Enforcement’s risk identification, 
risk assessment and data analytic activities by identifying risks and 
threats that could harm investors, and by assisting staff nationwide 
in conducting risk-based investigations and developing methods of 
monitoring possible wrongdoing. CRQA works with other SEC divisions 
and offices to provide strategic guidance on resource allocation in 
light of identified risks, and serves as an analytical hub during 
searches for patterns indicative of possible fraud or other illegality. 

* The SEC developed the Advanced Bluesheet Analysis Program, an 
initiative to analyze data on specific securities transactions 
provided to the SEC by market participants and identify suspicious 
trading in advance of market-moving events. This analysis can aid in 
identifying relationships among different parties involved in a 
suspicious trade or series of trades, which might not otherwise be 
apparent. 

A More Effective Examination Program: 

OCIE’s National Examination Program (NEP) is an integral part of the 
SEC’s multi-faceted approach to protect investors and safeguard the 
integrity of our markets. Every year, under the auspices of the NEP, 
OCIE conducts risk-based examinations of a vast array of registered 
entities, such as broker-dealers, investment advisers, investment 
companies, the national securities exchanges, self-regulatory 
organizations, transfer agents and clearing agencies, to assess their 
compliance with the applicable regulatory requirements. OCIE makes 
strategic use of the findings from these examinations, not only to 
address deficiencies at the registrant level, but also more broadly, 
to foster its mission to improve industry compliance, detect and 
prevent fraud, monitor risk and inform policy. In FY 2013, OCIE 
conducted 1,615 formal examinations of registrants, which is a slight 
increase over the prior two fiscal years. OCIE also monitored the 
activities of thousands of other registrants through non-examination 
surveillance and filing reviews. 

Promoting and Improving Industry Compliance: 

OCIE’s mission and robust compliance programs go hand-in-hand. Guided 
by this principle, OCIE instituted a nationwide outreach effort to 
support and improve industry compliance through better communication 
and transparency concerning OCIE’s priorities, higher profiles for 
registrants’ compliance programs and ensuring that registrants have 
the proper “tone at the top.” 

* OCIE published its first-ever annual public statement of examination 
priorities, which were determined by OCIE senior management and staff 
in consultation with senior representatives from SEC divisions and 
offices. The priorities were determined through careful analysis and 
risk-assessment of a wealth of information, including information 
reported by registrants on required filings, information gathered 
through examinations, communications with other Federal, state and 
foreign regulators, and industry and media publications. 

* OCIE issued public “Risk Alerts,” setting forth findings and 
observations from examinations, including areas of non-compliance that 
were common among registrants. 

* OCIE conducted regional and national industry outreach conferences, 
providing effective forums for industry participants to gain a better 
understanding of examination priorities and common observations of 
deficiencies, and to discuss best practices for compliance programs. 

* OCIE conducted enterprise risk management meetings with CEOs, boards 
of directors and senior management of certain large registrants, 
including seven of the country’s largest financial service firms. OCIE 
used these meetings to, among other things, reiterate the critical 
role of compliance in enterprise risk management and assess “tone at 
the top” and commitment to effective compliance programs. 

* OCIE conducted nearly 50 Corrective Action Review examinations to 
determine whether registrants had implemented agreed-upon corrective 
actions that adequately addressed deficiencies noted in prior 
examinations. 

* OCIE launched a nationwide Presence Exam Initiative, which uses risk-
based examinations of recently registered private fund investment 
advisers to educate them on their regulatory obligations. 

Identifying and Preventing Fraud: 

The vast majority of deficiencies that OCIE identifies during 
examinations are resolved through the examination process itself. In 
addition to its important role in ensuring that registrants address 
deficiencies noted in examinations, OCIE plays an equally important 
role in identifying fraud and other serious misconduct. When OCIE 
uncovers information in an examination indicating or suggesting such 
misconduct, it refers the matter to Enforcement for investigation and 
appropriate action. In FY 2013, OCIE made more than 200 such 
referrals, many of which resulted in enforcement actions. Some notable 
examples are described below: 

* In a matter involving J.S. Oliver Capital Management, L.P., an OCIE 
examination uncovered evidence of numerous violations by the 
investment advisory firm and its President, Ian O. Mausner, ultimately 
resulting in charges against both. The SEC alleged that the firm 
awarded more profitable trades to hedge funds in which Mausner and his 
family had invested and treated other clients improperly by allocating 
less profitable trades to them, resulting in approximately $10.7 
million in client losses. The SEC also alleged that Mausner misused 
soft dollar credits and rebates from brokerage firms, misappropriating 
more than $1.1 million of client funds that he used for his personal 
benefit. 

* In a matter involving City Securities Corporation, a municipal bond 
underwriter, an OCIE examination uncovered evidence that led to 
charges against the firm and its client, a school district in Indiana, 
for false statements to investors that the school district had 
properly provided annual financial information and notices that were 
required as part of its prior bond offerings. 

* An OCIE examination uncovered evidence that led to a Commission 
action involving the brokerage firm Direct Access Partners, alleging a 
scheme involving millions of dollars in bribes to a high-ranking 
Venezuelan finance official to obtain the bond-trading business of a 
state-owned Venezuelan bank. Based on Enforcement’s ensuing 
investigation, the SEC charged four individuals of the firm, two of 
whom were also indicted by the Department of Justice. 

* An OCIE examination of a hedge fund adviser led to charges that the 
adviser breached his fiduciary duty in connection with an undisclosed 
principal transaction of $7.5 million, which constituted a conflict of 
interest. The adviser was also prosecuted criminally, pleading guilty 
to several charges, including making false statements to the OCIE 
staff. 

* OCIE examinations also uncovered evidence of violations by three 
investment advisory firms of requirements related to custody of clients’
 assets, which ultimately resulted in charges against all three firms. 

OCIE continues to employ innovative approaches to improve and refine 
its examination process, and enhance its approach to identifying and 
preventing fraud. For instance, OCIE created specialized working 
groups in a number of key areas, such as Equity Market Structure and 
Trading Practices, Microcap Fraud, and Valuation. These working groups 
bring a wealth of subject matter expertise to complex areas and 
coordinate closely with the examination teams, providing “real time” 
advice on novel and complex issues. OCIE also developed a risk 
analysis examination team, which uses sophisticated data analytics to 
collect and distill voluminous amounts of data from registrants, and 
cull patterns that suggest problematic conduct warranting further 
scrutiny. 

In addition, OCIE collaborates with other areas in the agency and with 
other regulatory and law enforcement agencies in its continuing effort 
to identify and prevent serious misconduct. For example, OCIE teamed 
up with the SEC’s Division of Trading and Markets (Trading and 
Markets), the Federal Reserve, the Internal Revenue Service and the 
Department of Justice on an anti-money laundering task force 
established to evaluate and recommend measures to enhance the 
protections afforded by the Bank Secrecy Act, its implementing 
regulations and guidance, and the accompanying civil and criminal 
enforcement mechanisms. 

Informing Policy: 

As the SEC’s “eyes and ears” on the ground, OCIE is often called upon 
to assist in the rulemaking process and other policy guidance issued 
by the SEC and it divisions and offices. 

* OCIE examined investment companies, in close coordination with other 
SEC divisions and offices, focusing on payments to fund distributors, 
undisclosed compensation for sales of fund products, and the various 
forms of payments to distributors for access to their platforms and/or 
sales force. OCIE’s findings and information from these examinations 
will aid the SEC’s evaluation of the impact of Rule 12b-1 and other 
rules related to fund distribution. 

* The SEC’s Division of Investment Management (Investment Management), 
aided by findings from OCIE examinations, issued guidance to address 
circumstances in which application of the Investment Adviser Act 
Custody Rule to non-tradable, uncertificated securities resulted in 
increased costs to investors with little corresponding benefit. 

* OCIE’s Presence Exam Initiative revealed that certain advisers to 
private equity funds were engaging in activities that raised questions 
as to whether they were acting as unregistered broker-dealers. Trading 
and Markets, aided by OCIE’s observations, issued guidance concerning 
the implications to broker-dealer registration that could arise from 
such activities. 

* OCIE’s Office of Large Firm Monitoring, which has staff dedicated to 
the ongoing monitoring of select large firms, coordinated with the 
Federal Reserve Bank of New York and Investment Management, which 
issued guidance on fund counterparty risk management practices with 
respect to tri-party repurchase agreements. 

* OCIE also focused on compliance with previously granted exemptive 
orders, including orders related to closed-end funds and managed 
distribution plans, exchange traded funds and the use of custom 
baskets, and orders permitting fund advisers and their affiliates to 
engage in co-investment opportunities with the funds. OCIE’s findings 
and observations in these areas have, for example, helped Investment 
Management better assess the extent to which the conditions of an 
exemptive order for managed distribution plans by closed-end funds is 
functioning as intended. 

Identifying New and Emerging Risks: 

OCIE continues to improve its ability to assess and monitor risk, 
which enables the SEC to allocate limited resources more effectively 
and focus them on areas and entities that pose the greatest risk to 
investors and market stability. 

* OCIE’s Quantitative Analytics Unit (QAU) employs quantitative 
techniques and modeling to hone in on areas that pose substantial 
risk, such as potential fraud and market abuse. The QAU was formed in 
2012 and, during FY 2013, increased its resources, adding a number of 
experts in quantitative analysis, such as mathematics and financial 
engineering. The QAU’s expertise provides valuable support to OCIE’s 
examinations of investment advisers and investment companies by 
creating and deploying customized data analytic tools. The QAU also 
works closely with the OCIE’s Office of Risk Assessment and 
Surveillance (RAS) and DERA on quantitative system architecture and 
software tool projects designed to improve the collection and analysis 
of data from registrants. 

* OCIE’s RAS devotes significant resources to guiding risk-focused 
exam strategy across each of OCIE’s examination program areas through 
data and risk analysis, as well as surveillance activities of the 
registrant population, seeking to identify firms, individuals and 
business practices that pose the greatest risk to market integrity and 
investor protection. 

* OCIE coordinates an inter-disciplinary and cross-divisional task 
force called the Market Event Response Team, a mechanism through which 
OCIE, Enforcement, Trading and Markets, other SEC divisions and 
offices, and self-regulatory organizations work collaboratively to 
respond real-time to rapidly evolving market events. 

* OCIE participated in a number of collaborative efforts within the 
SEC and with other state and Federal regulators to increase 
examination coverage of important areas, such as automated trading 
systems and controls, cyber-security protocols and compliance with the 
Market Access Rule, and to reduce duplication of effort across 
regulators. 

* OCIE developed and implemented a risk-assessment program for the 
securities exchanges and FINRA, enabling a comprehensive, risk-based 
approach to self-regulatory organization oversight. OCIE effectively 
utilized this risk-assessment program to develop its 2014 examination 
plan for self-regulatory organizations. 

Strengthening Market Structure: 

The SEC is focused on improving the robustness and resilience of our 
market structure, both through advanced regulatory initiatives and 
enhanced data capabilities that can help the agency and market 
participants better understand the benefits and challenges of trading 
in the current market structure. 

In FY 2013, the SEC proposed Regulation Systems Compliance and 
Integrity, which would require exchanges, certain alternative trading 
systems and other key market participants to design, develop, test, 
maintain and surveil systems that are integral to their operations, 
ensure that their core technology meets certain standards, conduct 
business continuity testing, and provide notifications in the event of 
systems disruptions and other events. 

The SEC also coordinated with the equity exchanges and FINRA to extend 
the “limit up-limit down mechanism” to all stocks. That mechanism is 
designed to reduce excess market volatility by limiting trades of 
individual stocks outside of certain price bands. 

In addition, the SEC continued to work with exchanges and FINRA as 
they developed the market-wide consolidated audit trail required by 
Commission rules, which will significantly enhance their collective 
ability to monitor and analyze trading activity. Separately, the 
Commission brought the Market Information Data and Analytics System 
(MIDAS) on line, providing the SEC with immediate new capabilities 
based on access to all of the real-time data feeds made available to 
market participants by the exchanges. Using MIDAS, the SEC has 
developed an initial set of data analysis that directly informs on 
market structure policy questions. A number of investigations, exams 
and analyses, based on MIDAS-generated data, also have been launched. 

The initial MIDAS analyses, together with other SEC staff research on 
market structure, were collected on a single website that was made 
available to the public. Among the staff research was a summary of the 
economic literature on market fragmentation and a white paper on 
alternative trading systems. 

Ensuring High-Quality Disclosures and Information Sharing: 

Quality information is the linchpin of informed investment decision-
making. In FY 2013, Corporation Finance and Investment Management 
continued to work to ensure that companies disclose material 
information appropriately. 

* Corporation Finance continued to enhance investor protection through 
focused comments on offering documents, including the registration 
statements for several high-profile IPOs. 

* Each disclosure office in Corporation Finance continued to improve 
the effectiveness of its comments by focusing on industry trends and 
disclosures, and encouraging companies to improve the quality of 
reported information. Corporation Finance also published 
interpretative guidance covering a number of topics, including 
disclosure guidance regarding non-traded REITS. 

* Corporation Finance reviewed a number of structured note offering 
documents, producing product-focused evaluations of offering documents 
by issuing letters to the largest issuers of structured notes that 
called for improved disclosure in future offerings. 

* Investment Management sharpened its focus on the adequacy of 
derivative-related disclosures in the fund industry, including 
actively-managed exchange traded funds. Investment Management also 
published updated guidance regarding fund investment in commodities. 

* The SEC oversaw the work of the PCAOB, including the advancement of 
its standard-setting agenda and its inspections of registered public 
accounting firms. Significantly, the PCAOB adopted, and the SEC 
approved, a new auditing standard intended to enhance the relevance 
and timeliness of communications between auditors and audit committees. 

The PCAOB also issued for public comment proposed auditing standards 
to update the auditor’s reporting model as well as the auditor’s 
responsibilities for, and reporting on, other information in annual 
reports filed with the SEC. 

Educating Investors: 

Investors are the first line of defense against fraud and other 
misconduct. In FY 2013, the SEC continued to make it a priority to 
educate investors about possible risks to their investment portfolios, 
publishing 26 investor alerts and bulletins, the most ever in a year. 
These alerts and bulletins warned investors of possible fraudulent 
scams and educated them on a variety of investment-related topics, 
including: 

* Ponzi schemes using Bitcoin and other virtual currencies. 

* The effect of market interest rates on bond prices and yield. 

* JOBS Act rulemaking, including information concerning advertising 
for unregistered offerings. 

The SEC also worked with other regulators to issue joint alerts and 
bulletins, including an SEC-CFTC investor alert on binary options, an 
SEC-FINRA alert on pump-and-dump stock schemes and an SEC-FINRA 
bulletin on pension and settlement income streams. 

Increased International Collaboration:" 

In today’s global securities markets, multi-jurisdictional registrants 
and cross-border transactions are commonplace. As a result, the SEC 
continues to focus on international consistency in key regulatory 
areas, working with foreign counterparts to supervise globally active, 
cross-border regulated entities. For example, the SEC engaged in a 
number of joint supervisory exercises and deployment of information 
exchange mechanisms in connection with dually registered hedge fund 
advisers and globally active credit rating agencies. 

The SEC, through its work with the International Organization of 
Securities Commissions (IOSCO) and the Financial Stability Board 
(FSB), also continued to promote international regulatory convergence 
toward high-quality standards and practices. The SEC focused on 
assisting IOSCO and the FSB in appropriately addressing the role of 
non-bank financing in global markets, developing and deploying tool 
kits for cross-border regulation of globally active entities, and 
bringing securities market regulator expertise to bear in ongoing 
assessments of financial regulatory reforms by IOSCO, the FSB and 
other international organizations. 

Enhanced Internal Controls and Efficiencies: 

In today’s time of budgets constraints, it is incumbent on the SEC to 
increase efficiency and productivity. The agency continues to find new 
and more efficient ways to stretch resources and deliver more services 
to taxpayers and investors. 

A More Effective Support Structure: 

* To bolster the internal controls environment and improve the 
management and reporting of agency-wide operational risks, the SEC’s 
Office of the Chief Operating Officer established the Operational Risk 
Management Oversight Committee and updated the agency’s policy on 
operational risks and internal controls. 

* The SEC continues to modernize its technology systems, enhancing 
agency effectiveness, public responsiveness and oversight of the 
financial markets. 

* Significant investments in business process redesign during the 
fiscal year, such as the replacement of outdated manual and paper-
based processes with modernized technology-based workflows, will yield 
control improvements and cost efficiencies. 

Improved Financial Performance: 

Since migrating to a Federal Shared Service Provider in 2012, the SEC 
continues to stabilize its financial processes and procedures, and has 
reorganized the Office of Financial Management (OFM) to better align 
functions and systems. 

* OFM further enhanced the agency’s internal controls processes, 
financial systems, and operational effectiveness and efficiencies by 
eliminating certain manual processes in the areas of filing fees, 
disgorgements and penalties, while improving the processes for 
recording obligations, supporting the Office of Acquisition’s efforts 
to deobligate unused funds, and recording and tracking property and 
equipment. 

* The Office of Acquisitions achieved significant cost savings in a 
number of ways, including improving competition among vendors and 
suppliers, strategic sourcing, employing longer performance periods to 
foster partnerships with the agency’s private sector vendors, and 
improving performance in key areas, such as closing contracts more 
effectively, improving the content and administration of service 
contracts, implementing an oversight program, stabilizing the agency’s 
contract writing and financial systems, and fostering standardization 
across the organization. Finally, more than half of the SEC’s 
contracts were awarded to small businesses. 

Conclusion: 

In FY 2013, an increasingly complex and global marketplace, coupled 
with ever-increasing responsibilities, posed great challenges to the 
SEC. Embracing those challenges, the SEC achieved remarkable success, 
resulting in increased safeguards for investors, enhanced stability of 
the securities markets and greater opportunities for capital formation. 

[End of section] 

Looking Forward: 

In FY 2014, the SEC will continue its unwavering commitment to 
excellence, employing innovative strategies to manage ever-expanding 
responsibilities, and enhance the agency’s ability to protect 
investors, maintain fair, orderly, and efficient markets, and 
facilitate capital formation. 

The year will be marked by a continued aggressive push to advance an 
expansive rulemaking agenda that encompasses both mandated efforts and 
other mission-critical initiatives important to investors, 
entrepreneurs and markets; a broad and aggressive focus in pursuit of 
violators of the Federal securities laws; further refined and 
sophisticated oversight of registrants; increased deployment of 
cutting-edge technology as an analytic, investigative and management 
tool; and enhanced operational efficiency. 

Continuing to Advance an Expansive Regulatory Agenda: 

The Dodd-Frank Act: 

The Dodd-Frank Act rulemaking process – informed by stronger analytics 
and feedback from a wide range of stakeholders – continues to progress 
and build toward a financial system that is more transparent, stable, 
and responsive to investors and other market participants. In FY 2014, 
the SEC will: 

* Continue to implement the comprehensive regulatory framework for 
over-the-counter derivatives required by the Dodd-Frank Act, advancing 
significant new rules for clearing and reporting transactions in such 
instruments. 

* Continue to work with other financial regulators toward adoption of 
the Volcker Rule, which will restrict federally insured banking 
institutions and their affiliates from engaging in proprietary trading 
and making certain fund investments. 

* Strive to finalize rules regarding improvements to the regulation of 
credit ratings and nationally recognized statistical rating 
organizations, and the removal of certain credit rating references in 
SEC rules, and determine the appropriate measures in response to the 
staff study on assigning credit ratings for certain structured 
transactions. 

* Move forward with rules intended to improve the disclosure and 
offering process for asset-backed securities, including rules 
regarding risk retention, the disclosure of asset-level information 
and revised criteria for shelf registration eligibility. 

* Continue to implement the provisions of the Dodd-Frank Act related 
to executive compensation, including the disclosure requirements 
regarding the ratio of CEO compensation to median employee pay, pay 
for performance, employee and director hedging, and compensation 
clawbacks. 

* Evaluate and determine whether any changes to the definition of the 
term “accredited investor” are necessary in light of market and 
regulatory developments. 

* Drawing on the request for data and other information published in 
FY 2013, move forward with recommendations from a staff report 
regarding a uniform fiduciary standard of conduct for investment 
advisers and broker-dealers when providing personalized investment 
advice to retail investors about securities. The agency will also 
continue to assess ways to better harmonize the regulatory 
requirements of investment advisers and broker-dealers when they are 
providing the same or substantially similar services to retail 
investors. 

The JOBS Act: 

The SEC is also working to complete the rulemakings and studies 
required by the JOBS Act, encouraging greater capital formation for 
small businesses while preserving strong investor protections. In FY 
2014, the SEC will: 

* Continue to advance rules to implement the exemptions under the 
Securities Act for “crowdfunding” offerings and unregistered public 
offerings of up to $50 million, commonly referred to as “Regulation A+”
 offerings. 

* Finalize the review of Regulation S-K’s requirements to help inform 
how such requirements may be updated to modernize and simplify the 
registration process, and reduce costs for emerging growth companies. 

* Continue to work toward amendments to enhance the Commission’s 
ability to evaluate the development of market practices in Rule 506 
offerings and to address concerns that may arise in connection with 
permitting issuers to engage in general solicitation and general 
advertising in such offerings. 

* Continue to provide interpretive guidance to issuers and their 
advisers on the implementation and application of the JOBS Act, and 
review emerging practices in the securities market following the 
implementation of JOBS Act rules, including practices related to the 
offering and sale of private fund interests. 

* Continue to work with the self-regulatory organizations to develop a 
potential pilot program for issuer stocks to trade at increments other 
than a penny, building on a staff study on decimalization required by 
the JOBS Act. 

Other Major Regulatory Initiatives: 

The SEC will also continue to pursue rulemaking in areas that, while 
not mandated by statute, are critical to strengthening the securities 
markets and protecting investors. 

In FY 2014, the SEC will: 

* Continue to advance toward final rules on money market funds that 
are intended to reduce the risk of contagion from rapid, heavy 
redemptions in such funds. 

* Continue to work toward a stronger financial responsibility 
framework for broker-dealers, including through new capital and 
liquidity requirements. 

* Advance improvements to the quality of reports and other information 
provided to investors in mutual funds and variable annuities. 

* Review potential updates and improvements to core agency programs, 
including the disclosure framework for public companies, the 
regulatory framework for transfer agents, and the regulatory treatment 
of exchange-traded funds and target date funds. 

Building on Success in Enforcement and Examinations: 

Enforcement and OCIE will build on their great results in 2013, 
focusing on high priority and emerging high-risk areas, and on 
enhancing their use of cutting-edge technology and analytics. The 
priorities include a focus on the identification of misconduct in its 
early stages, which will allow for corrective action before wrongdoing 
escalates and causes significant and widespread investor harm. OCIE’s 
outreach efforts, including its enterprise risk management program, 
which seek to ensure that strong compliance cultures are interwoven in 
the fabric of registrants’ firms, also remains a key focus. 

* Enforcement will investigate and bring actions in high priority 
areas, including complex financial products, gatekeepers, insider 
trading, market structure, investment advisers and private funds, and 
municipal securities. Enforcement’s Financial Reporting and Audit Task 
Force will focus on violations relating to the preparation of 
financial statements, issuer reporting and disclosure, and audit 
failures. The Microcap Fraud Task Force will continue to investigate 
fraud in the issuance, marketing, and trading of microcap securities 
and long-term strategies for combating fraud in that market. 

* Enforcement will focus also on current issues and practices within 
the broker-dealer community and develop national initiatives for 
potential investigations. Enforcement will coordinate these broker-
dealer related initiatives across the agency, and centralize 
information and expertise regarding ongoing investigations and 
examinations, and industry practices and trends, to generate quality 
referrals and investigations. 

* Enforcement will monitor the evolving legal landscape and address 
any securities laws violations or issues relating to the SEC’s new 
JOBS Act rules. 

* OCIE will focus on potential conflicts of interest, an indicator of 
significant regulatory issues, and the risk governance frameworks that 
firms may have in place to identify and address conflicts. 

* OCIE will make governance and supervision of information technology 
systems a priority, including operational capability, business 
continuity planning, market access and information security. 

* OCIE will review the practices of broker-dealers and other advisers 
that develop in connection with the elimination of the ban on general 
solicitation and advertising, including the types of solicitation and 
advertising practices that develop with respect to the verification of 
accredited investor status. 

* OCIE will examine intermediary activities in connection with the 
implementation and effectiveness of the new rules relating to 
crowdfunding. 

* OCIE will conduct reviews to assess implementation of compliance 
frameworks at municipal advisors in light of rules finalizing 
registration requirements adopted in FY 2013. 

Enhancing Market Stability: 

The SEC will continue to advance a broad-based program for improving 
the operational integrity and operation of our securities markets, 
seeking improvements in critical market infrastructure and enhancing 
data and analytical capabilities. The SEC also will work with 
investors, issuers and other market participants to assess whether 
additional changes are required to foster a robust, efficient market 
structure. 

In FY 2014, the SEC will: 

* Continue to work toward finalizing rules to improve the design, 
deployment, integrity and operation of automated systems controlled by 
exchanges and other key market participants to help ensure that they 
are prepared to respond quickly and effectively to system errors and 
malfunctions. 

* Continue to coordinate closely with the exchanges and FINRA on their 
development of concrete measures to improve critical market 
infrastructures, such as securities information processors, and 
enhance procedures market-wide for halting trading and, where 
necessary, breaking trades. 

* Leverage the new data capabilities of MIDAS and other sources to 
further expand the SEC website launched in October 2013 to consolidate 
the agency’s public analyses of market structure. The website will 
become an increasingly important tool for investors and others wishing 
to examine interactively a range of market metrics and access 
empirical research and analyses, and will further inform the broader 
public debate on market structure. 

* Continue to support the development of a consolidated audit trail by 
the exchanges and FINRA. 

Continuing to Refine and Enhance the Use of Data Analytics: 

The SEC will continue to develop and use sophisticated models and data 
analytics to support the risk assessment activities across the agency. 

* DERA, working with other divisions and offices, will continue to 
develop the Accounting Quality Model, which is designed to provide a 
set of quantitative analytics that can be used by staff across the SEC 
to assess the degree to which registrants’ financial statements appear 
anomalous. 

* Corporation Finance, working with DERA, will continue to explore 
ways to incorporate the Accounting Quality Model into its disclosure 
review program to increase the effectiveness and efficiency of its 
reviews. 

* Corporation Finance, working with DERA, will also use information 
collected from Form D to track the use of general solicitation and 
general advertising in Rule 506 offerings to assess the impact of its 
use on capital raising in private markets, including the impact on the 
size of offerings, number of participating investors, and the use of 
placement agents and other intermediaries. 

* Investment Management, in collaboration with DERA, will use Form PF 
data to develop risk-monitoring analytics, as well as to provide 
internal periodic reports regarding the private fund industry and 
particular market segments. DERA has successfully incorporated Form PF 
data into its proprietary analytical tools, and OCIE anticipates using 
the information collected on Form PF in conducting pre-examination 
research and due diligence. 

* Trading and Markets will continue to analyze data on broker-dealers’ 
balance sheets, income statements and inventory positions, using a 
variety of cross-sectional and time series metrics. The metrics are 
used to investigate data anomalies and material changes for specific 
broker-dealers, as well as to understand larger industry trends. 

* Trading and Markets, with support from DERA, will also continue to 
analyze the use of security-based swaps in the over-the-counter 
derivatives market to assess the impact of developing practices on the 
clearing of transactions, participation by end users, including 
special entities, and cross border activity. This analysis will be 
used to help advance the implementation of the Dodd-Frank Act Title 
VII rulemakings. 

The SEC also will build on the use of risk-based analytics and other 
technologies to identify threats to the markets and investors at an 
earlier stage and to act quickly to halt misconduct. Performance 
metrics will be refined in support of case and resource allocation and 
prioritization, as well as the quality of information provided to the 
public. 

* Enforcement’s recently-created CRQA will help identify high-risk 
areas and threats that could harm investors, markets or regulated 
entities. CRQA will support and coordinate risk identification, risk 
assessment and data analytic activities, and assist staff nationwide 
in conducting risk-based investigations and developing methods of 
monitoring for signs of possible wrongdoing. 

* Enforcement will continue to invest in technology, allowing it to 
better process the tremendous amount of electronic evidence it gathers 
and to operate more effectively by applying knowledge management and 
document management tools to support mission-critical functions. 

* OCIE will continue to employ advanced technology through its risk 
analysis and quantitative teams to review large volumes of trade data 
sets from a wide range of brokerage and clearing firms, seeking to 
identify illegal and fraudulent trading activity by registrants. 

Continuing to Educate Investors: 

The SEC will promote investor education campaigns to continue to help 
investors make informed decisions by: 

* Posting online resources for researching investment professionals 
and investments, understanding fees and identifying fraud. 

* Conducting further research on investment decision-making behavior, 
which will inform the agency’s investor education initiatives and 
materials. 

Finance and Operations: 

The SEC’s commitment to a more responsive, effective and efficient 
agency will continue to drive improvements in finance, management and 
operational infrastructure. 

Finance: 

* The SEC will participate in the Federal Government-wide effort to 
deploy a new travel system, work to replace the system supporting 
budget execution and formulation, and focus on reforming the systems 
related to filing fees and registrant deposits. 

* As part of its enterprise data warehouse initiative, the SEC will 
begin to integrate data from various systems to provide more 
comprehensive management and financial reporting on a regular basis 
and facilitate better decision-making. 

* The agency expects to achieve further cost savings through 
reductions in its lease-space inventory. Moving personnel and assets 
from an operations center in Virginia to SEC headquarters in 
Washington, DC, will result in annual savings in the range of $6 
million. The SEC’s work with the General Services Administration to 
move four regional offices to smaller leased spaces will also yield 
benefits. 

Workforce: 

* The SEC will continue to pursue high-quality, talented 
professionals, and provide the necessary development opportunities to 
ensure that its employees’ skills and expertise remain competitive in 
an increasingly complex financial world, and support the agency’s 
mission effectively. 

* In collaboration with the National Treasury Employees Union, the SEC 
will continue to implement programs to improve agency-wide internal 
communications and cooperation, engagement and culture, and employee 
work-life balance. 

* The SEC will work to enhance its performance by actively recruiting 
diverse candidates for employment with the Commission and making the 
SEC a desirable workplace for candidates of all backgrounds, thereby 
ensuring access to the largest possible pool of professional talent. 
Outreach efforts will include participating in meetings and developing 
collaborative relationships with diverse educational institutions and 
professional associations, and placing targeted advertisements for 
positions at all levels. 

* Similarly, the SEC will use expanded outreach to minority-owned and 
women-owned businesses, along with its market research, to identify a 
large and diverse pool of companies with capabilities that meet the 
agency’s contracting needs, which will help the agency meet management 
and finance goals. 

Technology: 

In FY 2013, the SEC introduced “Working Smarter,” a multi-year 
technology transformation plan designed to improve core operations and 
implement the new responsibilities assigned the agency by recent 
financial reform legislation. The SEC will carry Working Smarter 
forward throughout FY 2014, including initiatives to standardize 
enterprise-wide platforms, modernize SEC.gov and the EDGAR filer 
system, develop advanced search and discovery capabilities, and build 
complex, predictive analytical capabilities. 

Other upgrades to the SEC’s technological infrastructure to be 
advanced in 2014 include: 

* A new electronic data warehouse that will enhance business 
intelligence, augment data quality and consistency, and generate a 
high return on investment by allowing users to quickly search and 
access critical data from a single location and obtain historical 
intelligence to analyze different time periods and performance trends 
in order to make future predictions. 

* Data integration and enhanced analytical tools to allow seamless 
searches of data sets to examine activity to reveal suspicious 
behavior and quickly trace the origin. 

* Knowledge management that will eliminate work product redundancy by 
reusing, and not reinventing, legal research. 

* Cloud computing to reduce costs and operational overhead, and 
provide greater flexibility through an on-demand, scalable model that 
fits the agency’s needs. 

The SEC expects deployment of these new technologies to yield 
significant annual cost savings. 

Conclusion: 

As the next fiscal year unfolds, the SEC will continue its focus on 
excellence across the agency, using innovative strategies, seamless 
coordination among the divisions and offices, the latest technology, 
and its most important resource – the expertise, dedication, and 
commitment of its 4,000 hard-working men and women – to meet the 
challenges ahead. 

[End of section] 

Financial Highlights: 

This section provides an analysis of the financial position, results 
of operations, and the underlying causes for significant changes in 
balances presented in the SEC’s FY 2013 financial statements. As 
described further below, the SEC’s finances have several main 
components: 

* An annual appropriation from Congress; 

* Securities transaction fees, charged in accordance with Section 31 
of the Securities Exchange Act, which offset the agency’s annual 
appropriation; 

* Securities registration, tender offer and merger fees (also called 
filing fees), of which $50 million is deposited into the Reserve Fund 
each year. The Reserve Fund may provide resources up to $100 million 
to pay for SEC expenses, and are not subject to annual appropriation 
or apportionment; 

* Disgorgement and penalties ordered and collected from violators of 
the securities laws, some of which are then returned to harmed 
investors and the balances are transferred to the Treasury; and; 

* The SEC Investor Protection Fund, which is funded through 
disgorgement and penalties not distributed to harmed investors, and 
used to make payments to whistleblowers who give tips to aid the SEC’s 
enforcement efforts in certain circumstances, as well as to cover the 
expenses of the SEC Office of Inspector General’s (OIG) Employee 
Suggestion Program. 

Sequestration Order for FY 2013: 

On March 1, 2013, the President issued the Sequestration Order for FY 
2013 which reduced the new budget authority. Budgetary resources in 
non-exempt budget accounts were reduced by an amount calculated by the 
Office of Management and Budget (OMB) in its March 1, 2013 report to 
the Congress. OMB reported the reductions for the SEC as described 
below: Salaries and Expenses Fund, Direct The budget authority of 
$1,321 million was reduced by 5 percent or $66 million. Reserve Fund 
The budget authority of $50 million was reduced by 5.1 percent or $2.5 
million. 

Investor Protection Fund: 

The budget authority of $90 million was reduced by 5.1 percent or $4.6 
million. 

Overview of Financial Position: 

Assets. At September 30, 2013, the SEC’s total assets were $9,953 
million, an increase of $1,192 million or 14 percent over FY 2012.
Fund Balance with Treasury increased by roughly $711 million mainly 
because of higher Disgorgement and Penalty collections for the year. 
Investments, Net increased $308 million due to large Disgorgement and 
Penalty collections for cases that were subsequently invested and 
remained invested at the end of FY 2013. These investments include 
collections from the following cases: 

* J.P. Morgan Securities LLC. 

* British Petroleum PLC. 

* Credit Suisse Securities (USA) LLC. 

* UBS Financial Services Inc. of Puerto Rico. 

Accounts Receivable, Net increased $150 million due to the remaining 
Disgorgement and Penalty receivables including British Petroleum PLC 
in FY 2013, which totaled $175 million as of FY 2013. This increase 
was offset by a decrease in accounts receivables for Section 31 fees. 
The decrease of $17 million in Section 31 accounts receivables can be 
attributed to an overall decrease in transaction volume when comparing 
September 2013 to September 2012. Property and Equipment, Net 
increased $30 million for capitalized information systems and 
telecommunication equipment during FY 2013, as part of the enterprise 
server, storage, and backup upgrade project and the modernization of 
SEC.gov. 

Chart 1.3: FY 2013 Assets By Type: 

[Refer to PDF for image: pie-chart] 

Fund Balance with Treasury: 82%; 
Investments - Disgorgement and Penalties Fund: 9%; 
Investments - Investor Protection Fund: 4%; 
Accounts Receivable, Net: 4%; 
Property and Other Assets: 1%. 

[End of chart] 

Table 1.2: Assets as of September 30, 2013 and 2012 (Dollars In 
Millions): 

Fund Balance with Treasury: 
FY 2013: $8,155; 
FY 2012: $7,444. 

Investments – Disgorgement and Penalties Fund: 
FY 2013: $848; 
FY 2012: $522. 

Investments – Investor Protection Fund: 
FY 2013: $434; 
FY 2012: $452. 

Accounts Receivable, Net: 
FY 2013: $387; 
FY 2012: $237. 

Property and Equipment, Net: 
FY 2013: $127; 
FY 2012: $97. 

Other Assets: 
FY 2013: $2; 
FY 2012: $9. 

Total Assets: 
FY 2013: $9,953. 
FY 2012: $8,761. 

[End of table] 

Liabilities. The SEC’s total liabilities were $2,298 million at 
September 30, 2013, an increase of $1,136 million or 98 percent from 
FY 2012. The change is mainly related to the increase in the 
liabilities for Disgorgement and Penalty cases recorded in the fourth 
quarter of FY 2012 and during FY 2013, stemming from amounts assessed 
against the following cases: 

* British Petroleum PLC ($525 million); 

* J.P. Morgan Securities LLC ($297 million); 

* J.P. Morgan Chase and Company ($200 million); 

* Credit Suisse Securities (USA) LLC ($120 million); 

* Yusaf Jawed, Grifphon Asset Management LLC, and Grifphon Holdings 
LLC ($68 million). 

For the assets received resulting from judgments, the SEC recognizes a 
corresponding liability as they are non-entity assets held pending 
distribution to harmed investors. Ending Net Position. The SEC’s net 
position, comprised of both unexpended appropriations and the 
cumulative results of operations, increased by $56 million or 1 
percent between September 30, 2012 and September 30, 2013. The 
increase is primarily due to the SEC earning fee revenues in excess of 
program costs in its Salaries and Expenses and Reserve Funds, as 
discussed in the Results of Operations section on the next page. 

Chart 1.4: FY 2013 Liabilities by Type: 

[Refer to PDF for image: pie-chart] 

Liability for Disgorgement and Penalties: 90%; 
Custodial Liability: 3%; 
Accrued Payroll, Benefits and Leave: 3%; 
Registrant Deposits: 1%; 
Accounts Payable and Other Liabilities: 3%. 

[End of chart] 

Table 1.3: Liabilities as of September 30, 2013 and 2012 (Dollars In 
Millions): 

Liability for Disgorgement and Penalties; 
FY 2013: $2,065; 
FY 2012: $933. 

Custodial Liability; 
FY 2013: $69; 
FY 2012: $62. 

Accrued Payroll, Benefits and Leave; 
FY 2013: $70; 
FY 2012: $68. 

Accounts Payable; 
FY 2013: $44; 
FY 2012: $48. 

Registrant Deposits; 
FY 2013: $33; 
FY 2012: $34. 

Other Liabilities; 
FY 2013: $17; 
FY 2012: $17. 

Total Liabilities; 
FY 2013: $2,298. 
FY 2012: $1,162. 

[End of table] 

Results of Operations: 

Earned Revenues. Total earned revenues for the year ended September 
30, 2013 increased $116 million over the total for FY 2012. Beginning 
in FY 2012, and as discussed below, the majority of the SEC’s filing 
fees are no longer used to partially fund the SEC’s operations and are 
now deposited to the U.S. Treasury General Fund upon collection. 

Reserve Fund. Section 991(e) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) authorized the creation of a 
Securities and Exchange Commission Reserve Fund (Reserve Fund). Funded 
from filing fee collections, the SEC can deposit up to $50 million per 
fiscal year, and the fund cannot hold more than $100 million in total. 
Excess filing fees are deposited to the U.S. Treasury General Fund. 

For the fiscal year ended September 30, 2013, filing fee revenues were 
$507 million. $50 million was deposited into the Reserve Fund, of 
which $2.5 million was sequestered. The excess of $457 million was 
earned on behalf of the U.S. Treasury General Fund. 

Filing fees deposited to the Reserve Fund can be used to fund the SEC’
s operations, create budgetary authority, and are reported as a 
component of Appropriations (Discretionary and Mandatory) on the SEC’s 
Statement of Budgetary Resources. Filing fees deposited to the U.S. 
Treasury General Fund cannot be used to fund the SEC’s operations. 
These amounts do not create budgetary authority, and are reported as a 
component of Other Financing Sources: Other on the SEC’s Statement of 
Changes in Net Position. 

The Reserve Fund obligated $41 million as of September 30, 2013 for 
information technology-related projects, leaving a remaining amount of 
$44.5 million of available resources. 

Program Costs. Total Program Costs were $1,331 million for the year 
ended September 30, 2013, an increase of $133 million or 11 percent 
when compared to the prior year. Salary and Benefit Expenses increased 
$56 million, and Other Expenses increased $77 million when comparing 
FY 2013 to FY 2012. 

Table 1.4: Earned Revenues For The Years Ended September 30, 2013 And 
2012 (Dollars In Millions): 

Section 31 Securities Transaction Fees: 
FY 2013: $1,257; 
FY 2012: $1,270. 

Securities Registration, Tender Offer, and Merger Fees (Filing Fees):
FY 2013: $507; 
FY 2012: $378. 

Total Earned Revenue:
FY 2013: $1,764; 
FY 2012: $1,648. 

[End of table] 

Chart 1.5: FY 2013 Filing Fees Revenue (Dollars In Millions): 

[Refer to PDF for image: pie-chart] 

Reserve Fund: $47.5; 
Sequestration: $2.5; 
U.S. Treasury General Fund: $457. 

[End of chart] 

Chart 1.6: Program Costs: 

[Refer to PDF for image: vertical bar graph] 

Salaries and Benefit Expenses: 
FY 2013: $856 million; 
FY 2012: $800 million. 

Other Expenses: 
FY 2013: $475 million; 
FY 2012: $398 million. 

[End of chart] 

The SEC had increased expenses in the areas of personnel compensation 
and benefits which correlates to an increase of 238 full-time 
equivalent employees; information technology service contracts and 
licensing; capitalized and non-capitalized information systems 
software and hardware including the modernization of SEC.gov; and 
whistleblower award payments. 

Budgetary Resources: 

In FY 2013, the SEC’s total budgetary resources equaled $1,402 
million, a 13 percent increase from the FY 2012 amount of $1,236 
million. Significant components of the SEC’s Total Budgetary Resources 
are described below. 

Unobligated Balance Brought Forward – Unfunded Lease Obligations. The 
SEC’s unobligated balance, brought forward was $43 million for FY 
2013. The balance reflects the funding actions and recoveries related 
to the unfunded lease obligations plus the carry-over authority in the 
Salaries and Expenses Fund and the Reserve Fund. 

Unfunded lease obligations totaled $441 million as of September 30, 
2013. This represents a reduction relative to the FY 2012 amount, 
because of funding actions of $80 million and $2 million in downward 
adjustments. 

Spending Authority from Offsetting Collections. The Spending Authority 
from Offsetting Collections balance of $1,208 million in FY 2013 
mainly reflects the Section 31 exchange fees collected in the year, 
reduced by $66 million as a result of the Sequestration Order for FY 
2013. 

Chart 1.7: FY 2013 Sources Of Funds: 

[Refer to PDF for image: pie-chart] 

Unobligated Balance, Brought Forward, October 1 - Without Unfunded 
Lease Obligations: 29%; 
Recoveries of Prior Year Unpaid Obligations: 2%; 
Downward Adjustment of Prior Year Unfunded Lease Obligations: less 
than 1%; 
Appropriations: 6%; 
Spending Authority from Offsetting Collections: 63%. 

Percentages do not include the Unobligated Balance Brought Forward, 
October 1 – Interpretation for Lease Obligations. 

[End of chart] 

Table 1.5: Total Budgetary Resources For The Years Ended September 30, 
2013 And 2012 (Dollars In Millions): 

Unobligated Balance, Brought Forward, October 1: 

Salaries and Expenses Fund - Without Unfunded Lease Obligations; 
FY 2013: $102; 
FY 2012: $47. 

Interpretation for Lease Obligations; 
FY 2013: ($523); 
FY 2012: ($778). 

Reserve Fund; 
FY 2013: $13; 
FY 2012: 0. 

Investor Protection Fund; 
FY 2013: $451; 
FY 2012: $451. 

Unobligated Balance, Brought Forward, October 1; 
FY 2013: $43; 
FY 2012: ($280). 

Recoveries of Prior Year Unpaid Obligations; 
FY 2013: $31; 
FY 2012: $26. 

Downward Adjustments of Prior Year Unfunded Lease Obligations; 
FY 2013: $2; 
FY 2012: $142. 

Appropriation (Discretionary and Mandatory): 

Salaries and Expenses Fund; 
FY 2013: $48; 
FY 2012: $33. 

Reserve Fund; 
FY 2013: $72; 
FY 2012: $25. 

Investor Protection Fund; 
FY 2013: ($2); 
FY 2012: $1. 

Spending Authority from Offsetting Collections; 
FY 2013: $1,208; 
FY 2012: $1,289. 

Total Budgetary Resources; 
FY 2013: $1,402; 
FY 2012: $1,236. 

[End of table] 

Spending Authority from Offsetting Collections and Appropriations: 

During the fiscal year, the SEC receives an appropriation to fund its 
operations. This appropriation establishes the SEC’s new budget 
authority in its Salaries and Expenses Fund for the fiscal year. The 
SEC’s new budget authority of $1,321 million was reduced by $66 
million as a result of the sequestration for FY 2013. 

At the end of the fiscal year, SEC’s Section 31 fee collections are 
used to offset the appropriation. On May 25, 2013, the reduction in 
the Section 31 fee rate from $22.40 to $17.40 per million dollars of 
securities transacted on exchanges and over-the-counter markets became 
effective. The SEC’s Section 31 fee collections totaled $1,273 million 
for FY 2013. Therefore, the SEC retained appropriated authority equal 
to $48 million. 

Investor Protection Fund: 

The SEC prepares stand alone financial statements for the Investor 
Protection Fund as required by the Dodd-Frank Act. The Investor 
Protection Fund was established in the fourth quarter of FY 2010 to 
provide funding for a whistleblower award program and to finance the 
operations of the SEC Office of Inspector General’s Employee 
Suggestion Program. 

The balance of the Investor Protection Fund decreased by $14.2 million 
between the years ended September 30, 2013 and 2012. The Investor 
Protection Fund recognized total earnings of $651 thousand during FY 
2013. Total earnings include nonexchange revenue of $655 thousand from 
the interest earned on investments in U.S. Treasury Securities; and 
gains of $6 thousand less the losses of $10 thousand from the 
disposition of investments. In addition, the Investor Protection Fund 
incurred expenses of $14.8 million for whistleblower awards and $51 
thousand for salary and benefit costs in the OIG’s Employee Suggestion 
Program. 

Additional information regarding the Investor Protection Fund and the 
Office of the Whistleblower is available in the 2013 Annual Report on 
the Dodd-Frank Whistleblower Program. This report may be found at 
[hyperlink, http://www.sec.gov/whistleblower]. 

Chart 1.8: Offsetting Collections Vs. New Budgetary Authority: Section 
31 Exchange And Filing Fees (dollars in millions): 

[Refer to PDF for image: vertical bar and line graph] 

FY 2004: 
Total Actual Offsetting Collections: $1,392; 
New Budgetary Authority: $812. 

FY 2005: 
Total Actual Offsetting Collections: $1,665; 
New Budgetary Authority: $856. 

FY 2006: 
Total Actual Offsetting Collections: $1,903; 
New Budgetary Authority: $863. 

FY 2007: 
Total Actual Offsetting Collections: $1,538; 
New Budgetary Authority: $868. 

FY 2008: 
Total Actual Offsetting Collections: $984; 
New Budgetary Authority: $843. 

FY 2009: 
Total Actual Offsetting Collections: $1,016; 
New Budgetary Authority: $843. 

FY 2010: 
Total Actual Offsetting Collections: $1,443; 
New Budgetary Authority: $1,095. 

FY 2011: 
Total Actual Offsetting Collections: $1,598; 
New Budgetary Authority: $1,185. 

FY 2012: 
Total Actual Offsetting Collections: $1,321; 
New Budgetary Authority: $1,288; 
Appropriations: $33. 

FY 2013: 
Total Actual Offsetting Collections: $1,321; 
New Budgetary Authority: $1,273; 
Appropriations: $33. 

FY 2004 – FY 2011 Offsetting Collections includes transaction fees and 
filing fees. FY 2012 and beyond, Offsetting Collections includes 
transaction fees and $50 million of filing fees. 

[End of chart] 

Table 1.6: Investor Protection Fund Activity For The Years Ended 
September 30, 2013 And 2012 (Dollars In Thousands): 

Balance of Fund at beginning of preceding fiscal year: 
FY 2013: $453,429; 
FY 2012: $452,788. 

Amount deposited into or credited to the Fund during the preceding: 
FY 2013: 0; 
fiscal year
FY 2012: 0. 

Amount of earnings on investments during the preceding fiscal year: 
FY 2013: $651; 
FY 2012: $757. 

Amount paid from the Fund during the preceding fiscal year to 
whistleblowers: 
FY 2013: ($14,832); 
FY 2012: ($46). 

Amount paid from the Fund during the preceding fiscal year for 
expenses incurred by Employee Suggestion Program: 
FY 2013: ($51); 
FY 2012: ($70). 

Balance of the Fund at the end of the preceding fiscal year: 
FY 2013: $439,197; 
FY 2012: $453,429. 

[End of table] 

Limitations of the Financial Statements: 

The principal financial statements included in this report have been 
prepared by SEC management to report the financial position and 
results of operations of the SEC, pursuant to the requirements of 31 
U.S. Code Section 3515(b). While the statements have been prepared 
from the books and records of the SEC in accordance with generally 
accepted accounting principles (GAAP) for Federal entities and the 
formats prescribed by OMB, the statements are in addition to the 
financial reports used to monitor and control budgetary resources, 
which are prepared from the same books and records. The statements 
should be read with the understanding that they are for a component of 
the U.S. Government, a sovereign entity. 

[End of section] 

Performance Highlights: 

The SEC’s performance data provides a foundation for both programmatic 
and organizational decision-making and is critical for gauging the 
agency’s success in meeting its objectives. The SEC is committed to 
using performance management best practices to promote greater 
accountability. This section provides information on its key 
performance measures for FY 2013 – it describes the SEC’s data 
verification and validation process, outlines the SEC’s strategic and 
performance planning framework, provides information on the costs 
incurred by the agency’s four strategic goals and 10 national 
programs, and highlights the agency’s progress toward reaching key 
performance targets. 

The SEC’s FY 2013 Annual Performance Report (APR) will be issued with 
the agency’s FY 2015 Congressional Budget Justification, and will 
provide a complete discussion of all of the agency’s strategic goals, 
including a description of performance goals and objectives, data 
sources, performance results and trends, and information about 
internal reviews and evaluations. The SEC’s APR is expected to be 
available in February 2014 at [hyperlink, 
http://www.sec.gov/about/secreports.shtml]. 

Verification and Validation of Performance Data: 

The SEC’s programs require accurate data to properly assess program 
performance and to make good management decisions. Data verification 
and validation is used to evaluate whether data has been generated 
according to specifications, satisfy acceptance criteria, and are 
appropriate and consistent with their intended use. Data verification 
is a systematic process for evaluating performance and compliance of a 
set of data when compared to a set of standards to ascertain its 
completeness, correctness, and consistency using the methods and 
criteria defined in the project documentation. Data validation follows 
the data verification process and uses information from the project 
documentation to ascertain the usability of the data in light of its 
measurement quality objectives and to ensure that results obtained are 
scientifically defensible. 

The SEC ensures that the performance data presented in this report is 
complete, reliable and accurate based upon the following assessment 
steps: 

(1) The agency develops performance measures through its strategic 
planning process. 

(2) The SEC’s divisions and offices perform the following steps to 
ensure that data used in the calculation of performance measures is 
accurate and reliable including adequately documenting: 
* the sources of the underlying data elements, and the procedures used 
to gather the data;
* the procedures used to obtain assurance as to the accuracy and 
reliability of the data;
* the data definitions for reference; and; 
* documenting and explaining the measure calculations. 

(3) The divisions and offices calculate and report the performance 
measures to the Office of Financial Management, and the measures are 
approved by division directors and office heads. This process ensures 
that the data used in the calculation of performance measures is 
accurate and reliable and that internal control is maintained through 
the approval process. 

Strategic and Performance Planning Framework: 

The SEC’s FY 2013 strategic and performance planning framework is 
based on the FY 2010 – FY 2015 Strategic Plan, available at 
[hyperlink, http://www.sec.gov/about/secstratplan1015f.pdf]. The 
Strategic Plan outlines the agency’s mission, vision, values, and 
strategic goals and objectives. The SEC’s work is structured around 
four strategic goals, and 12 strategic objectives the agency plans to 
achieve in support of those four goals. The SEC’s goals and priorities 
in the Strategic Plan are influenced by several external environmental 
factors, including global, complex and constantly evolving securities 
markets. 

Table 1.7 displays the agency’s FY 2013 costs for its four strategic 
goals and 12 strategic objectives, as well as how these costs are 
divided among the SEC’s programs described in Table 1.1. 

Table 1.7: 

Strategic Goal: Foster and enforce compliance with the Federal 
securities laws
Cost: $711.1 million; 
Contributing Programs (dollars in millions): 
Enforcement: $389.7; 
Compliance Inspections and Examinations: $233.5; 
Corporation Finance: $4.5; 
Trading and Markets: $18.0; 
Investment Management: $13.7; 
Risk, Strategy, and Financial Innovation: $8.1; 
General Counsel: $20.0; 
Other Program Offices: $20.3; 
Agency Direction and Administrative Support: $3.2; 
Inspector General: $0.1. 

Strategic Objective: 
The SEC fosters compliance with the Federal securities laws. 
Cost: $207.9 million. 

Strategic Objective: 
The SEC promptly detects violations of the Federal securities laws.
Cost: $134.3 million; 

Strategic Objective: 
The SEC prosecutes violations of Federal securities laws and holds 
violators accountable.
Cost: $368.9 million. 

Strategic Goal: Establish an effective regulatory environment
Cost: $139.2 million; 
Contributing Programs (dollars in millions): 
Enforcement: $18.6; 
Compliance Inspections and Examinations: $8.0; 
Corporation Finance: $14.4; 
Trading and Markets: $35.9; 
Investment Management: $19.3; 
Risk, Strategy, and Financial Innovation: $12.6; 
General Counsel: $9.2; 
Other Program Offices: $14.0; 
Agency Direction and Administrative Support: $7.2; 
Inspector General: 0. 

Strategic Objective: 
The SEC establishes and maintains a regulatory environment that 
promotes high-quality disclosure, financial reporting, and governance, 
and that prevents abusive practices by registrants, financial 
intermediaries, and other market participants. 
Cost: $55.1 million. 

Strategic Objective: 
The U.S. capital markets operate in a fair, efficient, transparent, 
and competitive manner, fostering capital formation and useful 
innovation.
Cost: $52.6million. 

Strategic Objective: 
The SEC adopts and administers rules and regulations that enable 
market participants to understand clearly their obligations under the 
securities laws.
Cost: $31.5 million. 

Strategic Goal: Facilitate access to the information investors need to 
make informed investment decisions
Cost: $195.7 million; 
Contributing Programs (dollars in millions): 
Enforcement: $7.5; 
Compliance Inspections and Examinations: $3.9; 
Corporation Finance: $116.8; 
Trading and Markets: $19.8; 
Investment Management: $14.8; 
Risk, Strategy, and Financial Innovation: $3.2; 
General Counsel: $2.0; 
Other Program Offices: $14.6; 
Agency Direction and Administrative Support: $12.9; 
Inspector General: $0.4. 

Strategic Goal: Enhance the Commission’s performance through effective 
alignment and management of human, information, and financial capital
Cost: $284.5 million; 
Contributing Programs (dollars in millions): 
Enforcement: $35.2; 
Compliance Inspections and Examinations: $20.0; 
Corporation Finance: $6.3; 
Trading and Markets: $2.5; 
Investment Management: $2.5; 
Risk, Strategy, and Financial Innovation: $5.6; 
General Counsel: $10.2; 
Other Program Offices: $2.9; 
Agency Direction and Administrative Support: $197.2; 
Inspector General: $6.6. 

[End of table] 

Performance Achievements: 

The SEC expended more than $1,330 million in FY 2013 to achieve its 
four strategic goals and 12 strategic objectives. Overall, the agency 
exceeded or met approximately 54 percent of its 72 planned performance 
targets. The percentage of performance targets that were met or 
exceeded for each strategic goal are outlined below in Table 1.8. (In 
calculating these figures, performance metrics for which no data was 
available were also included in the computation.) 

Table 1.8: 

Strategic Goal: Foster and enforce compliance with the Federal 
securities laws; 
Percent Performance Goal Targets Met or Exceeded: 35%. 

Strategic Goal: Establish an effective regulatory environment; 
Percent Performance Goal Targets Met or Exceeded: 69%. 

Strategic Goal: Facilitate access to the information investors need to 
make informed investment decisions; 
Percent Performance Goal Targets Met or Exceeded: 67%. 

Strategic Goal: Enhance the Commission’s performance through effective 
alignment and management of human, information, and financial capital
Percent Performance Goal Targets Met or Exceeded: 48%. 

[End of table] 

A detailed explanation of how the agency met or exceeded its planned 
performance targets, such as through increased efficiencies and 
improved processes, will be provided in the APR which will be 
published in February 2014. When a planned performance target was not 
met, the report will provide a description of actions that will be 
taken to achieve the target in the future. 

The Enforcement program increased the percentage of enforcement 
actions resolved (Table 1.10). The agency did not meet its target for 
average months between opening a matter under inquiry or an 
investigation and commencing an enforcement action (Table 1.9). 

Table 1.9: 

Performance Goal: Average months between opening a matter under 
inquiry or an investigation and commencing an enforcement action. 

Description: This measure concerns the pace of investigations that 
lead to the filing of enforcement actions. Specifically, this measure 
captures average number months between the opening of an investigation 
and the filing of the first enforcement action arising out of that 
investigation. If the investigation was preceded by a matter under 
inquiry, the measure draws on the date of opening of the matter 
inquiry. In conducting investigations, the enforcement program 
continually strives to balance the need for complete, effective, and 
fair investigation with the need to file enforcement actions in as 
timely a manner as possible. 

Fiscal Year: FY 2007; 
Months: Prior-year data not available. 

Fiscal Year: FY 2008; 
Months: Prior-year data not available. 

Fiscal Year: FY 2009; 
Months: Prior-year data not available. 

Fiscal Year: FY 2010; 
Months: Prior-year data not available. 

Fiscal Year: FY 2011; 
Months: 22. 

Fiscal Year: FY 2012; 
Months: 21. 

Fiscal Year: FY 2013 Plan; 
Months: 20. 

Fiscal Year: FY 2012 Actual; 
Months: 21. 

Fiscal Year: FY 2013 Results; 
Months: Not Met. 

Responsible Division/Office: Division of Enforcement 

Data Source: HUB case management and tracking system for the Division 
of Enforcement. 

Plan for Improving Performance: The Division is focused on ways to 
ensure that its enforcement actions are brought quickly, in 
recognition of the fact that timeliness brings with it an increased 
deterrent effect. The Division will continue to assess the pace of 
investigations with an eye towards overall filing speeds, and the 
Division will continue to seek to identify areas of enforcement in 
which it may be possible to conduct streamlined, expedited 
investigations of multiple parties. Additionally, Division management 
will encourage investigative staff to focus their efforts on core
violative conduct, and to seek to expedite meetings with, or testimony 
of, key witnesses where appropriate. 

[End of table] 

Table 1.10: 

Performance Goal: Percentage of Enforcement Actions Resolved: 

Description: This measure assesses the rate at which the SEC’s filed 
enforcement actions are resolved. Specifically, the measure 
identifies, as to all parties to enforcement actions that were 
resolved in the fiscal year, the percentage against whom the 
Commission obtained a judgment or order entered on consent, a default 
judgment, a judgment of liability on one or more charges, and/or the 
imposition of monetary or other relief. The Division is currently 
assessing the value of this metric, and evaluating how to incorporate 
qualitative considerations of the results of the Division’s 
enforcement actions. 

Fiscal Year: FY 2008; 
Percentage: 92%. 

Fiscal Year: FY 2009; 
Percentage: 92%. 

Fiscal Year: FY 2010; 
Percentage: 92%. 

Fiscal Year: FY 2011; 
Percentage: 93%. 

Fiscal Year: FY 2012; 
Percentage: 89%. 

Fiscal Year: FY 2013 Plan; 
Percentage: 92%. 

Fiscal Year: FY 2013 Actual; 
Percentage: 93%. 

Fiscal Year: FY 2013 Results; 
Percentage: Exceeded. 

Responsible Division/Office: Division of Enforcement. 

Data Source: HUB case management and tracking system for the Division 
of Enforcement. 

[End of table] 

The agency did not meet its targets for the percentage of investment 
advisors, investment companies, and broker dealers examined during the 
year (Table 1.11). The staff continued to spend considerable time and 
effort during the year on improving its risk assessment and 
surveillance capabilities to ensure that the national examination 
program is spending its limited time and resources on those firms 
presenting the highest risk. As part of these efforts, the staff spent 
significant resources on collecting and analyzing data about all 
registrants. The results of these efforts help to ensure that the 
program is focusing on the highest risk entities and selecting 
appropriate candidates for onsite examination. Examinations of high-
risk firms often take significant time to complete and are frequently 
of large and complex entities. For example, the investment advisers 
examined in FY 2013 represent more than 25 percent of the overall 
assets under management of currently registered advisers. In addition, 
examination resources have been allocated during the past year to 
other efforts intended to improve the long-term performance of the 
program, including industry outreach initiatives, rule-making efforts 
and other program improvement efforts that were identified as part of 
the program’s broad, overarching self-assessment. 

Table 1.11: 

Performance Goal: 
Percentage of investment advisers, investment companies, and broker-
dealers examined during the year 

Description: This measure indicates the number of registrants examined 
by the SEC or an SRO as a percentage of the total number of 
registrants. This measure includes all types of examinations: risk 
priority examinations, cause inspections to follow up on tips and 
complaints, limited-scope special inspections to probe emerging risk 
areas, oversight examinations of broker-dealers to test compliance and 
the quality of examinations by the Financial Industry Regulatory 
Authority (FINRA). 

Fiscal Year: FY 2008; 
Investment advisers: 14%; 
Investment companies: 23%; 
Broker-Dealers (exams by SEC and SROs): 57%. 

Fiscal Year: FY 2009; 
Investment advisers: 10%; 
Investment companies: 29%; 
Broker-Dealers (exams by SEC and SROs): 54%. 

Fiscal Year: FY 2010; 
Investment advisers: 9%; 
Investment companies: 10%; 
Broker-Dealers (exams by SEC and SROs): 44%. 

Fiscal Year: FY 2011; 
Investment advisers: 8%; 
Investment companies: 13%; 
Broker-Dealers (exams by SEC and SROs): 58%. 

Fiscal Year: FY 2012; 
Investment advisers: 9%; 
Investment companies: 13%; 
Broker-Dealers (exams by SEC and SROs): 56%. 

Fiscal Year: FY 2013 Plan; 
Investment advisers: 10%; 
Investment companies: 14%; 
Broker-Dealers (exams by SEC and SROs): 50%. 

Fiscal Year: FY 2012 Actual; 
Investment advisers: 9%; 
Investment companies: 11%; 
Broker-Dealers (exams by SEC and SROs): 46%. 

Fiscal Year: FY 2013 Results; 
Investment advisers: Not Met; 
Investment companies: Not Met; 
Broker-Dealers (exams by SEC and SROs): Not Met. 

Responsible Division/Office: Office of Compliance Inspections and 
Examinations. 

Data Source: Super Tracking and Reporting System (STARS) (IA, IC, and 
BD SEC data); SRO Databases (BD SRO Data); Tracking and Reporting 
Examinations – National Documentation Systems (TRENDS); and Commission 
filings. 

[End of table] 

Plan for Improving Program Performance: During FY 2014, the staff will 
continue to implement improved processes and procedures that have been 
identified as part of its ongoing self-improvement process. 
Significant improvement initiatives in the areas of strategy, 
structure, people, processes, and technology have been completed in 
the last several years or are currently underway. The agency expects 
that these improvements, which include further refinements to the exam 
program’s risk assessment processes, will lead to more effective 
coverage of registered entities. Furthermore, certain targeted 
initiatives aimed at high risk firms and activities have already been 
implemented and it is anticipated that these efforts will result in 
improved coverage levels in FY 2014. 

Under the Federal securities laws, issuers are required to disclose 
material financial and other information to the public. In FY 2013, 
the SEC continued to meet the requirements of the Sarbanes-Oxley Act 
(Table 1.12) by reviewing the disclosures of more than 33 percent of 
all reporting companies and investment company portfolios each year. 
This volume of disclosure review helped deter fraud and assured that 
investors had access to relevant information about emerging issues. In 
addition to reviewing filings of reporting companies, the SEC 
continued to issue initial comments on Securities Act filings in less 
than 30 days (Table 1.13). 

Table 1.12: 

Performance Goal: 
Percentage of public companies and investment companies with 
disclosures reviewed each year 

Description: The Sarbanes-Oxley Act requires that the SEC review the 
disclosures of all companies and investment company portfolios 
reporting under the Exchange Act at least once every three years. 
These reviews help improve the information available to investors and 
may uncover possible violations of the securities laws. 

Fiscal Year: FY 2008; 
Corporations: 39%; 
Investment Company Portfolios: 36%. 

Fiscal Year: FY 2009; 
Corporations: 40%; 
Investment Company Portfolios: 35%. 

Fiscal Year: FY 2010; 
Corporations: 44%; 
Investment Company Portfolios: 356. 

Fiscal Year: FY 2011; 
Corporations: 48%; 
Investment Company Portfolios: 33%. 

Fiscal Year: FY 2012; 
Corporations: 48%; 
Investment Company Portfolios: 36%. 

Fiscal Year: FY 2013 Plan; 
Corporations: 33%; 
Investment Company Portfolios: 33%. 

Fiscal Year: FY 2013 Actual; 
Corporations: 52%; 
Investment Company Portfolios: 34%. 

Fiscal Year: FY 2013 Results; 
Corporations: Exceeded; 
Investment Company Portfolios: Exceeded. 

Corporations: Responsible Division/Office: Division of Corporation 
Finance; 
Data Source: Electronic Data Gathering, Analysis, and Retrieval 
(EDGAR)/Filing Activity Tracking System. 

Investment Company Portfolios: Responsible Division/Office: Division 
of Investment Management; 
Data Source: Microsoft Office Suite Tools. 

[End of table] 

Table 1.13: 

Performance Goal: 
Time to issue initial comments on Securities Act filings 

Description: The target of 30 days or less has become a de facto 
industry standard for the maximum time to receive initial comments. 

Fiscal Year: FY 2008; 
Days: 25.2. 

Fiscal Year: FY 2009; 
Days: 25.3. 

Fiscal Year: FY 2010; 
Days: 24.1. 

Fiscal Year: FY 2011; 
Days: 24.4. 

Fiscal Year: FY 2012; 
Days: 24.9. 

Fiscal Year: FY 2013 Plan; 
Days: less than 30. 

Fiscal Year: FY 2013 Actual; 
Days: 25.6. 

Fiscal Year: FY 2013 Results; 
Days: Met. 

Responsible Division/Office: Division of Corporation Finance. 

Data Source: Electronic Data Gathering, Analysis, and Retrieval 
(EDGAR). 

[End of table] 

[End of section] 

Management Assurances: 

In FY 2013, the SEC demonstrated its continued commitment to 
maintaining strong internal controls. Internal control is an integral 
component of effective agency management, providing reasonable 
assurance that the following objectives are being achieved: 
effectiveness and efficiency of operations, reliability of financial 
reporting, and compliance with laws and regulations. The Federal 
Managers’ Financial Integrity Act of 1982 (FMFIA) establishes management
’s responsibility to assess and report on internal accounting and 
administrative controls. Such controls include program, operational, 
and administrative areas, as well as accounting and financial 
management. The FMFIA requires Federal agencies to establish controls 
that reasonably ensure obligations and costs are in compliance with 
applicable laws; funds, property, and other assets are safeguarded 
against waste, loss, unauthorized use, or misappropriation; and 
revenues and expenditures are properly recorded and accounted for to 
maintain accountability over the assets. The FMFIA also requires 
agencies to annually assess and report on the internal controls that 
protect the integrity of Federal programs (FMFIA § 2) and whether 
financial management systems conform to related requirements (FMFIA § 
4). Guidance for implementing the FMFIA is provided through Office of 
Management and Budget (OMB) Circular A-123, Management’s 
Responsibility for Internal Control. In addition, it requires agencies 
to provide an assurance statement on the effectiveness of programmatic 
internal controls and financial system conformance, and internal 
control over financial reporting. 

Section 963 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) describes the responsibility of SEC 
management to establish and maintain adequate internal controls and 
procedures for financial reporting. The Dodd-Frank Act requires an 
annual financial controls audit, assessment of the effectiveness of 
internal control, and attestation by the Chair and the Chief Financial 
Officer. Section 922 of the Dodd-Frank Act requires the SEC to submit 
audited financial statements of the Investor Protection Fund to the 
Committee on Banking, Housing and Urban Affairs of the Senate and the 
Committee on Financial Services of the House of Representatives. 

The Assurance Statement below is issued in accordance with the FMFIA, 
OMB Circular A-123, and Sections 922 and 963 of the Dodd-Frank Act. 

Text box: 

Annual Assurance Statement: 

Assurance Statement on Internal Control over Operations: The SEC 
management is responsible for establishing and maintaining effective 
internal control and financial management systems that meet the 
objectives of the Federal Managers’ Financial Integrity Act of 1982 
(FMFIA). In accordance with OMB Circular A-123, the SEC conducted its 
annual assessment of the effectiveness of internal controls. Based on 
the results of the assessment for the period ending September 30, 
2013, the SEC is able to provide an unqualified statement of assurance 
that the internal controls and financial systems, both for the agency 
as a whole and for the Investor Protection Fund, meet the objectives 
of the FMFIA. No material weaknesses were found in the design or 
operation of the internal controls for the fiscal year ended September 
30, 2013. 

Assurance Statement on Internal Control over Financial Reporting: In 
accordance with Appendix A of OMB Circular A-123, the SEC conducted 
its assessment of the effectiveness of internal control over financial 
reporting, which includes safeguarding of assets and compliance with 
applicable laws and regulations. Based on the results of the 
assessment, the SEC is able to provide reasonable assurance that 
internal control over financial reporting, both for the agency as a 
whole and for the Investor Protection Fund, met the objectives of 
FMFIA and were operating effectively as of September 30, 2013. No 
material weaknesses were found in the design or operation of controls. 

SEC also conducted reviews of its financial management systems in 
accordance with OMB Circular A-127, Financial Management Systems. 
Based on the results of these reviews, SEC can provide reasonable 
assurance that its financial management systems substantially comply 
with the requirements of the Federal Financial Management Improvement 
Act (FFMIA) as of September 30, 2013. 

Signed by: 

Mary Jo White: 
Chair: 
December 12, 2013: 

Signed by: 

Kenneth A. Johnson:
Chief Financial Officer:
December 12, 2013: 

[End of text box] 

Management’s Responsibility for Internal Control: 

FMFIA requires the head of the agency, based on the agency’s internal 
evaluation, to provide an annual Statement of Assurance on the 
effectiveness of their management, administrative, and financial 
reporting controls. OMB Circular A-123 implements FMFIA and defines 
management’s responsibility for internal control in federal agencies. 
The FY 2013 annual assurance statements for FMFIA and ICFR are 
provided on the preceding page. 

FMFIA § 2 requires agencies to establish internal controls and 
financial systems which provide reasonable assurance that the 
following objectives are achieved: 

* Effective and efficient operations, 

* Compliance with applicable laws and regulations, and, 

* Reliability of financial reporting. 

The Chair’s FMFIA assurance statement is primarily based on individual 
assurance statements from each division director and office head. The 
individual statements assessed internal controls related to the 
effectiveness of the controls over programs and operations, financial 
reporting, and compliance with laws and regulations. These statements 
were based on self-assessments and internal reviews supported by 
enhanced control testing, as well as Office of Inspector General (OIG) 
and Government Accountability Office (GAO) reviews, audits, 
inspections and investigations. 

The results of these statements were considered with other sources of 
information when determining whether any management control 
deficiencies or non-conformances needed to be reported in the annual 
assurance statement. Other information sources included, but were not 
limited to, the following: 

* An entity-level control assessment; 

* Internal management reviews, self-assessments and tests of internal 
controls; 

* Management’s personal knowledge gained from daily operations;
* Reports from the GAO and OIG; 

* Reviews of financial management systems under OMB Circular A-127, 
Financial Management Systems; 

* Reports pursuant to the Federal Information Security Management Act 
(FISMA) and OMB Circular A-130, Management of Federal Information 
Resources; 

* Annual reviews and reports pursuant to the Improper Payments 
Elimination and Recovery Act (IPERA); 

* Reports and other information from Congress or agencies such as OMB, 
the Office of Personnel Management (OPM), or the General Services 
Administration (GSA) reflecting the adequacy of internal controls; and; 

* Additional reviews relating to a division or office’s operations, 
including those discussed in the Other Reviews section below. 

FMFIA § 4 requires that agencies annually evaluate and report on 
whether financial management systems conform to government-wide 
requirements. The SEC evaluated its financial management systems for 
the fiscal year ending September 30, 2013, in accordance with the 
FFMIA and OMB Circular A-127, Financial Management Systems, as 
applicable. 

Appendix A of OMB Circular A-123 requires the agency head to provide a 
separate statement of assurance on the effectiveness of ICFR, in 
addition to the overall FMFIA assurance statement. SEC management 
assessed internal control at the entity-level, process, transaction, 
and application level. This report also provides a Summary of 
Financial Statement Audits and Management Assurances under the section 
entitled Other Accompanying Information, as required by OMB Circular A-
136, Financial Reporting Requirements. 

The effectiveness of process level controls was assessed through 
detailed test procedures related to the agency’s financial reporting 
objectives. As part of this effort, the agency performed a 
comprehensive risk assessment in which SEC management identified: 

* Significant financial reports; 

* Significant line items and accounts; 

* Major classes of transactions; 

* Relevant assertions, risks of material misstatement and control 
objectives; 

* Reporting and regulatory requirements; and; 

* Existing deficiencies and corrective action plans. 

From the results of the risk assessment, SEC management selected 
processes fundamental to the agency’s financial management. SEC 
management updated documentation of the business processes and control 
activities designed to mitigate significant financial reporting and 
compliance risks. 

These control activities were tested for design and operating 
effectiveness. The agency also tested the operating effectiveness of 
control activities that were found to be deficient in prior years. 
These test results served as a basis for management’s assessment of 
the effectiveness of ICFR. 

The results of testing completed prior to and as of September 30th 
formed the basis of the annual management assurance statement. SEC 
management also analyzed the magnitude of the internal control 
deficiencies and the level of assurance provided under the FMFIA 
requirements. SEC management analyzed the internal control 
deficiencies, both individually and in the aggregate, to determine if 
a material weakness[Footnote 1] existed in the financial reporting 
processes. ICFR testing conducted during FY 2013 did not identify any 
deficiencies that rose to the level of a material weakness. 

Significant factors considered for assessing each deficiency included 
the following: 

* Nature of the control deficiency (e.g., design, operation); 

* Internal control objectives and activities impacted; 

* Potential impact on financial statement line items, accounts and 
disclosures; 

* The interaction of control deficiencies with other deficiencies; and; 

* The materiality of account balances impacted by the deficiency. 

Each year, the agency’s Financial Management Oversight Committee 
(FMOC) advises the Chair as to whether the SEC had any deficiencies in 
internal control or financial system design significant enough to be 
reported as a material weakness or non-conformance. This advice is 
based on the assurance statements from division directors and office 
heads and other supplemental sources of information. 

Other Reviews: 

The SEC’s financial statements were audited by the GAO. The objective 
of GAO’s audit was to express an opinion on the financial statements 
and on internal control over financial reporting, and to report on 
tests of compliance with selected laws and regulations. 

The OIG conducted nine audits and reviews during FY 2013. The reviews 
covered 12 of the 38 assessable units (32 percent), to include the 
Office of the Chair. Some components were subject to multiple reviews. 

Financial Management System Conformance: 

The FFMIA requires that each agency implement and maintain financial 
management systems that comply substantially with Federal financial 
management systems requirements, applicable Federal accounting 
standards, and the U.S. Standard General Ledger at the transaction 
level. The purpose of the FFMIA is to advance Federal financial 
management by verifying that financial management systems provide 
accurate, reliable, and timely financial management information in 
order to manage daily operations, produce reliable financial 
statements, maintain effective internal control, and comply with legal 
and regulatory requirements. Although the SEC is exempt from the 
requirement to determine substantial compliance with FFMIA, the agency 
assesses its financial management systems annually for conformance 
with the requirements of OMB Circular A-127 and other Federal 
financial system requirements. 

The SEC’s process to assess its financial management systems was in 
compliance with the January 9, 2009 revision of OMB Circular A-127 and 
included the use of an FFMIA risk model which ranked risks from 
nominal to significant. Based on the results of the FY 2013 review, 
the SEC concluded that its risk rating was nominal. Upon the review of 
the criteria in OMB Circular A-127 for agencies with nominal risk, the 
SEC determined its financial core and mixed systems are in substantial 
compliance with Section 803(a) of the FFMIA requirements. This was 
based in part on notable progress made by SEC management and staff in 
implementing remediation activities in response to significant 
deficiencies in ICFR noted in FY 2011 and FY 2012. The SEC assessed 
each of its core and mixed financial systems to determine the risk 
category. The systems were reviewed individually for compliance, and 
then collectively a risk rating was determined for the agency’s system 
compliance. The SEC performed an assessment of the FFMIA risk 
indicators and classified its financial systems as being in the 
nominal risk category. 

Summary of Current Financial System and Future Strategies: 

The FY 2013 ICFR assessment demonstrated that a nominal rating would 
be appropriate for the seven risk indicators, and therefore it can be 
concluded that the agency substantially complied with the requirements 
of Section 803(a) of the FFMIA. The SEC’s core financial system, 
Delphi, is a Financial Systems Integration Office (FSIO) certified 
system and met all of the requirements of FFMIA. 

FY 2013 was the first full year SEC operated under a Federal Shared 
Service Provider (FSSP). Through a strong partnership with our FSSP, 
the SEC will continue to automate, where possible, to eliminate some 
of its manual processes and consolidate them within the capabilities 
of the new system. SEC continues to build upon its prior year efforts 
to subject key non-integrated spreadsheets and databases to risk 
assessment and tightened controls. With the reduced reliance on manual 
processes and improved financial reporting, the SEC has reduced its 
portfolio of user-developed applications. 

The SEC legacy financial system, Momentum, is no longer accessible via 
the general support system (GSS) and is now deemed a historical 
research tool. This action effectively remediated prior year security 
controls recommendations affecting the financial systems servers. 

While the FY 2013 ICFR assessment noted deficiencies in some areas, 
there was substantial progress made from the prior year and the 
assessment identified no significant deficiency in the area of 
information security. 

Federal Information Security Management Act: 

The Federal Information Security Management Act (FISMA) requires 
Federal agencies to “develop, document, and implement an agency-wide 
information security program to provide information security for the 
information and information systems that support the operations and 
assets of the agency, including those provided or managed by another 
agency, contractor, or other source.” In addition, FISMA requires 
Federal agencies to conduct annual assessments of their information 
security and privacy programs, to develop and implement remediation 
efforts for identified weaknesses and vulnerabilities, and to report 
compliance to OMB. The SEC’s OIG, Chief Information Security Officer, 
and Privacy Officer annually perform a joint review of the Commission’
s compliance with FISMA requirements. The Commission will submit its 
2013 report to OMB on November 15, 2013, as required or adjusted, 
based on the FY 2014 lapse of appropriations. 

Oversight and Compliance: 

The SEC’s Office of Information Technology (OIT), collaborating with 
business owners, completed assessment and authorization activities for 
18 reportable systems. As a result, the SEC has now assessed and 
authorized a total of 63 reportable systems in accordance with OMB 
policy and guidance from the National Institute of Standards and 
Technology (NIST). OIT completed contingency testing on the majority 
of the SEC’s authorized systems as part of disaster recovery 
exercises, unscheduled events, and weather occurrences. 

OIT Security’s assessment team visited four of the 11 SEC regional 
offices[Footnote 2] as part of a three-year review cycle and performed 
a technical assessment of both the local network infrastructure and 
physical security. The assessment team also conducted a disaster 
recovery simulation exercise at the four regional offices. Three of 
the four regional office exercises included a successful failover to 
alternate servers. 

OIT facilitated the remediation of 258 self-identified deficiencies 
associated with the SEC’s network infrastructure and major 
applications, closed 47 OIG recommendations and submitted artifacts to 
support resolution of 15 matters for consideration to GAO. 

OIT conducted 65 privacy reviews, which included the approval and 
publishing of 26 privacy impact assessments (PIAs). OIT also published 
five systems of records notices in the Federal Register. 

Training and Communications: 

OIT delivered on-line cyber security and privacy awareness training to 
the SEC user community and achieved 96 percent completion. During the 
regional office assessments, in-person privacy training focused on the 
safe handling of personally identifiable information (PII) and was 
delivered to approximately 75 percent of users in those regional 
offices. OIT delivered two virtual training conferences to regional 
office IT Specialists in all 11 offices, which focused on Executive 
Branch Information Protection and Privacy Requirements and Cyber 
Security Threats. OIT published monthly newsletters providing guidance 
and tips about data protection and cyber security tips. 

Policy and Technology: 

OIT began updating governance documentation to address changes in NIST 
guidance that will become effective in FY 2014. 

The SEC continues to safely explore cloud computing technologies and 
solutions based on Federal information protection requirements. SEC 
leveraged one cloud provider that has been through the Federal Risk 
and Authorization Management Program (FedRAMP) and is exploring three 
additional cloud service providers that are registered in FedRAMP but 
have not yet received provisional authorization from the Joint 
Authorization Board (JAB). 

Footnotes: 

[1] A material weakness is a significant deficiency, or combination of 
significant deficiencies, that create a reasonable possibility that 
program objectives are not met, or results in the risk of control 
failure not being mitigated. 

[2] New York, Miami, Chicago, and Boston. 

[End of Management’s Discussion and Analysis] 

Financial Section: 

This section of the Agency Financial Report contains the U.S. 
Securities and Exchange Commission’s (SEC) financial statements, 
required supplementary information, financial statements for the 
Investor Protection Fund, and the related Independent Auditor’s 
Report. Information presented here satisfies the financial reporting 
requirements of the Accountability of Tax Dollars Act of 2002 and Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). 
The SEC prepares these statements in conformity with U.S. generally 
accepted accounting principles (GAAP) for the Federal Government and 
OMB Circular A-136, Financial Reporting Requirements. 

The section contains the Government Accountability Office’s (GAO) 
audit opinion, followed by the SEC’s response. Then, the section shows 
the required financial statements for the SEC. The statements provide 
a comparison of fiscal year (FY) 2013 and FY 2012 information. The SEC 
prepares the following required financial statements. 

* Balance Sheet – presents, as of a specific time, resources owned or 
managed by the SEC that provide probable economic benefits (assets), 
amounts owed by the entity (liabilities), and amounts which comprise 
the difference (net position). 

* Statement of Net Cost – presents the gross cost incurred by the SEC 
less exchange revenue earned from its activities, including 
registration and filing fees. The SEC presents net cost of operations 
by program to provide cost information at the program level. The SEC 
recognizes collections as exchange revenue on the Statement of Net 
Cost, even when the collections are transferred to other entities. 

* Statement of Changes in Net Position – reports the change in net 
position during the reporting period. This statement presents changes 
to Cumulative Results of Operations. 

* Statement of Budgetary Resources – provides information about how 
budgetary resources were made available as well as their status at the 
end of the year. 

* Statement of Custodial Activity – reports the collection of revenue 
for the Treasury General Fund. The SEC accounts for sources and 
disposition of the collections as custodial activities on this 
statement. Custodial collections of non-exchange revenue, such as 
amounts collected from violators of securities laws as a result of 
enforcement proceedings, are reported only on the Statement of 
Custodial Activity. 

The SEC does not have stewardship over resources or responsibilities 
for which supplementary stewardship reporting would be required. 

Budgetary information aggregated for purposes of the Statement of 
Budgetary Resources is disaggregated for each of the SEC’s major 
budget accounts and is presented as Required Supplementary Information. 

The accompanying Notes to the Financial Statements provide a 
description of significant accounting policies as well as detailed 
information on select statement lines. 

This section contains stand alone, comparative financial statements 
and accompanying notes for the Investor Protection Fund as required by 
the Dodd-Frank Act. These statements include the Balance Sheet, 
Statement of Net Cost, Statement of Changes in Net Position, and 
Statement of Budgetary Resources. 

Message from the Chief Financial Officer: 

I am delighted to join Chair White in presenting the SEC’s Agency 
Financial Report (AFR) for fiscal year (FY) 2013. We hope you find the 
AFR a useful summary of the SEC’s use of resources, operating 
performance, financial stewardship, and internal control. 

Our independent auditor, the Government Accountability Office, has 
issued an unmodified opinion on our financial statements and internal 
controls. In addition, the SEC successfully downgraded the severity of 
our two remaining significant deficiencies from FY 2012 related to 
internal controls over accounting for budgetary resources, and 
property and equipment. We achieved these results through steps that 
included: 

* Refining the process for recording upward and downward adjustments; 

* Improving regular reconciliations between financial sub-systems, 
subsidiary ledgers, and the general ledger; 

* Enhancing the regular agency reviews of undelivered orders (UDOs); 

* Instituting daily tie point analyses; 

* Implementing a procedure for tracking fixed assets, to ensure that 
new assets were added timely and accurately; 

* Ensuring that all potentially capitalizable assets are reviewed by 
an accountant prior to recording the asset in the general ledger; and 

* Enhancing the SEC’s process for performing a full physical inventory. 

GAO did identify a new significant deficiency in the area of 
information security. Specifically, it was noted that we did not 
consistently implement and evidence effective internal controls 
related to risk management and project oversight in our information 
systems operations. We are in the process of implementing corrective 
actions to ensure consistent application and documentation of our 
security protocols. 

I am also pleased to report that the SEC has successfully completed 
its first full year of operations under a Federal Shared Service 
Provider (FSSP) model, engaging with the Department of Transportation’
s Enterprise Service Center (ESC) to host our financial system and 
record many of our financial transactions. To adapt to this new model, 
the SEC’s Office of Financial Management (OFM) has reorganized and 
shifted its emphasis from data entry to focus more on data analysis. 
For example, OFM instituted procedures to bolster monitoring over 
transactions affecting financial reporting. The Office also 
strengthened its program for monitoring internal controls, to enhance 
accountability and to identify any problems quickly, before they grow 
in size and scope. 

Over the last few years, we have made significant strides forward in 
the SEC’s multi-year path towards a strong, sustainable internal 
control posture. This progress would not have been possible without 
the dedication and hard work of many staff across the SEC who manage 
the SEC’s finances and controls. In the coming year, the agency will 
work to address the ongoing challenge of further improving the systems 
that support financial processes and controls, together with the 
Enterprise Service Center. These efforts include ESC’s upgrade of the 
financial system Delphi, ESC’s deployment of a new travel system, and 
the development of a data repository that can bring financial 
information together for improved analysis and reporting. 

This section of the AFR displays the SEC’s financial statements and 
notes, both for the entity as a whole and for the Investor Protection 
Fund, as required under Section 922 of the Dodd-Frank Act. It also 
contains the results of the FY 2013 audit conducted by the U.S. 
Government Accountability Office, as well as the agency’s response. 

These documents are important because they give the public a window 
into the state of the SEC’s finances and its internal controls over 
financial reporting. Thank you for taking the time to read these 
materials, and we hope you will find them both useful and informative. 

Sincerely, 

Signed by: 

Kenneth A. Johnson: 
Chief Financial Officer: 
December 12, 2013: 

[End of section] 

Report of Independent Auditors: 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

Independent Auditor’s Report: 

To the Chair of the United States Securities and Exchange Commission 
In our audits of the 2013 and 2012 financial statements of the United 
States Securities and Exchange Commission (SEC) and the Investor 
Protection Fund (IPF), we found: 

* the financial statements as of and for the fiscal years ended 
September 30, 2013, and 2012, are presented fairly, in all material 
respects, in accordance with U.S. generally accepted accounting 
principles; 

* although internal controls could be improved, SEC maintained, in all 
material respects, effective internal control over financial reporting 
as of September 30, 2013; and; 

* no reportable noncompliance in fiscal year 2013 with provisions of 
applicable laws, regulations, contracts, and grant agreements we 
tested. 

The following sections discuss in more detail (1) our report on SEC’s 
and IPF’s financial statements and on internal control over financial 
reporting, and required supplementary information (RSI) and other 
information included with the financial statements; (2) our report on 
compliance with laws, regulations, contracts, and grant agreements; 
and (3) SEC’s comments on a draft of this report. 

Report on SEC’s and IPF’s Financial Statements and on Internal Control 
over Financial Reporting: 

We agreed, under our audit authority, to audit the financial 
statements of SEC and IPF. The Securities Exchange Act of 1934, as 
amended in 2010 by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act), requires that SEC provide separate 
annual audited financial statements for IPF to Congress.[Footnote 1] 
IPF’s financial transactions are also included in SEC’s overall 
financial statements. Further, in accordance with the Dodd-Frank Act, 
we are assessing the effectiveness of SEC’s internal control over 
financial reporting, evaluating SEC’s assessment of such 
effectiveness, and attesting to SEC’s assessment of its internal 
control over financial reporting.[Footnote 2] SEC’s financial 
statements comprise the balance sheets as of September 30, 2013, and 
2012; the related statements of net cost of operations, changes in net 
position, budgetary resources, and custodial activity for the fiscal 
years then ended; and the related notes to the financial statements. 
IPF’s financial statements comprise the balance sheets as of September 
30, 2013, and 2012; the related statements of net cost of operations, 
changes in net position, and budgetary resources for the fiscal years 
then ended; and the related notes to the financial statements. We 
audited SEC’s internal control over financial reporting as of 
September 30, 2013, based on criteria established under 31 U.S.C. § 
3512(c), (d), commonly known as the Federal Managers’ Financial 
Integrity Act (FMFIA). 

We conducted our audits in accordance with U.S. generally accepted 
government auditing standards. We believe that the audit evidence we 
obtained is sufficient and appropriate to provide a basis for our 
audit opinions. 

Management’s Responsibility: 

SEC management is responsible for (1) the preparation and fair 
presentation of its financial statements and those of IPF in 
accordance with U.S. generally accepted accounting principles; (2) 
preparing, measuring, and presenting the RSI in accordance with U.S. 
generally accepted accounting principles; (3) preparing and presenting 
other information included in documents containing the audited 
financial statements and auditor’s report, and ensuring the 
consistency of that information with the audited financial statements 
and the RSI; (4) maintaining effective internal control over financial 
reporting, including the design, implementation, and maintenance of 
internal control relevant to the preparation and fair presentation of 
financial statements that are free from material misstatement, whether 
due to fraud or error; (5) evaluating the effectiveness of internal 
control over financial reporting based on the criteria established 
under FMFIA; and (6) providing its assertion about the effectiveness 
of internal control over financial reporting as of September 30, 2013, 
based on its evaluation, included in the Management Assurance section 
of the annual financial report (AFR). 

Auditor’s Responsibility: 

Our responsibility is to express opinions on SEC’s and IPF’s financial 
statements and opinions on SEC’s and IPF’s internal control over 
financial reporting based on our audits. U.S. generally accepted 
government auditing standards require that we plan and perform the 
audits to obtain reasonable assurance about whether the financial 
statements are free from material misstatement, and whether effective 
internal control over financial reporting was maintained in all 
material respects. We are also responsible for applying certain 
limited procedures to the RSI and other information included with the 
financial statements. 

An audit of financial statements involves performing procedures to 
obtain audit evidence about the amounts and disclosures in the 
financial statements. The procedures selected depend on the auditor’s 
judgment, including the auditor’s assessment of the risks of material 
misstatement of the financial statements, whether due to fraud or 
error. In making those risk assessments, the auditor considers 
internal control relevant to the entity’s preparation and fair 
presentation of the financial statements in order to design audit 
procedures that are appropriate in the circumstances. An audit of 
financial statements also involves evaluating the appropriateness of 
the accounting policies used and the reasonableness of significant 
accounting estimates made by management, as well as evaluating the 
overall presentation of the financial statements. An audit of internal 
control over financial reporting includes obtaining an understanding 
of internal control over financial reporting, assessing the risk that 
a material weakness exists, evaluating the design and operating 
effectiveness of internal control over financial reporting based on 
the assessed risk, and testing relevant internal control over 
financial reporting. Our audit of internal control also considered the 
entity’s process for evaluating and reporting on internal control over 
financial reporting based on criteria established under FMFIA. Our 
audits also included performing such other procedures as we considered 
necessary in the circumstances. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly established under FMFIA, such as those controls 
relevant to preparing performance information and ensuring efficient 
operations. We limited our internal control testing to testing 
controls over financial reporting. Our internal control testing was 
for the purpose of expressing an opinion on whether effective internal 
control over financial reporting was maintained, in all material 
respects. Consequently, our audit may not identify all deficiencies in 
internal control over financial reporting that are less severe than a 
material weakness.[Footnote 3] 

Definitions and Inherent Limitations of Internal Control over 
Financial Reporting: 

An entity’s internal control over financial reporting is a process 
effected by those charged with governance, management, and other 
personnel, the objectives of which are to provide reasonable assurance 
that (1) transactions are properly recorded, processed, and summarized 
to permit the preparation of financial statements in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use, or 
disposition, and (2) transactions are executed in accordance with laws 
governing the use of budget authority and with other applicable laws, 
regulations, contracts, and grant agreements that could have a direct 
and material effect on the financial statements. 

Because of its inherent limitations, internal control over financial 
reporting may not prevent, or detect and correct, misstatements due to 
fraud or error. We also caution that projecting any evaluation of 
effectiveness to future periods is subject to the risk that controls 
may become inadequate because of changes in conditions, or that the 
degree of compliance with the policies or procedures may deteriorate. 

Opinion on SEC’s Financial Statements: 

In our opinion, SEC’s financial statements present fairly, in all 
material respects, SEC’s financial position as of September 30, 2013, 
and 2012, and its net cost of operations, changes in net position, 
budgetary resources, and custodial activity for the fiscal years then 
ended in accordance with U.S. generally accepted accounting principles. 

Opinion on IPF’s Financial Statements: 

In our opinion, IPF’s financial statements present fairly, in all 
material respects, IPF’s financial position as of September 30, 2013, 
and 2012, and its net cost of operations, changes in net position, and 
budgetary resources for the fiscal years then ended in accordance with 
U.S. generally accepted accounting principles. 

Opinions on Internal Control over Financial Reporting: 

Although certain internal controls could be improved, SEC maintained, 
in all material respects, effective internal control over financial 
reporting as of September 30, 2013, for SEC and IPF based on criteria 
established under FMFIA.[Footnote 4] Our opinions on SEC’s internal 
control are consistent with SEC’s assertion that its internal controls 
over financial reporting, both for the agency as a whole and for IPF, 
were operating effectively as of September 30, 2013, and that no 
material weaknesses were found in the design or operation of the 
controls.[Footnote 5] 

As discussed in greater detail later in this report, our fiscal year 
2013 audit identified continuing and new deficiencies in SEC’s 
internal control over information security that collectively 
constituted a significant deficiency in SEC’s internal control over 
financial reporting.[Footnote 6] This significant deficiency pertained 
to SEC’s overall financial reporting, but not that of IPF because of 
the nature of IPF’s financial transactions during fiscal year 2013. 

Specifically, SEC was not able to adequately address control 
deficiencies in information security that we reported in fiscal year 
2012.[Footnote 7] In addition, our work in fiscal year 2013 identified 
several new control deficiencies in information security. We 
considered the aggregate of these deficiencies in information security 
to represent a significant deficiency in SEC’s internal control over 
financial reporting. 

However, during fiscal year 2013, SEC made notable progress in 
addressing other internal control deficiencies we reported in fiscal 
year 2012. Specifically, SEC sufficiently addressed the deficiencies 
in its financial reporting for budgetary resources and property and 
equipment such that we no longer consider the remaining control 
deficiencies in these areas, individually or collectively, to 
represent significant deficiencies as of September 30, 2013. 

During our 2013 audit, we also identified deficiencies in SEC’s 
internal control over financial reporting that we do not consider to 
be material weaknesses or significant deficiencies. Nonetheless, these 
deficiencies warrant SEC management’s attention. We have communicated 
these matters to SEC management and, where appropriate, will report on 
them separately to SEC, along with recommendations for corrective 
actions. 

Significant Deficiency over Information Security: 

During our 2013 audit, we found that SEC did not consistently 
implement effective internal control over its information systems 
operations, including implementation of some key elements of its 
information security program across certain financial systems and 
applications that support financial reporting. Specifically, our 
fiscal year 2013 testing identified significant configuration issues 
in a key SEC financial system during transition to SEC’s new data 
center in June 2013. For example, SEC did not always securely 
configure firewalls; implement mandatory security configuration 
settings, such as recording failed log-on attempts or logging events 
to a centralized server; or disable unnecessary services and ports on 
servers, in accordance with SEC policy. Although SEC took prompt 
action to reduce the risk associated with the improper configurations 
we identified, the internal control deficiencies indicate that SEC’s 
monitoring process was not always effective in identifying and 
correcting internal control issues in a timely manner. For example, 
SEC did not effectively implement a continuous monitoring process over 
a key SEC financial system, such as enabling and configuring systems 
logging service and auditing functionalities in accordance with SEC 
security baseline requirements, or scanning database instances on a 
timely basis in order to readily detect and correct instances in which 
SEC policy was not being effectively implemented. 

The deficiencies we found also indicate that SEC did not consistently 
implement effective risk assessment and project oversight related to a 
key SEC financial system. Specifically, SEC (1) did not consistently 
implement an effective risk management process, (2) did not always 
provide adequate contractor oversight for its information technology 
(IT) project contractors, and (3) did not always apply adequate 
project management discipline over its IT projects. For example, SEC 
did not appropriately evaluate and document security risks related to 
the transition to its new data center. SEC also did not appropriately 
identify roles, resources, and responsibilities for IT contractor 
oversight, including assessing contractor performance in completing 
project deliverables related to the data center transition. Further, 
SEC did not complete several critical path project tasks identified in 
its project plan prior to implementation dates for the data center 
transition, or take remedial actions to address the missed critical 
path project tasks. 

During our 2013 audit, we also identified continuing deficiencies in 
SEC’s information security related to (1) inadequate access control 
over financial systems operated by SEC related to user identification 
and authentication, authorization, and audit and monitoring and (2) 
inconsistent deployment of patches, which could jeopardize the data 
integrity and confidentiality of SEC’s financial information. These 
deficiencies decreased assurance regarding the reliability of the data 
processed by key financial systems and increased the risk that 
unauthorized individuals could gain access to critical hardware or 
software and intentionally or inadvertently access, alter, or delete 
sensitive data or computer programs. Consequently, the combination of 
the continuing and new information security deficiencies existing as 
of September 30, 2013, considered collectively, represent a 
significant deficiency in SEC’s internal control over information 
security. 

Until SEC consistently implements effective internal control over its 
information systems operations-—including implementation of all key 
elements of its information security program systematically across all 
of its financial systems and its general support system, which support 
financial reporting—-increased risk exists that the information that 
is processed, stored, and transmitted on its systems remains 
vulnerable to unauthorized use, and management will not have 
sufficient assurance that financial information is adequately 
safeguarded from inadvertent or deliberate misuse, fraudulent use, 
improper disclosure, or destruction. 

Other Matters: 

Required Supplementary Information: 

U.S. generally accepted accounting principles issued by the Federal 
Accounting Standards Advisory Board (FASAB) require that RSI be 
presented to supplement the financial statements.[Footnote 8] 

Although not a part of the financial statements, FASAB considers this 
information to be an essential part of financial reporting for placing 
the financial statements in appropriate operational, economic, or 
historical context. We have applied certain limited procedures to the 
RSI in accordance with U.S. generally accepted government auditing 
standards, which consisted of inquiries of management about the 
methods of preparing the RSI and comparing the information for 
consistency with management’s responses to the auditor’s inquiries, 
the financial statements, and other knowledge we obtained during the 
audit of the financial statements, in order to report omissions or 
material departures from FASAB guidelines, if any, identified by these 
limited procedures. We did not audit and we do not express an opinion 
or provide any assurance on the RSI because the limited procedures we 
applied do not provide sufficient evidence to express an opinion or 
provide any assurance. 

Other Information: 

SEC’s other information contains a wide range of information, some of 
which is not directly related to the financial statements.9 This 
information is presented for purposes of additional analysis and is 
not a required part of the financial statements or RSI. We read the 
other information included with the financial statements in order to 
identify material inconsistencies, if any, with the audited financial 
statements. Our audit was conducted for the purpose of forming an 
opinion on SEC’s and IPF’s financial statements. We did not audit and 
do not express an opinion or provide any assurance on the other 
information. 

Report on Compliance with Laws, Regulations, Contracts, and Grant 
Agreements: 

In connection with our audits of SEC’s and IPF’s financial statements, 
we tested compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements consistent with our 
auditor’s responsibility discussed below. We caution that 
noncompliance may occur and not be detected by these tests. We 
performed our tests of compliance in accordance with U.S. generally 
accepted government auditing standards. 

Management’s Responsibility: 

SEC management is responsible for complying with laws, regulations, 
contracts, and grant agreements applicable to SEC and IPF. 

Auditor’s Responsibility: 

Our responsibility is to test compliance with selected provisions of 
laws, regulations, contracts, and grant agreements applicable to SEC 
and IPF that have a direct effect on the determination of material 
amounts and disclosures in the SEC and IPF financial statements, and 
perform certain other limited procedures. Accordingly, we did not test 
compliance with all laws, regulations, contracts, and grant agreements 
applicable to SEC and IPF. 

Results of Our Tests for Compliance with Laws, Regulations, Contracts, 
and Grant Agreements: 

Our tests for compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements disclosed no instances of 
noncompliance for fiscal year 2013 that would be reportable under U.S. 
generally accepted government auditing standards. However, the 
objective of our tests was not to provide an opinion on compliance 
with laws, regulations, contracts, and grant agreements applicable to 
SEC and IPF. Accordingly, we do not express such an opinion. 

Intended Purpose of Report on Compliance with Laws, Regulations, 
Contracts, and Grant Agreements: 

The purpose of this report is solely to describe the scope of our 
testing of compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements, and the results of that 
testing, and not to provide an opinion on compliance. This report is 
an integral part of an audit performed in accordance with U.S. 
generally accepted government auditing standards in considering 
compliance. Accordingly, this report on compliance with laws, 
regulations, contracts, and grant agreements is not suitable for any 
other purpose. 

Agency Comments: 

In commenting on a draft of this report, SEC’s Chair expressed her 
pleasure that GAO found that SEC had successfully remediated the two 
significant deficiencies identified in 2012, and attributed this 
accomplishment to the hard work and dedication of staff in SEC’s 
Office of Financial Management, Office of Acquisitions, and Office of 
Information Technology. The Chair stated that SEC will continue to 
optimize its internal controls and further improve the systems that 
support financial processes and controls, jointly with its shared 
service provider. The Chair added that SEC will focus on the 
significant deficiency we reported in the area of information 
security, specifically by taking corrective actions to consistently 
implement and evidence effective internal controls related to risk 
management and project oversight in its information systems 
operations. The complete text of SEC’s comments is reprinted in 
enclosure I. 

Signed by: 

James R. Dalkin: 
Director: 
Financial Management and Assurance: 
December 13, 2013: 

Footnotes: 

[1] Section 21F(g)(5) of the Securities Exchange Act of 1934, 15 
U.S.C. § 78u-6(g)(5). 

[2] Pub. L. No. 111-203, § 963(a), (b)(2), 124 Stat. 1376, 1910 
(2010), codified at 15 U.S.C. § 78d-8(a), (b)(2). 

[3] A material weakness is a deficiency, or combination of 
deficiencies, in internal control over financial reporting, such that 
there is a reasonable possibility that a material misstatement of the 
entity’s financial statements will not be prevented, or detected and 
corrected, on a timely basis. A deficiency in internal control exists 
when the design or operation of a control does not allow management or 
employees, in the normal course of performing their assigned 
functions, to prevent, or detect and correct, misstatements on a 
timely basis. 

[4] 31 U.S.C. § 3512(c), (d). 

[5] The Dodd-Frank Act requires that (1) SEC submit annual reports to 
Congress describing management’s responsibility for internal control 
over financial reporting and assessing the effectiveness of such 
internal control during the fiscal year, (2) the SEC Chairman and 
Chief Financial Officer attest to SEC’s reports, and (3) GAO attest to 
and report on the assessment made by SEC. Pub. L. No. 111-203, § 963, 
124 Stat. 1376, 1910 (2010), codified at 15 U.S.C. § 78d-8. SEC 
conducted an evaluation of its internal control over financial 
reporting in accordance with the Office of Management and Budget’s 
Circular No. A-123, Management’s Responsibility for Internal Control, 
based on criteria established under FMFIA. 

[6] A significant deficiency is a deficiency, or a combination of 
deficiencies, in internal control that is less severe than a material 
weakness, yet important enough to merit attention by those charged 
with governance. 

[7] GAO, Management Report: Improvements Needed in SEC’s Internal 
Controls and Accounting Procedures, [hyperlink, 
http://www.gao.gov/products/GAO-13-274R] (Washington, D.C.: Apr. 4, 
2013). 

[8] RSI is comprised of “Management’s Discussion and Analysis” and the 
“Combined Statement of Budgetary Resources” that are included with the 
financial statements. 

[9] Other information is comprised of other accompanying information, 
which presents the “Schedule of Spending” and other information 
included with the financial statements, other than RSI and the 
auditor’s report. 

[End of section] 

Enclosure I: Management’s Response to Audit Opinion: 

United States Securities and Exchange Commission: 
The Chair: 
Washington, DC 20549: 

December 11, 2013: 

Mr. James R. Dalkin: 
Director: 
Financial Management and Assurance: 
United States Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Dalkin: 

Thank you for the opportunity to review and comment on the audit 
report of the Government Accountability Office (GAO). I am pleased 
that the GAO’s FY 2013 audit found that the SEC’s financial statements 
and notes were presented fairly in all material respects and in 
accordance with U.S. generally accepted accounting principles. 

I am also pleased the GAO found that the SEC maintained, in all 
material respects, effective internal controls over financial 
reporting and, in addition, that we have successfully remediated the 
two significant deficiencies identified in 2012. This accomplishment 
was the result of the hard work and dedication of staff in the SEC’s 
Office of Financial Management, Office of Acquisitions, and Office of 
Information Technology. In 2013, the SEC also successfully completed 
its first full year of operations under a Federal Shared Service 
Provider (FSSP) model together with the Department of Transportation’s 
Enterprise Service Center (ESC), which hosts our financial system and 
records many of our financial transactions. 

In 2014, the SEC will continue to optimize our internal controls and 
further improve the systems that support financial processes and 
controls, jointly with the Enterprise Service Center. We also will 
focus on the newly identified significant deficiency in the area of 
information security. Specifically, we have initiated corrective 
actions to consistently implement and evidence effective internal 
controls related to risk management and project oversight in our 
information systems operations. 

I very much appreciate the professional manner in which you and your 
team conducted the audit for FY 2013. I look forward to continuing our 
productive dialogue in the coming months on the SEC’s efforts to 
address the areas noted in your report. If you have any questions, 
please feel free to contact me. 

Sincerely, 

Signed by: 

Mary Jo White: 
Chair: 

[End of section] 

SEC Financial Statements: 

Financial Statements: 
Notes to the Financial Statements: 
Required Supplementary Information (Unaudited): 

Financial Statements: 

The accompanying notes are an integral part of these financial 
statements. 

U.S. Securities And Exchange Commission: 
Balance Sheets: 
As of September 30, 2013 and 2012: 
(Dollars In Thousands) 

Assets (Note 2): 

Intragovernmental: 

Fund Balance with Treasury (Note 3); 
FY 2013: $8,154,737; 
FY 2012: $7,443,432. 

Investments, Net (Note 5); 
FY 2013: $1,282,642; 
FY 2012: $973,916. 

Advances and Prepayments; 
FY 2013: $1,623; 
FY 2012: $7,824. 

Total Intragovernmental; 
FY 2013: $9,439,002; 
FY 2012: $8,425,172. 

Cash and Other Monetary Assets (Note 4); 
FY 2013: $389; 
FY 2012: $1,066. 

Accounts Receivable, Net (Note 6); 
FY 2013: $387,027; 
FY 2012: $236,691. 

Property and Equipment, Net (Note 7); 
FY 2013: $126,871; 
FY 2012: $97,570. 

Advances and Prepayments; 
FY 2013: 0; 
FY 2012: $235. 

Total Assets; 
FY 2013: $9,953,289; 
FY 2012: $8,760,734. 

Liabilities (Note 8): 

Intragovernmental: 

Accounts Payable; 
FY 2013: $5,675; 
FY 2012: $8,829. 

Employee Benefits; 
FY 2013: $3,086
FY 2012: $5,184. 

Unfunded FECA and Unemployment Liability; 
FY 2013: $1,308; 
FY 2012: $1,441. 

Custodial Liability;
FY 2013: $68,831; 
FY 2012: $62,497. 

Liability for Non-Entity Assets; 
FY 2013: $3,069; 
FY 2012: $2,457. 

Total Intragovernmental; 
FY 2013: $81,969; 
FY 2012: $80,408. 

Accounts Payable; 
FY 2013: $38,313; 
FY 2012: $39,474. 

Actuarial FECA Liability; 
FY 2013: $7,155; 
FY 2012: $8,050. 

Accrued Payroll and Benefits; 
FY 2013: $15,405; 
FY 2012: $13,765. 

Accrued Leave; 
FY 2013: $51,706; 
FY 2012: $48,531. 

Registrant Deposits; 
FY 2013: $32,857; 
FY 2012: $33,689. 

Liability for Disgorgement and Penalties (Note 16); 
FY 2013: $2,065,202; 
FY 2012: $932,763. 

Other Accrued Liabilities (Note 8); 
FY 2013: $5,509; 
FY 2012: $5,765. 

Total Liabilities; 
FY 2013: $2,298,116; 
FY 2012: $1,162,445. 

Commitments and Contingencies (Note 10): 

Net Position: 

Unexpended Appropriations – Other Funds; 
FY 2013: $764; 
$FY 2012: $764. 

Cumulative Results of Operations – Earmarked Funds (Note 11); 
FY 2013: $7,653,217; 
FY 2012: $7,596,330. 

Cumulative Results of Operations – Other Funds; 
FY 2013: $1,192; 
FY 2012: $1,195. 

Total Net Position; 
FY 2013: $7,653,217; 
FY 2012: $7,598,289. 

Total Liabilities and Net Position; 
FY 2013: $9,953,289; 
FY 2012: $8,760,734. 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Net Cost: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

Program Costs (Note 12): 

Enforcement; 
FY 2013: $451,072; 
FY 2012: $400,574. 

Compliance Inspections and Examinations; 
FY 2013: $265,348; 
FY 2012: $235,737. 

Corporation Finance; 
FY 2013: $141,777; 
FY 2012: $137,441. 

Trading and Markets; 
FY 2013: $76,213; 
FY 2012: $67,936. 

Investment Management; 
FY 2013: $50,366; 
FY 2012: $48,238. 

Risk, Strategy and Financial Innovation; 
FY 2013: $29,504; 
FY 2012: $20,296. 

General Counsel; 
FY 2013: $41,417; 
FY 2012: $40,951. 

Other Program Offices; 
FY 2013: $51,768; 
FY 2012: $48,791. 

Agency Direction and Administrative Support; 
FY 2013: $216,077; 
FY 2012: $190,314. 

Inspector General; 
FY 2013: $7,032; 
FY 2012: $7,238. 

Total Program Costs; 
FY 2013: $1,330,574; 
FY 2012: $1,197,516. 

Less: Earned Revenue Not Attributed to Programs (Note 12); 
FY 2013: $1,764,267; 
FY 2012: $1,647,859. 

Net (Income) Cost from Operations (Note 15); 
FY 2013: ($433,693); 
FY 2012: ($450,343). 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Net Cost: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

FY 2013: 

Cumulative Results Of Operations: 

Beginning Balances;
Funds from Dedicated Collections: $7,596,330;
All Other Funds: $1,195;
Consolidated Total: $7,597,525. 

Budgetary Financing Sources: 

Appropriations Used;
Funds from Dedicated Collections: $47,546;
All Other Funds: 0;
Consolidated Total: $47,546. 

Non-Exchange Revenue;
Funds from Dedicated Collections: $655;
All Other Funds: 0; 
Consolidated Total: $655. 

Other Financing Sources: 

Transfers In/Out Without Reimbursement;
Funds from Dedicated Collections: 0;
All Other Funds: 0;
Consolidated Total: 0. 

Imputed Financing (Note 13);
Funds from Dedicated Collections: $32,958;
All Other Funds: 0; 
Consolidated Total: $32,958. 

Other (Note 17); 
Funds from Dedicated Collections: ($10); 
All Other Funds: ($457,964);
Consolidated Total: ($457,964). 

Total Financing Sources;
Funds from Dedicated Collections: $81,155;
All Other Funds: ($457,964);
Consolidated Total: ($376,809). 

Net Income (Cost) from Operations;
Funds from Dedicated Collections: ($24,268);
All Other Funds: $457,961;
Consolidated Total: $433,693. 

Net Change;
Funds from Dedicated Collections: $56,887;
All Other Funds: ($3);
Consolidated Total: $56,884. 

Cumulative Results of Operations (Note 11);
Funds from Dedicated Collections: $7,653,217;
All Other Funds: $1,192;
Consolidated Total: $7,654,409. 

Unexpended Appropriations: 

Beginning Balances;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Budgetary Financing Sources: 

Appropriations Received;
Funds from Dedicated Collections: $47,641; 
All Other Funds: 0; 
Consolidated Total: $47,641. 

Other Adjustments;
Funds from Dedicated Collections: ($95); 
All Other Funds: 0; 
Consolidated Total: ($95). 

Appropriations Used;
Funds from Dedicated Collections: ($47,546);
All Other Funds: 0; 
Consolidated Total: ($47,546). 

Total Budgetary Financing Sources;
Funds from Dedicated Collections: 0; 
All Other Funds: 0; 
Consolidated Total: 0. 

Total Unexpended Appropriations;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Net Position, End of Period;
Funds from Dedicated Collections: $7,653,217;
All Other Funds: $1,956;
Consolidated Total: $7,655,173. 

FY 2012: 

Cumulative Results Of Operations: 

Beginning Balances;
Funds from Dedicated Collections: $7,409,186;
All Other Funds: $1,202;
Consolidated Total: $7,410,388. 

Budgetary Financing Sources: 

Appropriations Used;
Funds from Dedicated Collections: $32,601;
All Other Funds: ($29);
Consolidated Total: $32,572. 

Non-Exchange Revenue;
Funds from Dedicated Collections: $757;
All Other Funds: 0; 
Consolidated Total: $757. 

Other;
Funds from Dedicated Collections: 0;
All Other Funds: 0; 
Consolidated Total: 0. 

Other Financing Sources: 

Transfers In/Out Without Reimbursement;
Funds from Dedicated Collections: $(784);
All Other Funds: $784;
Consolidated Total: $0. 

Imputed Financing (Note 13);
Funds from Dedicated Collections: $30,588;
All Other Funds: 0; 
Consolidated Total: $30,588. 

Other (Note 17);
Funds from Dedicated Collections: 0; 
All Other Funds: ($327,123);
Consolidated Total: ($327,123). 

Total Financing Sources;
Funds from Dedicated Collections: $63,162;
All Other Funds: ($326,368);
Consolidated Total: ($263,206). 

Net Income (Cost) from Operations;
Funds from Dedicated Collections: $123,982;
All Other Funds: $326,361;
Consolidated Total: $450,343. 

Net Change;
Funds from Dedicated Collections: $187,144;
All Other Funds: ($7);
Consolidated Total: $187,137. 

Cumulative Results of Operations (Note 11);
Funds from Dedicated Collections: $7,596,330;
All Other Funds: $1,195;
Consolidated Total: $7,597,525. 

Unexpended Appropriations: 

Beginning Balances;
Funds from Dedicated Collections: 0; 
All Other Funds: $735;
Consolidated Total: $735. 

Budgetary Financing Sources: 

Appropriations Received;
Funds from Dedicated Collections: $32,601; 
All Other Funds: 0; 
Consolidated Total: $32,601. 

Other Adjustments; 
Funds from Dedicated Collections: 0;
All Other Funds: 0; 
Consolidated Total: 0. 

Appropriations Used;
Funds from Dedicated Collections: ($32,601);
All Other Funds: $29; 
Consolidated Total: ($32,572). 

Total Budgetary Financing Sources;
Funds from Dedicated Collections: 0; 
All Other Funds: $29; 
Consolidated Total: $29 

Total Unexpended Appropriations;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Net Position, End of Period;
Funds from Dedicated Collections: $7,596,330;
All Other Funds: $1,959;
Consolidated Total: $7,598,289. 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Budgetary Resources: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
FY 2013: $43,672; 
FY 2012: ($279,929). 

Recoveries of Prior Year Unpaid Obligations; 
FY 2013: $30,777; 
FY 2012: $26,688. 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
FY 2013: $2,009; 
FY 2012: $141,933. 

Unobligated Balance from Prior Year Budget Authority, Net; 
FY 2013: $76,458; 
FY 2012: ($111,308). 

Appropriations (Discretionary and Mandatory); 
FY 2013: $117,811; 
FY 2012: $58,226;. 

Spending Authority from Offsetting Collections (Discretionary and 
Mandatory); 
FY 2013: $11,208,208; 
FY 2012: $1,289,139. 

Total Budgetary Resources; 
FY 2013: $1,402,477; 
FY 2012: $1,236,057. 

Status Of Budgetary Resources: 

Obligations Incurred (Note 14); 
FY 2013: $1,257,711; 
FY 2012: $1,192,385. 

Unobligated Balance, End of Year: 

Apportioned; 
FY 2013: $518,816; 
FY 2012: $522,993. 

Exempt from Apportionment; 
FY 2013: $43,749; 
FY 2012: $12,642. 

Unapportioned; 
FY 2013: ($47,799); 
FY 2012: ($491,963). 

Total Unobligated Balance, End of Year; 
FY 2013: $144,766; 
FY 2012: $43,672. 

Total Budgetary Resources; 
FY 2013: $1,402,477; 
FY 2012: $1,236,057. 

Change In Obligated Balance: 

Unpaid Obligations, Brought Forward, October 1 (Gross); 
FY 2013: $954,598; 
FY 2012: $1,110,634. 

Obligations Incurred; 
FY 2013: $1,257,711; 
FY 2012: $1,192,385. 

Outlays (Gross); 
FY 2013: ($1,324,876); 
FY 2012: ($1,179,800). 

Recoveries of Prior Year Unpaid Obligations; 
FY 2013: ($40,777); 
FY 2012: ($26,688). 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
FY 2013: ($2,099); 
FY 2012: ($141,933). 

Unpaid Obligations, End of Year: 
FY 2013: $854,647; 
FY 2012: $954,598. 

Uncollected Payments: 

Uncollected Customer Payments from Federal Sources, Brought Forward, 
October 1; 
FY 2013: ($189); 
FY 2012: ($47). 

Change in Uncollected Customer Payments from Federal Sources; 
FY 2013: ($63); 
FY 2012: ($142). 

Uncollected Customer Payments from Federal Sources, End of Year; 
FY 2013: ($252); 
FY 2012: ($189). 

Obligated Balance, End of Year; 
FY 2013: $854,395; 
FY 2012: $954,409. 

Obligated Balance, Start of Year: 
FY 2013: $954,409; 
FY 2012: $1,110,587. 

Obligated Balance, End of Year; 
FY 2013: $854,395; 
FY 2012: $954,409. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
FY 2013: $1,326,019; 
FY 2012: $1,347,365. 

Actual Offsetting Collections (Discretionary and Mandatory); 
FY 2013: ($1,274,195); 
FY 2012: ($1,288,998). 

Change in Uncollected Customer Payments from Federal Sources 
(Discretionary and Mandatory); 
FY 2013: ($63); 
FY 2012: ($142). 

Budget Authority, Net (Discretionary and Mandatory); 
FY 2013: $51,761; 
FY 2012: $58,225. 

Outlays, Gross (Discretionary and Mandatory); 
FY 2013: $1,324,876; 
FY 2012: $1,179,800. 

Actual Offsetting Collections (Discretionary and Mandatory); 
FY 2013: ($1,274,195); 
FY 2012: ($1,288,998). 

Outlays, Net (Discretionary and Mandatory); 
FY 2013: $50,681; 
FY 2012: ($109,198). 

Distributed Offsetting Receipts; 
FY 2013: ($3,150); 
FY 2012: ($1,123). 

Agency Outlays, Net (Discretionary and Mandatory); 
FY 2013: $47,531; 
FY 2012: ($110,321). 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Custodial Activity: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

Revenue Activity: 

Sources of Cash Collections: 

Disgorgement and Penalties; 
FY 2013: $518,592; 
FY 2012: $377,645. 

Other;
FY 2013: $1,355; 
FY 2012: $1,059. 

Total Cash Collections;
FY 2013: $519,947; 
FY 2012: $378,704. 

Accrual Adjustments;
FY 2013: $6,344; 
FY 2012: $10,633. 

Total Custodial Revenue;
FY 2013: $526,281; 
FY 2012: $389,337. 

Disposition Of Collections: 

Amounts Transferred to: 

Department of the Treasury;
FY 2013: $519,947; 
FY 2012: $378,704. 

Amounts Yet to be Transferred;
FY 2013: $6,344; 
FY 2012: $10,633. 

Total Disposition of Collections;
FY 2013: $526,281; 
FY 2012: $389,337. 

Net Custodial Activity: 
FY 2013: 0; 
FY 2012: 0. 

[End of table] 

Notes to the Financial Statements: 
U.S. Securities And Exchange Commission: 
As of September 30, 2013 and 2012: 

Note 1. Significant Accounting Policies: 

A. Reporting Entity: 

The U.S. Securities and Exchange Commission (SEC) is an independent 
agency of the U.S. Government established pursuant to the Securities 
Exchange Act of 1934 (Exchange Act), charged with regulating this 
country’s capital markets. The SEC’s mission is to protect investors; 
maintain fair, orderly, and efficient markets; and facilitate capital 
formation. The SEC works with Congress, other executive branch 
agencies, Self Regulatory Organizations (SROs) (e.g., stock exchanges 
and the Financial Industry Regulatory Authority (FINRA)), accounting 
and auditing standards setters, state securities regulators, law 
enforcement officials, and many other organizations in support of the 
agency’s mission. 

The agency’s programs protect investors and promote the public 
interest by fostering and enforcing compliance with the Federal 
securities laws; establishing an effective regulatory environment; 
facilitating access to the information investors need to make informed 
investment decisions; and enhancing the SEC’s performance through 
effective alignment and management of human, information, and 
financial capital. 

The SEC consists of five presidentially-appointed Commissioners, with 
staggered five-year terms. The SEC is organized into five divisions 
and multiple offices. The five divisions are the Division of 
Enforcement, the Division of Corporation Finance, the Division of 
Trading and Markets, the Division of Investment Management, and the 
Division of Economic and Risk Analysis. The offices include the Office 
of Compliance Inspections and Examinations, Office of General Counsel, 
Office of Investor Education and Advocacy, Office of the Chief 
Accountant, Office of International Affairs, Office of Administrative 
Law Judges, Office of Credit Ratings, Office of the Investor Advocate, 
Office of Municipal Securities, Office of Inspector General, eleven 
regional offices, and various supporting services. 

The SEC reporting entity includes the Investor Protection Fund (See 
Note 1.T, Investor Protection Fund). In addition to being included in 
the SEC’s financial statements, the Investor Protection Fund’s 
financial activities and balances are also presented separately as 
stand-alone financial statements, as required by Exchange Act Section 
21F(g)5. 

As discussed in Note 10.A, Commitments: Securities Investor Protection 
Act, the SEC reporting entity does not include the Securities Investor 
Protection Corporation (SIPC). 

As discussed in Note 1.S, Disgorgement and Penalties, disgorgement 
funds collected and held by the SEC on behalf of harmed investors are 
part of the SEC reporting entity. However, disgorgement funds held by 
the U.S. Courts and by non-Federal receivers on behalf of harmed 
investors are not part of the SEC reporting entity. 

B. Basis of Presentation and Accounting: 

(1) Basis of Presentation and Accounting: 

The accompanying financial statements present the financial position, 
net cost of operations, changes in net position, budgetary resources, 
and custodial activities of the SEC as required by the Accountability 
of Tax Dollars Act of 2002. The statements may differ from other 
financial reports submitted pursuant to Office of Management and 
Budget (OMB) directives for the purpose of monitoring and controlling 
the use of the SEC budgetary resources, due to differences in 
accounting and reporting principles discussed in the following 
paragraphs. The SEC’s books and records serve as the source of the 
information presented in the accompanying financial statements. 

The agency classifies assets, liabilities, revenues, and costs in 
these financial statements according to the type of entity associated 
with the transactions. Intragovernmental assets and liabilities are 
those due from or to other Federal entities. Intragovernmental 
revenues are earned from other Federal entities. Intragovernmental 
costs are payments or accruals due to other Federal entities. 

The SEC’s financial statements are prepared in conformity with 
generally accepted accounting principles (GAAP) for Federal reporting 
entities and presented in conformity with OMB Circular A-136, 
Financial Reporting Requirements. The Balance Sheet, Statement of Net 
Cost, and Statement of Changes in Net Position are prepared using the 
accrual basis of accounting. Accordingly, revenues are recognized when 
earned and expenses are recognized when incurred without regard to the 
receipt or payment of cash. These principles differ from budgetary 
accounting and reporting principles on which the Statement of 
Budgetary Resources is prepared. The differences relate primarily to 
the capitalization and depreciation of property and equipment, as well 
as the recognition of other assets and liabilities. The Statement of 
Custodial Activity is presented on the modified cash basis of 
accounting. Cash collections and amounts transferred to Treasury or 
the Investor Protection Fund are reported on a cash basis. The change 
in receivables and related payables are reported on an accrual basis. 

The SEC presents net cost of operations by program. OMB Circular A-136 
defines the term “major program” as describing an agency’s mission, 
strategic goals, functions, activities, services, projects, processes, 
or any other meaningful grouping. The presentation by program is 
consistent with the presentation used by the agency in submitting its 
budget requests. 

Certain prior year amounts presented on the Statement of Budgetary 
Resources and Required Supplementary Information have been 
reclassified to conform to the current year presentation required by 
OMB Circular A-136. 

(2) Changes in Presentation: 

* Statement of Federal Financial Accounting Standards (SFFAS) 43, 
Funds from Dedicated Collections: Amending Statement of Federal 
Financial Accounting Standards 27, Identifying and Reporting Earmarked 
Funds, was issued in June 2012 and became effective in FY 2013. As 
discussed below, the SEC collects transaction fees from SROs and 
securities registration, tender offer, merger, and other fees from 
registrants. Except for securities registration, tender offer, merger, 
and other fees from registrants in excess of $50 million, that the SEC 
deposits into the Treasury General Fund and transfers to Treasury at 
the end of the fiscal year, all of the SEC’s collections meet the 
definition of dedicated collections discussed in SFFAS No. 43. The 
impact of this statement for the most part is a change in terminology 
from “earmarked funds” to “funds from dedicated collections,” which is 
reflected in the FY 2013 financial statements and applicable notes. 

* OMB Circular A-136 requires the disclosure of future lease payments 
for non-cancelable operating leases with terms of more than one year. 
The SEC’s Note 9 discloses future lease payments for all non-
cancelable leases with terms of more than one year, as well as the non-
cancelable portion of cancelable commercial operating leases. Note 9 
does not report comparative amounts from the prior fiscal year. In FY 
2012, this note reported amounts for cancelable as well as non-
cancelable lease periods. The SEC believes that the FY 2013 Note 9 
conforms more precisely with the OMB reporting requirements in 
Circular A-136. 

C. Use of Estimates: 

The preparation of financial statements in conformity with GAAP 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities. These estimates and 
assumptions include, but are not limited to, the disclosure of 
contingent liabilities at the date of the financial statements and the 
reported amounts of revenue and expenses during the reporting period. 
Actual results may differ from these estimates. Estimates are also 
used when computing the allowance for uncollectible accounts and in 
the allocation of costs to the SEC programs presented in the Statement 
of Net Cost. 

D. Intra- and Inter-Agency Relationships: 

The SEC is comprised of a single Federal agency with limited intra-
entity transactions. The Investor Protection Fund can finance the 
operations of the SEC Office of Inspector General’s Employee 
Suggestion Program and the Office of the Whistleblower on a 
reimbursable basis. This has given rise to a small amount of intra-
entity eliminations of the related revenue and expense transactions 
between the Investor Protection Fund and the SEC’s General Salaries 
and Expenses Fund. 

E. Fund Accounting Structure: 

The SEC, in common with other Federal agencies, utilizes various 
Treasury Appropriation Fund Symbols (Funds), to recognize and track 
appropriation authority provided by Congress, collections from the 
public and other financial activity. These funds are described below: 

(1) Funds from Dedicated Collections: 

* Salaries and Expenses: Earned revenues from securities transaction 
fees from SROs are deposited into Fund X0100, Salaries and Expenses, 
Securities and Exchange Commission. These collections are dedicated to 
carrying out the SEC’s mission, functions, and day to day operations 
and may be used in accordance with spending limits established by 
Congress. Collections in excess of Congressional spending limits are 
unavailable by law and reported as Non-Budgetary Fund Balance with 
Treasury (See Note 3, Fund Balance with Treasury). 

* Investor Protection Fund: The Investor Protection Fund is a fund for 
dedicated collections that provides funding for the payment of 
whistleblower awards as required by the Dodd-Frank Act. The Investor 
Protection Fund is financed by a portion of monetary sanctions 
collected by the SEC in judicial or administrative actions brought by 
the SEC. Persons may receive award payments from the Fund if they 
provide original information to the SEC that results in a successful 
enforcement action and other conditions are met. In addition, the Fund 
can be used to finance the operations of the Office of the 
Whistleblower and the SEC Office of Inspector General’s Employee 
Suggestion Program for the receipt of suggestions for improvements in 
work efficiency and effectiveness, and allegations of misconduct or 
mismanagement within the SEC. This activity is recognized in Fund 
X5567, Monetary Sanctions and Interest, Investor Protection Fund, 
Securities and Exchange Commission (Investor Protection Fund). See 
Note 1.T, Investor Protection Fund. 

* Reserve Fund: A portion of SEC registration fee collections up to 
$50 million in any one fiscal year may be deposited in the Reserve 
Fund, the balance of which cannot exceed $100 million. The Reserve 
Fund is a fund for dedicated collections that may be used by the SEC 
to obligate up to $100 million in one fiscal year as the SEC 
determines necessary to carry out its functions. Although amounts 
deposited in the Reserve Fund are not subject to apportionment, the 
SEC must notify Congress when funds are obligated. The $100 million 
cap may be limited by the balance in the fund and Congressional 
action. Pursuant to the SEC’s FY 2012 Appropriations Act, $25 million 
was temporarily rescinded, leaving $25 million available during FY 
2012. The FY 2012 temporary rescission ended on September 30, 2012, 
leaving that $25 million available starting in FY 2013. The allowable 
$50 million for FY 2013 was collected in the first quarter of FY 2013. 
This activity is recognized in Fund X5566, Securities and Exchange 
Commission Reserve Fund. 

(2) Miscellaneous Receipt Accounts: 

* The Miscellaneous Receipt Accounts hold non-entity receipts and 
accounts receivable from custodial activities that the SEC cannot 
deposit into funds under its control. These accounts include 
registration fee collections in excess of amounts deposited into the 
Reserve Fund, receipts pursuant to certain SEC enforcement actions and 
other small collections that will be sent to the U.S. Treasury General 
Fund upon collection. This activity is recognized in Fund 0850.150, 
Registration, Filing, and Transaction Fees, Securities and Exchange 
Commission; Fund 1060, Forfeitures of Unclaimed Money and Property; 
Fund 1099, Fines, Penalties, and Forfeitures, Not Otherwise 
Classified; Fund 1435, General Fund Proprietary Interest, Not 
Otherwise Classified; and Fund 3220, General Fund Proprietary 
Receipts, Not Otherwise Classified. Miscellaneous Receipt Accounts are 
reported as “All Other Funds” on the Statement of Changes in Net 
Position. 

(3) Deposit Funds: 

* The Deposit Funds hold disgorgement, penalties, and interest 
collected and held on behalf of harmed investors, registrant monies 
held temporarily until earned by the SEC, and collections awaiting 
disposition or reclassification. This activity is recognized in Fund 
X6561, Unearned Fees, Securities and Exchange Commission and Fund 
X6563, Disgorgement and Penalty Amounts Held for Investors, Securities 
and Exchange Commission. Deposit Funds do not impact the SEC’s Net 
Position and are not reported on the Statement of Changes in Net 
Position. 

The SEC’s lending and borrowing authority is limited to authority to 
borrow funds from Treasury and loan funds to the Securities and 
Investor Protection Corporation, as discussed in Note 10, Commitments 
and Contingencies. The SEC has custodial responsibilities, as 
disclosed in Note 1.M, Liabilities. 

F. Funds from Dedicated Collections: 

A fund from dedicated collections is financed by specifically 
identified revenues, often supplemented by other financing sources, 
which remain available over time. The SEC collects specifically 
identified revenues and is required to use those revenues for 
designated activities, benefits or purposes and to account for them 
separately from the Government’s general revenues. As described in 
Note 1.E, Fund Accounting Structure, the SEC’s funds from dedicated 
collections are deposited into Fund X0100, Salaries and Expenses; Fund 
X5567, Investor Protection Fund; and Fund X5566, Reserve Fund. 

G. Entity and Non-Entity Assets: 

Entity assets are assets that the SEC may use in its operations. 

Non-entity assets are assets that the SEC holds on behalf of another 
Federal agency or a third party and are not available for the SEC’s 
use. The SEC’s non-entity assets include the following: (a) 
disgorgement, penalties, and interest collected and held or invested 
by the SEC; (b) disgorgement, penalties, and interest receivable that 
will be collected by the SEC; (c) securities registration, tender 
offer, merger, and other fees collected and receivable from 
registrants, in excess of amounts deposited in the SEC’s Reserve Fund; 
and (d) other miscellaneous receivables and collections. 

H. Fund Balance with Treasury: 

Fund Balance with Treasury (FBWT) reflects amounts the SEC holds in 
the U.S. Treasury that have not been invested in Federal securities. 
The components of the SEC’s FBWT are in the various funds described in 
Note 1.E, Fund Accounting Structure. 

The SEC conducts all of its banking activity in accordance with 
directives issued by the U.S. Department of the Treasury’s Bureau of 
the Fiscal Service. 

I. Investments: 

The SEC has the authority to invest disgorgement funds in Treasury 
securities including civil penalties collected under the “Fair Fund” 
provision of the Sarbanes-Oxley Act of 2002. As the funds are 
collected, the SEC holds them in a deposit fund account and may invest 
them in overnight and short-term market-based Treasury securities 
through the Bureau of the Fiscal Service. The interest earned is 
subject to taxation under Treasury Regulation Section 1.468B-2, 
Taxation of Qualified Settlement Funds and Related Administrative 
Requirements. 

The SEC also has authority to invest amounts in the Investor 
Protection Fund in overnight and short-term market-based Treasury 
securities through the Bureau of the Fiscal Service. The interest 
earned on the investments is a component of the balance of the Fund 
and available to be used for expenses of the Investor Protection Fund. 

Additional information regarding the SEC’s investments is provided in 
Note 5, Investments. 

J. Accounts Receivable and Allowance for Uncollectible Accounts: 

SEC’s entity and non-entity accounts receivable consist primarily of 
amounts due from the public. Entity accounts receivable are amounts 
that the SEC may retain upon collection. Non-entity accounts 
receivable are amounts that the SEC will forward to another Federal 
agency or to the public after the funds are collected. 

Entity Accounts Receivable: 

The bulk of the SEC’s entity accounts receivable arise from securities 
transaction fees. In addition, the SEC has small amounts of activity 
arising from the sale of services provided by the SEC to other Federal 
agencies; reimbursement of employee travel by outside organizations; 
and employee-related debt. Entity accounts receivable balances are 
normally small at year-end due to the timing and payment requirements 
relative to the largest categories of accounts receivable activity. 
Specifically, securities transaction fees are payable to the SEC twice 
a year: in March for the period September through December, and in 
September for the period January through August. Accordingly, the year-
end accounts receivable accrual generally represents fees payable to 
the SEC for one month of securities transaction fee activity 
(September). 

Non-Entity Accounts Receivable: 

Non-entity accounts receivable arise mainly from amounts assessed 
against violators of securities laws, including disgorgement of 
illegal gains, civil penalties, and related assessed interest. The SEC 
is responsible for collection, and recognizes a receivable, when an 
order of the Commission or a Federal court directs payment to the SEC 
or the U.S. Treasury. 

Interest recognized by the SEC on non-entity accounts receivable 
includes prejudgment interest specified by the court or administrative 
order as well as post-judgment interest on collectible accounts. The 
SEC does not recognize interest revenue on accounts considered to be 
uncollectible. 

The SEC’s enforcement investigation and litigation activities often 
result in court orders directing violators of Federal securities laws 
to pay amounts assessed to a Federal court or to a non-Federal 
receiver acting on behalf of harmed investors. These orders are not 
recognized as accounts receivable by the SEC because the debts are 
payable to, and collected by, another party. 

Securities registration, tender offer, merger, and other fees from 
registrants (filing fee) collections in excess of those deposited into 
the SEC’s Reserve Fund are not available for the SEC’s operations and 
are transferred to the U.S. Treasury General Fund. Accounts receivable 
amounts arising from filing fees in excess of those deposited into the 
Reserve Fund are non-entity and are held on behalf of the U.S. 
Treasury. 

Allowance for Uncollectible Amounts: 

The SEC calculates the allowance for uncollectible amounts and the 
related provision for estimated losses for filing fees and other 
accounts receivable using an analysis of historical collection data. 
No allowance for uncollectible amounts or related provision for 
estimated losses has been established for securities transaction fees 
payable by SROs, as these amounts are fully collectible based on 
historical experience. 

The SEC uses a three-tiered methodology for calculating the allowance 
for loss on its disgorgement and penalty accounts receivable. The 
first tier involves making an individual collection assessment of 
cases that represent at least 65 percent of the portfolio. The second 
and third tiers are composed of the remaining cases that are equal to 
or less than 30 days old and over 30 days old, respectively. For the 
second and third tiers, the SEC applies an allowance rate based on 
historical collection data analysis. 

The SEC writes off receivables aged two or more years by removing the 
debt amounts from the gross accounts receivable and any related 
allowance for uncollectible accounts. 

K. Other Assets: 

Payments made in advance of the receipt of goods and services are 
recorded as advances or prepayments and recognized as expenses when 
the related goods and services are received. 

L. Property and Equipment, Net: 

The SEC’s property and equipment consists of software, general-purpose 
equipment used by the agency, capital improvements made to buildings 
leased by the SEC for office space, and, when applicable, internal-use 
software development costs for projects in development. The SEC 
reports property and equipment purchases and additions at historical 
cost. The agency expenses property and equipment acquisitions that do 
not meet the capitalization criteria as well as normal repairs and 
maintenance. 

The SEC depreciates property and equipment over the estimated useful 
lives using the straight-line method of depreciation. The agency 
removes property and equipment from its asset accounts in the period 
of disposal, retirement, or removal from service. The SEC recognizes 
the difference between the book value and any proceeds as a gain or 
loss in the period that the asset is removed. 

M. Liabilities: 

The SEC recognizes liabilities for probable future outflows or other 
sacrifices of resources as a result of events that have occurred as of 
the Balance Sheet date. The SEC’s liabilities consist of routine 
operating accounts payable, accrued payroll and benefits, registrant 
deposit accounts that have not been returned to registrants, 
liabilities for disgorgement and penalties, legal liabilities, and 
liabilities for amounts collected or receivable on behalf of the U.S. 
Treasury. 

Enforcement Related Liabilities: 

A liability for disgorgement and penalties arises when an order is 
issued for the SEC to collect disgorgement, penalties, and interest 
from securities law violators. When the Commission or court issues 
such an order, the SEC establishes an accounts receivable due to the 
SEC offset by a liability. The presentation of this liability on the 
Balance Sheet is dependent upon several factors. If the court or 
Commission order indicates that collections are to be retained by the 
Federal Government, either by transfer to the U.S. Treasury General 
Fund or to the Investor Protection Fund, the liabilities are 
classified as custodial (that is, collected on behalf of the 
Government) and intragovernmental. If the order indicates that the 
funds are eligible for distribution to harmed investors, the SEC will 
recognize a Governmental liability (that is, a liability of the 
Government to make a payment to the public). This liability is not 
presented as a custodial liability. The SEC does not record 
liabilities on its financial statements for disgorgement and penalty 
amounts that another Government entity such as a court, or a non-
governmental entity, such as a receiver, has collected or will collect. 

In accordance with the provisions of the Dodd-Frank Act, collections 
not distributed to harmed investors may be transferred to either the 
Investor Protection Fund or the U.S. Treasury General Fund. 
Collections not distributed to harmed investors are transferred to the 
Investor Protection Fund if the Fund’s balance does not exceed $300 
million at the time of collection. Refer to Note 16, Disgorgement and 
Penalties for additional information. 

Liability Classification: 

The SEC recognizes liabilities that are covered by budgetary 
resources, liabilities that are not covered by budgetary resources, 
and liabilities that do not require the use of budgetary resources. 

Liabilities that are covered by budgetary resources are liabilities 
incurred for which budgetary resources are available to the SEC during 
the reporting period without further Congressional action. 

The SEC also recognizes liabilities not covered by budgetary 
resources. Budgetary and financial statement reporting requirements 
sometimes differ on the timing for the required recognition of an 
expense. For example, in the financial statements, annual leave 
expense must be accrued in the reporting period when the annual leave 
is earned. However, in the budget, annual leave is required to be 
recognized and funded in the fiscal year when the annual leave is 
either used or paid out to a separating employee, not when recognized 
in the financial statements. As a result of this timing difference, 
accrued annual leave liability is classified as a liability “not 
covered by budgetary resources” as of the financial statement date. 

Amounts that do not require the use of budgetary resources include 
registrant deposit accounts that have not been returned to registrants 
and the offsetting liability that corresponds to assets the SEC holds 
relating to collections from disgorgements and penalties and 
receivables. Liabilities that do not require the use of budgetary 
resources are covered by assets that do not represent budgetary 
resources to the SEC. Refer to Note 8, Liabilities Covered and Not 
Covered by Budgetary Resources for more information. 

N. Employee Retirement Systems and Benefits: 

The SEC’s employees may participate in either the Civil Service 
Retirement System (CSRS) or the Federal Employees Retirement System 
(FERS), depending on when they started working for the Federal 
Government. FERS and Social Security automatically cover most 
employees hired after December 31, 1983. Employees who are rehired 
after a break in service of more than one year and who had five years 
of Federal civilian service prior to 1987 are eligible to participate 
in the CSRS offset retirement system or may elect to join FERS. 

All employees are eligible to contribute to a Thrift Savings Plan 
(TSP). For those employees participating in FERS, the TSP is 
automatically established, and the SEC makes a mandatory 1 percent 
contribution to this plan. In addition, the SEC matches contributions 
ranging from 1 to 4 percent for FERS-eligible employees who contribute 
to their TSP. Employees participating in CSRS do not receive matching 
contributions to their TSP. The SEC contributes the employer’s 
matching amount to the Social Security Administration under the 
Federal Insurance Contributions Act, which fully covers FERS 
participating employees. 

The SEC does not report CSRS, FERS, Federal Employees Health Benefits 
Program, Federal Employees Group Life Insurance Program assets, or 
accumulated plan benefits; the U.S. Office of Personnel Management 
(OPM) reports this information. 

O. Injury and Post-employment Compensation: 

The Federal Employees’ Compensation Act (FECA), administered by the 
U.S. Department of Labor (DOL), provides income and medical cost 
protection to covered Federal civilian employees harmed on the job or 
who have contracted an occupational disease, and dependents of 
employees whose death is attributable to a job-related injury or 
occupational disease. The DOL bills the SEC annually as claims are 
paid, and the SEC in turn accrues a liability to recognize the future 
payments. Payment on these bills is deferred for two years to allow 
for funding through the budget process. Similarly, employees that the 
SEC terminates without cause may receive unemployment compensation 
benefits under the unemployment insurance program also administered by 
the DOL, which bills each agency quarterly for paid claims. 

In addition, the SEC records an estimate for the FECA actuarial 
liability using the DOL’s FECA model. The model considers the average 
amount of benefit payments incurred by the SEC for the past three 
fiscal years, multiplied by the medical and compensation liability to 
benefits paid ratio for the whole FECA program. 

P. Annual, Sick, and Other Leave: 

The SEC accrues annual leave and compensatory time as earned and 
reduces the accrual when leave is taken. The balances in the accrued 
leave accounts reflect current leave balances and pay rates. No 
portion of this liability has been obligated because budget execution 
rules do not permit current or prior year funding to be used to pay 
for leave earned but not yet either taken or paid as a lump sum upon 
termination during the reporting period. Accordingly, such accrued 
leave is reported as “not covered by budgetary resources.” Refer to 
Note 8, Liabilities Covered and Not Covered by Budgetary Resources. 
The SEC expenses sick leave and other types of non-vested leave as 
used. 

Q. Revenue and Other Financing Sources: 

The SEC’s revenue and financing sources include exchange revenues, 
which are generated from transactions in which both parties give and 
receive value, and non-exchange revenues, which arise from the Federal 
Government’s ability to demand payment. 

Exchange Revenue: 

The SEC’s exchange revenue consists primarily of collections of 
securities transaction fees from SROs and of securities registration, 
tender offer, merger, and other fees from registrants (filing fees). 
The fee rates are calculated by the SEC’s Division of Economic and 
Risk Analysis and established by the SEC in accordance with Federal 
law and are applied to volumes of activity reported by SROs or to 
filings submitted by registrants. Fees are recognized as exchange 
revenue on the effective date of transaction or filing. These fee 
collections are the primary source of the SEC’s funding and may be 
used up to limits established by Congress. See Note 1.E, Fund 
Accounting Structure. 

The SEC recognizes amounts remitted by registrants in advance of the 
transaction or filing date as a liability until earned by the SEC or 
returned to the registrant. Federal regulation requires the return of 
registrant advance deposits when an account is dormant for three 
years, except in certain cases where refunds are not permitted. The 
Securities Act of 1933 and the Exchange Act do not permit refunds to 
registrants for securities that remain unsold after the completion, 
termination, or withdrawal of an offering. However, Code of Federal 
Regulations (CFR) Title 17 Chapter II, Part 230, Section 457(p) 
permits filers to offset a fee paid (filing fee offset) for a 
subsequent registration statement (offering) filed within five years 
of the initial filing date of the earlier registration statement. The 
total aggregate dollar amount of the filing fee associated with the 
unsold securities may be offset against the total filing fee due on 
the subsequent offering. Unused filing fee offsets are not a liability 
to the SEC because registrants cannot obtain refunds of fees or 
additional services in relation to securities that remain unsold. 
However, filing fee offsets may reduce revenue earned in future 
accounting periods. 

Non-exchange Revenue: 

The SEC’s non-exchange revenue mainly consists of amounts collected 
from violators of securities laws as a result of enforcement 
proceedings. These amounts may take the form of disgorgement of 
illegal gains, civil penalties, and related interest. Amounts 
collected may be paid to injured investors, transferred to the 
Investor Protection Fund, or transferred to the U.S. Treasury General 
Fund, based on established policy and regulation. 

All non-exchange revenue expected to be forwarded to either the U.S. 
Treasury General Fund or Investor Protection Fund is recognized on the 
Statement of Custodial Activity. The Investor Protection Fund 
recognizes non-exchange revenue on the Statement of Changes in Net 
Position when funds are transferred into the Investor Protection Fund. 
The result is that, in accordance with Federal accounting standards, 
the entire amount of custodial activity is presented on the Statement 
of Custodial Activity to document the movement of funds, and the 
portion retained by the SEC is recognized as SEC activity. 

The SEC does not recognize amounts collected and held by another 
government entity, such as a court registry, or a non-government 
entity, such as a receiver. 

R. Budgets and Budgetary Accounting: 

The SEC is subject to certain restrictions on the use of securities 
transaction fees. The SEC deposits securities transaction fee revenue 
in a designated account at Treasury. However, the SEC may use funds 
from this account only as authorized by Congress and made available by 
OMB apportionment, upon issuance of a Treasury warrant. Revenue 
collected in excess of appropriated amounts is restricted from use by 
the SEC. Funds appropriated that the SEC does not use in a given 
fiscal year are maintained in a designated account for use in future 
periods in accordance with the requirements of the SEC’s 
appropriation. Collection of fees arising from securities 
registration, tender offer, merger, and other fees from registrants, 
other than those that are deposited in the Reserve Fund, are not 
available to be used in the operations of the SEC. Refer to Note 1. E, 
Fund Accounting Structure. 

Salaries and Expenses: 

Each fiscal year, the SEC receives Category A apportionments, which 
are quarterly distributions of budgetary resources made by OMB. The 
SEC also receives a small amount of Category B funds related to 
reimbursable activity, which are exempt from quarterly apportionment. 

Investor Protection Fund: 

The Investor Protection Fund is a special fund that has the authority 
to retain revenues and other financing sources not used in the current 
period for future use. The Dodd-Frank Act provides that the Fund is 
available to the SEC without further appropriation or fiscal year 
limitation for the purpose of funding the activities of the Office of 
the Whistleblower and the Office of Inspector General’s Employee 
Suggestion Program. However, the SEC is required to request and obtain 
an annual apportionment from OMB to use these funds. All of the funds 
are Category B, exempt from quarterly apportionment. 

Reserve Fund: 

The Reserve Fund is a special fund that has the authority to retain 
certain revenues not used in the current period for future use. The 
Dodd-Frank Act provides that the Fund is available to the SEC without 
further appropriation or fiscal year limitation “to carry out the 
functions of the Commission.” Amounts in the Reserve Fund are exempt 
from apportionment. 

S. Disgorgement and Penalties: 

The SEC maintains non-entity assets related to disgorgements and 
penalties ordered pursuant to civil injunctive and administrative 
proceedings. The SEC also recognizes an equal and offsetting liability 
for these assets as discussed in Note 1.M, Liabilities. These non-
entity assets consist of disgorgement, penalties, and interest 
assessed against securities law violators where the Commission or a 
Federal court has determined that the SEC should return such funds to 
harmed investors or may be transferred to the Investor Protection Fund 
or the U.S. Treasury General Fund. The SEC does not record on its 
financial statements any asset amounts that another government entity 
such as a court, or a non-governmental entity, such as a receiver, has 
collected or will collect. Additional details regarding disgorgement 
and penalties are presented in Note 11, Funds from Dedicated 
Collections and Note 16, Disgorgement and Penalties. 

T. Investor Protection Fund: 

The Investor Protection Fund was established through a permanent 
indefinite appropriation to provide financing for payments to 
whistleblowers and can be used for the expenses of the Office of the 
Whistleblower and the SEC Office of Inspector General’s Employee 
Suggestion Program. The Investor Protection Fund is financed by 
transferring a portion of monetary sanctions collected by the SEC in 
judicial or administrative actions brought by the SEC under the 
securities laws that are not added to a disgorgement fund or other 
funds intended for harmed investors under Section 308 of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7246). Sanctions collected by the 
Commission payable either to the SEC or the U.S. Treasury General Fund 
will be transferred to the Investor Protection Fund if the balance in 
that fund is less than $300 million on the day of collection. 

The SEC may request the Secretary of the Treasury to invest Investor 
Protection Fund amounts in Treasury securities. Refer to Note 1.I, 
Investments, for additional details. 

Note 2. Entity and Non-Entity Assets: 

Entity assets are assets that the SEC may use in its operations. 

Non-entity assets are assets that the SEC holds on behalf of another 
Federal agency or a third party and are not available for the SEC’s 
use. The SEC’s non-entity assets include the following: (a) 
disgorgement, penalties, and interest collected and held or invested 
by the SEC; (b) disgorgement, penalties, and interest receivable that 
will be collected by the SEC; (c) securities registration, tender 
offer, merger, and other fees collected and receivable from 
registrants, in excess of amounts deposited in the SEC’s Reserve Fund; 
and (d) other miscellaneous receivables. Additional details are 
provided in Note 16, Disgorgement and Penalties. 

At September 30, 2013, SEC entity and non-entity assets consisted of 
the following: 
(Dollars In Thousands): 

Intragovernmental: 

Fund Balance with Treasury: 

SEC Funds: 
Entity: $7,133,643; 
Non-Entity: 0; 
Total: $7,133,643. 

Registrant Deposits: 
Entity: $
Non-Entity: $32,857; 
Total: $32,857. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $988,237; 
Total: $988,237. 

Investments, Net: 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $848,441; 
Total: $848,441. 

Investor Protection Fund: 
Entity: $434,201; 
Non-Entity: 0; 
Total: $434,201. 

Advances and Prepayments: 
Entity: $1,623; 
Non-Entity: 0; 
Total: $1,623 

Total Intragovernmental Assets: 
Entity: $7,569,467; 
Non-Entity: $1,869,535; 
Total: $9,439,002. 

Cash and Other Monetary Assets: 

SEC Funds: 
Entity: $2; 
Non-Entity: 0; 
Total: $2. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $387; 
Total: $387. 

Accounts Receivable, Net: 

SEC Funds: 
Entity: $86,628; 
Non-Entity: 0; 
Total: $86,628. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $297,098; 
Total: $297,098. 

Custodial and Other Non-Entity Assets: 
Entity: 0; 
Non-Entity: $3,301; 
Total: $3,301. 

Property and Equipment, Net (Note 7): 
Entity: $126,871; 
Non-Entity: $
Total: $126,871. 

Advances and Prepayments: 
Entity: 0; 
Non-Entity: 0; 
Total: 0. 

Total Assets: 
Entity: $7,782,968; 
Non-Entity: $2,170,321; 
Total: $9,953,289. 

At September 30, 2012, SEC entity and non-entity assets consisted of 
the following: 
(Dollars In Thousands) 

Intragovernmental: 

Fund Balance with Treasury: 

SEC Funds;
Entity: $7,067,857;
Non-Entity: $0; 
Total: $7,067,857. 

Registrant Deposits;
Entity: 0; 
Non-Entity: $33,689;
Total: $33,689. 

Disgorgement and Penalties (Note 16);
Entity: 0; 
Non-Entity: $341,886;
Total: $341,886. 

Investments, Net: 

Disgorgement and Penalties (Note 16);
Entity: 0; 
Non-Entity: $521,444;
Total: $521,444. 

Investor Protection Fund;
Entity: $452,472;
Non-Entity: 0; 
Total: $452,472. 

Accounts Receivable;
Entity: 0; 
Non-Entity: 0; 
Total: 0. 

Advances and Prepayments;
Entity: $7,824;
Non-Entity: 0; 
Total: $7,824. 

Total Intragovernmental Assets;
Entity: $7,528,153;
Non-Entity: $897,019;
Total: $8,425,172. 

Cash and Other Monetary Assets: 

SEC Funds;
Entity: $8;
Non-Entity: 0; 
Total: $8. 

Disgorgement and Penalties (Note 16);
Entity: 0; 
Non-Entity: $1,058;
Total: $1,058. 

Accounts Receivable, Net: 

SEC Funds;
Entity: $103,312;
Non-Entity: 0; 
Total: $103,312. 

Disgorgement and Penalties (Note 16);
Entity: 0; 
Non-Entity: $130,616;
Total: $130,616. 

Custodial and Other Non-Entity Assets;
Entity: 0; 
Non-Entity: $2,763;
Total: $2,763. 

Advances and Prepayments;
Entity: $235;
Non-Entity: 0; 
Total: $235. 

Property and Equipment, Net (Note 7);
Entity: $97,570;
Non-Entity: 0; 
Total: $97,570. 

Total Assets;
Entity: $7,729,278;
Non-Entity: $1,031,456;
Total: $8,760,734. 

[End of table] 

Note 3. Fund Balance with Treasury: 

The Fund Balance with Treasury by type of fund and Status of Fund 
Balance with Treasury as of September 30, 2013 and 2012 consists of 
the following:
(Dollars In Thousands) 

Fund Balances: 

General Funds; 
FY 2013: $7,053,301; 
FY 2012: $7,016,900. 

Special Funds; 
FY 2013: $80,342; 
FY 2012: $50,957. 

Other Funds; 
FY 2013: $1,021,094; 
FY 2012: $375,575. 

Total Fund Balance with Treasury; 
FY 2013: $8,154,737; 
FY 2012: $7,443,432. 

Status of Fund Balance with Treasury: 

Unobligated Balance: 

Available; 
FY 2013: $128,327; 
FY 2012: $84,943. 

Unavailable; 
FY 2013: $96,422; 
FY 2012: $56,249. 

Obligated Balance not Yet Disbursed; 
FY 2013: $413,616; 
FY 2012: $431,386. 

Non-Budgetary Fund Balance with Treasury; 
FY 2013: $7,516,372; 
FY 2012: $6,870,854. 

Total Fund Balance with Treasury; 
FY 2013: $8,154,737; 
FY 2012: $7,443,432. 

[End of table] 

Special Funds consist of the Investor Protection Fund and the Reserve 
Fund. Refer to Note 1.E, Fund Accounting Structure, for additional 
information. 

Other Funds consist of Fund Balance with Treasury held in deposit 
funds. 

Obligated and unobligated balances reported for the status of Fund 
Balance with Treasury differ from the amounts reported in the 
Statement of Budgetary Resources due to the fact that budgetary 
balances are supported by amounts other than Fund Balance with 
Treasury. These amounts include Investor Protection Fund investments, 
uncollected payments from Federal sources, and the impact of the 
change in legal interpretation for leases (see Note 14.C, Other 
Budgetary Disclosures, Change in Legal Interpretation for Lease 
Obligations). Pursuant to the SEC’s FY 2012 Appropriations Act, $25 
million in Reserve Fund collections were temporarily rescinded and are 
included in the unavailable balance reported for FY 2012. The FY 2012 
temporary recission ended on September 30, 2012, leaving that $25 
million available starting in FY 2013. Refer to Note 1.E, Fund 
Accounting Structure, Funds from Dedicated Collections: Reserve Fund. 

Non-Budgetary Fund Balance with Treasury is comprised of amounts in 
deposit funds and offsetting collections temporarily precluded from 
obligation in the SEC’s General Salaries and Expenses Fund (X0100). 
Amounts temporarily precluded from obligation represent offsetting 
collections in excess of appropriated amounts related to securities 
transactions fees, as well as securities registration, tender offer, 
merger, and other fees from registrants (filing fees) collected in 
fiscal years 2011 and prior. 

There were no significant differences between the Fund Balance 
reflected in the SEC’s financial statements and the balance in the 
Treasury accounts. 

Note 4. Cash and Other Monetary Assets: 

The SEC had a cash balance of $389 thousand as of September 30, 2013. 
The SEC receives disgorgement and penalties collections throughout the 
year. Any collections received after the U.S. Treasury Department cut-
off for deposit of checks are treated as deposits in transit and 
recognized as Cash on the Balance Sheet. The SEC had a cash balance of 
$1.1 million as of September 30, 2012. 

Note 5. Investments: 

The SEC invests funds in overnight and short-term non-marketable 
market-based Treasury securities. The SEC records the value of its 
investments in Treasury securities at cost and amortizes any premium 
or discount on a straight-line basis (S/L) through the maturity date 
of these securities. Non-marketable market-based Treasury securities 
are issued by the Bureau of the Fiscal Service to Federal agencies. 
They are not traded on any securities exchange but mirror the prices 
of similar Treasury securities trading in the Government securities 
market. 

At September 30, 2013, investments consisted of the following:
(Dollars In Thousands): 

Non-Marketable Market-Based Securities Disgorgement and Penalties;
Cost: $849,368;
Amortization Method: S/L;
Amortized (Premium) Discount: ($3,932);
Interest Receivable: $3,005;
Investment, Net: $848,441;
Market Value Disclosure: $845,551. 

Investor Protection Fund – Entity;
Cost: $434,009;
Amortization Method: S/L;
Amortized (Premium) Discount: $56;
Interest Receivable: $136;
Investment, Net: $434,201;
Market Value Disclosure: $434,211. 

Total;
Cost: $1,283,377;
Amortized (Premium) Discount: ($3,876);
Interest Receivable: $3,141;
Investment, Net: $1,282,642;1,279,762970,845. 

At September 30, 2012, investments consisted of the following:
(Dollars In Thousands): 

Non-Marketable Market-Based Securities Disgorgement and Penalties;
Cost: $520,297;
Amortization Method: S/L;
Amortized (Premium) Discount: ($891);
Interest Receivable: $2,038;
Investment, Net: $521,444;
Market Value Disclosure: $519,526. 

Investor Protection Fund – Entity;
Cost: $454,119;
Amortization Method: S/L;
Amortized (Premium) Discount: ($2,875);
Interest Receivable: $1,228;
Investment, Net: $452,472;
Market Value Disclosure: $451,319. 

Total;
Cost: $974,416;
Amortized (Premium) Discount: ($3,766);
Interest Receivable: $3,266;
Investment, Net: $973,916;
Market Value Disclosure: $970,845. 

[End of table] 

Intragovernmental Investments in Treasury Securities: 

The Federal Government does not set aside assets to pay future 
benefits or other expenditures associated with the investment by 
Federal agencies in non-marketable Federal securities. The balances 
underlying these investments are deposited in the U.S. Treasury, which 
uses the cash for general Government purposes. Treasury securities are 
issued to the SEC as evidence of these balances. Treasury securities 
are an asset of the SEC and a liability of the U.S. Treasury. Because 
the SEC and the U.S. Treasury are both components of the Government, 
these assets and liabilities offset each other from the standpoint of 
the Government as a whole. For this reason, the investments presented 
by the SEC do not represent an asset or a liability in the U.S. 
Government-wide financial statements. 

Treasury securities provide the SEC with authority to draw upon the 
U.S. Treasury to make future payments from these accounts. When the 
SEC requires redemption of these securities to make expenditures, the 
Government finances those expenditures out of accumulated cash 
balances, by raising taxes or other receipts, by borrowing from the 
public or repaying less debt, or by curtailing other expenditures. 
This is the same manner in which the Government finances all 
expenditures. 

Note 6. Accounts Receivable, Net: 

At September 30, 2013, accounts receivable consisted of the following:
(Dollars In Thousands): 

Entity Accounts Receivable: 

Securities Transaction Fees;
Gross Receivables: $86,295;
Allowance: 0; 
Net Receivables: $86,295. 

Other;
Gross Receivables: $333;
Allowance: 0; 
Net Receivables: $333. 

Non-Entity Accounts Receivable: 

Disgorgement and Penalties (Note 16);
Gross Receivables: $1,660,940;
Allowance: $1,363,842;
Net Receivables: $297,098. 

Filing Fees;
Gross Receivables: $4,477;
Allowance: $1,411;
Net Receivables: $3,066. 

Other;
Gross Receivables: $1,222;
Allowance: $987;
Net Receivables: $235. 

At September 30, 2012, accounts receivable consisted of the following:
(Dollars In Thousands): 

Entity Accounts Receivable: 

Securities Transaction Fees;
Gross Receivables: $103,009;
Allowance: 0; 
Net Receivables: $103,009. 

Other;
Gross Receivables: $372;
Allowance: $69
Net Receivables: $303. 

Non-Entity Accounts Receivable: 

Disgorgement and Penalties (Note 16);
Gross Receivables: $1,715,267;
Allowance: $1,584,651;
Net Receivables: $130,616. 

Filing Fees;
Gross Receivables: $4,304;
Allowance: $1,853;
Net Receivables: $2,451. 

Other;
Gross Receivables: $2,158;
Allowance: $1,846;
Net Receivables: $312. 

Total Accounts Receivable; 
Gross Receivables: $1,825,110;
Allowance: $1,588,419;
Net Receivables: $236,691. 

[End of table] 

Refer to Note 1.J, Accounts Receivable and Allowance for Uncollectible 
Accounts for methods used to estimate allowances. The SEC estimates 
that accumulated interest on accounts receivable considered to be 
uncollectible is $985 thousand and $1.8 million, respectively, as of 
September 30, 2013 and 2012. This estimate does not include interest 
accumulated on debts written off or officially waived. 

As of September 30, 2013 and 2012, the balances include disgorgement 
and penalty accounts receivable, net of allowance, of $68.6 million 
and $62.2 million, respectively designated as payable to the U.S. 
Treasury General Fund per court order. As discussed in Note 1.M, 
Liabilities, these receivables, their offsetting liabilities, and the 
associated revenues, are classified as custodial. 

As discussed in Note 1.J, Accounts Receivable and Allowance for 
Uncollectible Accounts, pursuant to Section 991(e) of the Dodd-Frank 
Act, accounts receivable for securities registration, tender offer, 
merger, and other fees from registrants in excess of the amounts 
deposited into the Reserve Fund are held on behalf of the U.S. 
Treasury and are transferred to the U.S. Treasury General Fund upon 
collection. 

Note 7. Property and Equipment, Net: 

At September 30, 2013, property and equipment consisted of the 
following:
(Dollars In Thousands): 

Class of Property: Furniture and Equipment;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $50;
Capitalization Threshold for Bulk Purchases: $50;
Service Life (Years): 3-5;
Acquisition Cost: $134,392;
Accumulated Depreciation/Amortization: $71,120;
Book Value: $63,272. 

Class of Property: Software;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: $300;
Service Life (Years): 3-5;
Acquisition Cost: $132,845;
Accumulated Depreciation/Amortization: $98,202;
Book Value: $34,643. 

Class of Property: Leasehold Improvements;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: N/A;
Service Life (Years): 10;
Acquisition Cost: $95,634;
Accumulated Depreciation/Amortization: $66,678;
Book Value: $28,956. 

Total: 
Acquisition Cost: $362,871;
Accumulated Depreciation/Amortization: $236,000;
Book Value: $126,871. 

At September 30, 2012, property and equipment consisted of the 
following:
(Dollars In Thousands): 

Class of Property: Furniture and Equipment;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $15;
Capitalization Threshold for Bulk Purchases: $50;
Service Life (Years): 3-5;
Acquisition Cost: $96,240;
Accumulated Depreciation/Amortization: $56,715;
Book Value: $39,525. 

Class of Property: Software;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: $300;
Service Life (Years): 3-5;
Acquisition Cost: $109,480;
Accumulated Depreciation/Amortization: $87,109;
Book Value: $22,371. 

Class of Property: Leasehold Improvements;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: N/A;
Service Life (Years): 10;
Acquisition Cost: $92,556;
Accumulated Depreciation/Amortization: $56,882;
Book Value: $35,674. 

Total: 
Acquisition Cost: $298,276;
Accumulated Depreciation/Amortization: $200,706;
Book Value: $97,570. 

[End of table] 

In FY 2013, the capitalization threshold for individual purchases of 
Furniture and Equipment was changed from $15,000 to $50,000. 

Note 8. Liabilities Covered and Not Covered by Budgetary Resources: 

The SEC recognizes liabilities that are covered by budgetary 
resources, liabilities that are not covered by budgetary resources, 
and liabilities that do not require the use of budgetary resources. 

Liabilities that are covered by budgetary resources are liabilities 
incurred for which budgetary resources are available to the SEC during 
the reporting period without further Congressional action. 

The SEC also recognizes liabilities not covered by budgetary 
resources. Budgetary and financial statement reporting requirements 
sometimes differ on the timing for the required recognition of an 
expense. For example, in the financial statements, annual leave 
expense must be accrued in the reporting period when the annual leave 
is earned. However, in the budget, annual leave is required to be 
recognized and funded in the fiscal year when the annual leave is 
either used or paid out to a separating employee, not when recognized 
in the financial statements. As a result of this timing difference, 
accrued annual leave liability is classified as a liability “not 
covered by budgetary resources” as of the financial statement date. 

Liabilities that do not require the use of budgetary resources include 
registrant deposit accounts that have not been returned to registrants 
and the offsetting liability that corresponds to assets the SEC holds 
relating to collections from disgorgements and penalties and 
receivables as discussed in Note 1.M, Liabilities. Liabilities that do 
not require the use of budgetary resources are covered by assets that 
do not represent budgetary resources to the SEC. 

At September 30, 2013, liabilities consisted of the following:
(Dollars In Thousands): 

Intragovernmental: 

Accounts Payable; 
Liabilities Covered by Budgetary Resources: $5,675; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,675. 

Other Intragovernmental Liabilities: 

Accrued Employee Benefits; 
Liabilities Covered by Budgetary Resources: $3,086; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $3,086. 

Unfunded FECA and Unemployment Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $1,308; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $1,308. 

Custodial Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $68,831; 
Total: $68,831. 

Liability for Non-Entity Assets; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $3,069; 
Total: $3,069. 

Subtotal – Other Intragovernmental Liabilities; 
Liabilities Covered by Budgetary Resources: $3,086; 
Liabilities Not Covered by Budgetary Resources: $1,308; 
Liabilities Not Requiring Budgetary Resources: $71,900; 
Total: $76,294. 

Total Intragovernmental; 
Liabilities Covered by Budgetary Resources: $8,761; 
Liabilities Not Covered by Budgetary Resources: $1,308; 
Liabilities Not Requiring Budgetary Resources: $71,900; 
Total: $81,969. 

Accounts Payable; 
Liabilities Covered by Budgetary Resources: $38,313; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $38,313. 

Actuarial FECA Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $7,155; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $7,155. 

Other Liabilities: 

Accrued Payroll and Benefits; 
Liabilities Covered by Budgetary Resources: $15,405; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $15,405. 

Accrued Leave; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $51,706; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $51,706. 

Registrant Deposits; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $32,857; 
Total: $32,857. 

Liability for Disgorgement and Penalties (Note 16); 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $2,065,202; 
Total: $2,065,202. 

Other Accrued Liabilities: 

Recognition of Lease Liability (Note 9); 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $5,145; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,145. 

Other; 
Liabilities Covered by Budgetary Resources: $2; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $362
Total: $364. 

Subtotal – Other Liabilities; 
Liabilities Covered by Budgetary Resources: $15,407; 
Liabilities Not Covered by Budgetary Resources: $56,851; 
Liabilities Not Requiring Budgetary Resources: $2,098,421; 
Total: $2,170,679. 

Total Liabilities; 
Liabilities Covered by Budgetary Resources: $62,481; 
Liabilities Not Covered by Budgetary Resources: $65,314; 
Liabilities Not Requiring Budgetary Resources: $2,170,321; 
Total: $2,298,116. 

[End of table] 

Other Liabilities (Intragovernmental and Governmental) totaled $2,247 
million as of September 30, 2013, of which all but $57 million is 
current. The non-current portion of Other Liabilities includes the 
appropriate portions of Accrued Employee Benefits, Unfunded FECA and 
Unemployment Liability, Accrued Leave, Contingent Liabilities, and 
Lease Liability. Current liabilities not covered by budgetary 
resources totaled $1.3 million as of September 30, 2013. 

At September 30, 2012, liabilities consisted of the following:
(Dollars In Thousands): 

Intragovernmental: 

Accounts Payable;
Liabilities Covered by Budgetary Resources: $8,829;
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $8,829. 

Other Intragovernmental Liabilities; 

Accrued Employee Benefits;
Liabilities Covered by Budgetary Resources: $2,426;
Liabilities Not Covered by Budgetary Resources: $2,758;
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,184. 

Unfunded FECA and Unemployment Liability;
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $1,441;
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $1,441. 

Custodial Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $62,497;
Total: $62,497. 

Liability for Non-Entity Assets;
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $2,457;
Total: $2,457. 

Subtotal – Other Intragovernmental Liabilities;
Liabilities Covered by Budgetary Resources: $2,426;
Liabilities Not Covered by Budgetary Resources: $4,199;
Liabilities Not Requiring Budgetary Resources: $64,954;
Total: $71,579. 

Total Intragovernmental;
Liabilities Covered by Budgetary Resources: $11,255;
Liabilities Not Covered by Budgetary Resources: $4,199;
Liabilities Not Requiring Budgetary Resources: $64,954;
Total: $80,408. 

Accounts Payable;
Liabilities Covered by Budgetary Resources: $39,474;
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $39,474. 

Actuarial FECA Liability;
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $8,050;
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $8,050. 

Other Liabilities; 

Accrued Payroll and Benefits;
Liabilities Covered by Budgetary Resources: $13,765;
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $13,765. 

Accrued Leave;
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $48,531;
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $48,531. 

Registrant Deposits;
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $33,689;
Total: $33,689. 

Liability for Disgorgement and Penalties (Note 16);
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $932,763;
Total: $932,763. 

Other Accrued Liabilities: 

Legal Liability;
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: 0. 

Recognition of Lease Liability (Note 9);
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $5,708;
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,708. 

Other;
Liabilities Covered by Budgetary Resources: $7;
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $50;
Total: $57. 

Subtotal – Other Liabilities;
Liabilities Covered by Budgetary Resources: $13,772;
Liabilities Not Covered by Budgetary Resources: $54,239;
Liabilities Not Requiring Budgetary Resources: $966,502;
Total: $1,034,513. 

Total Liabilities;
Liabilities Covered by Budgetary Resources: $64,501;
Liabilities Not Covered by Budgetary Resources: $66,488;
Liabilities Not Requiring Budgetary Resources: $1,031,456;
Total: $1,162,445. 

[End of table] 

Other Liabilities (Intragovernmental and Governmental) totaled $1,106 
million as of September 30, 2012, of which all but $57 million was 
current. The non-current portion of Other Liabilities includes the 
appropriate portions of the Unfunded FECA and Unemployment Liability, 
Accrued Leave, and Lease Liability. Current liabilities not covered by 
budgetary resources totaled $1.4 million as of September 30, 2012. 

Note 9. Leases: 

Operating Leases: 

At September 30, 2013, the SEC leased office space at 16 locations 
under operating lease agreements that expire between FY 2013 and FY 
2029. The SEC paid $103 million annually for rent for the years ended 
September 30, 2013 and 2012, respectively. 

The following table details expected future lease payments for (a) the 
full term of all non-cancelable leases with terms of more than one 
year and (b) the non-cancelable portion of all cancelable commercial 
leases with terms of more than one year. This listing excludes leases 
with the General Services Administration (GSA). “Non-cancelable” 
leases are leases for which the lease agreements do not provide an 
option for the lessee to cancel the lease prior to the end of the 
lease term. The total expected future lease payments reflect an 
estimate of base rent and contractually required costs. 

Under existing commitments, expected future lease payments through FY 
2019 and thereafter are as follows: 

Dollars In Thousands: 

Fiscal Year: 2014; 
Minimum Lease Payments: $87,658; 

Fiscal Year: 2015; 
Minimum Lease Payments: $81,466. 

Fiscal Year: 2016; 
Minimum Lease Payments: $77,239. 

Fiscal Year: 2017; 
Minimum Lease Payments: $78,332. 

Fiscal Year: 2018; 
Minimum Lease Payments: $78,613. 

Fiscal Year: 2019 and thereafter; 
Minimum Lease Payments: $117,895. 

Total Future Minimum Lease Payments: 
Minimum Lease Payments: $521,203. 

[End of table] 

As discussed in Note 14.C, Other Budgetary Disclosures, $441 million 
of the above $521 million are unfunded obligations. 

Expense Recognition of “Rent Holiday:” 

In FY 2005, the SEC moved into temporary office space in New York due 
to renovations in the new leased office space. This temporary space 
was provided to the SEC for only the lessor’s operating costs. As a 
result, the SEC recognized $8 million of rent expense discount, which 
is being amortized on a straight-line basis over the 15 year life of 
the new lease. Amortization of the discount recognized in FY 2013 and 
FY 2012 totaled $533 thousand in each year, respectively. The 
unamortized balance of this location’s discount totaled $4.0 million 
and $4.5 million, at September 30, 2013 and 2012 respectively. 

In November 2011, the SEC occupied leased office space in Atlanta, 
Georgia. The lease term is 15 years and includes a one year rent 
payment holiday. The SEC expects to amortize $1.4 million of rent 
expense discount over the non-cancelable term of the lease which is 10 
years. Amortization of the discount as an adjustment of rent payments 
began in November 2012. The unamortized balance of this location’s 
discount totaled $1.1 million at September 30, 2013. 

Note 10. Commitments and Contingencies: 

A. Commitments: Securities Investor Protection Act: 

The Securities Investor Protection Act of 1970 (SIPA), as amended, 
created the Securities Investor Protection Corporation (SIPC) to 
restore funds and securities to investors and to protect the 
securities markets from disruption following the failure of broker-
dealers. Generally, if a brokerage firm is not able to meet its 
obligations to customers, then customers’ cash and securities held by 
the brokerage firm are returned to customers on a pro rata basis. If 
sufficient funds are not available at the firm to satisfy customer 
claims, the reserve funds of SIPC are used to supplement the 
distribution, up to a ceiling of $500,000 per customer, including a 
maximum of $250,000 for cash claims. 

SIPA authorizes SIPC to create a fund to maintain all monies received 
and disbursed by SIPC. SIPA gives SIPC the authority to borrow up to 
$2.5 billion from the SEC in the event that the SIPC Fund is or may 
appear insufficient for purposes of SIPA. To borrow the funds, SIPC 
must file with the SEC a statement of the uses of such a loan and a 
repayment plan, and then the SEC must certify to the Secretary of the 
Treasury that the loan is necessary to protect broker-dealer customers 
and maintain confidence in the securities markets and that the 
repayment plan provides as reasonable assurance of prompt repayment as 
may be feasible under the circumstances. The Treasury would make these 
funds available to the SEC through the purchase of notes or other 
obligating instruments issued by the SEC. Such notes or other 
obligating instruments would bear interest at a rate determined by the 
Secretary of the Treasury. As of September 30, 2013, the SEC had not 
loaned any funds to the SIPC, and there are no outstanding notes or 
other obligating instruments issued by the SEC. 

Based on the estimated costs to complete ongoing customer protection 
proceedings, the current size of the SIPC Fund supplemented by SIPC’s 
ongoing assessments on brokers is expected to provide sufficient funds 
to cover acknowledged customer claims. There are several broker-
dealers that are being liquidated under SIPA or that have been 
referred to SIPC for liquidation that may result in additional 
customer claims. In the event that the SIPC Fund is or may reasonably 
appear to be insufficient for the purposes of SIPA, SIPC may seek a 
loan from the SEC. 

B. Commitments and Contingencies: Investor Protection Fund: 

As mentioned in Note 1.E, Fund Accounting Structure, the Investor 
Protection Fund is used to pay awards to whistleblowers if they 
voluntarily provide original information to the SEC and meet other 
conditions. The legislation allows whistleblowers to receive between 
10 and 30 percent of the monetary sanctions collected in the covered 
action or in a related action, with the actual percentage being 
determined at the discretion of the SEC using criteria provided in the 
legislation and the related rules to implement the legislation adopted 
by the SEC. A Preliminary Determination is a first assessment, made by 
the Claims Review Staff, as to whether the claim should be allowed or 
denied and, if allowed, what the proposed award percentage amount 
should be. A contingent liability is recognized in instances where a 
positive Preliminary Determination (payment of award is probable) has 
been made by the Claims Review Staff in the Office of the 
Whistleblower and the amount can be reasonably estimated. Liabilities 
are recognized in instances where a collection has been received and a 
positive Proposed Final Determination has been reached by the Claims 
Review Staff. However, the actual payment of the whistleblower award 
would not occur until after the final order was issued by the 
Commission. The SEC did not recognize a contingent liability (not 
covered by budgetary resources) for potential whistleblower awards as 
of September 30, 2012 or September 30, 2013. C. Other Commitments 

In addition to future lease commitments discussed in Note 9, Leases, 
the SEC is obligated for the purchase of goods and services that have 
been ordered, but not received. As of September 30, 2013 net 
obligations for all of the SEC’s activities were $854.4 million, of 
which $62.5 million was delivered and unpaid. As of September 30, 
2012, net obligations for all of SEC’s activities were $954.4 million, 
of which $64.5 million was delivered and unpaid. 

D. Other Contingencies: 

The SEC recognizes contingent liabilities when a past event or 
exchange transaction has occurred, a future outflow or other sacrifice 
of resources is probable, and the future outflow or sacrifice of 
resources is measurable. The SEC is party to various routine 
administrative proceedings, legal actions, and claims brought against 
it, including threatened or pending litigation involving labor 
relations claims, some of which may ultimately result in settlements 
or decisions against the Federal Government. 

Note 11. Funds from Dedicated Collections: 

The SEC’s funds from dedicated collections consist of transactions and 
balances recorded in its Salaries and Expenses Fund, Investor 
Protection Fund, and Reserve Fund. See Note 1.F, Funds from Dedicated 
Collections. Also see Note 5, Investments, for additional information 
about intragovernmental investments in Treasury securities. 

For FY 2013, the assets, liabilities, net position, and net income 
from operations relating to funds from dedicated collections consisted 
of the following:
(Dollars In Thousands) 

Balance Sheet as of September 30, 2013: 

Assets: 

Fund Balance with Treasury; 
Salaries & Expenses: $7,052,538; 
Investor Protection Fund: $4,996; 
Reserve Fund: $75,346; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,132,880. 

Cash and Other Monetary Assets; 
Salaries & Expenses: $2; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $2. 

Investments, Net; 
Salaries & Expenses: 0; 
Investor Protection Fund: $434,201; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $434,201. 

Accounts Receivable, Net; 
Salaries & Expenses: $86,628; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $86,628. 

Property and Equipment, Net; 
Salaries & Expenses: $109,957; 
Investor Protection Fund: 0; 
Reserve Fund: $15,721; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $125,678. 

Advances and Prepayments; 
Salaries & Expenses: $1,623; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $1,623. 

Total Assets; 
Salaries & Expenses: $7,250,748; 
Investor Protection Fund: $439,197; 
Reserve Fund: $91,067; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,781,012. 

Liabilities: 

Accounts Payable; 
Salaries & Expenses: $39,407; 
Investor Protection Fund: 0; 
Reserve Fund: $4,581; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $43,988. 

FECA and Unemployment Liability; 
Salaries & Expenses: $8,463; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $8,463. 

Accrued Payroll and Benefits; 
Salaries & Expenses: $18,491; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $18,491. 

Accrued Leave
Salaries & Expenses: $51,706; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $51,706. 

Other Accrued Liabilities; 
Salaries & Expenses: $5,147; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $5,147. 

Total Liabilities; 
Salaries & Expenses: $123,214; 
Investor Protection Fund: 0; 
Reserve Fund: $4,581; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $127,795. 

Net Position: 

Cumulative Results of Operations; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Total Net Position; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Total Liabilities and Net Position; 
Salaries & Expenses: $7,250,748; 
Investor Protection Fund: $439,197; 
Reserve Fund: $91,067; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,781,012. 

Statement of Net Cost for the year ended September 30, 2013: 

Gross Program Costs; 
Salaries & Expenses: $1,302,673; 
Investor Protection Fund: $14,883; 
Reserve Fund: $13,504; 
Eliminations: ($51); 
Total Funds From Dedicated Collections: $1,331,009. 

Less Earned Revenues Not Attributable to Program Costs; 
Salaries & Expenses: $1,256,792; 
Investor Protection Fund: 0; 
Reserve Fund: $50,000; 
Eliminations: ($51); 
Total Funds From Dedicated Collections: $1,306,741. 

Net (Income) Cost from Operations; 
Salaries & Expenses: $45,881; 
Investor Protection Fund: $14,883; 
Reserve Fund: ($36,496); 
Eliminations: 0; 
Total Funds From Dedicated Collections: $24,268. 

Statement of Changes in Net Position for the year ended September 30, 
2013: 

Cumulative Results of Operations: 

Net Position, Beginning of Period; 
Salaries & Expenses: $7,092,911; 
Investor Protection Fund: $453,429; 
Reserve Fund: $49,990; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,596,330. 

Budgetary Financing Sources: 

Appropriations Used; 
Salaries & Expenses: $47,546; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $47,546. 

Non-Exchange Revenue; 
Salaries & Expenses: 0; 
Investor Protection Fund: $655; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $655. 

Transfers In/Out Without Reimbursement; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Other; 
Salaries & Expenses: 0; 
Investor Protection Fund: $6; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $6. 

Other Financing Sources: 

Imputed Financing; 
Salaries & Expenses: $32,958; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $32,958. 

Other; 
Salaries & Expenses: 0; 
Investor Protection Fund: ($10); 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($10). 

Net Income (Cost) from Operations; 
Salaries & Expenses: ($45,881); 
Investor Protection Fund: ($14,883); 
Reserve Fund: $36,496; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($24,268). 

Net Change; 
Salaries & Expenses: $34,623; 
Investor Protection Fund: ($14,232); 
Reserve Fund: $36,496; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $56,887. 

Cumulative Results of Operations; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Unexpended Appropriations: 

Budgetary Financing Sources: 

Appropriations Received; 
Salaries & Expenses: $47,641; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $47,641. 

Other Adjustments (Recissions, etc.); 
Salaries & Expenses: ($95); 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($95). 

Appropriations Used; 
Salaries & Expenses: ($47,546); 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($47,546). 

Total Unexpended Appropriations; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Net Position, End of Period; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Balance Sheet as of September 30, 2012: 

Assets: 

Fund Balance with Treasury;
Salaries & Expenses: $7,016,133;
Investor Protection Fund: $957;
Reserve Fund: $50,000;
Eliminations: 0; 
Total Earmarked Funds: $7,067,090. 

Cash and Other Monetary Assets;
Salaries & Expenses: $8;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $8. 

Investments, Net;
Salaries & Expenses: 0; 
Investor Protection Fund: $452,472;
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $452,472. 

Accounts Receivable, Net;
Salaries & Expenses: $103,312;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $103,312. 

Property and Equipment, Net;
Salaries & Expenses: $96,374;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $96,374. 

Advances and Prepayments;
Salaries & Expenses: $8,059;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $8,059. 

Total Assets;
Salaries & Expenses: $7,223,886;
Investor Protection Fund: $453,429;
Reserve Fund: $50,000;
Eliminations: 0; 
Total Earmarked Funds: $7,727,315. 

Liabilities: 

Accounts Payable;
Salaries & Expenses: $48,289;
Investor Protection Fund: 0; 
Reserve Fund: $10;
Eliminations: 0; 
Total Earmarked Funds: $48,299. 

FECA and Unemployment Liability;
Salaries & Expenses: $9,491;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $9,491. 

Accrued Payroll and Benefits;
Salaries & Expenses: $18,949;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $18,949. 

Accrued Leave;
Salaries & Expenses: $48,531;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $48,531. 

Other Accrued Liabilities;
Salaries & Expenses: $5,715;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $5,715. 

Total Liabilities;
Salaries & Expenses: $130,975;
Investor Protection Fund: 0; 
Reserve Fund: $10;
Eliminations: 0; 
Total Earmarked Funds: $130,985. 

Net Position: 

Cumulative Results of Operations;
Salaries & Expenses: $7,092,911;
Investor Protection Fund: $453,429;
Reserve Fund: $49,990;
Eliminations: 0; 
Total Earmarked Funds: $7,596,330. 

Total Net Position;
Salaries & Expenses: $7,092,911;
Investor Protection Fund: $453,429;
Reserve Fund: $49,990;
Eliminations: 0; 
Total Earmarked Funds: $7,596,330. 

Total Liabilities and Net Position;
Salaries & Expenses: $7,223,886;
Investor Protection Fund: $453,429;
Reserve Fund: $50,000;
Eliminations: 0; 
Total Earmarked Funds: $7,727,315. 

Statement of Net Cost for the year ended September 30, 2012: 

Gross Program Costs;
Salaries & Expenses: $1,195,721;
Investor Protection Fund: $116;
Reserve Fund: $10;
Eliminations: ($70);
Total Earmarked Funds: $1,195,777. 

Less Earned Revenues Not Attributable to Program Costs;
Salaries & Expenses: $1,269,829;
Investor Protection Fund: 0; 
Reserve Fund: $50,000;
Eliminations: ($70);
Total Earmarked Funds: $1,319,759. 

Net (Income) Cost from Operations;
Salaries & Expenses: ($74,108);
Investor Protection Fund: $116;
Reserve Fund: ($49,990);
Eliminations: 0; 
Total Earmarked Funds: ($123,982). 

Statement of Changes in Net Position for the year ended September 30, 
2012: 

Cumulative Results of Operations: 

Beginning Balances;
Salaries & Expenses: $6,956,398;
Investor Protection Fund: $452,788;
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $7,409,186. 

Appropriations Used;
Salaries & Expenses: $32,601; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $32,601. 

Non-Exchange Revenue;
Salaries & Expenses: 0; 
Investor Protection Fund: $757;
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $757. 

Transfers In/Out Without Reimbursement;
Salaries & Expenses: ($784);
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: ($784). 

Other;
Salaries & Expenses: 0;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: 0. 

Other Financing Sources: 

Imputed Financing;
Salaries & Expenses: $30,588;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $30,588. 

Other;
Salaries & Expenses: 0;
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: 0. 

Net Income (Cost) from Operations;
Salaries & Expenses: $74,108;
Investor Protection Fund: ($116);
Reserve Fund: $49,990;
Eliminations: 0; 
Total Earmarked Funds: $123,982. 

Net Change;
Salaries & Expenses: $136,513;
Investor Protection Fund: $641;
Reserve Fund: $49,990;
Eliminations: 0; 
Total Earmarked Funds: $187,144. 

Cumulative Results of Operations;
Salaries & Expenses: $7,092,911;
Investor Protection Fund: $453,429;
Reserve Fund: $49,990;
Eliminations: 0; 
Total Earmarked Funds: $7,596,330. 

Unexpended Appropriations: 

Appropriations Received;
Salaries & Expenses: $32,601; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: $32,601. 

Appropriations Used; 
Salaries & Expenses: ($32,601);
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Earmarked Funds: ($32,601). 

Net Position, End of Period;
Salaries & Expenses: $7,092,911;
Investor Protection Fund: $453,429;
Reserve Fund: $49,990;
Eliminations: 0; 
Total Earmarked Funds: $7,596,330. 

[End of table] 

Note 12. Intragovernmental Costs and Exchange Revenue: 

The Statement of Net Cost presents the SEC’s results of operations for 
its major programs. The SEC assigns all costs incurred to ten 
programs, consistent with its budget submissions. The full cost of the 
SEC’s programs is the sum of (1) the costs of resources directly or 
indirectly consumed by those programs, and (2) the costs of 
identifiable supporting services provided by other responsibility 
segments within the agency. Typical examples of indirect costs include 
costs of general administrative services, technical support, security, 
rent, and operating and maintenance costs for buildings, equipment, 
and utilities. The SEC allocates support costs to its programs using 
activity-based cost accounting. 

Intragovernmental costs arise from purchases of goods and services 
from other components of the Federal Government. In contrast, public 
costs are those which arise from the purchase of goods and services 
from non-Federal entities. 

Exchange revenue is not directly assignable to a specific program and 
is presented in total. The Statements of Net Cost, for the years ended 
September 30, 2013 and 2012, with a breakout of intragovernmental and 
public costs is presented below. 

FY 2013: 
(Dollars In Thousands) 

SEC Programs: 

Enforcement; 
Intragovernmental Gross Cost: $75,436; 
Gross Cost with the Public: $375,636; 
Total: $451,072. 

Compliance Inspections and Examinations; 
Intragovernmental Gross Cost: $44,376; 
Gross Cost with the Public: $220,972; 
Total: $265,348. 

Corporation Finance; 
Intragovernmental Gross Cost: $23,711; 
Gross Cost with the Public: $118,066; 
Total: $141,777. 

Trading and Markets; 
Intragovernmental Gross Cost: $12,745; 
Gross Cost with the Public: $63,468; 
Total: $76,213. 

Investment Management; 
Intragovernmental Gross Cost: $8,423; 
Gross Cost with the Public: $41,943; 
Total: $50,366. 

Economic and Risk Analysis; 
Intragovernmental Gross Cost: $4,934; 
Gross Cost with the Public: $24,570; 
Total: $29,504. 

General Counsel; 
Intragovernmental Gross Cost: $6,926; 
Gross Cost with the Public: $34,491; 
Total: $41,417. 

Other Program Offices; 
Intragovernmental Gross Cost: $8,658; 
Gross Cost with the Public: $43,110; 
Total: $51,768. 

Agency Direction and Administrative Support; 
Intragovernmental Gross Cost: $36,136; 
Gross Cost with the Public: $179,941; 
Total: $216,077. 

Inspector General; 
Intragovernmental Gross Cost: $1,176; 
Gross Cost with the Public: $5,856; 
Total: $7,032. 

Total Program Costs; 
Intragovernmental Gross Cost: $222,521; 
Gross Cost with the Public: $1,108,053; 
Total: $1,330,574. 

Less: Exchange Revenues 

Securities Transaction Fees; 
Total: $1,256,644. 

Securities Registration, Tender Offer, and Merger Fees; 
Total: $507,473. 

Other; 
Total: $150. 

Total Exchange Revenues; 
Total: $1,764,267. 

Net (Income) Cost from Operations; 
Total: ($433,693). 

FY 2012: 

SEC Programs: 

Enforcement;
Intragovernmental Gross Cost: $73,629;
Gross Cost with the Public: $326,945;
Total: $400,574. 

Compliance Inspections and Examinations;
Intragovernmental Gross Cost: $43,331;
Gross Cost with the Public: $192,406;
Total: $235,737. 

Corporation Finance;
Intragovernmental Gross Cost: $25,263;
Gross Cost with the Public: $112,178;
Total: $137,441. 

Trading and Markets;
Intragovernmental Gross Cost: $12,487;
Gross Cost with the Public: $55,449;
Total: $67,936. 

Investment Management;
Intragovernmental Gross Cost: $8,866;
Gross Cost with the Public: $39,372;
Total: $48,238. 

Risk, Strategy, and Financial Innovation;
Intragovernmental Gross Cost: $3,730;
Gross Cost with the Public: $16,566;
Total: $20,296. 

General Counsel;
Intragovernmental Gross Cost: $7,528;
Gross Cost with the Public: $33,423;
Total: $40,951. 

Other Program Offices;
Intragovernmental Gross Cost: $8,968;
Gross Cost with the Public: $39,823;
Total: $48,791. 

Agency Direction and Administrative Support;
Intragovernmental Gross Cost: $34,982;
Gross Cost with the Public: $155,332;
Total: $190,314. 

Inspector General;
Intragovernmental Gross Cost: $1,330;
Gross Cost with the Public: $5,908;
Total: $7,238. 

Total Program Costs;
Intragovernmental Gross Cost: $220,114;
Gross Cost with the Public: $977,402;
Total: $1,197,516. 

Less: Exchange Revenues: 

Securities Transaction Fees:
Total: $1,269,612. 

Securities Registration, Tender Offer, and Merger Fees:
Total: $378,028. 

Other:
Total: $219. 

Total Exchange Revenues:
Total: $1,647,859. 

Net (Income) Cost from Operations:
Total: ($450,343). 

[End of table] 

Intragovernmental exchange revenue was $97 thousand for the year ended 
September 30, 2013. Intragovernmental exchange revenue was $147 
thousand for the year ended September 30, 2012. 

Note 13. Imputed Financing: 

A portion of the retirement, health, and life insurance benefits 
provided to SEC employees is funded by OPM. In accordance with Federal 
accounting standards, the SEC recognizes identified costs paid by OPM 
on behalf of the SEC as an expense. The funding for this expense is 
reflected as imputed financing on the Statement of Changes in Net 
Position. Costs paid by OPM on behalf of the SEC were $33 million and 
$30.5 million in FY 2013 and FY 2012, respectively. 

Note 14. Status of Budgetary Resources: 

A. Apportionment Categories of Obligations Incurred: 

Category A funds are those amounts that are subject to quarterly 
apportionment by OMB, meaning that a portion of the annual 
appropriation is not available to the agency until apportioned each 
quarter. Category B funds represent budgetary resources distributed by 
a specified time period, activity, project, object, or a combination 
of these categories. The SEC’s Category B funds represent amounts 
apportioned at the beginning of the fiscal year for the SEC’s 
reimbursable and Investor Protection Fund activities. The SEC’s 
Reserve Fund is exempt from apportionment. For additional information, 
see Note 1.E, Fund Accounting Structure, and Note 1.R, Budgets and 
Budgetary Accounting. For the years ended September 30, 2013 and 2012, 
the SEC incurred obligations against Category A, Category B, and 
Exempt funds as follows: 

Obligations Incurred
(Dollars In Thousands): 

Direct Obligations: 

Category A; 
FY 2013: $1,201,369; 
FY 2012: $1,179,640. 

Category B — Investor Protection Fund; 
FY 2013: $14,883; 
FY 2012: $116. 

Exempt From Apportionment — Reserve Fund; 
FY 2013: $41,343; 
FY 2012: $12,358. 

Total Direct Obligations; 
FY 2013: $1,257,595; 
FY 2012: $1,192,114. 

Reimbursable Obligations: 

Category B; 
FY 2013: $116; 
FY 2012: $271. 

Total Obligations Incurred; 
FY 2013: $1,257,711; 
FY 2012: $1,192,385. 

[End of table] 

In addition, the amounts of budgetary resources obligated for 
undelivered orders include $792.2 million and $890.1 million at 
September 30, 2013 and 2012, respectively. 

B. Explanation of Differences between the Statement of Budgetary 
Resources and the Budget of the U.S. Government: 

A comparison between the FY 2013 Statement of Budgetary Resources 
(SBR) and the actual FY 2013 data in the President’s budget cannot be 
presented, as the FY 2015 President’s budget which will contain FY 
2013 actual data is not yet available. The comparison will be 
presented in next year’s financial statements. The comparison as of 
September 30, 2012 is presented below: 

(Dollars In Millions): 

Combined Statement of Budgetary Resources; 
Budgetary Resources: $1,236; 
Obligations Incurred: $1,192; 
Distributed Offsetting Receipts: ($1); 
Outlays, Net: ($109). 

FY 2012 Ending Balance: Comptroller General Decision B 322160, 
Recording of Obligation for Multiple Year Contract; 
Budgetary Resources: $523; 
Obligations Incurred: 0; 
Distributed Offsetting Receipts: 0; 
Outlays, Net: 0. 

OMB’s application of cumulative unobligated balances used to liquidate 
deficiency; 
Budgetary Resources: ($102); 
Obligations Incurred: 0; 
Distributed Offsetting Receipts: 0; 
Outlays, Net: 0. 

Rounding; 
Budgetary Resources: $1; 
Obligations Incurred: 0; 
Distributed Offsetting Receipts: 0; 
Outlays, Net: 0. 

Budget of the U.S. Government for FY 2014; 
Budgetary Resources: $1,658; 
Obligations Incurred: $1,192; 
Distributed Offsetting Receipts: ($1); 
Outlays, Net: ($109). 

[End of table] 

The differences between the FY 2012 SBR and the prior year column of 
the FY 2014 Budget exist because certain data elements are reported on 
the SBR differently than those same data elements are reported in the 
Budget. 

The data elements reported differently are those used to report the SEC’
s recording of obligations in FY 2011 to reflect the impact of 
Comptroller General Decision B 322160, Securities and Exchange 
Commission--Recording of Obligation for Multiple-Year Contract and the 
subsequent adjustment and liquidation of those obligations. In 
consultation with OMB, in FY 2011 the SEC recognized obligations for 
leases entered into in FY 2010 and prior. The recognition of these 
lease obligations resulted in an unfunded obligation (deficiency) of 
$778 million. 

In the Budget, the unfunded obligation is not included in the 
beginning of the year unobligated balance brought forward, but instead 
is reported in a separate schedule of the President’s Budget titled “
Unfunded Deficiencies.” 

A detailed reconciliation of the data elements follows: 

* Based on an agreement with OMB, the SEC is funding the deficiency 
over time as the prior year unfunded lease obligation amounts are 
recovered, and as new budget authority becomes available for current 
year lease operations. At the end of FY 2012, the SEC’s SBR reported 
$523 million in remaining unfunded obligations after the SEC funded 
$113 million and recorded a downward adjustment of $142 million to 
previously unfunded obligations. The SEC’s SBR presents the unfunded 
obligations as part of the beginning of the year unobligated balance 
brought forward. 

* At the end of FY 2012, the “Unfunded Deficiencies” schedule in the SEC
’s section of the President’s Budget reported $421 million in 
remaining unfunded obligations. The $102 million difference in 
remaining unfunded obligations reflects the difference in presentation 
between the SEC’s SBR and the President’s Budget: the “Unfunded 
Deficiencies” schedule in the President’s Budget applies the FY 2011 
year-end unobligated balance ($47 million) as a reduction in the 
beginning of year unfunded deficiency and the FY 2012 unobligated 
balance ($55 million) as part of new budget authority used to 
liquidated deficiencies. 

* A portion of the activity in the “Unfunded Deficiencies” schedule is 
also reflected in the Budgetary Resources section of the SEC’s 
Salaries and Expense Account in the President’s Budget. The $310 
million in “New budget authority used to liquidate deficiencies” in 
the “Unfunded Deficiencies” schedule is broken out in the SEC’s 
Salaries and Expense Account as follows: $142 million in “Adjustment 
for unfunded deficiencies”(downward adjustments) and $168 million in “
Adjustments for new budget authority used to liquidate deficiencies.” 
The $142 million downward adjustments include $137.7 million resulting 
from an agreement signed in June 2012 transferring responsibility for 
the Constitution Center from the SEC to GSA. The $168 million resulted 
from $113 million used to liquidate the lease obligations plus the $55 
million unobligated balance at the end of FY 2012 considered to be 
applied to the unfunded obligations in the “Unfunded Deficiencies” 
schedule. 

C. Other Budgetary Disclosures: 

General Provisions of Appropriation: 

The SEC’s annual Appropriations Act contains general provisions that 
limit the amount that can be obligated for international conferences, 
International Organization of Securities Commission (IOSCO) dues, and 
representation expenses. The act also requires the SEC to fund its 
Office of Inspector General with a minimum of $6,795,000 . This amount 
was reduced by $339,750 (5%) to a new figure of $6,455,250 by the 
sequestration outlined in the OMB Report to the Congress on the Joint 
Committee Sequestration for Fiscal Year 2013. However, the amount for 
the Office of Inspector General is a “not less than” item; therefore, 
the sequestration order does not require a reduction in the funding 
provided but instead lowers the minimum amount that must be provided. 

The SEC’s FY 2012 appropriation bill included a provision that 
temporarily rescinded $25 million in appropriations recognized in 
SEC’s Reserve Fund until FY 2013. Refer to Note 1.E, Fund Accounting 
Structure, “Reserve Fund,” for more information. 

Change in Legal Interpretation for Lease Obligations: 

The SEC was granted independent leasing authority in 1990. Based on a 
legal review of its statutory authority at the time, the SEC adopted a 
policy of obligating only the annual portion of lease payments due 
each year. On October 3, 2011, the Government Accountability Office 
(GAO) issued a decision that this longstanding practice of recording 
lease obligations only on an annual basis violated the recording 
statute, 31 U.S.C. sect. 1501(a)(1). Specifically, the GAO’s decision 
was that the SEC lacks statutory authority to obligate an amount less 
than the Government’s total obligation. If the SEC lacks sufficient 
budget authority to cover this obligation, the SEC should report a 
violation of the Antideficiency Act (ADA). 

The SEC recorded obligations in the same manner for all its leasing 
actions between the time the agency was granted independent leasing 
authority in 1990 and 2010. Further, the agency did not have 
sufficient remaining unobligated funds in the years in which the 
various leases were entered to cover the full obligations associated 
with those leases. As a result, the agency recorded unfunded 
obligations totaling $778 million for leases executed between 1990 and 
2010 in FY 2011. The SEC appropriately obligated the Government’s 
total financial responsibility for lease actions that were executed in 
FY 2011 and FY 2012. 

Unfunded lease obligations totaled $441 million and $523 million as of 
September 30, 2013 and 2012, respectively. The change in unfunded 
obligations is due to the SEC funding previously unfunded obligations 
totaling $80.2 million and also recording downward adjustments to 
previous year unfunded lease obligations totaling $2 million. Accrual 
accounting requires expenses to be recognized in the period in which 
the expenses are incurred. Because future lease expenses are not an 
expense of the current fiscal year, they are not reported as expenses 
or liabilities in the current fiscal year. See Note 9, Leases, for 
additional information. 

See Note 10.A, Commitments: Securities Investor Protection Act, for 
information on the SEC’s borrowing authority. 

Note 15. Reconciliation of Net Cost of Operations to Budget: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands) 

Resources Used To Finance Activities: 

Budgetary Resources Obligated: 

Obligations Incurred (Note 14); 
FY 2013: $1,257,711; 
FY 2012: $1,192,385. 

Less: Spending Authority from Offsetting Collections, Recoveries, and 
Downward Adjustments to Prior Year Unfunded Lease Obligations; 
FY 2013: ($1,307,044); 
FY 2012: ($1,457,761). 

Less: Reserve Fund Appropriations; 
FY 2013: ($50,000); 
FY 2012: ($50,000). 

Net Obligations; 
FY 2013: ($99,333); 
FY 2012: ($315,376). 

Other Resources: 

Imputed Financing from Cost Absorbed by Others (Note 13); 
FY 2013: $32,958; 
FY 2012: $30,588. 

Total Resources Used to Finance Activities; 
FY 2013: ($66,375); 
FY 2012: ($284,788). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 

Change in Budgetary Resources Obligated for Goods, Services, and 
Benefits Ordered But Not Yet Provided; 
FY 2013: $104,435; 
FY 2012: $141,372. 

Resources that Finance the Acquisition of Assets Capitalized on the 
Balance Sheet; 
FY 2013: ($83,218); 
FY 2012: ($40,684). 

Total Resources Used to Finance Items Not Part of the Net Cost of 
Operations; 
FY 2013: $21,217; 
FY 2012: $100,688. 

Total Resources Used to Finance the Net Cost of Operations; 
FY 2013: ($45,158); 
FY 2012: ($184,100). 

Components Of Net Cost Of Operations That Will Not Require Or Generate 
Resources In The Current Period: 

Components Requiring or Generating Resources in Future Periods: 

Change in Accrued Leave Liability; 
FY 2013: $3,175; 
FY 2012: $3,059. 

Change in Revenue Receivables Not Generating Resources Until Collected; 
FY 2013: $16,684; 
FY 2012: $18,814. 

Change in Lease Liability; 
FY 2013: ($563); 
FY 2012: ($548). 

Change in Legal Liability; 
FY 2013: 0; 
FY 2012: ($956). 

Change in Unfunded Liability; 
FY 2013: ($3,786); 
FY 2012: $2,674. 

Total Components of Net Cost of Operations that will Require or 
Generate Resources in Future Periods; 
FY 2013: $15,510; 
FY 2012: $23,043. 

Components not Requiring or Generating Resources: 

Depreciation and Amortization; 
FY 2013: $53,801; 
FY 2012: $36,607. 

Revaluation of Assets or Liabilities; 
FY 2013: $117; 
FY 2012: $446. 

Non-Entity Filing Fee Revenue, Net; 
FY 2013: ($457,915); 
FY 2012: ($326,284). 

Other Costs that will not Require or Generate Resources; 
FY 2013: ($48); 
FY 2012: ($55). 

Total Components of Net Cost of Operations that will not Require or 
Generate Resources in Future Periods; 
FY 2013: ($404,045); 
FY 2012: ($289,286). 

Total Components of Net Cost of Operations that will not Require or 
Generate Resources in the Current Period; 
FY 2013: ($388,535); 
FY 2012: ($266,243). 

Net (Income) Cost from Operations; 
FY 2013: ($433,693); 
FY 2012: ($450,343). 

[End of table] 

Components of net cost of operations that will not require or generate 
budgetary resources represent required timing differences in the 
Statement of Net Cost and the Statement of Budgetary Resources. 

For example, as noted in Note 1. M, Liabilities, annual leave that is 
earned but not either taken or paid out to separating employees by the 
end of the fiscal year is required to be reported as an expense in the 
financial statements in the year when it is earned, but it is required 
to be funded by budgetary resources in the future fiscal year when it 
is either used or paid out to separating employees. In the 
reconciliation above, it is reported as a component of net cost that 
will not require resources in the current period. Another example is 
depreciation expense. In budgetary reporting, the entire cost of a 
depreciable asset is recognized in the period when the asset is 
purchased. However, in financial statement reporting, accrual 
accounting requires the cost of such assets to be allocated among the 
reporting periods that represent the estimated useful life of the 
asset. In the reconciliation above, depreciation is recognized as a 
“component not requiring or generating resources.” 

Note 16. Disgorgement and Penalties: 

The SEC’s non-entity assets include disgorgement, penalties, and 
interest assessed against securities law violators by the Commission 
or a Federal court. The SEC also recognizes an equal and offsetting 
liability for these non-entity assets, as discussed in Note 1.M, 
Liabilities. 

When the Commission or court issues an order for the SEC to collect 
disgorgement, penalties, and interest from securities law violators, 
the SEC establishes an account receivable due to the SEC. Upon 
collection, the SEC may (a) hold receipts in the Disgorgement and 
Penalty Deposit Fund as FBWT or Treasury investments pending 
distribution to harmed investors, (b) deposit receipts in the U.S. 
Treasury General Fund or, (c) transfer amounts to the Investor 
Protection Fund. The situations where funds would not be held for 
distribution to harmed investors arise when the SEC either determines 
it is not practical to return funds to investors or when court orders 
expressly state that funds are to be remitted to the U.S. Treasury. 
The determination as to whether funds not held for distribution to 
harmed investors will be deposited in the U.S. Treasury or transferred 
to the Investor Protection Fund is made in accordance with the 
provisions of the Dodd-Frank Act, and is dependent on the balance in 
the Investor Protection Fund on the day the amounts are collected. 
(See Note 1.T, Investor Protection Fund). 

Disbursements related to disgorgements and penalties include 
distributions to harmed investors, payments to tax authorities, and 
fees paid to plan administrators and the Bureau of the Fiscal Service. 
The SEC does not record accounts receivable on its financial 
statements for any amounts ordered to another Government entity such 
as a court, or a non-governmental entity such as a receiver. 
Additional details regarding disgorgement and penalties are presented 
in Note 1.S, Disgorgement and Penalties, and Note 2, Entity and Non-
Entity Assets. 

At September 30, the net inflows and outflows for FBWT, Investments, 
and Accounts Receivable related to disgorgement and penalties 
consisted of the following: 

(Dollars In Thousands) 

Fund Balance with Treasury: 

Beginning Balance; 
FY 2013: $341,886; 
FY 2012: $73,929. 

Collections; 
FY 2013: $1,545,037; 
FY 2012: $622,529. 

Purchases and Redemptions of Treasury Securities; 
FY 2013: ($326,159); 
FY 2012: $228,513. 

Disbursements; 
FY 2013: ($53,935); 
FY 2012: ($205,440). 

Transfers and Deposits to the U.S. Treasury General Fund; 
FY 2013: ($518,592); 
FY 2012: ($377,645). 

Total Fund Balance with Treasury (Note 2); 
FY 2013: $988,237; 
FY 2012: $341,886. 

Cash and Other Monetary Assets: 

Beginning Balance; 
FY 2013: $1,058; 
FY 2012: 0. 

Net Activity; 
FY 2013: ($671); 
FY 2012: $1,058. 

Total Cash and Other Monetary Assets (Notes 2 and 4); 
FY 2013: $387; 
FY 2012: $1,058. 

Investments, Net: 

Beginning Balance; 
FY 2013: $521,444; 
FY 2012: $749,810. 

Net Activity; 
FY 2013: $326,997; 
FY 2012: ($228,366). 

Total Investments, Net (Notes 2 and 5); 
FY 2013: $848,441; 
FY 2012: $521,444. 

Accounts Receivable, Net: 

Beginning Balance; 
FY 2013: $130,616; 
FY 2012: $90,982. 

Net Activity; 
FY 2013: $166,482; 
FY 2012: $39,634. 

Total Accounts Receivable, Net (Notes 2 and 6); 
FY 2013: $297,098; 
FY 2012: $130,616. 

Total Disgorgement and Penalties; 
FY 2013: $2,134,163; 
FY 2012: $995,004. 

[End of table] 

Note 17. Statement of Changes in Net Position: 

In FY 2013, the negative $457,974 thousand in “Other” Financing 
Sources reported in the Statement of Changes in Net Position consists 
of $457,915 thousand in securities registration, tender offer, merger, 
and other fees from registrants (“filing fees”) and $49 thousand in 
Freedom of Information Act (FOIA) fees collected, or to be collected, 
for deposit into the U.S. Treasury General Fund, and $10 thousand in 
losses on the sale of investments in U.S. Treasury securities. 

In FY 2012, the negative $327,123 thousand consists of $327,068 
thousand in filing fees and $55 thousand in FOIA revenues collected, 
or to be collected, for deposit into the U.S. Treasury General Fund. 

[End of section] 

Required Supplementary Information (Unaudited): 

This section provides the Required Supplementary Information as 
prescribed by OMB Circular A-136, Financial Reporting Requirements. 

U.S. Securities And Exchange Commission: 
Statements of Budgetary Resources by Fund For the year ended September 
30, 2013:
(Dollars In Thousands) 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($420,430); 
Investor Protection Fund, 5567: $451,460; 
Reserve Fund, 5566: $12,642; 
Total: $43,672. 

Recoveries of Prior Year Unpaid Obligations; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$30,777; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $30,777. 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$2,009; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $2,009. 

Unobligated Balance from Prior Year Budget Authority, Net; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($387,644); 
Investor Protection Fund, 5567: $451,460; 
Reserve Fund, 5566: $12,642; 
Total: $76,458. 

Appropriations (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$47,546; 
Investor Protection Fund, 5567: ($2,185); 
Reserve Fund, 5566: $72,450; 
Total: $117,811. 

Spending Authority from Offsetting Collections (Discretionary and 
Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,208,208; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $1,208,208. 

Total Budgetary Resources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$868,110; 
Investor Protection Fund, 5567: $449,275; 
Reserve Fund, 5566: $85,092; 
Total: $1,402,477. 

Status Of Budgetary Resources: 

Obligations Incurred (Note 14); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,201,485; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $41,343; 
Total: $1,257,711. 

Unobligated Balance, End of Year: 

Apportioned; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$84,424; 
Investor Protection Fund, 5567: $434,392; 
Reserve Fund, 5566: 0; 
Total: $518,816. 

Exempt from Apportionment; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
0; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: $43,749; 
Total: $43,749. 

Unapportioned; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($417,799); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($417,799). 

Total Unobligated Balance, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($333,375); 
Investor Protection Fund, 5567: $434,392; 
Reserve Fund, 5566: $43,749; 
Total: $144,766. 

Total Budgetary Resources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$868,110; 
Investor Protection Fund, 5567: $449,275; 
Reserve Fund, 5566: $85,092; 
Total: $1,402,477. 

Change In Obligated Balance: 

Unpaid Obligations: 

Unpaid Obligations, Brought Forward, October 1 (Gross); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$942,240; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $12,358; 
Total: $954,598 

Obligations Incurred; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,201,485; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $41,343; 
Total: $1,257,711. 

Outlays (Gross); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,285,339); 
Investor Protection Fund, 5567: ($14,883); 
Reserve Fund, 5566: ($24,654); 
Total: ($1,324,876). 

Recoveries of Prior Year Unpaid Obligations; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($30,777); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($30,777). 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($2,009); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($2,009). 

Unpaid Obligations, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$825,600; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: $29,047; 
Total: $854,647. 

Uncollected Payments: 

Uncollected Payments, Federal Sources, Brought Forward, October 1; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($189); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($189). 

Change in Uncollected Payments, Federal Sources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($63); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($63). 

Uncollected Payments, Federal Sources, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($252); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($252). 

Memorandum (non-add) entries: 

Obligated Balance, Start of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$942,051; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $12,358; 
Total: $954,409. 

Obligated Balance, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$825,348; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $29,047; 
Total: $854,395. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,255,754; 
Investor Protection Fund, 5567: ($2,185); 
Reserve Fund, 5566: $72,450; 
Total: $1,326,019. 

Actual Offsetting Collections (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$(1,274,195); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($1,274,195). 

Change in Uncollected Customer Payments from Federal Sources 
(Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($63); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($63). 

Budget Authority, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($18,504); 
Investor Protection Fund, 5567: ($2,185); 
Reserve Fund, 5566: $72,450; 
Total: $51,761. 

Outlays, Gross (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,285,339; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $24,654; 
Total: $1,324,876. 

Actual Offsetting Collections (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,274,195); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($1,274,195). 

Outlays, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$11,144; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $24,654; 
Total: $50,681. 

Distributed Offsetting Receipts; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($745); 
Investor Protection Fund, 5567: ($2,405); 
Reserve Fund, 5566: 0; 
Total: ($3,150). 

Agency Outlays, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$10,399; 
Investor Protection Fund, 5567: $12,478; 
Reserve Fund, 5566: $24,654; 
Total: $47,531. 

The accompanying notes are an integral part of these financial 
statements. 

For the year ended September 30, 2012: 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($730,880);
Investor Protection Fund [5567]: $450,951;
Reserve Fund [5566]: 0; 
Total: ($279,929). 

Recoveries of Prior Year Unpaid Obligations;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$26,688;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: $26,688. 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$141,933;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: $141,933. 

Unobligated Balance from Prior Year Budget Authority, Net;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($562,259);
Investor Protection Fund [5567]: $450,951;
Reserve Fund [5566]: 0; 
Total: ($111,308). 

Appropriations (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$32,601;
Investor Protection Fund [5567]: $625;
Reserve Fund [5566]: $25,000;
Total: $58,226. 

Spending Authority from Offsetting Collections (Discretionary and 
Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,289,139;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: $1,289,139. 

Total Budgetary Resources;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$759,481;
Investor Protection Fund [5567]: $451,576;
Reserve Fund [5566]: $25,000;
Total: $1,236,057. 

Status Of Budgetary Resources: 

Obligations Incurred (Note 14): 

Direct and Reimbursable;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,179,911;
Investor Protection Fund [5567]: $116;
Reserve Fund [5566]: $12,358;
Total: $1,192,385. 

Change in Legal Interpretation for Lease Obligations;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
0; 
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: 0. 

Subtotal;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,179,911;
Investor Protection Fund [5567]: $116;
Reserve Fund [5566]: $12,358;
Total: $1,192,385. 

Unobligated Balance, End of Year: 

Apportioned;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$71,533;
Investor Protection Fund [5567]: $451,460;
Reserve Fund [5566]: 0; 
Total: $522,993. 

Exempt from Apportionment;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
0; 
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: $12,642;
Total: $12,642. 

Unapportioned;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($491,963);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($491,963). 

Total Unobligated Balance, End of Year;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($420,430);
Investor Protection Fund [5567]: $451,460;
Reserve Fund [5566]: $12,642;
Total: $43,672. 

Total Budgetary Resources;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$759,481;
Investor Protection Fund [5567]: $451,576;
Reserve Fund [5566]: $25,000;
Total: $1,236,057. 

Change In Obligated Balance: 

Unpaid Obligations, Brought Forward, October 1 (Gross);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,110,634;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: $1,110,634. 

Uncollected Customer Payments from Federal Sources, Brought Forward, 
October 1;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($47);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($47). 

Obligated Balance, Start of Year (Net);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,110,587;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: $1,110,587. 

Obligations Incurred; 
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,179,911;
Investor Protection Fund [5567]: $116;
Reserve Fund [5566]: $12,358;
Total: $1,192,385. 

Outlays (Gross);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($1,179,684);
Investor Protection Fund [5567]: ($116);
Reserve Fund [5566]: 0; 
Total: ($1,179,800). 

Change in Uncollected Customer Payments from Federal Sources;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($142);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($142). 

Recoveries of Prior Year Unpaid Obligations;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($26,688);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($26,688). 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($141,933);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($141,933). 

Total Obligated Balance, End of Year;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$942,051;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: $12,358;
Total: $954,409. 

Obligated Balance, End of Year: 

Unpaid Obligations, End of Year (Gross);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$942,240;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: $12,358;
Total: $954,598. 

Uncollected Customer Payments from Federal Sources, End of Year;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($189);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($189). 

Obligated Balance, End of Year (Net);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$942,051;
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: $12,358;
Total: $954,409. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,321,740;
Investor Protection Fund [5567]: $625;
Reserve Fund [5566]: $25,000;
Total: $1,347,365. 

Actual Offsetting Collections (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($1,288,998);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($1,288,998). 

Change in Uncollected Customer Payments from Federal Sources 
(Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($142);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($142). 

Budget Authority, Net (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$32,600;
Investor Protection Fund [5567]: $625;
Reserve Fund [5566]: $25,000;
Total: $58,225. 

Outlays, Gross (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
$1,179,684;
Investor Protection Fund [5567]: $116;
Reserve Fund [5566]: 0; 
Total: $1,179,800. 

Actual Offsetting Collections (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($1,288,998);
Investor Protection Fund [5567]: 0; 
Reserve Fund [5566]: 0; 
Total: ($1,288,998). 

Outlays, Net (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($109,314);
Investor Protection Fund [5567]: $116;
Reserve Fund [5566]: 0; 
Total: ($109,198). 

Distributed Offsetting Receipts;
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($498);
Investor Protection Fund [5567]: ($625);
Reserve Fund [5566]: 0; 
Total: ($1,123). 

Agency Outlays, Net (Discretionary and Mandatory);
Salaries and Expenses and Other Funds [X0100, 09/10 0100, 1435, 3220]: 
($109,812); 
Investor Protection Fund [5567]: ($509);
Reserve Fund [5566]: 0; 
Total: ($110,321). 

For the year ended September 30, 2011:
(Dollars In Thousands): 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $37,332; 
Supplemental Fund: 09/10 0100: $107; 
Investor Protection Fund: X513137: $451,910; 
Total: $489,349. 

Recoveries of Prior Year Unpaid Obligations: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $38,628; 
Supplemental Fund: 09/10 0100: $317; 
Investor Protection Fund: X513137: 0; 
Total: $38,945. 

Budget Authority: 

Appropriation: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: 0; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: ($847); 
Total: ($847). 

Spending Authority from Offsetting Collections: Earned: Collected: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,598,067; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: $1,598,067. 

Spending Authority from Offsetting Collections: Earned: Change in 
Receivables from Federal Sources: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $20; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: $20. 

Spending Authority from Offsetting Collections: Change in Unfilled 
Customer: Advance Received: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: 0; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: 0. 

Spending Authority from Offsetting Collections: Change in Unfilled 
Customer: Without Advance from Federal Sources: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $2; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: $2. 

Budget Authority: Subtotal: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,598,089; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: ($847); 
Total: $1,597,242. 

Temporarily not Available Pursuant to Public Law: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($412,005); 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: ($412,005). 

Total Budgetary Resources: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,262,044; 
Supplemental Fund: 09/10 0100: $424; 
Investor Protection Fund: X513137: $451,063; 
Total: $1,713,531. 

Status Of Budgetary Resources: 

Obligations Incurred: Direct (Note 14): 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,215,032; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: $112; 
Total: $1,215,144. 

Obligations Incurred: Reimbursable (Note 14): 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $777,928; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: $777,928. 

Obligations Incurred: Subtotal: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,993,348; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: $112; 
Total: $1,993,460. 

Unobligated Balance Available: Apportioned 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $8,297; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: $450,951; 
Total: $459,248. 

Unobligated Balance Not Available: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($739,61); 
Supplemental Fund: 09/10 0100: $424; 
Investor Protection Fund: X513137: 0; 
Total: ($739,177). 

Total Status of Budgetary Resources: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,262,044; 
Supplemental Fund: 09/10 0100: $424; 
Investor Protection Fund: X513137: $451,063; 
Total: $1,713,531. 

Change In Obligated Balance: 

Obligated Balance, Net: 

Unpaid Obligations, Brought Forward, October 1: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $317,772; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: $317,772. 

Uncollected Customer Payments from Federal Sources, Brought Forward, 
October 1: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($25); 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: ($25). 

Total Unpaid Obligated Balance, Net, Beginning of Fiscal Year: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $315,858; 
Supplemental Fund: 09/10 0100: $1,889; 
Investor Protection Fund: X513137: 0; 
Total: $317,474. 

Obligations Incurred Net: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,993,348; 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: $112; 
Total: $1,993,460; 

Gross Outlays: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: 
($1,160,313); 
Supplemental Fund: 09/10 0100: ($1,228); 
Investor Protection Fund: X513137: ($112); 
Total: ($1,161,653). 

Recoveries of Prior Year Unpaid, Obligations Actual: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($38,628); 
Supplemental Fund: 09/10 0100: ($317); 
Investor Protection Fund: X513137: 0; 
Total: ($38,945). 

Change in Uncollected Customer Payments from Federal Sources: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($22); 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: ($22). 

Obligated Balance, Net, End of Period: 

Unpaid Obligations: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,110,290; 
Supplemental Fund: 09/10 0100: $344; 
Investor Protection Fund: X513137: 0; 
Total: $1,110,587. 

Uncollected Customer Payments from Federal Sources: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($47); 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: ($47). 

Total, Unpaid Obligated Balance, Net, End of Period (Note 10): 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,110,243; 
Supplemental Fund: 09/10 0100: $344; 
Investor Protection Fund: X513137: 0; 
Total: $1.110,587; 

Net Outlays: 

Gross Outlays: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: $1,160,313; 
Supplemental Fund: 09/10 0100: $1,228; 
Investor Protection Fund: X513137: $112; 
Total: $1,161,653. 

Offsetting Collections: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: 
($1,598,067); 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: 0; 
Total: ($1,598,067). 

Distributed Offsetting Receipts: 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($187); 
Supplemental Fund: 09/10 0100: 0; 
Investor Protection Fund: X513137: $847; 
Total: $660. 

Net Outlays/(Collections): 
Salaries and Expenses and Other Funds: X0100, 3220, F3875: ($437,941); 
Supplemental Fund: 09/10 0100: $1,228; 
Investor Protection Fund: X513137: $959; 
Total: ($435,754). 

[End of table] 

[End of section] 

Investor Protection Fund Financial Statements: 
Investor Protection Fund Financial Statements: 
Notes to the Investor Protection Fund Financial Statements: 

The accompanying notes are an integral part of these financial 
statements. 

Investor Protection Fund Financial Statements: 

U.S. Securities And Exchange Commission: 
Investor Protection Fund: 
Balance Sheets: 
As of September 30, 2013 and 2012: 
(Dollars In Thousands): 

Assets: 

Intragovernmental: 

Fund Balance with Treasury (Note 2); 
FY 2013: $4,996; 
FY 2012: $957. 

Investments, Net (Note 3); 
FY 2013: $434,201; 
FY 2012: $452,472. 

Total Assets; 
FY 2013: $439,197; 
FY 2012: $453,429. 

Liabilities: 

Commitments and Contingencies (Note 4); 

Net Position: 

Cumulative Results of Operations - Funds from Dedicated Collections; 
FY 2013: $439,197; 
FY 2012: $453,429. 

Total Net Position - Funds from Dedicated Collections; 
FY 2013: $439,197; 
FY 2012: $453,429. 

Total Net Position; 
FY 2013: $439,197; 
FY 2012: $453,429. 

Total Liabilities and Net Position; 
FY 2013: $439,197; 
FY 2012: $453,429. 

[End of table] 

U.S. Securities And Exchange Commission: 
Investor Protection Fund: 
Statements of Net Cost: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

Program Costs (Note 5): 

Payments to Whistleblowers; 
FY 2013: $14,832; 
FY 2012: $46. 

Employee Suggestion Program; 
FY 2013: $51; 
FY 2012: $70. 

Total Program Costs; 
FY 2013: $14,883; 
FY 2012: $116. 

Net (Income) Cost from Operations; 
FY 2013: $14,883; 
FY 2012: $116. 

[End of table] 

U.S. Securities And Exchange Commission: 
Investor Protection FUND: 
Statements of Changes in Net Position: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

Cumulative Results Of Operations – Funds From Dedicated Collections: 

Beginning Balances; 
FY 2013: $453,429; 
FY 2012: $452,788. 

Budgetary Financing Sources: 

Non-Exchange Revenue; 
FY 2013: $655; 
FY 2012: $757. 

Other; 
FY 2013: $6; 
FY 2012: 0. 

Other Financing Sources: 

Other; 
FY 2013: ($10); 
FY 2012: 0. 

Total Financing Sources; 
FY 2013: $651; 
FY 2012: $757. 

Net Income (Cost) from Operations; 
FY 2013: ($14,883); 
FY 2012: ($116). 

Net Change; 
FY 2013: ($14,232); 
FY 2012: $641. 

Cumulative Results of Operations; 
FY 2013: $439,197; 
FY 2012: $453,429. 

Net Position, End of Period; 
FY 2013: $439,197; 
FY 2012: $453,429. 

[End of table] 

U.S. Securities And Exchange Commission: 
Investor Protection Fund: 
Statements of Budgetary Resources: 
For the years ended September 30, 2013 and 2012: 
(Dollars In Thousands): 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
FY 2013: $451,460; 
FY 2012: $450,951. 

Appropriations (Discretionary and Mandatory); 
FY 2013: ($2,185); 
FY 2012: $625. 

Total Budgetary Resources; 
FY 2013: $449,275; 
FY 2012: $451,576. 

Status Of Budgetary Resources: 

Obligations Incurred - Category B (Note 6); 
FY 2013: $14,883; 
FY 2012: $116. 

Unobligated Balance, End of Year: 

Apportioned; 
FY 2013: $434,392; 
FY 2012: $451,460. 

Total Unobligated Balance, End of Year; 
FY 2013: $434,392; 
FY 2012: $451,460. 

Total Budgetary Resources; 
FY 2013: $449,275; 
FY 2012: $451,576. 

Change In Obligated Balance: 

Unpaid Obligations: 

Obligations Incurred; 
FY 2013: $14,883; 
FY 2012: $116. 

Outlays (Gross); 
FY 2013: ($14,883); 
FY 2012: ($116). 

Unpaid Obligations, End of Year (Note 6); 
FY 2013: $0; 
FY 2012: $0. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
FY 2013: ($2,185); 
FY 2012: $625. 

Budget Authority, Net (Discretionary and Mandatory); 
FY 2013: ($2,185); 
FY 2012: $625. 

Outlays, Gross (Discretionary and Mandatory); 
FY 2013: $14,883; 
FY 2012: $116. 

Outlays, Net (Discretionary and Mandatory); 
FY 2013: $14,883; 
FY 2012: $116. 

Distributed Offsetting Receipts; 
FY 2013: ($2,405); 
FY 2012: ($625). 

Agency Outlays, Net (Discretionary and Mandatory); 
FY 2013: $12,478; 
FY 2012: ($509). 

[End of table] 

Notes to the Investor Protection Fund Financial Statements: 

U.S. Securities And Exchange Commission: 
As of September 30, 2013 and 2012: 

NOTE 1. Significant Accounting Policies: 

A. Reporting Structure: 

The U.S. Securities and Exchange Commission (SEC) is an independent 
agency of the U.S. Government established pursuant to the Securities 
Exchange Act of 1934 (Exchange Act), charged with regulating this 
country’s capital markets. The Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (Dodd-Frank Act) established the 
Securities and Exchange Commission Investor Protection Fund. The 
Investor Protection Fund provides funding for a Whistleblower Award 
Program and finances the operations of the SEC Office of Inspector 
General’s (OIG) Employee Suggestion Program. The Investor Protection 
Fund is a fund within the SEC, and these financial statements present 
a segment of the SEC’s financial activity. 

B. Basis of Presentation and Accounting: 

The accompanying financial statements present the financial position, 
net cost of operations, changes in net position, and budgetary 
resources of the Investor Protection Fund as required by Exchange Act 
Section 21F(g)(5). The Act requires a complete set of financial 
statements that includes a balance sheet, income statement, and cash 
flow analysis. The Investor Protection Fund is a Federal reporting 
entity. As such, its financial statements are prepared in conformity 
with generally accepted accounting principles (GAAP) for the Federal 
Government, and are presented in conformity with OMB Circular A-136, 
Financial Reporting Requirements. The legislative requirements to 
prepare an income statement and cash flow analysis are addressed by 
the Statement of Net Cost and Note 2, Fund Balance with Treasury, 
respectively. 

The SEC’s books and records serve as the source of the information 
presented in the accompanying financial statements. 

The agency classifies assets, liabilities, revenues, and costs in 
these financial statements according to the type of entity associated 
with the transactions. Intragovernmental assets and liabilities are 
those due from or to other Federal entities, including those 
activities within the SEC. Intragovernmental revenues and costs result 
from transactions with other Federal entities. 

The Balance Sheet, Statement of Net Cost and Statement of Changes in 
Net Position are prepared using the accrual basis of accounting. 
Accordingly, revenues are recognized when earned and expenses are 
recognized when incurred without regard to the receipt or payment of 
cash. These principles differ from budgetary accounting and reporting 
principles on which the Statement of Budgetary Resources is prepared. 
The statements may differ from other financial reports submitted 
pursuant to Office of Management and Budget (OMB) directives for the 
purpose of monitoring and controlling the use of budgetary resources, 
due to differences in applicable accounting and reporting principles 
discussed in the following paragraphs. Conceptually, the differences 
relate primarily to the capitalization and depreciation of property 
and equipment, as well as the recognition of other assets and 
liabilities. 

C. Use of Estimates: 

The preparation of financial statements in conformity with GAAP 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities. These estimates and 
assumptions include the disclosure of contingent assets and 
liabilities at the date of the financial statements, and the reported 
amounts of revenues and expenses during the reporting period. Actual 
results may differ from these estimates. 

D. Intra- and Inter-Agency Relationships: 

Transactions with Other SEC Entities: 

The Investor Protection Fund is comprised of a single Federal Treasury 
Fund Symbol. The Investor Protection Fund is the recipient of non-
exchange revenues collected by the SEC. Amounts transferred to the 
Investor Protection Fund are classified as “retained by the SEC” 
because the Investor Protection Fund is a fund within the SEC. The 
Investor Protection Fund can finance the operations of the SEC Office 
of Inspector General’s Employee Suggestion Program and the Office of 
the Whistleblower on a reimbursable basis. 

Accounts receivable that may be used to fund the Investor Protection 
Fund are recognized as assets of the SEC. These resources are not 
assets of the Investor Protection Fund until the determination is made 
to deposit collections in the Investor Protection Fund. 

Transactions with Other Federal Agencies: 

Whistleblower payments may be made from the Investor Protection Fund 
as a result of monetary sanctions paid to other Federal agencies in 
related actions, but only if there has been a Commission enforcement 
action resulting in sanctions of a million dollars or greater and the 
Commission has determined that the whistleblower is eligible for an 
award and recommended the percentage. In those instances, the SEC 
remains liable for paying the whistleblower. However, in instances 
where a whistleblower has already received an award from the Commodity 
Futures Trading Commission (CFTC), the whistleblower is not entitled 
to an award from the SEC. 

E. Funds from Dedicated Collections: 

A fund from dedicated collections is financed by specifically 
identified revenues, often supplemented by other financing sources, 
which remain available over time. Investor Protection Fund resources 
are funds from dedicated collections and may only be used for the 
purposes specified by the Dodd-Frank Act. 

F. Entity Assets: 

Assets that an agency is authorized to use in its operations are 
entity assets. The SEC is authorized to use all funds in the Investor 
Protection Fund for its operations. Accordingly, all assets are 
recognized as entity assets. 

G. Fund Balance with Treasury: 

Fund Balance with Treasury reflects amounts the Investor Protection 
Fund holds in the U.S. Treasury that have not been invested in Federal 
securities. The SEC conducts all of its banking activity in accordance 
with directives issued by the U.S. Department of the Treasury’s Bureau 
of the Fiscal Service. 

H. Investments: 

The SEC has authority to invest amounts in the Investor Protection 
Fund in overnight and short-term, market-based Treasury securities. 
The interest earned on the investments is a component of the Fund and 
is available to be used for expenses of the Investor Protection Fund. 
Additional details regarding Investor Protection Fund investments are 
provided in Note 3, Investments. 

I. Liabilities: 

The SEC records liabilities for probable future outflows or other 
sacrifices of resources as a result of events that have occurred as of 
the Balance Sheet date. The Investor Protection Fund’s liabilities 
consist of amounts payable to whistleblowers and reimbursable expenses 
that the Office of Inspector General incurs to operate the Employee 
Suggestion Program. 

The Dodd-Frank Act and the SEC implementing regulations establish the 
eligibility criteria for whistleblower awards. Refer to Note 4, 
Commitments and Contingencies for additional information regarding the 
disclosure and recognition of actual and contingent liabilities for 
whistleblower awards. 

J. Program Costs: 

The Investor Protection Fund reimburses the SEC’s General Fund (X0100) 
for expenses incurred by the Office of Inspector General to administer 
the Employee Suggestion Program. The Investor Protection Fund also 
finances payments to whistleblowers under Section 21F of the Exchange 
Act. 

K. Non-Exchange Revenue: 

Disgorgement and Penalty Transfers: 

Non-exchange revenue arises from the Government’s ability to demand 
payment. The Investor Protection Fund is financed through the receipt 
of portions of monetary sanctions collected by the SEC in judicial or 
administrative actions brought by the SEC under the securities laws 
that are not either: (1) added to the disgorgement fund or other fund 
under Section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) 
or (2) otherwise distributed to victims of a violation of the 
securities laws. The Investor Protection Fund recognizes non-exchange 
revenue for disgorgement and penalty amounts transferred into the fund 
from the SEC’s Disgorgement and Penalties Fund (X6563). No sanction 
collected by the SEC can be deposited into the Investor Protection 
Fund if the balance in the fund exceeds $300 million on the day of 
collection. 

Interest Earnings on Investments with Treasury: 

Interest earned from investments in U.S. Treasury securities is 
classified in the same way as the predominant source of revenue to the 
fund. The Investor Protection Fund is financed through the receipt of 
non-exchange revenues and thus interest earnings are also recognized 
as non-exchange revenues. 

L. Budgets and Budgetary Accounting: 

The Investor Protection Fund (Fund X5567) is a special fund 
established through a permanent indefinite appropriation that has the 
authority to retain revenues and other financing sources not used in 
the current period for future use. The Dodd-Frank Act provides that 
the Fund is available to the SEC without further appropriation or 
fiscal year limitation for the purpose of paying awards to 
whistleblowers and funding the activities of the OIG’s employee 
suggestion program. However, the SEC is required to request and obtain 
an annual apportionment from OMB to use these funds. 

The resources of the Investor Protection Fund are apportioned under 
Category B authority, which means that the funds represent budgetary 
resources distributed by a specified project and are not subject to 
quarterly apportionment. Thus, all obligations incurred as presented 
on the Statement of Budgetary Resources are derived from Category B 
funds. 

Note 2. Fund Balance with Treasury: 

The Fund Balance with Treasury by type of fund and Status of Fund 
Balance with Treasury as of September 30, 2013 and 2012 consisted of 
the following: 

(Dollars In Thousands) 

Fund Balances: 

Special Fund; 
FY 2013: $4,996; 
FY 2012: $957. 

Total Fund Balance with Treasury; 
FY 2013: $4,996; 
FY 2012: $957. 

Status of Fund Balance with Treasury: 

Unobligated Balance: 

Available; 
FY 2013: $406; 
FY 2012: $957. 

Unavailable; 
FY 2013: $4,590; 
FY 2012: 0. 

Subtotal; 
FY 2013: $4,996; 
FY 2012: $957. 

Total Fund Balance with Treasury; 
FY 2013: $4,996; 
FY 2012: $957. 

[End of table] 

Unobligated balances reported for the status of Fund Balance with 
Treasury do not agree with the amounts reported in the Statement of 
Budgetary Resources due to the fact that unobligated balances are not 
reduced when investments are purchased. 

There were no differences between the Fund Balance reflected in the 
Investor Protection Fund financial statements and the balance in the 
Treasury accounts. 

Cash flow: 

The Investor Protection Fund cash flows are reflected in investments 
and in the Statement of Budgetary Resources. Such cash flows during FY 
2013 consisted of net investment redemptions of $16.4 million, net 
interest received of $2.5 million (which includes $3.2 million of 
interest collections, $765 thousand of premiums paid, and $89 thousand 
in discounts received), payments to whistleblowers totaling $14.8 
million, and the cost of operating the OIG Employee Suggestion Program 
of $51 thousand. 

Cash flows during FY 2012 consisted of net investment redemptions of 
$375 thousand, net interest received of $625 thousand (which includes 
$4.2 million of interest collections and $3.6 million of premiums 
paid), payments to whistleblowers totaling $46 thousand, and the cost 
of operating the OIG Employee Suggestion Program of $70 thousand. 

Note 3. Investments: 

The SEC invests funds in overnight and short-term non-marketable 
market-based Treasury bills. The SEC records the value of its 
investments in Treasury bills at cost and amortizes any premium or 
discount on a straight-line basis (S/L) through the maturity date of 
these securities. Non-marketable market-based Treasury securities are 
issued by the Bureau of the Fiscal Service to Federal agencies. They 
are not traded on any securities exchange but mirror the prices of 
similar Treasury securities trading in the Government securities 
market. 

At September 30, 2013, investments consisted of the following: 
(Dollars In Thousands) 

Non-Marketable Market-Based Securities: 

Investor Protection Fund – Entity; 

Cost: $434,009; 
Amortization Method: S/L; 
Amortized (Premium) Discount: $56; 
Interest Receivable: $136; 
Investment, Net: $434,201; 
Market Value Disclosure: $434,211. 

At September 30, 2012, investments consisted of the following:
(Dollars In Thousands) 

Non-Marketable Market-Based Securities: 

Investor Protection Fund – Entity; 

Cost: $454,119; 
Amortization Method: S/L; 
Amortized (Premium) Discount: (2,875); 
Interest Receivable: $1,228; 
Investment, Net: $452,472; 
Market Value Disclosure: $451,319. 

Intragovernmental Investments in Treasury Securities: 

Market-based Treasury securities are debt securities that the U.S. 
Treasury issues to Federal entities without statutorily determined 
interest rates. Although the securities are not marketable, the terms 
(prices and interest rates) mirror the terms of marketable Treasury 
securities. 

The Federal Government does not set aside assets to pay future 
benefits or other expenditures associated with the investment by 
Federal agencies in non-marketable Federal securities. The balances 
underlying these investments are deposited in the U.S. Treasury, which 
uses the cash for general Government purposes. Treasury securities are 
issued to the SEC as evidence of these balances. Treasury securities 
are an asset of the SEC and a liability of the U.S. Treasury. Because 
the SEC and the U.S. Treasury are both components of the Government, 
these assets and liabilities offset each other from the standpoint of 
the Government as a whole. For this reason, the investments presented 
by the SEC do not represent an asset or a liability in the U.S. 
Government-wide financial statements. 

Treasury securities provide the SEC with authority to draw upon the 
U.S. Treasury to make future payments from these accounts. When the 
SEC requires redemption of these securities to make expenditures, the 
Government finances those expenditures out of accumulated cash 
balances, by raising taxes or other receipts, by borrowing from the 
public or repaying less debt, or by curtailing other expenditures. 
This is the same manner in which the Government finances all 
expenditures. 

Note 4. Commitments and Contingencies: 

Commitments and Contingencies: Whistleblower Program: 

As mentioned in Note 1.I, Liabilities, the Investor Protection Fund is 
used to pay awards to whistleblowers if they voluntarily provide 
original information to the SEC and meet other conditions. The 
legislation allows whistleblowers to receive between 10 and 30 percent 
of the monetary sanctions collected in the covered action or in a 
related action, with the actual percentage being determined at the 
discretion of the SEC using criteria provided in the legislation and 
the related rules to implement the legislation adopted by the SEC. 

A Preliminary Determination is a first assessment, made by the Claims 
Review Staff, as to whether the claim should be allowed or denied, and 
if allowed, what the proposed award percentage amount should be. A 
contingent liability is recognized in instances where a positive 
Preliminary Determination (payment of award is probable) has been made 
by the Claims Review Staff in the Office of the Whistleblower and the 
amount can be reasonably estimated. Liabilities are recognized in 
instances where a collection has been received and a positive Proposed 
Final Determination has been reached by the Claims Review Staff. 
However, the actual payment of the Whistleblower award would not occur 
until after the final order was issued by the Commission. The SEC did 
not recognize a contingent liability for potential whistleblower 
awards as of September 30, 2013 or September 30, 2012. 

The SEC believes that approximately $500,000 in additional 
whistleblower awards may be paid in future periods relating to covered 
actions for which monetary sanctions were collected and award 
applications were filed during FY 2013, but a Preliminary 
Determination had not been rendered during FY 2013 or prior to the 
issuance of the FY 2013 financial statements. Such claims do not meet 
the criteria for recognition as contingent liabilities in FY 2013. 

Note 5. Intragovernmental Costs: 

The Statement of Net Cost presents the Investor Protection Fund’s 
results of operations for its two activities: the Employee Suggestion 
Program and Payments to Whistleblowers. Intragovernmental costs arise 
from purchases of goods and services from other components of the 
Federal Government (including other SEC funds). In contrast, public 
costs are those which arise from the purchase of goods and services 
from non-Federal entities. Payments to whistleblowers are categorized 
as “costs with the public.” 

In FY 2013, the Employee Suggestion Program incurred $51 thousand of 
intragovernmental costs. The Payments to Whistleblowers program 
incurred $14.8 million of costs with the public (payments to 
whistleblowers) in FY 2013. 

In FY 2012, the Employee Suggestion Program incurred $70 thousand of 
intragovernmental costs. The Payments to Whistleblowers program 
incurred $46 thousand of costs with the public (payments to 
whistleblowers) in FY 2012. 

Note 6. Status of Budgetary Resources: 

A. Explanation of Differences between the Statement of Budgetary 
Resources and the Budget of the U.S. Government: 

A comparison between the FY 2013 Statement of Budgetary Resources 
(SBR) and the actual FY 2013 data in the President’s budget cannot be 
presented, as the FY 2015 President’s budget which will contain FY 
2013 actual data is not yet available; the comparison will be 
presented in next year’s financial statements. There are no 
differences between the FY 2012 SBR and the FY 2012 data in the 
President’s budget. 

B. Other Budgetary Disclosures: 

There were no budgetary resources obligated for undelivered orders as 
of September 30, 2013 and 2012. 

There are no legal arrangements affecting the use of unobligated 
balances of budget authority, such as time limits, purpose, and 
obligation limitations. 

Note 7. Reconciliation of Net Cost of Operations to Budget: 

For the years ended September 30, 2013 and 2012, Obligations Incurred 
equaled the Net Cost of Operations and there were no reconciling items. 

[End of section] 

Other Information: 

This section provides additional information regarding the U.S.
Securities and Exchange Commission’s (SEC) financial and
performance management. It includes the Schedule of Spending
which provides an overview of how the SEC spent its resources
based on amounts available to the SEC; a statement prepared by the 
agency’s Office of Inspector General (OIG) summarizing what the OIG 
considers to be the most serious management and performance challenges 
facing the agency. The section also includes a response from the SEC 
Chair, outlining the agency’s progress in addressing the challenges. 

The Summary of Financial Statement Audit and Management Assurances 
clearly lists each material weakness and non-conformance found and/or 
resolved during the U.S. Government Accountability Office’s audit. 
Additionally, this section provides a detailed explanation of any 
significant erroneous payments, as required by the Improper Payments 
Information Act of 2002, as amended. 

Schedule of Spending: 

The Schedule of Spending presents a more detailed summary of the “
Obligations Incurred” line presented on the Statement of Budgetary 
Resources, and how these amounts agreed to be spent compare to the SEC’
s total resources after factoring amounts available and unavailable to 
be spent. The SEC’s obligations are categorized by major program and 
object class. 

In an additional effort to improve the quality of data reported on 
USASpending.gov for public transparency, the SEC has also begun 
reconciliation efforts between obligations reported on the financial 
statements and spending reported on the website. The majority of 
obligations included on the financial statements that are not included 
on USASpending.gov include the following: personnel compensation and 
benefits, leases, interagency agreements, travel, and training. 
Differences may also exist due to timing differences between 
obligations reported in SEC’s financial reporting system and data 
transmitted to USASpending.gov through the central Federal Procurement 
Data System. 

U.S. Securities And Exchange Commission: 
Schedule of Spending: 
For the year ended September 30, 2013: 
(Dollars In Thousands): 

FY 2013: 

What Money is Available to Spend? 

Total Resources: $1,402,477; 
Less Amount Available but Not Agreed to be Spent: $562,565; 
Less Amount Not Available to be Spent: $(417,799); 
Total Amounts Agreed to be Spent: $1,257,711. 

How was the Money Spent/Issued? 

Enforcement; 

Personnel Compensation and Benefits: $271,202; 
Contractual Services: $138,883; 
Acquisition of Assets: $19,376; 
Other: $4,679; 
Enforcement Total: $434,140. 

Compliance Inspections and Examinations; 

Personnel Compensation and Benefits: $178,607; 
Contractual Services: $52,047; 
Acquisition of Assets: $4,803; 
Other: $3,271; 
Compliance Inspections and Examinations Total: $238,728. 

Corporation Finance; 

Personnel Compensation and Benefits: $95,607; 
Contractual Services: $26,398; 
Acquisition of Assets: $6,850; 
Other: $1,712; 
Corporation Finance Total: $130,567. 

Trading and Markets; 

Personnel Compensation and Benefits: $51,755; 
Contractual Services: $13,968; 
Acquisition of Assets: $3,536; 
Other: $929; 
Trading and Markets Total: $70,188. 

Investment Management; 

Personnel Compensation and Benefits: $5,029; 
Contractual Services: $8,828; 
Acquisition of Assets: $2,101; 
Other: $596; 
Investment Management Total: $46,554. 

Economic and Risk Analysis; 

Personnel Compensation and Benefits: $17,414; 
Contractual Services: $16,152; 
Acquisition of Assets: $7,104; 
Other: $317; 
Economic and Risk Analysis Total: $40,987. 

General Counsel; 

Personnel Compensation and Benefits: $28,428; 
Contractual Services: $7,554; 
Acquisition of Assets: $1,730; 
Other: $587; 
General Counsel Total: $38,299. 

Other Program Offices; 

Personnel Compensation and Benefits: $35,209; 
Contractual Services: $10,222; 
Acquisition of Assets: $2,164; 
Other: $646; 
Other Program Offices Total: $48,241. 

Agency Direction and Administrative Support; 

Personnel Compensation and Benefits: $109,668; 
Contractual Services: $81,829; 
Acquisition of Assets: $9,371; 
Other: $2,765; 
Agency Direction and Administrative Support Total: $203,633. 

Inspector General; 

Personnel Compensation and Benefits: $3,877; 
Contractual Services: $2,166; 
Acquisition of Assets: $257; 
Other: $74; 
Inspector General Total: $6,374; 
Total Amounts Agreed to be Spent: $1,257,711. 

Who did the Money go to? 

Non-Federal: $$ 1,199,233; 
Federal: $58,478. 

Total Amounts Agreed to be Spent: $1,257,711. 

[End of table] 

[End of section] 

Inspector General’s Statement on Management and Performance Challenges: 

United States Securities and Exchange Commission: 
Office of the Inspector General: 
Washington, DC 20549: 

The Inspector General’s Statement on the U.S. Securities and Exchange 
Commission’s Management and Performance Challenges: 

Carl W. Hoecker [signed by]: 
Inspector General: 
September 30, 2013: 

The Reports Consolidation Act of 2000 requires the U.S. Securities and 
Exchange Commission (SEC or Commission) Office of Inspector General 
(OIG), to identify and report annually on the most serious management 
challenges that the SEC faces. To identify management challenges, we 
routinely review past and ongoing audit, investigation, and evaluation 
work to identify material weaknesses, significant deficiencies, and 
vulnerabilities. We compiled this statement on the basis of the work 
that we completed over the past year; our knowledge of the SEC’s 
programs and operations; and feedback from SEC staff and the 
Government Accountability Office (GAO) auditors who conduct the SEC’s 
annual financial statement audit. 

Management And Performance Challenges: 

Information Security: 

Although the Office of Information Technology (OIT) has established 
policies for handling and safeguarding sensitive and nonpublic 
information, and requires SEC employees, contractors, and interns to 
complete annual security awareness training, information security 
[Footnote 1] continues to be a management challenge at the SEC. 
Specifically, OIT’s compliance with FISMA remains a management 
challenge this year because OIT has not fully addressed the findings 
and recommendations that were identified in the OIG’s previously 
issued FISMA reports. For example, in the 2012 FISMA Executive Summary 
Report, Report No. 512, issued March 29, 2013, the OIG found that OIT 
had not fully addressed three findings and six recommendations that 
were included in the 2011 FISMA Executive Summary Report, Report No. 
501, issued February 2, 2012. The OIG found that OIT had not fully 
implemented compliance scanning for network devices, multifactor 
authentication for the SEC’s personal identity verification program, 
and baseline security controls that are tailored for specific 
information technology (IT) systems. 

While the conditions found in the 2012 FISMA report could expose the 
SEC to threats should layered controls break down, OIT made progress 
this year in addressing the findings and recommendations that posed a 
greater risk to the SEC’s IT environment. However, OIT has not fully 
addressed some outstanding significant findings and recommendations. 

Information security is a particularly difficult management challenge 
because the SEC not only shares information internally among its 
divisions and offices, but also shares information externally with the 
regulated community and financial regulators. This sharing of external 
information is necessary to accomplish the SEC’s mission of protecting 
investors and maintaining fair, orderly, and efficient markets that 
facilitate capital formation. We will continue to review OIT’s 
security controls over the SEC’s information systems during the 
upcoming annual FISMA assessment. We will also continue to review the 
SEC’s handling of sensitive, nonpublic information. 

Procurement and Contracting: 

Since we first identified the SEC’s process for procurement and 
contracting as a management challenge in fiscal year 2008, the Office 
of Acquisitions (OA) has improved its internal controls in this area. 
Most recently, in July 2013, OA published a revised administrative 
regulation and operating procedure on the management and 
administration of service contracts. The revised regulation provides 
direction for the avoidance of contracting for inherently governmental 
functions or personal services, as well as appropriate management 
procedures for acquiring and managing functions closely associated 
with inherently governmental functions and critical functions. The 
operating procedure is designed to assist the SEC in addressing 
service contracts and personal services, and to avoid the contracting 
out of inherently governmental functions. 

Despite those improvements, the OIG has found that the SEC’s 
monitoring of its contracts is a continuing challenge. Specifically, 
the OIG has obtained information indicating that there may be 
insufficient controls over the tracking of funds or the approval of 
invoices for certain contracts and/or interagency agreements, as well 
as inconsistencies between the nature of the services provided and the 
requirements of the applicable task order. We are planning audit work 
in this area and will continue to monitor it closely. 

Financial Management: 

The GAO’s audit of the SEC’s fiscal year 2012 financial statements 
[Footnote 2] found that the SEC’s financial statements were fairly 
presented, in all material respects, in conformity with U.S. generally 
accepted accounting principles. That audit also found that, although 
internal controls could be improved, the SEC maintained, in all 
material respects, effective internal controls over financial 
reporting. However, the GAO identified significant deficiencies in 
accounting for budgetary resources and property and equipment. The GAO 
found that these deficiencies are related, in part, to the SEC’s 
transition of its core financial system to the Department of 
Transportation’s Enterprise Service Center Federal Shared Service 
Provider (FSSP). 

In fiscal year 2012, the OIG identified the inherent risks that are 
associated with transitioning to a new financial system as a 
management challenge. In its management report to the SEC issued in 
April 2013, the GAO noted: 
In April 2012, SEC migrated its core financial system operations to a 
shared service provider. ...We identified new control deficiencies 
during our fiscal year 2012 audit related to SEC’s monitoring controls 
over the service provider’s core financial system operations, 
including those related to budgetary accounting and reporting 
activities.[Footnote 3] 

Further, the GAO stated that the “SEC did not develop monitoring 
procedures over property and equipment transactions recorded by its 
service provider at the time of its transition to the FSSP’s general 
ledger system.” [Footnote 4] We will continue to monitor the SEC’s use 
of the FSSP. 

Human Capital Management: 

Section 962 of the Dodd-Frank Act required the GAO to report on the 
SEC’s personnel management. In its report issued in July 2013, the GAO 
concluded: 
Based on analysis of views from Securities and Exchange Commission 
(SEC) employees and previous studies from GAO, SEC, and third parties, 
GAO determined that SEC’s organizational culture is not constructive 
and could hinder its ability to effectively fulfill its mission. 
Organizations with constructive cultures are more effective and 
employees also exhibit a stronger commitment to mission focus. In 
describing SEC’s culture, many current and former SEC employees cited 
low morale, distrust of management, and the compartmentalized, 
hierarchical, and risk-averse nature of the organization. According to 
an Office of Personnel Management (OPM) survey of federal employees, 
SEC currently ranks 19 of 22 similarly sized federal agencies based on 
employee satisfaction and commitment. GAO’s past work on managing for 
results indicates that an effective personnel management system will 
be critical for transforming SEC’s organizational culture.[Footnote 5] 

One key area that the GAO report highlighted as needing improvement 
was workforce planning. The GAO noted that the “SEC has not yet 
developed a comprehensive workforce plan” and, as a result, “will not 
be able to make well-informed decisions on how to best meet current 
and future agency needs.”[Footnote 6] The GAO further found that while 
the SEC has made efforts to improve communication and collaboration, 
it “has not yet fully addressed barriers.”[Footnote 7] The SEC has 
recently launched the SEC Local Labor Management Forum under Executive 
Order 13522, Creating Labor-Management Forums to Improve Delivery of 
Government Services, to foster a cooperative and productive form of 
labor-management relations. The OIG will continue to review the 
progress of this and other efforts to improve the SEC’s management of 
human capital. 

Footnotes: 

[1] The Federal Information Security Management Act (FISMA) provides 
that “the term ‘information security’ means protecting information and 
information systems from unauthorized access, use, disclosure, 
disruption, modification, or destruction in order to provide: (A) 
integrity, which means guarding against improper information 
modification or destruction, and includes ensuring information 
nonrepudiation and authenticity; (B) confidentiality, which means 
preserving authorized restrictions on access and disclosure, including 
means for protecting personal privacy and proprietary information; and 
(C) availability, which means ensuring timely and reliable access to 
and use of information.” 44 U.S.C.§ 3542(b)(1). 

[2] GAO’s fiscal year 2012 financial statement audit included SEC’s 
general purpose and Investor Protection Fund (IPF) financial 
statements. 

[3] GA0-13-274R, Management Report: Improvements Needed in SEC’s 
Internal Controls and Accounting Procedures, April 4, 2013, p. 3 
(footnote omitted). 4 Id., p. 7. 

[5] GA0-13-621, Securities and Exchange Commission: Improving 
Personnel Management Is Critical for Agency’s Effectiveness, July 2013. 

[6] Id. 

[7] Id. 

[End of section] 

Management’s Response to Inspector General’s Statement: 

United States Securities and Exchange Commission: 
The Chair: 
Washington, DC 20549: 

December 12, 2013: 

Mr. Carl W. Hoecker: 
Inspector General: 
U.S. Securities and Exchange Commission: 
Washington, D.C. 20549: 

Dear Mr. Hoecker: 

Thank you for your “Statement on the U.S. Securities and Exchange 
Commission’s Management and Performance Challenges,” issued on 
September 30, 2013. We remain committed to enhancing the financial and 
operational effectiveness of the SEC and appreciate the Office of 
Inspector General’s role in the effort. Below is an overview of the 
actions—-taken and planned to be taken-—to address each of the 
challenges identified in your statement. 

Information Security: 

I appreciate your assessment and appreciation of the inherent 
challenges in information security management and performance. 
Information security is an important priority at the SEC. We know that 
the threat landscape is constantly changing, and we must frequently 
evaluate our controls and approaches to information security. Thank 
you for acknowledging the progress we have made this year in 
addressing issues of great risk to the IT environment. Our Office of 
Information Technology (OIT) will continue to apply a risk-based 
approach to prioritize our efforts. 

By December 31, 2013, we plan to complete the recommendations related 
to Report No. 512, issued in March 2013, concerning assessment and 
continuous monitoring. The OIT security team has put forth a 
significant amount of effort in 2013 to build an infrastructure 
supporting an efficient and effective risk management program, 
including periodic assessments and continuous monitoring. OIT will 
refine the agency’s formal documentation-—internal policies and 
procedures—-to account for these new capabilities. Compliance scanning 
for network devices is now occurring. 

OIT has also taken steps to implement multi-factor authentication to 
our Personal Identity Verification (PIV) program. OIT is taking 
advantage of a significant and pre-requisite Active Directory clean-up 
effort that is scheduled for completion in FY 2014, to allow for PIV 
authentication while minimizing the impact on our end users. 

Procurement and Contracting: 

I am pleased that your office recognized the progress and improvement 
in the agency’s approach to procurement and contracting. The Office of 
Acquisitions (OA) continues to work diligently to address all OIG 
concerns. 

We are deeply committed to remediating the remaining management 
challenges identified by the OIG in the SEC’s processes for 
procurement and contracting. During the course of FY 2013, the SEC 
improved processes surrounding service contracts, stabilized the 
organizational structure within OA, and provided formal training to 
agency staff. In FY 2014, OA will continue to utilize its oversight 
program and conduct internal contract management reviews. We will 
leverage resources to identify instances where improvements should be 
made in the areas of funds tracking, invoice approvals or disconnects 
between contract requirements and services provided. 

Financial Management: 

The SEC just completed its first full year of operations on the Delphi 
financial system, a Federal Shared Service Provider (FSSP) hosted by 
the Department of Transportation’s (DOT) Enterprise Services Center 
(ESC). We appreciate your recognizing the challenges associated with 
migrating a core financial system, particularly to a third party 
service-provider. Among these challenges is the need to continuously 
monitor the activities of ESC to ensure completeness and accuracy of 
SEC data. 

To address these challenges, we have adopted a comprehensive approach 
to continuously assessing the effectiveness of our internal controls 
over financial reporting, as well as reviewing the daily processing of 
transactions performed by ESC. The SEC has made significant strides in 
refining its processes under the FSSP model, both to tighten controls 
and to make them more efficient. 

In 2012, the Government Accountability Office (GAO) identified two 
significant deficiencies in SEC’s internal controls: (1) accounting 
for budgetary resources; and (2) property and equipment. In its 2013 
audit report, the GAO noted that both of these significant 
deficiencies were remediated. The SEC made significant improvements 
and strengthened controls in these areas, as specified below. 

Budgetary Resources: The SEC addressed a backlog of deobligations and 
contract closeouts. In addition, the agency refined its process for 
recording upward and downward adjustments, developed additional 
monthly reconciliations, implemented a quarterly review of undelivered 
orders (UDOs), and conducted daily tie point analyses. 

Property and Equipment: The SEC implemented a Fixed Asset worksheet 
tracking log procedure to ensure that new assets were added timely and 
accurately, implemented a policy to ensure that all potentially 
capitalizable assets are reviewed by an accountant prior to recording 
them in the general ledger, reconciled the subsidiary ledger to the 
general ledger on a monthly basis, and tightened the process for the 
annual physical inventory. In FY 2014, the SEC will strive to automate 
many property-related processes, to help tighten controls further in 
this area. 

Human Capital Management: 

The GAO report of the SEC’s personnel management practices and 
organizational culture contains useful recommendations to help us 
further strengthen these areas. The SEC concurred with the GAO’s 
recommendations pertaining to the areas identified in your statement, 
specifically, workforce planning and communication and collaboration. 

As the report states, both SEC staff and external stakeholders have 
started to see some positive effects from the agency’s recent efforts 
to bolster communication and collaboration but continued work is 
needed to break down existing “silos” within the agency. Steps are 
well underway to improve intra-agency communication. Initiatives such 
as the creation of a cross-agency communications group to enhance 
information and knowledge sharing, the establishment of working groups 
to address rulemaking and economic analysis requirements, and the 
development of liaisons in our major divisions and offices to 
facilitate the sharing of information demonstrate the SEC’s commitment 
to improvements in this area. 

To further address this challenge, the Office of the Chief Operating 
Officer and the Office of Public Affairs are collaborating with the 
Office of Human Resources (OHR) to devise communication and change 
management plans to support implementation of human capital-related 
initiatives. The plans will increase and track multi-channel, internal 
messaging that specifically recognizes and reinforces awareness of 
exceptional staff achievements, awards, or other successful outcomes 
while seeking to promote a sense of agency pride and accomplishment. 
In FY 2014, the SEC also will implement technology improvements to 
centralize all human capital information, news and resources. Staff 
will be able to find tools, forms, guidance and support needed, by 
accessing one centralized Intranet location. The technology 
improvements will also allow us to share open meeting fact sheets and 
other important documents and materials with agency staff more 
promptly. Plans are underway to initiate a number of other 
communication strategies that will promote employee engagement and a 
more open organizational culture. 

With respect to workforce planning, GAO found that the SEC had not yet 
developed a comprehensive workforce plan, including a plan to identify 
the agency’s future leaders. Although we have taken some steps, such 
as identifying competency gaps and conducting leadership training, 
these efforts did not reflect all of the elements of effective 
workforce planning described in the Office of Personnel Management’s 
guidance on this topic. 

The SEC’s most recent progress in this area includes establishing and 
staffing a workforce and succession planning function within OHR. This 
team of three staff members has primary responsibility for providing 
tools, systems, and reports for analyzing the agency’s workforce 
supply and demand to determine gaps and risks. OHR anticipates fully 
operationalizing this function in FY 2014. OHR will further address 
GAO’s recommendation by improving databases and systems that support 
workforce analysis and planning efforts. 

During FY 2014, the OHR plans to develop standardized reports for 
workforce planning and to work with organizational units to customize 
their workforce planning needs. OHR will also begin developing an 
effective succession planning program for key positions to address 
potential attrition. It should be noted that the SEC’s attrition rate 
remains low (approximately 6 percent for FY 2013), and that OHR has 
enhanced several key human capital programs (e.g., recruitment and 
retention programs and various training initiatives) directed at 
maintaining that rate. 

I hope that the actions outlined in this letter demonstrate our 
commitment to strengthening internal control and improving the agency’
s performance. We look forward to working with you to further address 
these challenges. 

Sincerely, 

Signed by: 

Mary Jo White: 
Chair: 

[End of section] 

Summary of Financial Statement Audit and Management Assurances: 

Table 3.1: Summary Of Financial Statement Audit: 

Audit Opinion: Unqualified: 
Restatement: No: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

[End of table] 

Table 3.2: Summary Of Management Assurances: 

Effectiveness of Internal Control over Financial Reporting (FMFIA § 2): 
Statement of Assurance: Unqualified: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

Effectiveness of Internal Control over Operations (FMFIA § 2): 
Statement of Assurance: Unqualified: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

Conformance with Financial Management System Requirements (FMFIA § 4): 
Statement of Assurance: Conformance: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

[End of table] 

Improper Payments Elimination and Recovery Act Reporting Details: 

The Improper Payments Information Act (IPIA) of 2002, as amended by 
the Improper Payments Elimination and Recovery Act (IPERA) of 2010 and 
Improper Payments Elimination and Recovery Improvement Act (IPERIA) of 
2012, requires agencies to review all programs and activities they 
administer and identify those which may be susceptible to significant 
erroneous payments. For all programs and activities in which the risk 
of erroneous payments is significant, agencies are to estimate the 
annual amount of erroneous payments made in those programs. Office of 
Management and Budget (OMB) Circular A-136 and Appendix C of Circular 
A-123 requires agencies to report detailed information related to 
their Improper Payments Elimination Program. Risk Assessment 

In fiscal year (FY) 2013, the U.S. Securities and Exchange Commission 
(SEC) reviewed its programs and activities to identify those which may 
be susceptible to significant erroneous payments. The risk assessment 
included: (1) consideration of certain risk factors that are likely to 
contribute to a susceptibility to significant improper payments, and 
(2) transaction testing on a sample basis of payments made during the 
first six months of FY 2013. A risk assessment was performed for the 
following programs: 

* Vendor payments (includes credit card payments); 

* Disgorgement and penalty distributions (made by SEC to fund and tax 
administrators and directly to harmed investors); and; 

* Returned deposits of registration filing fees under Section 6b of 
the Securities Act of 1933 and Sections 13 and 14 of the Securities 
Exchange Act of 1934. 

Travel payments, included in prior years testing, were removed from 
improper payment testing for FY 2013 due to a decrease in the 
susceptibility to significant erroneous payments, identified during 
the prior year risk assessment. The SEC continued to cover travel 
payments for FY 2013 through its monthly continuous monitoring. 

Based on the results of transaction testing applied to a sample of 
payments, consideration of risk factors, and reliance on the internal 
controls in place over the payment, refund, and distribution process, 
the SEC determined that none of its programs and activities are 
susceptible to significant improper payments at or above the threshold 
levels set by OMB. Significant erroneous payments are defined as 
annual erroneous payments in the program exceeding both $10 million 
and 1.5 percent of total program outlays, or $100 million of improper 
payments if less than 1.5 percent of total annual program outlays. In 
accordance with Appendix C of Circular A-123, the SEC is not required 
to determine a statistically valid estimate of erroneous payments or 
develop a corrective action plan if the program is not susceptible to 
significant improper payments. 

In FYs 2007 and 2008, SEC’s testing of its largest programs resulted 
in improper payment percentages that were well below one-half percent 
and less than $30,000 for each program. In FYs 2009 through 2012, the 
SEC performed a risk assessment for all programs and determined that 
its programs are not susceptible to significant erroneous payments. 

If the level of risk in each program is determined to be low and 
baseline estimates have been established, the SEC is only required to 
conduct a formal risk assessment every three years unless the program 
experiences a significant change in legislation and/or a significant 
increase in funding level. The SEC will conduct a follow-on review in 
FY 2014 of its programs and activities to determine whether the 
programs have experienced any significant changes in legislation or 
funding levels. If so, the SEC will reassess the programs’ risk 
susceptibility and make a statistically valid estimate of erroneous 
payments for any programs determined to be susceptible to significant 
erroneous payments. 

Recapture of Improper Payments: 

In FY 2013, the SEC did not administer any grants, benefits or loan 
programs. Implementation of recapture auditing, if determined to be 
cost-effective, would apply to vendor payments, disgorgement and 
penalty distributions, and refunds of registration filing fee 
deposits. Per the IPERA legislation a payment is any transfer or 
commitment for future transfer of Federal funds to any non-Federal 
person or entity. As such, the SEC is not required to review, and has 
not reviewed, intragovernmental transactions and payments to employees. 

The SEC has determined that implementing a payment recapture audit 
program for vendor payments, disgorgement and penalty distributions, 
and refunds of registration filing fee deposits is not cost-effective. 
That is, the benefits or recaptured amounts associated with 
implementing and overseeing the program do not exceed the costs, 
including staff time and resources, or payments to a contractor for 
implementation, of a payment recapture audit program. In making this 
determination, the SEC considered its low improper payment rate based 
on testing conducted over the past six years. The SEC also considered 
whether sophisticated software and other cost-efficient matching 
techniques could be used to identify significant overpayments at a low 
cost per overpayment, or if labor intensive manual reviews of paper 
documentation would be required. In addition, the SEC considered the 
availability of tools to efficiently perform the payment recapture 
audit and minimize payment recapture audit costs. 

The SEC will continue to monitor its improper payments across all 
programs and activities it administers and assess whether implementing 
payment recapture audits for each program is cost-effective. If the 
SEC determines, through future risk assessments, that a program is 
susceptible to significant improper payments and implementing a 
payment recapture program is cost-beneficial, the SEC will implement a 
pilot payment recapture audit to measure the likelihood of cost-
effective payment recapture audits on a larger scale. 

Even though the SEC has determined that implementing a payment 
recapture audit program for its programs is not cost-effective, the 
agency strives to recover any overpayments identified through other 
sources, such as payments identified through statistical samples 
conducted under the IPIA. The amounts identified and recovered, by 
program, are shown in Table 3.3 below. 

Table 3.3: Overpayments Recaptured Outside Of Payment Recapture Audits 
(In Dollars): 

Source: Vendor Payments: Improper Payments Sampling; 
Amount Identified (CY): $46,322;
Amount Recovered (CY): 0;
Amount Identified (PYs): $13,573;
Amount Recovered (PYs): $13,085;
Cumulative Amount Identified (CY+PYs): $59,895;
Cumulative Amount Recovered (CY+PYs): $13,084. 

Source: Disgorgement and Penalty Distributions: Improper Payments 
Sampling; 
Amount Identified (CY): 0; 
Amount Recovered (CY): 0; 
Amount Identified (PYs): 0; 
Amount Recovered (PYs): 0; 
Cumulative Amount Identified (CY+PYs): 0; 
Cumulative Amount Recovered (CY+PYs): 0. 

Source: Refunds of Registration Filing Fee Deposits: Improper Payments 
Sampling; 
Amount Identified (CY): 0;
Amount Recovered (CY): 0;
Amount Identified (PYs): $321; 
Amount Recovered (PYs): $321; 
Cumulative Amount Identified (CY+PYs): $321;
Cumulative Amount Recovered (CY+PYs): $321. 

[End of table] 

[End of section] 

Appendices: 

Appendix A: Chair and Commissioners: Provides biographies of the SEC 
Chair and Commissioners. 

Appendix B: Major Enforcement Cases: Outlines the major enforcement 
cases of FY 2013. 

APPENDIX C: SEC Divisions and Offices: Provides contact information 
for SEC’s headquarters and regional offices. 

Appendix D: Glossary of Selected Terms: Definitions provided of select 
technical terms used throughout this report. 

Appendix E: Acronyms: Defines acronyms cited in the report. Acronyms 
are listed in alphabetical order. 

Appendix A: Chair and Commissioners: 

Mary Jo White: 
Chair: 

Mary Jo White was sworn in as the 31st Chair of the SEC on April 10, 
2013. She was nominated to be SEC Chair by President Barack Obama on 
February 7, 2013, and confirmed by the U.S. Senate on April 8, 2013. 

Chair White arrived at the SEC with decades of experience as a federal 
prosecutor and securities lawyer. As the U.S. Attorney for the 
Southern District of New York from 1993 to 2002, she specialized in 
prosecuting complex securities and financial institution frauds and 
international terrorism cases. Under her leadership, the office earned 
convictions against the terrorists responsible for the 1993 bombing of 
the World Trade Center and the bombings of American embassies in 
Africa. She is the only woman to hold the top position in the 200-year-
plus history of that office. 

Prior to becoming the U.S. Attorney for the Southern District of New 
York, Chair White served as the First Assistant U.S. Attorney and 
later Acting U.S. Attorney for the Eastern District of New York from 
1990 to 1993. She previously served as an Assistant U.S. Attorney for 
the Southern District of New York from 1978 to 1981 and became Chief 
Appellate Attorney of the Criminal Division. 

After leaving her U.S. Attorney post, Chair White became chair of the 
litigation department at Debevoise & Plimpton in New York, where she 
led a team of more than 200 lawyers. Chair White previously was a 
litigation partner at the firm from 1983 to 1990 and worked as an 
associate from 1976 to 1978. 

Chair White earned her undergraduate degree, Phi Beta Kappa, from 
William & Mary in 1970, and her master’s degree in psychology from The 
New School for Social Research in 1971. She earned her law degree in 
1974 at Columbia Law School, where she was an officer of the Law 
Review. She served as a law clerk to the Honorable Marvin E. Frankel 
of the U.S. District Court for the Southern District of New York. 

Chair White has won numerous awards in recognition of her outstanding 
work both as a prosecutor and a securities lawyer. The 2012 Chambers 
USA Women in Law Awards named her Regulatory Lawyer of the Year. Among 
other honors she has received are the Margaret Brent Women Lawyers of 
Achievement Award, the George W. Bush Award for Excellence in 
Counterterrorism, the Sandra Day O’Connor Award for Distinction in 
Public Service, and the “Women of Power and Influence Award” given by 
the National Organization for Women. 

Chair White is a fellow in the American College of Trial Lawyers and 
the International College of Trial Lawyers. She also has served as a 
director of The NASDAQ Stock Exchange and on its executive, audit, and 
policy committees. Chair White is a member of the Council on Foreign 
Relations. 

Luis A. Aguilar: 
Commissioner: 

Luis A. Aguilar has been a Commissioner at the U.S. Securities and 
Exchange Commission since July 31, 2008. He was appointed by President 
George W. Bush and was reappointed by President Barack Obama. 

Prior to his appointment, his practice included matters pertaining to 
general corporate and business law, international transactions, 
investment companies and investment advisers, securities law, and 
corporate finance. 

Commissioner Aguilar represents the Commission as its liaison to both 
the North American Securities Administrators Association and to the 
Council of Securities Regulators of the Americas. 

Commissioner Aguilar has received various honors and awards, 
including: recipient of Honorary Doctor of Public Service, awarded by 
Georgia Southern University (2013); recipient of the Atlanta Falcons “
2012 NFL Hispanic Heritage Leadership Award” (2012); named by 
Poder.Hispanic Magazine as one of the “100 Most Influential Hispanics 
in the Nation” (2011); named by Latino Leaders Magazine as one of the “
Top 101 Most Influential Latinos in the United States” (2009, 2010, 
2011 and 2012); named to the NACD Directorship 100, the Who’s Who of 
the Boardroom (2009, 2010 and 2011); recipient of The Center for 
Accounting Ethics, Governance, and the Public Interest “Accounting in 
the Public Interest Award” (2010); and listed in Best Lawyers in 
America (2005, 2006, 2007 and 2008). 

He is a graduate of the University of Georgia School of Law, and also 
received a master of laws degree in taxation from Emory University. 

Commissioner Aguilar serves as sponsor of the SEC’s Hispanic and 
Latino Opportunity, Leadership, and Advocacy Committee, the African 
American Council, and the Caribbean American Heritage Committee. 

Daniel M. Gallagher: 
Commissioner: 

Commissioner Gallagher was confirmed by the Senate on October 21, 
2011, and returned to the Securities and Exchange Commission, where he 
had previously served, on November 7, 2011. 

Commissioner Gallagher was on the staff of the SEC beginning in 
January 2006, when he served as a counsel to SEC Commissioner Paul S. 
Atkins and later as a counsel to SEC Chairman Christopher Cox. He 
worked primarily on major matters before the Commission involving the 
Division of Trading and Markets and the Division of Enforcement. 

He joined the Division of Trading and Markets as a Deputy Director in 
2008, where he played a key role in the SEC’s response to the 
financial crisis and other significant issues before the Commission, 
including those involving credit rating agencies and credit default 
swaps. He served as an Acting Director of the Trading and Markets 
Division from April 2009 to January 2010, after which he left the 
agency to become a partner in the Washington, DC office of WilmerHale. 

Prior to his initial SEC service, Commissioner Gallagher was the 
General Counsel and Senior Vice President of Fiserv Securities, Inc., 
where he was responsible for managing all of the firm’s legal and 
regulatory matters. Commissioner Gallagher began his career in private 
practice, advising clients on broker-dealer regulatory issues and 
representing clients in SEC and SRO enforcement proceedings. 

Commissioner Gallagher earned his J.D. degree, magna cum laude, from 
the Catholic University of America, where he was a member of the law 
review. He graduated from Georgetown University with a B.A. degree in 
English. 

Luis A. Aguilar has been a Commissioner at the U.S. Securities and 
Exchange Commission since July 31, 2008. He was appointed by President 
George W. Bush and was reappointed by President Barack Obama. 

Prior to his appointment, his practice included matters pertaining to 
general corporate and business law, international transactions, 
investment companies and investment advisers, securities law, and 
corporate finance. 

Commissioner Aguilar represents the Commission as its liaison to both 
the North American Securities Administrators Association and to the 
Council of Securities Regulators of the Americas. 

Commissioner Aguilar has received various honors and awards, 
including: recipient of Honorary Doctor of Public Service, awarded by 
Georgia Southern University (2013); recipient of the Atlanta Falcons “
2012 NFL Hispanic Heritage Leadership Award” (2012); named by 
Poder.Hispanic Magazine as one of the “100 Most Influential Hispanics 
in the Nation” (2011); named by Latino Leaders Magazine as one of the “
Top 101 Most Influential Latinos in the United States” (2009, 2010, 
2011 and 2012); named to the NACD Directorship 100, the Who’s Who of 
the Boardroom (2009, 2010 and 2011); recipient of The Center for 
Accounting Ethics, Governance, and the Public Interest “Accounting in 
the Public Interest Award” (2010); and listed in Best Lawyers in 
America (2005, 2006, 2007 and 2008). 

He is a graduate of the University of Georgia School of Law, and also 
received a master of laws degree in taxation from Emory University. 

Commissioner Aguilar serves as sponsor of the SEC’s Hispanic and 
Latino Opportunity, Leadership, and Advocacy Committee, the African 
American Council, and the Caribbean American Heritage Committee. 

Kara M. Stein
Commissioner: 

Kara M. Stein was appointed by President Barack Obama to the U.S. 
Securities and Exchange Commission and was sworn in on August 9, 2013. 

Ms. Stein joined the Commission after serving as Legal Counsel and 
Senior Policy Advisor for securities and banking matters to Senator 
Jack Reed. From 2009 to 2013, she was Staff Director of the 
Securities, Insurance, and Investment Subcommittee of the Senate 
Committee on Banking, Housing, and Urban Affairs. During that time, 
Ms. Stein played an integral role in drafting and negotiating 
significant provisions of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act. 

As Staff Director for the Senate Banking Subcommittee of primary 
jurisdiction over the SEC, Ms. Stein also organized and participated 
in over twenty hearings on such issues as the: 

* evolution of market microstructure, 
* regulation of exchange traded products, 
* state of the securitization markets, 
* risks to investors in capital raising processes, including through 
public offerings, 
* role of the accounting profession in preventing another financial 
crisis, 
* establishment of swap execution facilities, and, 
* role of the tri-party repurchase markets in the financial 
marketplace. 

Ms. Stein was Legal Counsel and Senior Policy Advisor to Senator Reed 
from 2007 to 2009 and served as both the Majority and Minority Staff 
Director on the Banking Committee’s Subcommittee on Housing and 
Transportation from 2001 to 2006. She served as Legal Counsel to 
Senator Reed from 1999 to 2000, following two years as a Legislative 
Assistant to Senator Chris Dodd. 

Before working on Capitol Hill, Ms. Stein was an associate at the law 
firm of Wilmer, Cutler & Pickering, a Skadden Public Interest Fellow, 
an Advocacy Fellow with the Georgetown University Law Center, and an 
assistant professor with the University of Dayton School of Law. 

Ms. Stein received her B.A. from Yale College and J.D. from Yale Law 
School. 

Michael S. Piwowar: 
Commissioner: 

Michael S. Piwowar was appointed by President Barack Obama to the U.S. 
Securities and Exchange Commission and was sworn in on August 15, 2013. 

Most recently, Dr. Piwowar was the Republican chief economist for the 
U.S. Senate Committee on Banking, Housing, and Urban Affairs under 
Senators Mike Crapo and Richard Shelby. He was the lead Republican 
economist on the four SEC-related titles of the Dodd-Frank Act and the 
JOBS Act. Dr. Piwowar also worked on a number of important SEC-related 
oversight issues under the jurisdiction of the Committee. 

During the financial crisis and its immediate aftermath, Dr. Piwowar 
served in a one-year fixed-term position at the White House as a 
senior economist at the President’s Council of Economic Advisers (CEA) 
in both the George W. Bush and Barack Obama Administrations. While at 
the CEA, he also served as a staff economist for the Financial 
Regulatory Reform Working Group of the President’s Economic Recovery 
Advisory Board (PERAB). Before joining the White House, Dr. Piwowar 
worked as a Principal at the Securities Litigation and Consulting 
Group (SLCG). 

Dr. Piwowar’s first tenure at the SEC was in the Office of Economic 
Analysis (now called the Division of Economic and Risk Analysis) as a 
visiting academic scholar on leave from Iowa State University and as a 
senior financial economist. Dr. Piwowar was an assistant professor of 
finance at Iowa State University where he focused his research on 
market microstructure and taught undergraduate and graduate courses in 
corporate finance and investments. He published a number of articles 
in leading academic publications and received several teaching and 
research awards. 

Dr. Piwowar received a B.A. in Foreign Service and International 
Politics from the Pennsylvania State University, an M.B.A. from 
Georgetown University, and a Ph.D. in Finance from the Pennsylvania 
State University. 

[End of section] 

Appendix B: Major Enforcement Cases: 

Introduction: 

In order to help protect investors and maintain fair markets, the U.S. 
Securities and Exchange Commission (SEC) brings enforcement actions 
against individuals and organizations for alleged securities laws 
violations. As the SEC’s largest division, the Division of Enforcement 
investigates potential violations of the Federal securities laws and 
brings civil charges in Federal district court and administrative 
proceedings. Through the Division of Enforcement, the Commission stops 
fraud, seeks appropriate penalties and disgorgement from wrongdoers, 
and returns funds to injured investors. Successful enforcement actions 
also result in orders barring wrongdoers from working in the 
securities industry. In fiscal year (FY) 2013, the Division of 
Enforcement continued to leverage its increasing specialization and 
expertise, as well as the creativity and doggedness of its staff, 
resulting in the Division bringing even more complex cases than in 
previous years. Further, the amount of money ordered in penalties and 
disgorgement as a result of enforcement actions filed increased in FY 
2013 as compared to FY 2012. The actions filed in FY 2013 spanned the 
full spectrum of securities laws violations. This performance comes 
just two years after the most significant structural reforms in the 
Division’s history. This section outlines the major enforcement cases 
of FY 2013. For further information on selected enforcement cases, 
please see “Litigation Releases” at [hyperlink, 
http://www.sec.gov/litigation/litreleases.shtml]. 

Actions Related to the Financial Crisis: 

Building on a strong record in this area, identifying and holding 
accountable those individuals and institutions whose misconduct led to 
or arose from the financial crisis continued to be a high priority of 
the SEC in FY 2013. To date, the SEC has filed 96 enforcement actions 
involving wrongdoing generally associated with the financial crisis, 
including: (a) concealing from investors risks, terms, and improper 
pricing of collateralized debt obligations (CDOs) and other complex 
structured products; (b) misleading disclosures to investors about 
mortgage-related risks; and (c) concealing the extent of risky 
mortgage-related and other high-risk investments in mutual funds and 
other financial products. 

In total, the SEC’s financial crisis related cases have resulted in 
charges against 161 individuals and entities, including 66 Chief 
Executive Officers (CEOs), Chief Financial Officers (CFOs), and other 
senior corporate officers. These cases have resulted in more than 
$2.73 billion of monetary relief being ordered or agreed to, most of 
which has been or is in the process of being returned to harmed 
investors. In addition, 37 individuals have been barred from the 
securities industry, from serving as officers and directors of public 
companies, and/or from appearing or practicing before the Commission. 

In a set of cases tied to the financial crisis, the SEC, in 
coordination with the Federal-state Residential Mortgage-Backed 
Securities (RMBS) Working Group, charged J.P. Morgan Securities LLC 
and Credit Suisse Securities (USA) with misleading investors in RMBS 
offerings.[Footnote 1] The SEC charged J.P. Morgan with misstating 
information about the delinquency status of mortgage loans that served 
as collateral for an RMBS offering it underwrote. J.P. Morgan was also 
charged with securities laws violations rising from misconduct by Bear 
Stearns – with whom J.P. Morgan merged – wherein Bear Stearns failed 
to disclose its practice of negotiating discounted cash settlements 
with loan originators and keeping the proceeds without paying anything 
to the RMBS trusts who owned the loans. The SEC brought charges 
against Credit Suisse for similar activity, alleging that Credit 
Suisse failed to disclose its practice of retaining cash from 
settlements with loan originators, and for making misleading 
statements to investors in SEC filings about when it would repurchase 
mortgage loans from trusts if borrowers missed the first payment due. 
Both banks settled the SEC’s charges, with J.P. Morgan paying $296.9 
million and Credit Suisse paying $120 million. 

In December, the SEC brought charges against eight former members of 
the boards of directors overseeing five mutual funds managed by Morgan 
Keegan for violating their asset pricing responsibilities under the 
Federal securities laws.[Footnote 2] The funds, which were invested in 
some securities backed by subprime mortgages, fraudulently overstated 
the value of their securities as the housing market was on the brink 
of financial crisis in 2007. The SEC’s Order Instituting Administrative 
and Cease-and-Desist Proceedings (OIP) alleged that the former 
directors delegated their fair valuation responsibility to a valuation 
committee without providing meaningful substantive guidance on how 
fair valuation determinations should be made. The fund directors then 
made no meaningful effort to learn how fair values were being 
determined, received only limited information about the factors 
involved with the funds’ fair value determinations, and obtained 
almost no information explaining why particular fair values were 
assigned to portfolio securities. In June, the former directors 
settled by agreeing to cease-and-desist from committing any future 
violations of the Investment Company Act. 

In another case tied to the financial crisis, the SEC brought charges 
against two investment advisory firms, Claymore Advisors LLC and 
Fiduciary Asset Management LLC (FAMCO), and two portfolio managers, 
Mohammed Riad and Kevin Swanson, for their roles in the failure to 
adequately inform investors about the fund’s risky derivative 
strategies that contributed to the collapse of the Fiduciary/Claymore 
Dynamic Equity Fund (HCE) during the financial crisis.[Footnote 3] In 
its settled order, the SEC found that FAMCO made misleading statements 
to investors about HCE’s performance and its exposure to downside 
risk, and managed HCE in a manner inconsistent with the fund’s 
registration statement. Claymore failed to reasonably supervise FAMCO 
as required by the firms’ investment advisory agreements, and caused HCE
’s failure to provide adequate disclosure. Both Claymore and FAMCO 
agreed to settle the SEC’s charges, with Claymore establishing a 
distribution plan to fully reimburse shareholders for the more than 
$45 million in losses that were incurred by HCE. The SEC’s action 
against Riad and Swanson, the two portfolio managers, is ongoing. 

In April, the SEC charged Capital One Financial Corporation and two 
former senior executives for understating millions of dollars in auto 
loan losses incurred during the months leading into the financial 
crisis.[Footnote 4] The SEC found that Capital One failed to 
incorporate the results of its internal loss forecasting tool in its 
financial reporting as credit markets began to deteriorate, 
understating its losses by approximately 18 percent in the second 
quarter of 2007 and 9 percent in the third quarter. The SEC’s order 
concluded that Capital One’s material understatements of its loan loss 
expense and internal controls failures violated the reporting, books 
and records, and internal controls provisions of the Federal 
securities laws, and former Chief Risk Officer Peter Schnall and 
former Divisional Credit Officer David LaGassa violated securities 
laws by indirectly causing Capital One’s books and records violations 
by deviating from established policies and procedures and failing to 
implement proper internal controls. To settle the SEC’s charges, 
Capital One agreed to pay a $3.5 million penalty, Schnall agreed to an 
$85,000 penalty, and LaGassa agreed to a $50,000 penalty. Capital One 
and the two executives neither admitted nor denied the findings in 
consenting to the SEC’s order requiring them to cease and desist from 
committing or causing any violations of these Federal securities laws. 

In another RMBS related case, the SEC charged Bank of America and two 
subsidiaries with defrauding investors in an offering by failing to 
disclose key risks and misrepresenting facts about the underlying 
mortgages.[Footnote 5] The SEC alleged that Bank of America deceived 
investors about the details of an RMBS offering called BOAMS 2008-A, 
selling BOAMS 2008-A as a “prime” securitization appropriate for the 
most conservative RMBS investors, when in fact, Bank of America knew 
that more than 70 percent of the mortgages backing BOAMS 2008-A 
originated from “wholesale” mortgage brokers unaffiliated with the 
bank. Bank of America knew that such wholesale mortgages presented 
vastly greater risks of severe delinquencies, early defaults, 
underwriting defects, and prepayment, such that the bank’s then-CEO 
referred to the mortgages as “toxic waste.” The SEC further alleged 
that Bank of America misrepresented that the mortgage loans backing 
BOAMS 2008-A were underwritten in conformity with the bank’s own 
guidelines, when in fact the loans were riddled with ineligible 
appraisals, unsupported statements of income, misrepresentations 
regarding owner occupancy, and evidence of mortgage fraud. The SEC’s 
action in this matter is continuing. 

The same day, the SEC charged UBS Securities with illegally 
structuring and marketing a CDO by failing to disclose that it had 
retained millions of dollars in upfront cash it received in the course 
of acquiring collateral for the CDO.[Footnote 6] UBS received $23.6 
million in upfront payments in the process of acquiring credit default 
swaps as collateral, but did not transfer that money to the CDO 
despite releasing marketing materials that inaccurately represented 
otherwise. To settle the charges against it, UBS agreed to pay $50 
million, which includes the $23.6 million in upfront payments (plus 
interest) as well as a $5.7 million penalty. 

Actions Related to Exchanges, Broker-Dealers, and Market Structure 
Issues: 

In FY 2013, the Commission continued its commitment to bringing 
actions for compliance failures and rules violations relating to stock 
exchanges, alternative trading platforms, and other market structure 
participants. In October, the SEC charged Boston-based dark pool 
operator eBX LLC with failing to protect the confidential trading 
information of its subscribers and failing to disclose to all 
subscribers that it allowed an outside firm to use their confidential 
trading information.[Footnote 7] Alternative trading systems (ATS) 
like eBX’s LeveL, called dark pools, do not display quotations to the 
public, meaning that investors who subscribe to a dark pool have 
access to potential trade opportunities that other investors using 
public markets do not. eBX inaccurately informed its subscribers that 
their flow of orders to buy or sell securities would be kept 
confidential and not shared outside of LeveL. eBX instead allowed an 
outside technology firm to use information about LeveL subscribers’ 
unexecuted orders for its own business purposes. The outside firm’s 
separate order routing business therefore received an information 
advantage over other LeveL subscribers because it was able to use its 
knowledge of their orders to make routing decisions for its own 
customers’ orders and increase its execution rate. eBX had 
insufficient safeguards and procedures to protect subscribers’ 
confidential trading information. To settle the charges, eBX agreed to 
pay an $800,000 penalty. 

In April, the SEC charged a former employee at a Connecticut-based 
brokerage firm with scheming to personally profit from placing 
unauthorized orders to buy Apple stock.[Footnote 8] When the scheme 
backfired, it ultimately caused the firm to cease operations. David 
Miller, an institutional sales trader, misrepresented to Rochdale 
Securities LLC that a customer had authorized the Apple orders and 
assumed the risk of loss on any resulting trades. The customer order 
was to purchase just 1,625 shares of Apple stock, but Miller instead 
entered a series of orders totaling 1.625 million shares at a cost of 
almost $1 billion. Miller planned to share in the customer’s profit if 
Apple’s stock profited, and if the stock decreased he would claim that 
he erred on the size of the order. The stock wound up decreasing after 
an earnings announcement later that day, and Rochdale was forced to 
cease operations in the wake of covering the approximately $5.3 
million loss suffered from the rogue trades. In a partial settlement, 
Miller has agreed to be enjoined from future violations of the 
antifraud provisions of the Federal securities laws. A financial 
penalty will be determined at a later date by the court upon the SEC’s 
motion. 

The following month, the SEC charged NASDAQ with securities laws 
violations resulting from its poor systems and decision-making during 
the initial public offering (IPO) and secondary market trading of 
Facebook shares.[Footnote 9] Exchanges have an obligation to ensure 
that their systems, processes, and contingency planning are robust and 
adequate to manage an IPO without disruption to the market. Despite 
widespread anticipation that the Facebook IPO would be among the 
largest in history with huge numbers of investors participating, a 
design limitation in NASDAQ’s system to match IPO buy and sell orders 
caused disruptions to the Facebook IPO. NASDAQ’s decision to initiate 
trading in the IPO before fully understanding the problem caused 
violations of several rules, including NASDAQ’s fundamental rule 
governing the price/time priority for executing trade orders. The 
problem caused more than 30,000 Facebook orders to remain stuck in 
NASDAQ’s system for more than two hours when they should have been 
promptly executed or canceled. NASDAQ agreed to settle the SEC’s 
charges by paying a $10 million penalty – the largest ever against an 
exchange. 

In June, the SEC brought the first action seeking a financial penalty 
against an exchange for violations related to its regulatory oversight 
when it charged the Chicago Board Options Exchange (CBOE) and its 
affiliate C2 Options Exchange for various systemic breakdowns in their 
regulatory and compliance functions as a self-regulatory organization 
(SRO), including a failure to enforce or even fully comprehend rules 
to prevent abusive short selling.[Footnote 10] SROs must enforce the 
Federal securities laws as well as their own rules to regulate trading 
on their exchanges by their member firms. In doing so, they must 
sufficiently manage an inherent conflict that exists between self-
regulatory obligations and the business interests of an SRO and its 
members. CBOE put the interests of the firm ahead of its regulatory 
obligations by failing to properly investigate the firm’s compliance 
with Regulation SHO (short selling practices) and then interfering 
with the SEC investigation of the firm. CBOE agreed to pay a $6 
million penalty and implement major remedial measures to settle the 
SEC’s charges. 

That same month, the SEC charged five individuals, including the head 
of the Miami office at brokerage firm Direct Access Partners (DAP), 
with violations related to a massive kickback scheme to secure the 
bond trading business of a state-owned Venezuelan bank.[Footnote 11] 
The SEC alleged that the scheme enabled the global markets group at 
DAP to generate more than $66 million in revenue from transaction fees 
related to fraudulent trades they executed for Banco de Desarrollo 
Económico y Social de Venezuela (BANDES), with a portion of this 
revenue illicitly paid to the Vice President of Finance at BANDES, who 
authorized the fraudulent trades. The defendants were charged with 
deceiving DAP’s clearing brokers, executing internal wash trades, 
interpositioning another broker-dealer in the traders to conceal their 
role in the transactions, and engaging in massive roundtrip trades to 
pad their revenue. The SEC’s action in the matter is continuing. 

Actions Relating to the Foreign Corrupt Practices Act 

It is important that investors have faith that the economic 
performance of public companies reflects lawful considerations of 
markets, price, and product rather than a mirage resulting from 
bribery and corruption. In FY 2013, the Division of Enforcement was 
very active in this area. In addition to releasing a 120-page joint 
guidance with the Department of Justice designed to assist enterprises 
of all sizes in analyzing issues related to Foreign Corrupt Practices 
Act (FCPA), the Division of Enforcement continued to file enforcement 
actions for violation of the FCPA. 

In December, the SEC charged Germany-based insurance and asset 
management company Allianz SE with violating the books and records and 
internal controls provisions of the FCPA for improper payments to 
government officials in Indonesia during a seven-year period.[Footnote 
12] The SEC’s investigation uncovered 295 insurance contracts on large 
government projects that were obtained or retained through improper 
payments by Allianz’s subsidiary in Indonesia to employees of state-
owned entities. An audit of accounting records at the Indonesian 
subsidiary showed that managers were using “special purpose accounts” 
to make illegal payments to government officials, but the misconduct 
continued in spite of the audit’s findings. Further, Allianz’s 
external auditor found that the company failed to properly account for 
improper payments that were disguised in invoices as “overriding 
commissions” for government agents or were structured as overpayments 
by government insurance contract holders. Allianz lacked sufficient 
internal controls to detect and prevent the wrongful payments and 
accounting practices. Allianz agreed to pay more than $12.3 million to 
settle the SEC’s charges. 

Also in December, the SEC charged Eli Lilly and Company with 
violations of the FCPA for improper payments its subsidiaries made to 
foreign government officials to win millions of dollars of business in 
Russia, Brazil, China, and Poland.[Footnote 13] The SEC alleged that 
pharmaceutical company’s subsidiary in Russia used offshore “marketing 
agreements” to pay millions of dollars to third parties chosen by 
government customers or distributors, despite knowing little or 
nothing about the third parties beyond their offshore address and bank 
account information. These offshore entities rarely provided any 
services and in some instances were used to funnel money to government 
officials in order to obtain business for the subsidiary. Transactions 
with offshore or government-affiliated entities did not receive 
specialized or closer review for possible FCPA violations. The SEC 
further alleged that when the company became aware of possible FCPA 
violations in Russia, Eli Lilly did not curtail the subsidiary’s use 
of the marketing agreements for more than five years. The SEC charged 
that Eli Lilly subsidiaries in Brazil, China, and Poland also made 
improper payments to government officials or third-party entities 
associated with government officials. Eli Lilly agreed to pay more 
than $29 million to settle the SEC’s charges. 

In April, the SEC obtained a final judgment in its ongoing civil 
action against former officer and board member of Siemens 
Aktiengesellschaft (Siemens) for his role in Siemens’ decade-long 
scheme to retain a $1 billion contract with the government of 
Argentina.[Footnote 14] The SEC first filed a civil action against 
Sharef and six other defendants in December 2011, claiming that Sharef 
and other Siemens executives had paid more than $27 million in bribes 
to senior government officials in Argentina in connection with a 
contract to provide identity cards to all Argentine citizens. Sharef 
was the most senior officer charged in relation to the scheme, and the 
SEC alleged that his role involved coordinating with payment 
intermediaries in the United States to facilitate the bribes and 
enlisting subordinates to conceal the payments by circumventing Siemens’
internal accounting controls. The final judgment, to which Sharef 
consented, enjoins him from further violations of the FCPA and orders 
him to pay a $275,000 civil penalty, the second-highest penalty ever 
assessed against an individual in an FCPA case. 

Also in April, the SEC announced a non-prosecution agreement (NPA) 
with Ralph Lauren Corporation, in which the company agreed to disgorge 
more than $700,000 in illicit profits and interest obtained in 
connection with bribes paid by a subsidiary to government officials in 
Argentina.[Footnote 15] The improper payments were made to secure the 
importation of Ralph Lauren products into Argentina without the 
necessary paperwork, to avoid inspection of prohibited products, and 
to avoid inspections by customs officials. The payments, bribes, and 
gifts, totaling more than $593,000, were discovered by Ralph Lauren 
during the implementation of an FCPA compliance training program in 
Argentina. The SEC determined not to charge Ralph Lauren with 
violations of the FCPA due to the company’s prompt reporting of the 
violations on its own initiative, the completeness of the information 
it provided, and its extensive, thorough, and real-time cooperation 
with the SEC’s investigation. Ralph Lauren Corporation’s cooperation 
saved the agency substantial time and resources ordinarily consumed in 
investigations of comparable conduct. The NPA is the first that the 
SEC has entered involving FCPA misconduct. 

In May, the SEC charged France-based oil and gas company Total S.A. 
(Total) with violating the FCPA by paying $60 million in bribes to 
intermediaries of an Iranian government official who then exercised 
his influence to help the company obtain valuable contracts with the 
National Iranian Oil Company for the country’s Sirri A and E oil and 
gas fields.[Footnote 16] The SEC alleged that Total made more than 
$150 million in profits through the bribery scheme. Total attempted to 
cover up the true nature of the illegal payments by entering into sham 
consulting agreements with intermediaries of the Iranian official and 
mischaracterizing the bribes in its books and records as legitimate 
“business development expenses” related to the consulting agreements. 
Total had inadequate systems to properly review the consulting 
agreements and lacked sufficient internal controls to comply with 
Federal laws prohibiting bribery. Total agreed to pay disgorgement of 
more than $153 million in illicit profits and retain an independent 
compliance consultant to review and consult on Total’s compliance with 
the FCPA. 

Actions Involving Financial Fraud, Issuer Disclosure, and Gatekeepers 

Accounting and financial fraud, issuer disclosure, reporting 
violations at public companies, and violations by “gatekeepers” 
(including attorneys, accountants, and compliance professionals) 
remained a priority for the Commission in FY 2013. In November, the 
SEC charged global oil and gas company BP p.l.c. with misleading 
investors by making fraudulent public statements that significantly 
understated the flow rate of the oil that was spilling into the Gulf 
of Mexico from the damaged Deepwater Horizon oil rig.[Footnote 17] BP 
reported to the SEC that its estimates indicated a flow rate of 5,000 
barrels of oil per day, and its executives continued to make public 
statements reiterating the 5,000 barrels per day estimate despite BP’s 
own internal data that showed potential flow rates could be as high as 
146,000 barrels of oil per day. To settle the SEC’s charges, BP agreed 
to pay a $525 million penalty, the third highest in SEC history, with 
which the SEC plans to establish a Fair Fund to compensate BP 
investors for losses they sustained as a result of the fraud. 

In December, the SEC charged the China affiliates of the “Big Four” 
accounting firms and another large U.S. accounting firm for refusing 
to produce audit work papers and other documents related to China-
based companies under investigation by the SEC for potential 
accounting fraud against U.S. Investors.[Footnote 18] The SEC brought 
charges against affiliates of BDO, Deloitte, Ernst & Young, KPMG, and 
PricewaterhouseCoopers for failing to provide the SEC with audit 
materials sought as part of SEC investigations into potential 
wrongdoing by nine China-based companies whose securities are traded 
on U.S. markets despite being legally required to do so by the 
Securities Exchange Act and the Sarbanes-Oxley Act. The SEC’s action 
in this matter is ongoing. 

In another case tied to the financial crisis, the SEC brought charges 
against three former executives at Virginia-based Bank of the 
Commonwealth for understating millions of dollars in losses and hiding 
from investors the deterioration of the bank’s loan portfolio. 
[Footnote 19] The SEC charged Edward J. Woodard, Jr., the former CEO, 
President, and Chairman of the Board, along with CFO and Secretary 
Cynthia Sabol, and Executive Vice President and Commercial Loan 
Officer Stephen Fields with making false statements to the public and 
in SEC filings that its portfolio of loans was conservatively managed 
to avoid losses during the height of the economic crisis. The SEC’s 
action in this matter is ongoing. 

In May, the SEC charged the gatekeepers of a pair of mutual fund 
trusts with causing untrue or misleading disclosures about the factors 
they considered when approving or renewing investment advisory 
contracts on behalf of shareholders.[Footnote 20] The SEC’s 
investigation that arose from an examination of the Northern Lights 
Fund Trust and the Northern Lights Variable Trust found that some of 
the trusts’ shareholder reports either misrepresented material 
information considered by the trustees or omitted material information 
about how they evaluated certain factors in reaching their decisions 
on behalf of the funds and their shareholders. The trustees and the 
trusts’ chief compliance officer Northern Lights Compliance Services 
(NLCS) were responsible for causing violations of the SEC’s compliance 
rule, and the trusts’ fund administrator Gemini Fund Services (GFS) 
caused violations of the Investment Company Act recordkeeping and 
reporting provisions. In settling the proceedings, GFS and NLCS each 
agreed to pay $50,000 penalties, and the firms and trustees agreed to 
engage an independent compliance consultant to address the violations 
found in the SEC’s order. They also agreed to cease and desist from 
committing or causing any violations and any future violations of 
those provisions. 

In June, the SEC charged cosmetics manufacturer Revlon with violating 
Federal securities laws by misleading shareholders during a “going 
private transaction” wherein Revlon agreed to allow shareholders to 
exchange common stock for preferred stock as part of a deal to pay off 
a debt.[Footnote 21] The trustee administering Revlon’s 401(k) plan 
decided that 401(k) members could participate in the exchange only if 
a third-party financial advisor determined that the preferred stock 
was at least as valuable as the common stock they would be exchanging. 
In its settled order, the Commission found that when the third-party 
adviser found that the proposed transaction was inadequate for 401(k) 
members, Revlon engaged in a “ring-fencing” scheme to avoid disclosing 
the results of the adviser’s determination. In order to avoid any 
obligation that would cause it to disclose the results of the third-
party determination, Revlon amended its trust agreement with its 
trustee to ensure that the trustee would not share the determination 
with Revlon and directed the trustee to inform Revlon of the trustee’s 
decision about the 401(k) members without making any reference to the 
determination. Revlon agreed to settle the SEC’s charges and to pay an 
$850,000 penalty. 

In July, the SEC filed fraud and related charges against China-based 
jewelry company Fuqi International, Inc., and its Chairman of the 
Board of Directors and former CEO and President, Yu Kwai Chong. 
[Footnote 22] Fuqi and Chong were charged with violations stemming 
from cash transfers of approximately $134 million to three purportedly 
unknown entities. The Commission alleged that Chong, who directed and 
authorized the transfers, fraudulently certified that Fuqi’s quarterly 
financial reports contained no material omissions or misstatements, 
while Fuqi lacked adequate internal accounting controls and 
incorrectly recorded the undisclosed transfers in its books and 
records. Both Fuqi and Chong agreed to settle the SEC’s charges, with 
both consenting to being permanently enjoined from future violations 
of the Federal securities laws, to pay civil penalties of $1 million 
and $150,000, respectively, and a five-year bar on serving as an 
officer or director for Chong. 

The SEC filed two actions charging violations in connection with a 
fraudulent scheme to conceal the extent of massive trading losses, 
totaling more than $500 billion, at J.P. Morgan Chase & Co.’s Chief 
Investment Office.[Footnote 23] In August, the SEC brought charges 
against Javier Martin-Artajo and Julien Grout, who were formerly 
traders at J.P. Morgan, for deliberately mismarking hundreds of 
positions held by a Chief Investment Office portfolio known as the 
“Synthetic Credit Portfolio.” The Commission alleged that the two 
former traders mismarked the positions by recording their maximum 
value, rather than mid-market values as required by generally accepted 
accounting principles and by J.P. Morgan internal accounting policy. 
Their scheme caused J.P. Morgan’s reported first quarter income to be 
overstated by more than $660 million. In September, the SEC charged 
J.P. Morgan with misstating its financial results and lacking 
effective internal controls to detect and prevent the scheme. J.P. 
Morgan settled the SEC’s charges by publicly acknowledging that it had 
violated Federal securities laws and by paying a $200 million penalty. 
The SEC’s action against Martin-Artajo and Grout is continuing. 

In September, as part of the agency’s ongoing effort to hold 
gatekeepers accountable for the important roles they play in the 
securities industry, the SEC charged three auditors for violating 
federal securities laws or failing to comply with U.S. auditing 
standards during their audits and reviews of financial statements for 
publicly traded companies.[Footnote 24] Internally designated 
“Operation Broken Gate,” the Enforcement Division’s efforts seek to 
identify auditors who fail to carry out their duties and 
responsibilities consistent with professional standards. Gatekeepers 
that fail to comply with professional standards put investors at risk 
due to the possibility of undetected fraud or other financial 
misstatements. The actions were against certified public accountants 
Malcolm L. Pollard, who practices in Erie, Pennsylvania, and Wilfred 
W. Hanson and John Kinross-Kennedy, who live in the Irvine, California 
area. The SEC’s order instituting a settled administrative proceeding 
against Pollard and his firm alleged they engaged in improper 
professional conduct while auditing three companies that are empty 
shells or in the developmental stages. The companies’ public stock is 
quoted on the Over-the-Counter Bulletin Board. Pollard and his firm’s 
audits of the issuers were seriously deficient. They failed to include 
evidence of procedures performed or conclusions reached, and they 
failed to retain required documentation, perform the required 
engagement quality reviews, and consider fraud risks and obtain 
written management representations. Despite these audit failures, 
Pollard and his firm represented in each of their audit reports that 
they had conducted the audits in accordance with the standards of the 
Public Company Accounting Oversight Board (PCAOB). The SEC’s order 
instituting a litigated administrative proceeding against Kinross-
Kennedy alleged that there were significant deficiencies in six of 
Kinross-Kennedy’s audit engagements, that he failed to obtain 
engagement quality reviews (EQRs) for more than 30 other audit 
engagements, and that he falsely represented that he conducted his 
audits in accordance with PCAOB standards. As to Hanson, the Commission’
s order found that he conducted EQRs for five of Kinross-Kennedy’s 
audits, but was not competent to serve as the engagement quality 
reviewer and failed to exercise due professional care. Accordingly, he 
failed to conduct multiple EQRs in accordance with PCAOB standards. 
Pollard and Hanson agreed to settle the respective actions against 
them and will be prohibited from practicing as an accountant on behalf 
of any publicly traded company or other entity regulated by the SEC. 
Kinross-Kennedy is litigating his action in a proceeding before an 
administrative law judge. 

Actions Related to Insider Trading: 

Insider trading remained a high priority in FY 2013, with the 
Commission filing 58 insider trading actions. Many of these cases 
involved financial professionals, hedge funds managers, corporate 
insiders, and others who unlawfully traded on material, nonpublic 
information, undermining the level playing field that is fundamental 
to the integrity and fairness of the securities markets. 

In December, the SEC charged hedge fund manager Sung Kook “Bill” Hwang 
with conducting a pair of insider trading schemes that reaped $16.7 
million dollars in illicit profits.[Footnote 25] Hwang, the founder 
and manager of hedge fund’s Tiger Asia Management and Tiger Asia 
Partners LLC, schemed with Raymond Y. H. Park, the head trader at both 
firms, to misuse confidential information that Hwang and his advisory 
firms had obtained while working on private placements for stock in 
Bank of China and in China Construction Bank. One scheme involved 
making short sales in the banks’ stock in the days prior to the 
private placement, and in the second scheme, Hwang ordered Park to 
place losing trades in order to depress the stock prices while 
inflating the fees collected by Tiger Asia Management. Hwang, Park, 
and both firms agreed to settle the SEC’s charges by paying $44 
million in penalties, disgorgement, and prejudgment interest. 

The SEC continued to bring charges related to the massive insider 
trading scheme spearheaded by Raj Rajaratnam and hedge fund advisory 
firm Galleon Management, having charged a total of 34 firms and 
individuals in its Galleon-related enforcement actions.[Footnote 26] 
In March, the SEC charged Rajaratnam’s younger brother, Regnan 
Rajaratnam, with receiving inside information from his brother and 
trading on that information to reap more than $3 million in illicit 
profits for himself and hedge funds that he managed at Galleon and 
Sedna Capital Management, a hedge fund advisory firm that he co-
founded. The SEC’s action in this matter is ongoing. 

In another action, the SEC obtained a final judgment in its case 
against hedge fund manager Douglas Whitman and his firm Whitman 
Capital. The SEC alleged that Whitman and Whitman Capital illegally 
traded based on material nonpublic information that Whitman had 
received from his friend and neighbor Roomy Khan, a close associate of 
Raj Rajaratnam. Hedge funds managed by Whitman Capital reaped over 
$900,000 in ill-gotten gains by trading on Khan’s illegal tips about a 
technology company’s earnings reports. The final judgment enjoins 
Whitman and Whitman Capital from future violations of the Federal 
securities laws and requires Whitman and Whitman Capital to jointly 
and severally disgorge $935,306 in illicit profits. The judgment also 
orders Whitman to pay a civil penalty of $935,306, which will be 
offset by his obligation to make a criminal forfeiture in the same 
amount. 

Later, in September, the SEC charged Kieran Taylor, a former executive 
at Massachusetts-based technology firm Akamai Technologies, with 
insider trading for illegally tipping fund portfolio manager Danielle 
Chiesi with confidential information about Akamai’s plans to lower its 
revenue guidance. Chiesi then passed the nonpublic information along 
to Raj Rajaratnam and others so they could trade ahead of the negative 
news and make millions of dollars in illegal profits. Taylor settled 
the SEC’s charges by accepting a bar from serving as an officer or 
director of a public company for five years and agreeing to pay more 
than $145,000 in disgorgement, interest, and penalties. 

In March, the SEC charged California hedge fund analyst Matthew Teeple 
with insider trading in advance of an announcement that technology 
firm Foundry Networks, Inc. had acquired Brocade Communication 
Systems, Inc. for approximately $3 billion.[Footnote 27] The SEC 
alleged that Foundry’s Chief Information Officer, David Riley, tipped 
Teeple about the impending announcement. According to the complaint, 
Teeple caused the San Francisco-based hedge fund advisory firm where 
he works to buy Foundry shares in large quantities in the days leading 
up to the public announcement, and he then tipped Denver-based 
investment professional John Johnson about the deal. The SEC’s 
complaint alleged that Riley continued to provide tips to Teeple 
throughout the acquisition process, which allowed Teeple and his firm 
to continue trading profitably. The SEC alleges that the scheme 
resulted in $29 million in illicit profits and avoided losses. The SEC’
s action in this matter is ongoing. 

The SEC also reached settlements with several parties whose assets 
were frozen as part of major insider trading case that involved 
trading in the securities of Nexen Inc.[Footnote 28] The SEC obtained 
an emergency court order in July 2012 to freeze multiple accounts that 
had conducted suspicious trades in the securities of Nexen prior to an 
announcement that the company was being acquired by China-based CNOOC 
Ltd. The SEC reached a settlement with lead defendant Well Advantage 
in October 2012. Hong Kong-based trading firm Well Advantage agreed to 
pay more than $14.2 million to settle the insider trading charges. In 
April, the SEC reached a settlement with Chinese businessman Ren Feng 
and his wife Zeng Huiyu, as well as Ren’s private investment company 
CT Prime Assets Limited and four of Zeng’s brokerage customers on 
whose behalf she traded. That settlement requires the traders to pay 
more than $3.3 million combined in disgorgement and penalties. In May, 
Singapore businesswoman Choo Eng Hong agreed to pay more than $500,000 
to settle SEC charges that she generated more than $400,000 in illicit 
profits by trading in Nexen stock in the days leading up to the 
acquisition announcement. 

In April, the SEC charged Scott London, the former partner in charge 
of KPMG’s Pacific Southwest audit practice, and his friend Bryan Shaw 
with insider trading on nonpublic information about firm clients. 
[Footnote 29] The SEC’s complaint alleges that London tipped Shaw with 
confidential details about five KPMG audit clients and enabled Shaw to 
make more than $1.2 million in illicit profits trading ahead of 
earnings or merger announcements. London allegedly provided tips to 
his golfing friend Shaw in exchange for more than $50,000 in cash, a 
$12,000 Rolex watch and other jewelry, meals, and tickets to 
entertainment events. London was able to obtain extensive material, 
nonpublic information as a result of his role as the lead partner on 
several KPMG audits, including Herbalife and Skechers USA, and was the 
firm’s account executive for Deckers Outdoor Corp. Shaw allegedly 
traded on this information at least a dozen times, and grossed more 
than $714,000 in illicit profits. The SEC’s action in this matter is 
ongoing. 

In another insider trading case, the SEC charged Bangkok-based trader 
Badin Rungruangnavarat with trading on inside information in advance 
of a public announcement about a proposed acquisition of Smithfield 
Foods by Chinese firm Shuanghui International Holdings.[Footnote 30] 
The SEC obtained an emergency asset freeze on June 5 after filing a 
complaint that Rungruangnavarat reaped more than $3 million in illicit 
profits just days earlier by trading in Smithfield securities. The 
complaint alleged that Rungruangnavarat could have obtained the 
material, nonpublic information about the impending deal from a friend 
who was an associate director at an investment bank for a company that 
had also considered a Smithfield acquisition. Rungruangnavarat settled 
the SEC’s charges by agreeing to pay $3.2 million in disgorgement and 
a $2 million penalty, and consented to a permanent injunction barring 
him from future violations of the securities laws. 

The SEC also brought a series of related insider trading cases 
beginning in late November 2012. In the first of three actions the SEC 
filed its largest insider trading case to date when it charged hedge 
fund advisory firm CR Intrinsic Investors LLC and its former portfolio 
manager, along with a medical consultant for an expert network firm, 
for their roles in an insider trading scheme that reaped $276 million 
in illicit gains.[Footnote 31] The SEC alleged that portfolio manager 
Matthew Martoma illegally obtained confidential details about clinical 
trials of a potential Alzheimer’s drug from Dr. Sidney Gillman, who 
was selected by the drug’s developers to present the final drug trial 
results to the public. The complaint charged that Dr. Gilman tipped 
Martoma about negative clinical trial results about two weeks before 
they were made public, and Martoma directed several hedge funds 
managed by CR Intrinsic to liquidate their holdings in the drug’s 
producers and to take short positions in the securities. These 
positions allowed CR Intrinsic and its affiliates, including S.A.C. 
Capital Advisors, to earn approximately $82 million in profits and 
avoid losses of $194 million. Martoma allegedly received a $9.3 
million bonus at the end of 2008 which was largely attributable to the 
illegal profits reaped by CR Intrinsic and its affiliates, while Dr. 
Gilman received more than $100,000 for his consultations with Martoma 
and others. Gilman settled the SEC’s charges by agreeing to pay more 
than $234,000 in disgorgement and interest, and the court will 
determine at a later date whether any additional financial penalty is 
appropriate. In March, CR Intrinsic agreed to the largest insider 
trading settlement in SEC history to settle charges over the scheme. 
The terms of the historic settlement required CR Intrinsic to pay more 
than $600 million to settle the charges, including $274.9 million in 
disgorgement, $51.8 million in prejudgment interest, and a $274.9 
million penalty. 

Also in March, the SEC charged hedge fund advisory firm Sigma Capital 
Management and Michael Steinberg, a portfolio manager employed by 
Sigma, with trading on insider information ahead of quarterly earnings 
announcements by Dell and Nvidia Corporation.[Footnote 32] The SEC 
alleged that Steinberg’s illegal conduct allowed Sigma Capital and its 
affiliate S.A.C. Capital to generate more than $6 million in illicit 
profits and avoid losses. Steinberg allegedly received tips from a 
former analyst at Sigma, Jon Horvath, who was himself the target of an 
SEC action in January 2012 that targeted hedge fund managers and 
analysts associated with expert networks firms. Sigma agreed to settle 
the SEC’s charges by paying nearly $14 million in disgorgement, 
interest, and penalties. 

Relatedly, in July, the SEC charged hedge fund manager Steven A. Cohen 
for failing to supervise Matthew Martoma and Michael Steinberg and 
prevent them from insider trading under his watch.[Footnote 33] The 
SEC alleged that Cohen, who managed S.A.C. Capital, received highly 
suspicious information that should have caused any reasonable hedge 
fund manager to investigate the basis for the trades, but ignored the 
red flags and allowed Martoma and Steinberg to execute the trades, and 
praised Steinberg for his work and rewarded Martoma with a $9 million 
bonus. Cohen’s hedge funds earned profits and avoided losses of more 
than $275 million as a result of the illegal trades. 

In August, the SEC charged Chad McGinnis, a former systems 
administrator at Vermont-based Green Mountain Coffee Roasters, 
alleging that he repeatedly obtained quarterly earnings data and 
traded in advance of its public release.[Footnote 34] The SEC also 
charged his friend, Sergey Pugach, with insider trading. According to 
the complaint, McGinnis and Pugach together garnered $7 million in 
illegal profits by using inside information to correctly predict the 
reaction of Green Mountain Coffee’s stock price to 12 quarterly 
earnings announcements since 2010. The complaint alleged that McGinnis 
and Pugach violated Section 17(a) of the Securities Act of 1933 and 
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. 
Pugach’s mother, Bella Pugach, was named as a relief defendant in the 
SEC’s complaint for the purpose of recovering ill-gotten gains in her 
trading account. 

Actions Related to Market Manipulation 

In December, the SEC charged securities industry professionals Danny 
Garber, Michael Manis, Kenneth Yellin and Jordan Feinstein with 
conducting a fraudulent penny stock scheme in which they illegally 
acquired more than one billion unregistered shares in microcap 
companies at deep discounts and then dumped them on the market for 
approximately $17 million in illicit profits.[Footnote 35] The 
Commission alleged that the defendants acquired the shares at deep 
discounts off the market price by misrepresenting to the penny stock 
companies that they intended to hold the shares for investment 
purposes rather than immediately re-selling them. Instead, the 
defendants immediately sold the shares without registering them, 
purporting to rely on an inapplicable state law exemption. The SEC 
also charged 12 entities that the defendants established to create 
corporate presences in an attempt to claim the exemption was valid. 

In June, the SEC continued its crackdown against the manipulation of 
microcap shell companies by suspending trading in the securities of 61 
empty shell companies, the second-largest trading suspension in agency 
history and a follow-up to its 2012 “Operation Shell Expel.” Because 
microcap companies are thinly traded, once they become dormant they 
have great potential to be hijacked by fraudsters who hope to falsely 
hype the stock to trick investors into “pump-and-dump” schemes. 
Fraudsters purchase shares in the shell company at a low price, use 
false and misleading statements to increase investor activity in the 
stock, and then dump the stock for significant profit once other 
investors have been tricked into buying shares. In this latest 
nationwide review of microcap stocks, the SEC used enhanced 
intelligence technology in the Division of Enforcement’s Office of 
Market Intelligence and identified clearly dormant shell companies in 
at least 17 states and one foreign country. By suspending trading in 
these companies, the SEC obligated the companies to provide updated 
financial information to prove that they are still operational, 
essentially rendering them useless to scam artists as the companies 
are no longer allowed to fly under the radar. 

In September, the SEC announced enforcement actions against 23 firms 
for short selling violations as part of an agency-wide sweep focused 
on preventing firms from improperly participating in public stock 
offerings after selling short those same stocks.[Footnote 36] SEC Rule 
105 of Regulation M prohibits the short sale of any equity security 
during a restricted period – generally five business days before a 
public offering – and the purchase of the same security through the 
offering. The firms charged in these cases allegedly bought offered 
shares from an underwriter, broker, or dealer participating in a 
follow-on public offering after having sold short the same security 
during the restricted period. Of the 23 firms charged, 22 agreed to 
settle the SEC’s charges, resulting in more than $14.4 million in 
monetary sanctions. 

Actions Related to Municipal Securities: 

In FY 2013, the SEC remained committed to the prior year’s focus on 
the municipal securities markets, bringing high profile and many 
“first-of-its-kind” enforcement actions. In March, the SEC charged the 
State of Illinois with securities fraud for misleading municipal bond 
investors by failing to inform them about the impact of problems with 
a pension funding schedule before the state offered and sold more than 
$2.2 billion worth of municipal bonds between 2005 and 2009.[Footnote 
37] Illinois failed to disclose to investors that its statutory plan 
significantly underfunded the state’s pension obligations and 
increased the risk to its overall financial conditions. The State of 
Illinois, which began taking steps in 2009 to improve its pension 
disclosures and other remedial actions, settled the charges. This 
marks the second time the SEC has charged a state with violating 
Federal securities laws in public pension disclosures, following a 
charge against New Jersey for securities fraud in 2010. 

In April, the SEC brought securities fraud charges against the City of 
Victorville, California, the city’s Assistant City Manager Keith 
Metzler, the Southern California Logistics Airport Authority, and the 
underwriter of the Airport Authority’s bonds Kinsell, Newcomb & DeDios 
(KND).[Footnote 38] The SEC charged that Metzler, along with KND owner 
J. Jeffrey Kinsell and KND Vice President Janees L. Williams were 
responsible for false and misleading statements made in relation to an 
Airport Authority bond offering that was intended to raise funds for a 
construction project that included building four aircraft hangars on a 
former Air Force base. According to the SEC’s complaint, the principal 
amount of the bond offering was partially based on Metzler, Kinsell, 
and Williams using a $65 million valuation for the hangars despite the 
fact that they knew a county assessor had valued the hangars at less 
than half that amount. The SEC’s investigation also found that 
Kinsell, KND, and another of his companies had misappropriated more 
than $2.7 million in bond proceeds by taking unauthorized fees to 
oversee the construction and management of the hangars. The SEC’s 
action in this case is ongoing. 

In early May, the Securities and Exchange Commission charged the City 
of Harrisburg, Pa., with securities fraud for failing to provide 
municipal bond investors with accurate financial information and for 
the misleading public statements the city made in its annual and mid-
year financial statements, budget report, and State of the City 
address.[Footnote 39] In each instance, the SEC found that the City of 
Harrisburg either misstated or failed to disclose critical information 
about Harrisburg’s financial condition. For example, according to the 
SEC’s order, Harrisburg had not submitted annual financial information 
or audited financial statements since submitting its 2007 
Comprehensive Annual Financial Report (CAFR) to a Nationally 
Recognized Municipal Securities Information Repository (NRMSIR) in 
January 2009. Also, Harrisburg’s budget did not disclose that the city 
was unlikely to have sufficient revenues to pay its 2009 debt service 
obligations and misstated Harrisburg’s credit as being rated “Aaa” 
even though Moody’s had downgraded Harrisburg’s general obligation 
credit rating to Baa1 in December 2008. Further, Harrisburg’s 2009 mid-
year fiscal report did not reference any of the guarantee payments the 
city had made on the municipal resource recovery facility debt, which 
at this mid-year point totaled $2.3 million (7 percent of its general 
fund expenditures). Additionally, the April 9, 2009 State of the City 
address failed to mention that Harrisburg had already made $1.8 
million in guarantee payments on the resource recovery facility bond 
debt, that the total amount of the debt that the city would likely 
have to repay from its general fund, and would likely have to repay 
$260 million of the debt as guarantor. This marked the first time that 
the SEC has charged a municipality for misleading statements made 
outside of its securities disclosure documents. The Commission also 
sent a message to municipal issuers by issuing a report of its 
investigation pursuant to Section 21(a) of the Exchange Act. 

Later in May, the SEC charged the City of South Miami, Florida, with 
defrauding bond investors about the tax-exempt financing eligibility 
of a mixed-use retail and parking structure being built in its 
downtown commercial district.[Footnote 40] An SEC investigation found 
that the city of 11,000 residents located in Miami-Dade County 
borrowed approximately $12 million in two pooled, conduit bond 
offerings through the Florida Municipal Loan Council (FMLC). South Miami
’s participation in those offerings enabled it to borrow funds at 
advantageous tax-exempt rates. The city represented that the project 
was eligible for tax-exempt financing in various documents for the 
second offering that were relied upon by bond counsel in rendering its 
tax opinion. However, South Miami failed to disclose that it had 
actually jeopardized the tax-exempt status of both bond offerings by 
impermissibly loaning proceeds from the first offering to a private 
developer and restructuring a lease agreement prior to the second 
offering. According to the SEC’s order, annual certifications made by 
the city to the FMLC from 2003 to 2009 incorrectly stated that South 
Miami was in compliance with the terms of the loan agreements, which 
included representations that no event had occurred affecting the tax-
exempt status of the bonds. South Miami agreed to settle the SEC’s 
charges and retain an independent third-party consultant to review and 
make recommendations concerning the adequacy of its policies, 
procedures, and internal controls for bond disclosures. 

That same month the SEC settled charges related to a “pay-to-play” 
scheme with Neil M.M. Morrison, a former vice president in the banking 
division of Goldman, Sachs & Co. (Goldman). Morrison and Goldman were 
charged in September 2012 with providing prohibited contributions to 
the political campaign of then-Massachusetts State Treasurer Timothy 
Cahill while he was a candidate in a gubernatorial race.[Footnote 41] 
The SEC alleged that Morrison conducted campaign activities for Cahill 
from his Goldman Sachs office, using the firm’s phones and email. The 
SEC further alleged that these non-cash campaign contributions were 
attributable to Goldman, and disqualified the firm from participating 
in municipal underwriting business with certain Massachusetts 
municipal advisors for two years after the contributions. 
Nevertheless, Goldman subsequently participated in multiple prohibited 
underwritings with Massachusetts issuers and earned more than $7.5 
million in underwriting fees. To settle the SEC’s charges, Morrison 
consented to being barred from the securities industry for five years, 
and agreed to pay a penalty in the amount of $100,000. 

In July, the SEC brought charges against the City of Miami and its 
former budget director, Michael Boudreaux, for securities fraud in 
connection with several municipal bond offerings and 
misrepresentations made to investors.[Footnote 42] An SEC 
investigation found that Miami and Michael Boudreaux made materially 
false and misleading statements and omissions about certain interfund 
transfers that were orchestrated by Boudreaux to mask increasing 
deficits in the City’s General Fund, viewed by investors and bond 
rating agencies as a key indicator of financial health. According to 
the SEC’s complaint, Miami was forced to reverse most of the transfers 
following a report by its Office of Independent Auditor General, after 
which the City declared a state of fiscal emergency and had its debt 
ratings downgraded by ratings agencies. The complaint also charges the 
City of Miami with violating an SEC cease-and-desist order that was 
entered against it in 2003 based on similar misconduct, the first time 
that the SEC has alleged further wrongdoing by a municipality subject 
to an existing cease-and-desist order. 

Later that same month, the SEC charged West Clark Community Schools of 
the Indiana school district, its municipal bond underwriter, City 
Securities Corporation, and the underwriter’s head of public finance 
and municipal bond department, Randy G. Ruhl, for making materially 
false and misleading statements to bond investors.[Footnote 43] 
Following the issuance of a $31 million bond offering in 2007, West 
Clark Schools released an official statement, supported by a signed 
certificate and affidavit that the school district “never failed to 
comply, in all material respects, with any previous undertakings.” The 
SEC alleged that West Clark had in fact failed to submit the required 
financial information for five years as they had undertaken to do so, 
and City Securities and Ruhl had failed to conduct adequate due 
diligence regarding West Clark’s compliance. 

The SEC also alleged that City Securities and Ruhl violated Municipal 
Securities Rulemaking Board rules by providing representatives of 
municipal securities issuers with valuable gifts, and then 
fraudulently charging these and other expenses back to the issuers as 
“printing, preparation and distribution of official statements.” The 
parties adopted a number of remedial measures and settled the matter 
for approximately $620,000. As part of the settlement, Ruhl was 
permanently barred from association in a supervisory capacity with any 
broker, dealer, investment adviser, municipal securities dealer, 
municipal advisor, transfer agent, or credit rating agency. This 
action marked the first time that the SEC charged a municipal issuer 
for falsely claiming in a bond offering’s official statement that it 
was fully compliant with the annual disclosure obligations it agreed 
to in prior offerings, and also charged the underwriter and its 
principal for not doing the necessary research to attest to the 
truthfulness of that claim. 

In September, the SEC charged the Public Health Trust (PHT), the 
operator of the largest hospital in Miami-Dade County, with misleading 
investors about the extent of its deteriorating financial condition 
prior to an $83 million bond offering.[Footnote 44] An SEC 
investigation found that the official statement accompanying the bond 
offering represented that PHT projected a $56 million non-operating 
loss for its fiscal year ending September 30, 2009. Several months 
after the bonds were sold, external auditors discovered problems with 
the PHT’s patient accounts receivable valuation. This discovery 
required a large accounting adjustment to the reported net income, and 
the PHT ultimately reported a non-operating loss of $244 million for 
FY 2009 – more than four times the projection made to bond investors. 
The SEC found that PHT made material misstatements to investors 
because it lacked a reasonable basis for its original loss projection 
and failed to properly account for a multi-million dollar arbitration 
award as required under the relevant accounting standards. PHT agreed 
to settle the SEC’s charges, and the SEC declined to issue a monetary 
penalty due to PHT’s financial condition, its cooperation during the SEC
’s investigation, and remedial measures undertaken. 

Actions Related to Mutual Funds and Investment Advisers 

The Commission brought numerous actions against mutual funds, 
investment advisers, and investment companies in FY 2013. In October 
2012, the SEC charged former $1 billion hedge fund advisory firm 
Yorkville Advisors LLC, its founder and President Mark Angelo, and CFO 
Edward Schinik with scheming to overvalue assets under management and 
exaggerate the reported returns of hedge funds they managed in order 
to hide losses and increase the fees collected from investors. 
[Footnote 45] The defendants were charged with enticing pension funds 
and other investors to invest in their hedge funds by falsely 
portraying Yorkville as a firm with a highly-collateralized investment 
portfolio and a robust valuation procedure. The defendants also 
allegedly misrepresented the safety and liquidity of the investments 
made by the hedge funds, and charged at least $10 million in excessive 
fees to the funds based on fraudulently inflated values of Yorkville’s 
assets under management. The SEC’s action in this case is ongoing. 

In March, the SEC obtained a final judgment against former investment 
adviser Timothy Roth for misappropriating millions of dollars from the 
accounts of his advisory clients. The SEC filed an emergency action in 
March 2011 that froze Roth’s assets and the assets of several 
companies he controlled for stealing more than $16 million worth of 
mutual funds shares from several deferred compensation plans for whom 
he provided investment advice.[Footnote 46] The United States District 
Court for the Central District of Illinois also granted the SEC’s 
motion to dismiss its monetary claims against Roth in light of a 
parallel criminal proceeding in which Roth was sentenced to 151 months 
of incarceration and was ordered to pay more than $16 million dollars 
in restitution to his victims. 

In another action, the SEC charged Houston-based hedge fund manager 
and radio talk show host George R. Jarkesy Jr. and his firm with 
defrauding investors in two hedge funds and with steering bloated 
management fees to Thomas Belesis, CEO of brokerage firm John Thomas 
Financial.[Footnote 47] Jarkesy and Belesis were charged with multiple 
offenses related to two hedge funds they launched together that raised 
$30 million from investors. The SEC alleged that Jarkesy and his firm, 
John Thomas Capital Management (since renamed to Patriot 28 LLC), 
inflated valuations of the fund’s assets, causing investors’ shares to 
be overstated and his management and incentive fees to be increased. 
Jarkesy also allegedly lied to investors about the identity of the funds
’ auditor and prime broker, and falsely portrayed John Thomas Capital 
Management as an independent entity while Belesis sometimes supplanted 
Jarkesy as the decision maker and directed the hedge funds’ 
investments into a company in which John Thomas Financial was heavily 
invested. The SEC’s action in this matter is ongoing. 

In April, the SEC charged Umesh Tandon, the CEO of Chicago-based 
investment advisory firm Simran Capital Management, with lying to the 
California Public Employees’ Retirement System (CalPERS) and other 
current and potential clients about the amount of money managed by the 
firm.[Footnote 48] The SEC’s complaint alleged that Tandon falsely 
certified to CalPERS that his firm satisfied CalPERS’s minimum assets 
under management (AUM) requirements, fraudulently reported inflated 
AUM in communications with other potential clients and in filings with 
the SEC, and later attempted to mislead SEC examiners during a routine 
exam of Simran. To settle the SEC’s charges, Tandon agreed to be 
barred from the securities industry and to pay more than $120,000 in 
disgorgement, interest, and penalties. 

In May, the SEC charged Charles Dushek, Sr., and his son, Charles 
Dushek, Jr., and their Illinois-based investment advisory firm, 
Capital Management Associates, Inc. (CMA), with violations of the 
Federal securities laws for defrauding CMA clients in a cherry picking 
scheme that garnered the Dusheks nearly $2 million in illicit 
profits.[Footnote 49] The SEC alleged that the Dusheks placed millions 
of dollars in securities trades without designating in advance whether 
they were trading their personal funds or the funds of CMA clients, 
and delayed allocating the trades until they knew whether the trades 
would be profitable. The Dusheks then allegedly cherry picked the 
winning trades for their personal accounts and dumped losing trades on 
CMA’s unwitting clients. The SEC’s claims against CMA alleged that the 
firm violated the antifraud provisions of the Federal securities laws 
by misrepresenting its trading activity to investors. The SEC’s action 
in this matter is ongoing. 

In another action, the SEC charged Chauncey Mayfield, the leader of 
Detroit-based investment adviser, MayfieldGentry Realty Advisors, for 
stealing nearly $3.1 million from the Police and Fire Retirement 
System of the City of Detroit so he could buy two strip malls in 
California.[Footnote 50] The SEC further alleged that when other 
MayfieldGentry executives became aware of the theft, they covered up 
the theft by making material misrepresentations to fund trustees and 
devised a plan to secretly repay the pension fund by cutting costs and 
selling the strip malls. This plan ultimately failed when 
MayfieldGentry could not raise enough capital to return the stolen 
money to the fund. The SEC’s action in this matter is ongoing. 

The SEC brought charges against two investment advisers and a 
portfolio manager at Oppenheimer & Co. for misleading investors by 
releasing quarterly reports and marketing materials that 
misrepresented the valuation policies and performance of a private 
equity fund they managed.[Footnote 51] The Commission’s order found 
that the two advisers, Oppenheimer Asset Management and Oppenheimer 
Alternative Investment Management, disseminated materials that 
characterized the fund’s holdings of other private equity funds as 
being valued “based on the underlying managers’ estimated values,” 
when, in reality, the portfolio manager of the Oppenheimer fund 
actually valued the fund’s largest investment at a significant markup, 
making the fund’s performance appear significantly better. Oppenheimer 
agreed to pay more than $2.8 million to settle the SEC’s charges. The 
SEC’s action against former Oppenheimer portfolio manager Brian 
Williamson, who was responsible for improperly valuing the fund, is 
ongoing. 

In August, the SEC filed charges against North Carolina-based 
investment adviser Chariot Advisors LLC and its former owner, Elliot 
Shifman, alleging that he misled an investment fund board of directors 
about the firm’s ability to conduct algorithmic trading so they would 
approve the firm’s contract to manage the fund.[Footnote 52] The 
Commission’s order alleged that despite telling the directors of the 
Chariot Absolute Return Portfolio that his firm would use 20 percent 
of the fund assets to engage in algorithmic currency trading, Chariot 
Advisors did not have an algorithm capable of conducting such currency 
trading, and Shifman instead hired an individual trader who was 
allowed to use discretion on trade selection and execution. The SEC’s 
action in this matter is ongoing. 

Actions Related to Offering Frauds/Ponzi Schemes: 

In January, the SEC charged former real estate executives of Cay Club 
Resorts and Marinas, Fred Davis Clark, Jr. (president and CEO), 
Cristal R. Coleman (manager and sales agent), Barry J. Graham (sales 
director) Ricky Lynn Stokes (sales director), and David W. Schwarz 
(chief accounting officer), for defrauding $300 million from nearly 
1,400 investors in a nationwide Ponzi scheme.[Footnote 53] According 
to the SEC’s complaint, the fraud began in 2004 where the executives 
used an insider flipping scheme to prop up false investor’s 
profitability reports in order to lure investors. The executives 
allegedly continued to defraud investors after Cay Clubs abandoned its 
operations and investors’ properties went into foreclosure. Meanwhile, 
the executives paid themselves more than $30 million in salary and 
commissions, misappropriated investor money to purchase airplanes and 
boats, and funneled millions of dollars into offshore accounts. The 
SEC action remains ongoing. 

The following month, the Commission charged Richard K. Olive and Susan 
L. Olive of We The People Inc. with defrauding over 400 investors from 
over 30 states of $75 million.[Footnote 54] The SEC alleged that the 
husband and wife team sold the investments as Charitable Gift 
Annuities (CGAs) and particularly targeted senior citizens, but only a 
small percentage of the money was directed to charitable services, 
while the Olives siphoned away investor funds for their personal use, 
and received more than $1.1 million in salary and commissions. The 
SEC’s complaint also charges We The People and the company’s in-house 
counsel, William G. Reeves. Among the settlement conditions, We The 
People consented to a final judgment that will enable the appointment 
of a receiver to protect more than $60 million of investor assets 
still held by the company. The SEC preceding remains ongoing. 

Later in February, the SEC obtained an emergency court order to freeze 
investor assets that were at risk of being misappropriated in a scheme 
that purported to offer foreign investors a path to citizenship. 
[Footnote 55] The SEC charged Anshoo R. Sethi and two companies that 
he created in Chicago to sell more than $147 million in securities to 
purportedly finance the construction of a hotel and conference center 
near O’Hare Airport. The SEC alleged that Sethi misled Chinese 
investors about both the purported investment opportunity and the 
prospect of gaining legal U.S. residency through the EB-5 Immigrant 
Investor Pilot Program. A U.S. District Court judge modified the asset 
freeze order on April 19 and directed the return of more than $147 
million in escrowed funds to investors. The litigation continues as 
the SEC seeks further monetary relief and permanent injunctions 
against Sethi and his companies. 

In March, the SEC charged Craig Berkman, a former Oregon gubernatorial 
candidate living in Florida, for masquerading as a sophisticated fund 
manager and defrauding investors seeking to acquire highly coveted pre-
IPO shares of Facebook and other social media companies.[Footnote 56] 
According to the SEC’s order instituting administrative proceedings, 
Berkman raised at least $13.2 million from 120 investors by selling 
membership interests in limited liability companies that he 
controlled. Instead of purchasing shares on investors’ behalf as 
promised, Berkman misused their investments to make Ponzi-like 
payments to earlier investors, fund personal expenses, and pay off 
claims against him stemming from an earlier bankruptcy case. The SEC’s 
Enforcement Division also charged John B. Kern of Charleston, South 
Carolina, for his participation in the fraud as legal counsel to some 
of Berkman’s companies. 

In June, the SEC charged Duncan MacDonald and Gloria Solomon, both 
executives at a Dallas-based medical insurance company, with operating 
a $10 million Ponzi scheme that victimized at least 80 investors. 
[Footnote 57] The SEC alleged that MacDonald and Solomon solicited 
investments for Global Corporate Alliance (GCA) by creating fake 
monthly statements to falsely portray GCA as a thriving health 
insurance company successfully enrolling 100,000 premium-paying 
policyholders each month, where, in reality, the company never had 
more than 40 policyholders. The SEC alleged that by the time the 
scheme collapsed, GCA had raised nearly $10 million from investors and 
returned about $2 million to investors in the form of Ponzi payments. 
MacDonald and Solomon each took around $1 million of investor funds, 
and spent the remaining investor funds on various business-related 
expenses until GCA’s accounts were left with a negative balance. The SEC
’s complaint sought various relief for investors including 
disgorgement of ill-gotten gains with prejudgment interest, financial 
penalties, and permanent injunctions. 

In July, the SEC charged Trendon T. Shavers and his company, Bitcoin 
Savings and Trust (BTCST), with defrauding investors in a Ponzi scheme 
involving Bitcoin, a virtual currency traded on online exchanges for 
conventional currencies like the U.S. dollar or used to purchase goods 
or services online.[Footnote 58] The SEC alleged that between 2011 and 
2012, Shavers used BTCST to fraudulently raise at least 700,000 
Bitcoin in BTCST investments, which at that time was worth over $4.5 
million and would be worth over $60 million today. According to the 
SEC’s complaint filed in U.S. District Court for the Eastern District 
of Texas, Shavers sold BTCST investments over the Internet to 
investors in such states as Connecticut, Hawaii, Illinois, Louisiana, 
Massachusetts, North Carolina, and Pennsylvania. The SEC sought a 
court order to freeze the assets of Shavers and BTCST in addition to 
other relief, including permanent injunctions, disgorgement of ill-
gotten gains with prejudgment interest, and financial penalties. 
Additionally, the SEC issued an investor alert, prepared by the Office 
of Investor Education and Advocacy, warning investors about the 
dangers of potential investment scams involving virtual currencies 
promoted through the Internet. This was the first enforcement action 
involving virtual currencies. 

In September, the SEC charged TD Bank and its former regional vice 
president Frank A. Spinosa with violating securities laws in 
connection with a massive Florida-based Ponzi scheme conducted by 
Scott Rothstein.[Footnote 59] Rothstein, who is now serving a 50-year 
prison sentence, fraudulently sold fabricated legal settlements that 
were purported to be payable over time to actual investors in exchange 
for a substantial lump sum. The SEC alleged that TD Bank and Spinosa 
defrauded investors by producing a series of misleading documents and 
making false statements. According to the SEC’s complaint, Spinosa 
falsely represented to several investors that TD Bank restricted the 
movement of the funds in the investment accounts via so called “lock 
letters” that in reality did nothing to restrict Rothstein’s ability 
to transfer the investors’ money, and also Spinosa orally assured 
investors that the accounts held the tens of millions of dollars that 
Rothstein had fraudulently claimed there to be. TD Bank agreed to 
settle the SEC’s charges in an administrative proceeding and pay $15 
million, and the SEC has filed a complaint against Spinosa in U.S. 
District Court for the Southern District of Florida. 

Also in September, the SEC charged 10 former brokers at McGinn Smith & 
Co. for making material misrepresentations and omissions to their 
customers in connection with a $125 million investment scheme 
involving unregistered investment products. In order to halt the 
scheme, in 2010, the SEC filed an emergency action to freeze the 
assets of the firm and its owners, Timothy M. McGinn and David L. 
Smith, who have since been criminally charged by the U.S. Attorney’s 
Office for the Northern District of New York. This latest SEC action 
alleges that the 10 brokers also ignored significant red flags that 
should have led them to conduct more due diligence. According to the SEC
’s order, the scheme victimized approximately 750 investors and led to 
$80 million in investor losses. The SEC’s civil case continues against 
the firm as well as McGinn and Smith, who were sentenced to 15 and 10 
years imprisonment, respectively, in the criminal case. 

Other Significant Matters: 

In FY 2013, the Division of Enforcement enjoyed several successes at 
trial. In September 2011, the SEC filed a civil action against Jeffrey 
Liskov and his advisory firm, EagleEye Asset Management, LLC 
(EagleEye), for defrauding advisory clients in connection with foreign 
currency exchange (forex) investments. The SEC’s complaint alleged 
that, between at least November 2008 and August 2010, Liskov made 
material misrepresentations to several advisory clients to induce them 
to liquidate investments in securities and instead invest in forex. 
The forex investments resulted in client losses totaling nearly $4 
million, while EagleEye and Liskov came away with over $300,000 in 
performance fees, in addition to other management fees they collected 
from clients. In November 2012, after an eight-day trial, a jury found 
that EagleEye and Liskov violated Section 10(b) of the Exchange Act 
and Rule 10b-5 thereunder and Section 206(1) of the Advisers Act. 
After a further hearing, a U.S. District Court judge found violations 
by EagleEye and Liskov concerning their recordkeeping obligations 
relating to EagleEye’s advisory business. In December of 2012, the 
court entered a final judgment against EagleEye and Liskov and ordered 
that they be permanently enjoined from future violations of the 
foregoing provisions of the securities laws, that they pay 
disgorgement of $301,502.26, pre-judgment interest of $29,603.59, and 
that both EagleEye and Liskov pay a civil penalty of $725,000. 

In April 2010, the SEC charged Goldman, Sachs & Co. and one of its 
vice presidents, Fabrice Tourre, for defrauding investors by 
misstating and omitting key facts about a financial product tied to 
subprime mortgages as the U.S. housing market was beginning to falter. 
Later, in July of that same year, Goldman, Sachs & Co. settled the 
charges against it by paying $550 million and undertaking to reform 
its business practices. At the time, the penalty was the second 
largest penalty ever paid to the SEC by a Wall Street firm. Tourre, 
however, did not settle with the SEC and, in August of this year, a 
jury found Tourre liable for fraud based on his role in putting 
together a complicated financial product that was secretly designed to 
maximize the likelihood of its failure and then marketing and selling 
it to investors without appropriate disclosure. 

FY 2013 also marked a change in the Divison’s policy concerning 
settling certain matters without admissions of the facts giving rise 
to the alleged violations. In the SEC’s first settlement reflecting 
this shift in policy, in August, New York-based hedge fund adviser 
Phillip A. Falcone and his advisory firm Harbinger Capital Partners 
agreed to settle an SEC enforcement action from June 2012 that alleged 
Falcone had misappropriated $113 million in fund assets to pay his 
personal taxes, to pay redemption requests to favored customers at the 
expense of other investors, and to conduct an improper “short squeeze” 
in bonds issued by a Canadian manufacturing company.[Footnote 60] In 
the settlement, Falcone and Harbinger must pay more than $18 million 
in disgorgement, interest and fines; and Falcone agreed to be barred 
from the securities industry for five years. The settlement also 
required Falcone and Harbinger to admit to multiple acts of misconduct 
that harmed investors and interfered with the normal functioning of 
the securities markets. 

Footnotes: 

[1] SEC v. J. P. Morgan Securities, et al., SEC v. Credit Suisse 
Securities (USA) LLC, et al., Press Rel. 2012-233 (November 16, 2012) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486012].
 

[2] In the Matter of J. Kenneth Alderman, CPA, et al., Press Rel. 2012-
259 (December 10, 2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486708].
 

[3] In the Matter of Claymore Advisors, LLC; In the Matter of 
Fiduciary Asset Management, LLC; In the Matter of Mohammed Riad and 
Kevin Timothy Swanson, Press Rel. 2012-272 (December 19, 2012) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171487082].
 

[4] In the Matter of Capital One Financial Corporation, Peter A. 
Schnall, and David A. LaGassa, Press Rel. 2013-72 (April 24, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514928].
 

[5] SEC v. Bank of America, et al., Press Rel. 2013-148 (August 6, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539751924].
 

[6] In the Matter of UBS Securities LLC, Press Rel. 2013-146 (August 
6, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539751175].
 

[7] In the Matter of eBX, LLC, Press Rel. 2012-204 (October 3, 2012) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171485204].
 

[8] SEC v. David Miller, Press Rel. 2013-60 (April 15, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514650].
 

[9] In the Matter of the NASDAQ Stock Market, LLC, et al., Press Rel. 
2013-95 (May 29, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575032].
 

[10] In the Matter of Chicago Board Options Exchange Inc., et al., 
Press Rel. 2013-107 (June 11, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575348].
 

[11] SEC v. Tomas Alberto Clarke Bethancourt et al., Press Rel. 2013-
109 (June 12, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171574826].
 

[12] In the Matter of Allianz SE, Press Rel. 2012-266 (December 17, 
2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486902].
 

[13 SEC v. Eli Lilly and Company, Press Rel. 2012-273 (December 20, 
2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171487116].
 

[14] SEC v. Uriel Sharef, et al., Lit. Rel. No. 22676 (April 16, 2013) 
[hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22676.htm]. 

[15] Ralph Lauren Non-Prosecution Agreement, Press Rel. 2013-65 (April 
22, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514780].
 

[16] In the Matter of Total, S.A., Press Rel. 2013-94 (May 29, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575006].
 

[17] SEC v. BP p.l.c., Press Rel. 2012-231 (November 15, 2012) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171485962].
 

[18] In the Matter of BDO China Dahua CPA Co., Ltd., et al., Press 
Rel. 2012-249 (December 3, 2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486452].
 

[19] SEC v. Edward J. Woodard, Jr., et al., Lit. Rel. No. 22587 
(January 9, 2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22587.htm]. 

[20] In the Matter of Northern Lights Compliance Services, LLC, et 
al., Press Rel. 2013-78 (May 2, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514096].
 

[21] In the Matter of Revlon, Inc., Press Rel. 2013-110 (June 13, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171574852].
 

[22] SEC v. Fuqi International, Inc. and Yu Kwai Chong, Lit. Rel. No. 
22739 (July 1, 2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22739.htm]. 

[23] SEC v. Javier Martin-Artajo and Julien G. Grout, Press Rel. 2013-
154 (August 14, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539776091#.
Uj_K0IYjLmg]. 

In the Matter of J.P. Morgan Chase & Co., Press Rel. 2013-187 
(September 19, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539819965#.
Uj_Ky4YjLmg]. 

[24] SEC Crackdown on Violations or Failures By Gatekeepers, Press 
Rel. 2013-207 (September 30, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539850572].
 

[25] SEC v. Tiger Asia Management, LLC, et al., Lit. Rel. No. 22569 
(December 13, 2012) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2012/lr22569.htm]. 

[26] SEC v. Douglas F. Whitman and Whitman Capital, LLC, Lit. Rel. No. 
22653 (March 20, 2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22653.htm]. 
SEC v. Rajarengan (a/k/a/ Rengan) Rajaratnam, Lit. Rel. No. 22658 
(March 22, 2013) 

[hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22658.htm]. 

SEC v. Kieran Taylor, Press Rel. 2013-189 (September 20, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539824633].
 

[27] SEC v. Matthew G. Teeple, David T. Riley, and John V. Johnson, 
Press Release 2013-47 (March 26, 2013) 

[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513470#.
UkER3IYjLmg]. 

[28] SEC v. Well Advantage Limited, et al., Lit. Rel. No. 22693 (May 
1, 2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22693.htm]. 

SEC v. Well Advantage Limited, et al., Lit. Rel. No. 22663 (April 1, 
2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22663.htm]. 

[29] SEC v. Scott London and Bryan Shaw, Press Rel. 2013-58 (April 11, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514600#.
UkER2oYjLmg]. 

[30] SEC v. Badin Rungruangnavarat, Press Rel. 2013-173 (September 5, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539798614#.
Uj-NxoYjLmg]. 

[31] SEC v. CR Intrinsic Investors, LLC, et al., Press Rel. 2012-237 
(November 20, 2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486118].
 

[32] SEC v. Michael S. Steinberg, Press Rel. 2013-49 (March 29, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513522].
 

[33] SEC v. Steven A. Cohen, Press Rel. 2013-129 (July 19, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539726923].
 

[34] SEC v. Chad C. McGinnis, et al., Press Rel. 2013-144 (August 2, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539747390].
 

[35] SEC v. Danny Garber, et al., Press Rel. 2012-278 (December 21, 
2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171487234].
 

[36] “SEC Charges 23 Firms With Short Selling Violations in Crackdown 
on Potential Manipulation in Advance of Stock Offerings,” Press Rel. 
2013-182 (September 17, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539804376].
 

[37] In the Matter of State of Illinois, Press Rel. 2013-37 (March 11, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513202].
 

[38] SEC v. City of Victorville, et al., Press Rel. 2013-75 (April 29, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514980].
 

[39] In the Matter of The City of Harrisburg, Pennsylvania, Press Rel. 
2013-82 (May 6, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514194].
 

[40] In the Matter of City of South Miami, Florida, Press Rel. 2013-91 
(May 22, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514424].
 

[41] In the Matter of Neil M.M. Morrison (May 23, 2013) [hyperlink, 
http://www.sec.gov/litigation/admin/2013/34-69627.pdf]. 

[42] SEC v. City of Miami, Florida and Michael Boudreaux, Press Rel. 
2013-130 (July 19, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539727618].
 

[43] In the Matter of West Clark Community Schools; In the Matter of 
City Securities Corporation and Randy G. Ruhl, Press Rel. 2013-136 
(July 19, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539734122].
 

[44] In the Matter of Public Health Trust of Miami-Dade County, 
Florida, Press Rel. 2013-181 (September 13, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539807423].
 

[45] SEC v. Yorkville Advisors, LLC, Mark Angelo, and Edward Schinik, 
Press Rel. 2012-209 (October 17, 2012) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171485332].
 

[46] SEC v. Timothy J. Roth, et al., Lit. Rel. No. 22656 (March 22, 
2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22656.htm]. 

[47] In the Matter of John Thomas Capital Management Group LLC, d/b/a 
Patriot28 LLC, et al. Press Rel. 2013-46 (March 22, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513444].
 

[48] In the Matter of Umesh Tandon, Press Rel. 2013-64 (April 18, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171514754].
 

[49] SEC v. Charles J. Dushek, et al., Lit. Rel. No. 22703 (May 17, 
2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22703.htm]. 

[50] SEC v. MayfieldGentry Realty Advisors, LLC, et al., Lit. Rel. No. 
22720 (June 10, 2013) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2013/lr22720.htm 

[51] SEC v. Oppenheimer Asset Management Inc., et al., Press Rel. 2013-
38 (March 11, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513228#.
Uj_TroYjLmg]. 

In the Matter of Brian Williamson, Press Rel. 2013-160 (August 20, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539783859#.
Uj_TnIYjLmg]. 

[52] In the Matter of Chariot Advisors, LLC and Elliot L. Shifman, 
Press Rel. 2013-162 (August 21, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539785773#.
Uj_ZQYYjLmg]. 

[53] SEC v. Barry J. Graham, et al., Press Rel. 2013-15 (January 30, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513950].
 

[54] SEC v. Richard Olive and Susan Olive; SEC v. We The People, Inc. 
of the United States; SEC v. William G. Reeves, Esq., Press Rel. 2013-
19 (February 4, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171512714].
 

[55] SEC v. A Chicago Convention Center, LLC, et al., Press Rel. 2013-
20 (February 8, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171512748].
 

[56] In the Matter of Craig Berkman, d/b/a Ventures Trust LLC, et al., 
Press Rel. 2013-44 (March 19,2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513392].
 

[57] SEC v. Duncan J. Macdonald, III and Gloria Solomon, Press Rel. 
2013-113 (June 17, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171574926].
 

[58] SEC v. Trendon T. Shavers and Bitcoin Savings and Trust, Press 
Rel. 2013-132 (July 23, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539730583].
 

[59] SEC v. TD Bank, N.A.; SEC v. Frank A. Spinosa, Press Rel. 2013-
192 (September 23, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539827946].
 

[60] SEC v. Phillip A. Falcone, et al.; SEC v. Harbinger Capital 
Partners LLC, et al., Press Rel. 2013-159 (August 19, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539780222#.
Uj_TnoYjLmg]. 

[End of section] 

Appendix C: SEC Divisions and Offices: 

Headquarters Offices: 

Division Of Corporation Finance: 
Keith F. Higgins, Director: 
(202) 551-3110: 

Division Of Enforcement: 
George Canellos, Co-Director: 
Andrew Ceresney, Co-Director: 
(202) 551-4500: 

Division Of Investment Management: 
Norm Champ, Director: 
(202) 551-6720: 

Division Of Economic And Risk Analysis: 
Craig Lewis, Director And Chief Economist: 
(202) 551-6600: 

Division Of Trading And Markets: 
John Ramsay, Acting Director: 
(202) 551-5500: 

Office Of Acquisitions: 
Vance Cathell, Director: 
(202) 551-8385: 

Office Of Administrative Law Judges: 
Brenda P. Murray: 
Chief Administrative Law Judge: 
(202) 551-6030: 

Office Of The Chief Accountant: 
Paul A. Beswick, Chief Accountant: 
(202) 551-5300: 

Office Of The Chief Operating Officer: 
Jeffery Heslop, Chief Operating Officer: 
(202) 551-2105: 

Office Of Compliance Inspections And Examinations: 
Andrew Bowden, Director: 
(202) 551-6200: 

Office Of Credit Ratings: 
Thomas J. Butler, Director: 
(212) 336-9080: 

Office Of Equal Employment Opportunity: 
Alta G. Rodriguez, Director: 
(202) 551-6040: 

Office Of Ethics Counsel: 
Shira Pavis Minton, Director: 
(202) 551-7938: 

Office Of Financial Management: 
Kenneth A. Johnson: 
Chief Financial Officer: 
(202) 551-4306: 

Office Of The General Counsel: 
Anne K. Small, General Counsel: 
(202) 551-5100: 

Office Of Human Resources: 
Lacey Dingman, Director: 
(202) 551-7500: 

Office Of Information Technology: 
Thomas A. Bayer, Chief Information Officer: 
(202) 551-8873: 

Office Of Inspector General: 
Carl W. Hoecker, Inspector General: 
(202) 551-6061: 

Office Of International Affairs: 
Robert M. Fisher, Acting Director: 
(202) 551-6690: 

Office Of The Investor Advocate: 
Vacant: 

Office Of Investor Education And Advocacy: 
Lori Schock, Director: 
(202) 551-6500: 

Office Of Legislative And Intergovernmental Affairs: 
Tim Henseler, Director: 
(202) 551-2010: 

Office Of Minority And Women Inclusion: 
Pamela A. Gibbs, Director: 
(202) 551-6046: 

Office Of Municipal Securities: 
John Cross, Director: 
(202) 551-5680: 

Office Of Public Affairs: 
John Nester, Director: 
(202) 551-4120: 

Office Of The Secretary: 
Elizabeth M. Murphy, Secretary: 
(202) 551-5400: 

Office Of Support Operations: 
Barry Walters, Director: 
(202) 551-8400: 

Regional Offices: 

Atlanta Regional Office: 
Rhea Kemble Dignam, Regional Director: 
950 East Paces Ferry Road Ne, Suite 900: 
Atlanta, Ga 30326: 
(404) 842-7600: 
E-Mail: Atlanta@sec.Gov: 

Boston Regional Office: 
John T. Dugan, Acting Regional Director: 
33 Arch Street, Floor 23: 
Boston, Ma 02110: 
(617) 573-8900: 
E-Mail: Boston@sec.Gov: 

Chicago Regional Office: 
Timothy L. Warren, Acting Regional Director: 
175 W. Jackson Boulevard, Suite 900: 
Chicago, Il 60604: 
(312) 353-7390: 
E-Mail: Chicago@sec.Gov: 

Denver Regional Office: 
Julie K. Lutz, Acting Regional Co-Director: 
Kevin W. Goodman, Acting Regional Co-Director: 
1801 California Street, Suite 1500: 
Denver, Co 80202: 
(303) 844-1000: 
E-Mail: Denver@sec.Gov: 

Fort Worth Regional Office: 
David R. Woodcock, Jr., Regional Director: 
Burnett Plaza, Suite 1900: 
801 Cherry Street, Unit 18: 
Fort Worth, Tx 76102: 
(817) 978-3821: 
E-Mail: Dfw@sec.Gov: 

Los Angeles Regional Office: 
Michele Wein Layne, Regional Director: 
5670 Wilshire Boulevard, Floor 11: 
Los Angeles, Ca 90036: 
(323) 965-3850: 
E-Mail: Losangeles@sec.Gov: 

Miami Regional Office: 
Eric Bustillo, Regional Director: 
801 Brickell Avenue, Suite 1800: 
Miami, Fl 33131: 
(305) 982-6300: 
E-Mail: Miami@sec.Gov: 

New York Regional Office: 
Andrew M. Calamari, Regional Director: 
200 Vesey Street, Suite 400: 
New York, NY 10281: 
(212) 336-1100: 
E-Mail: Newyork@sec.Gov: 

Philadelphia Regional Office: 
Daniel M. Hawke, Regional Director: 
The Mellon Independence Center: 
701 Market Street, Suite 2000: 
Philadelphia, Pa 19106: 
(215) 597-3100: 
E-Mail: Philadelphia@sec.Gov: 

Salt Lake Regional Office: 
Kenneth Israel, Regional Director: 
15 W. South Temple Street, Suite 1800: 
Salt Lake City, Ut 84101: 
(801) 524-5796: 
E-Mail: Saltlake@sec.Gov: 

San Francisco Regional Office: 
Jina L. Choi, Regional Director: 
44 Montgomery Street, Suite 2800: 
San Francisco, Ca 94104: 
(415) 705-2500: 
E-Mail: Sanfrancisco@sec.Gov: 

[End of section] 

Appendix D: Glossary of Selected Terms: 

Advisers Act: 
The Investment Advisers Act of 1940 is a U.S. Federal law that was 
created to regulate the actions of investment advisers. 

Agency Financial Report (AFR): 
An annual requirement that provides financial and high-level 
performance results that enable the President, Congress, and the 
public to assess an agency’s accomplishments each fiscal year (October 
1 through September 30). This report includes audited financial 
statements and provides an overview of an agency’s programs, 
accomplishments, challenges, and management’s accountability for 
entrusted resources. The report is prepared in accordance with the 
requirements of Office of Management and Budget (OMB) Circular A-136, 
Financial Reporting Requirements. Under Circular A-136, agencies may 
prepare an Agency Financial Report and Annual Performance Report, or 
may combine these two reports into the Performance and Accountability 
Report. 

Annual Performance Report (APR): 
A report that outlines goals and intended outcomes of an agency’s 
programs and initiatives. This report provides program performance and 
financial information that enables the President, Congress, and the 
public to assess an agency’s performance and accountability over 
entrusted resources. 

Asset: 
An asset is a resource that embodies economic benefits or services 
that the reporting entity controls. 

Statement of Cash Flows: 
Reports a company’s inflows and outflows of cash over time by 
classification. 

Clawback Policies: 
Under the Dodd-Frank Act, all listed companies will eventually be 
required to institute a mechanism for reclaiming executive pay that 
had been granted under misstated earnings. 

Collateralized Debt Obligation (CDO): 
A type of structured asset-backed security (ABS) with multiple 
“tranches” that are issued by special purpose entities and 
collateralized by debt obligations including bonds and loans. Each 
tranche offers a varying degree of risk and return so as to meet 
investor demand. 

Crowd Funding/Sourcing: 
In the JOBS Act, a new means of raising capital enabling the raising 
of small amounts of equity capital without having to register with the 
SEC. 

Deposit Fund: 
Consists of funds that do not belong to the Federal Government, such 
as disgorgement, penalties, and interest collected and held on behalf 
of harmed investors, registrant monies held temporarily until earned 
by the SEC, and collections awaiting disposition or reclassification. 

Derivative: 
A contract between two parties that specifies conditions (dates, 
resulting values of the underlying variables, and notional amounts) 
under which payments are to be made between the parties. 

Disgorgement: 
A repayment of funds received or losses forgone, with interest, as a 
result of illegal or unethical business transactions. Disgorged funds 
are normally distributed to those affected by the action, but in 
certain cases may be deposited in the General Fund of the Treasury. 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act): 
A Federal law that regulates the U.S. financial industry. The 
legislation, enacted in July 2010, created new financial regulatory 
processes that enforce transparency and accountability while 
implementing rules for consumer protection. 

Entity Assets: 
Assets that an agency is authorized to use in its operations. For 
example, the SEC is authorized to use all funds in the Investor 
Protection Fund for its operations. 

Entity Accounts Receivable: 
Monies owed to the SEC generated from securities transaction fees and 
filing fees paid by registrants. 

Exchange Revenue: 
Exchange revenues are inflows of earned resources to an entity. 
Exchange revenues arise from exchange transactions, which occur when 
each party to the transaction sacrifices value and receives value in 
return. Examples include the sale of goods and services, entrance fees 
and most interest revenue. 

Family Offices: 
A family office, or single family office (SFO), is a private company 
that manages investments and trusts for a single wealthy family. The 
company’s financial capital is the family’s own wealth, often 
accumulated over many family generations. 

Federal Accounting Standards Advisory Board (FASAB): 
A U.S. Federal advisory committee sponsored by the Secretary of the 
Treasury, the Director of the Office of Management and Budget, and the 
Comptroller General of the United States, whose mission is to develop 
generally accepted accounting principles (GAAP) for the United States 
Government. 

Federal Information Security Management Act (FISMA): 
A law that requires Federal agencies to conduct annual assessments of 
their information security and privacy programs, develop and implement 
remediation efforts for identified weaknesses and vulnerabilities, and 
report on compliance to OMB. 

Financial Industry Regulatory Authority, Inc. (FINRA): 
A private corporation that acts as a self-regulatory organization 
(SRO). FINRA is the successor to the National Association of 
Securities Dealers, Inc. (NASD) and is a non-governmental organization 
that performs financial regulation of member brokerage firms and 
exchange markets. The Government organization which acts as the 
ultimate regulator of the securities industry, including FINRA, is the 
SEC. 

Fund Balance with Treasury (FBWT): 
A Federal entity’s fund balance with Treasury (FBWT) is the amount of 
funds in the entity’s accounts with Treasury for which the entity is 
authorized to make expenditures and pay liabilities and that have not 
been invested in Federal securities. 

Funds from Dedicated Collections: 
Accounts containing specifically identified revenues, often 
supplemented by other financing sources, that are required by statute 
to be used for designated activities, benefits or purposes, and must 
be accounted for separately from the Government’s general revenues. 
For example, Investor Protection Fund resources are funds from 
dedicated collections and may only be used for the purposes specified 
by the Dodd-Frank Act. 

General Funds – Salaries and Expenses: 
Appropriations by Congress that are used to carry out the agency’s 
mission and day to day operations that may be used in accordance with 
spending limits established by Congress. 

Generally Accepted Accounting Principles (GAAP): 
Framework of accounting standards, rules, and procedures defined by 
the professional accounting industry. The Federal Accounting Standards 
Advisory Board (FASAB) is the body designated by the American 
Institute of Certified Public Accounting (AICPA) as the source of GAAP 
for Federal reporting entities. 

Imputed Financing: 
Financing provided to the reporting entity by another Federal entity 
covering certain costs incurred by the reporting entity. For example, 
some Federal employee retirement benefits are paid by the Federal 
Government’s central personnel office, the Office of Personnel 
Management. The SEC recognizes a financing source and corresponding 
expense to represent its share of the cost of providing pension and 
post-retirement health and life insurance benefits to all eligible SEC 
employees. 

Insider Trading: 
The buying or selling of a security by someone who has access to 
material, nonpublic information about the security. 

Intragovernmental Costs: 
Costs that arise from the purchase of goods and services from other 
components of the Federal Government. 

Investor Protection Fund: 
A fund established by the Dodd-Frank Act to pay awards to whistle-
blowers. The program requires the Commission to pay an award, under 
regulations prescribed by the Commission and subject to certain 
limitations, to eligible whistleblowers who voluntarily provide the 
Commission with original information about a violation of Federal 
securities laws that leads to the successful enforcement of a covered 
judicial or administrative action, or a related action. 

Liability: 
A liability is a present obligation of the reporting entity to provide 
assets or services to another entity at a determinable date, when a 
specified event occurs, or on demand. 

Limit Up-Limit Down Plan: 
A one-year pilot program to protect equity markets from volatile price 
swings which would pause trading. 

Market Based Treasury Securities: 
Debt securities that the U.S Treasury issues to Federal entities 
without statutorily determined interest rates. 

Microcap Securities: 
Low priced stocks issued by the smallest of companies. 

Miscellaneous Receipt Account: 
A fund used to collect non-entity receipts from custodial activities 
that the SEC cannot deposit into funds under its control or use in its 
operations. These amounts are forwarded to the General Fund of the 
Treasury and are considered to be non-entity assets of the SEC. 

NASDAQ: 
The NASDAQ Stock Market, also known as simply NASDAQ, is an American 
stock exchange. NASDAQ originally stood for National Association of 
Securities Dealers Automated Quotations. It is the second-largest 
stock exchange by market capitalization in the world, after the New 
York Stock Exchange. 

Non-Entity Assets: 
Those assets that are held by an entity but are not available to the 
entity. Examples of non-entity assets are disgorgement, penalties, and 
interest collected and held on behalf of harmed investors. 

Office of Management and Budget (OMB) Circular A-123: 
Defines management’s responsibilities for internal financial controls 
in Federal agencies. 

Office of Management and Budget (OMB) Circular A-136: 
Establishes a central point of reference for all Federal financial 
reporting guidance for Executive Branch departments, agencies, and 
entities required to submit audited financial statements, interim 
financial statements, and Performance and Accountability Reports 
(PAR), and Agency Financial Reports (AFR) under the Chief Financial 
Officers Act of 1990, the Accountability of Tax Dollars Act of 2002, 
and Annual Management Reports under the Government Corporations 
Control Act. 

Performance and Accountability Reports (PAR): 
An annual report that provides program performance and financial 
information that enables Congress, the President, and the public to 
assess an agency’s performance and accountability over entrusted 
resources. 

Performance Indicators Results Summary: 
A summary of performance by outcome within each strategic goal. 

Pay to Play Schemes: 
Payments or gifts made to influence awarding of lucrative contracts 
for securities underwriting business. 

Public Company Accounting Oversight Board (PCAOB): 
A nonprofit corporation established by Congress to oversee the audits 
of public companies in order to protect the interests of investors and 
further the public interest in the preparation of informative, 
accurate, and independent audit reports. The PCAOB also oversees the 
audits of broker-dealers, including compliance reports filed pursuant 
to Federal securities laws, to promote investor protection. 

Pump and Dump Schemes: 
A form of micro stock fraud involving artificially inflating the price 
of an owned stock through false and misleading positive statements. 

Reserve Fund: 
A fund established by the Dodd-Frank Act that may be used by the SEC 
to obligate amounts up to a total of $100 million in one fiscal year 
as the SEC determines it necessary to carry out its functions. 

Resource Extraction Rule: 
As implemented by Dodd-Frank, the resource extraction rule requires 
disclosure of payments of $100,000 or more made to governments for the 
commercial development of oil, natural gas, or minerals. This rule 
applies to U.S. and foreign companies that are 1) engaged in the 
commercial development of oil, natural gas, or minerals, and 2) 
required to file annual reports with the SEC. 

Section 31 Fees: 
Transaction fees paid to the SEC based on the volume of securities 
that are sold on various markets. Under Section 31 of the Securities 
Exchange Act of 1934, self-regulatory organizations (SROs) – such as 
the Financial Industry Regulatory Authority (FINRA) and all of the 
national securities exchanges (including the New York Stock 
Exchange) – must pay transaction fees to the SEC based on the volume 
of securities that are sold on their markets. These fees recover the 
costs incurred by the Government, including the SEC, for supervising 
and regulating the securities markets and securities professionals. 

Securities Exchange Act of 1934 (Exchange Act): 
A law governing the secondary trading of securities (stocks, bonds, 
and debentures) in the United States. It was this piece of legislation 
that established the Securities and Exchange Commission. The Exchange 
Act and related statutes form the basis of regulation of the financial 
markets and their participants in the United States. 

Self-Regulatory Organization (SRO): 
An organization that exercises some degree of regulatory authority 
over an industry or profession. The regulatory authority could be 
applied in addition to some form of Government regulation, or it could 
fill the vacuum of an absence of Government oversight and regulation. 
The ability of an SRO to exercise regulatory authority does not 
necessarily derive from a grant of authority from the Government. 

Strategic Plan: 
A report initially required by the Government Performance and Results 
Act (GPRA) that defines the agency mission, long-term goals, 
strategies planned, and the approaches it will use to monitor its 
progress in addressing specific national problems, needs, challenges, 
and opportunities related to its mission. The Plan also presents 
general and long term goals the agency aims to achieve, what actions 
the agency will take to realize those goals, and how the agency will 
deal with challenges and risks that may hinder achieving result. 
Requirements for the Strategic Plan are presented in OMB Circular A-
11, Preparation, Submission and Execution of the Budget. 

U.S. Commodity Futures Trading Commission (CFTC): 
An independent agency of the U.S. Government that regulates futures 
and option markets. 

U.S. Exchanges: 
A place (physical or virtual) where stock traders come together to 
decide on the price of securities. 

U.S. Securities and Exchange Commission (SEC): 
The SEC is an independent agency of the U.S. Government established 
pursuant to the Securities Exchange Act of 1934 (Exchange Act), 
charged with regulating the country’s capital markets. It is charged 
with protecting investors, maintaining fair, orderly and efficient 
markets; and facilitating capital formation. 

[End of section] 

Appendix E: Acronyms: 

ADA: Antideficiency Act 

AFR: Agency Financial Report 

AICPA: American Institute of Certified Public Accountants 

APR: Annual Performance Report: 

ATS: Alternative Trading Systems: 

CBOE: Chicago Board Options Exchange: 

CDO: Collateralized Debt Obligation: 

CEO: Chief Executive Officer: 

CFO: Chief Financial Officer: 

CFR: Code of Federal Regulations: 

CFTC: Commodities Futures Trading Commission: 

CRQA: Center for Risk and Quality Analysis: 

CSRS: Civil Service Retirement System: 

DERA: Division of Economic and Risk Analysis: 

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection 
Act: 

DOL: U.S. Department of Labor: 

EDGAR: Electronic Gathering, Analysis and Retrieval: 

ESC: Enterprise Service Center: 

Exchange Act: Securities Exchange Act of 1934: 

FASAB: Federal Accounting Standards Advisory Board: 

FBWT: Fund Balance with Treasury: 

FCPA: Foreign Corrupt Practices Act: 

FECA: Federal Employees’ Compensation Act: 

FedRAMP: Federal Risk Authorization Management Program: 

FERS: Federal Employees Retirement System: 

FFMIA: Federal Financial Management Improvement Act: 

FINRA: Financial Industry Regulatory Authority: 

FISMA: Federal Information Security Management Act: 

FMFIA: Federal Managers’ Financial Integrity Act of 1982: 

FMOC: Financial Management Oversight Committee: 

FOIA: Freedom of Information Act: 

FSB: Financial Stability Board: 

FSIO: Financial Systems Integration Office: 

FSSP: Federal Shared Services Provider: 

FTC: Federal Trade Commission: 

FTE: Full-Time Equivalents: 

FY: Fiscal Year: 

GAAP: Generally Accepted Accounting Principles: 

GAO: Government Accountability Office: 

GPRA: Government Performance and Results Act: 

GSA: U.S. General Services Administration: 

GSS: General Support System: 

IAC: Investor Advisory Committee: 

ICFR: Internal Control over Financial Reporting: 

IOSCO: International Organization of Securities Commissions: 

IPERA: Improper Payments Elimination and Recovery Act of 2010: 

IPIA: Improper Payments Information Act of 2002: 

IPO: Initial Public Offering: 

JAB: Joint Authorization Board: 

JOBS Act: Jumpstart Our Business Startups Act: 

MD&A: Management’s Discussion and Analysis: 

MIDAS: Market Information Data and Analytics System: 

NEP: National Examination Program: 

NIST: National Institute of Standards and Technology: 

NPA: Non-Prosecution Agreement: 

NRSRO: Nationally Recognized Statistical Rating Organization: 

OA: Office of Acquisitions: 

OCIE: Office of Compliance Inspections and Examinations: 

OFM: Office of Financial Management: 

OGC: Office of the General Counsel: 

OIA: Office of International Affairs: 

OIG: Office of Inspector General: 

OIP: Order Instituting Cease-and-Desist Proceedings: 

OIT: Office of Information Technology: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

PCAOB: Public Company Accounting Oversight Board: 

PIA: Privacy Impact Assessment: 

RAS: Office of Risk Analysis and Surveillance: 

REITS: Real Estate Investment Trusts: 

Reserve Fund: Securities and Exchange Commission Reserve Fund: 

RMBS: Residential Mortgage-Backed Securities: 

S/L: Straight-Line: 

SBR: Statement of Budgetary Resources: 

SEC: U.S. Securities and Exchange Commission: 

SFFAS: Statement of Federal Financial Accounting Standards: 

SIPA: Securities Investor Protection Act of 1970: 

SIPC: Securities Investor Protection Corporation: 

SRO: Self-Regulatory Organization: 

TCR: Tips, Complaints and Referrals: 

TSP: Thrift Savings Plan: 

UDO: Undelivered Order: 

This Agency Financial Report was produced through the energies and 
talents of the SEC staff. To these individuals we offer our sincerest 
thanks and acknowledgment. We would also like to acknowledge the 
Government Accountability Office and the SEC ’s Office of Inspector 
General for the professional manner in which they conducted the audit 
of the FY 2013 financial statements. Finally, we offer special thanks 
to AOC Solutions and The DesignPond for their contributions in the 
design and production of this report. To comment on this report, 
please send an e-mail to SECAFR@sec.gov. 

U.S. Securities And Exchange Commission: 
100 F Street, NE, Washington, DC 20549: 

[End of section] 

[End of section] 

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