SEC and CFTC Fines Follow-Up: Collection Programs Are Improving, but Further Steps Are Warranted
GAO-03-795
Published: Jul 15, 2003. Publicly Released: Aug 14, 2003.
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Highlights
Collecting fines ordered for violations of securities and futures laws helps ensure that violators are held accountable for their offenses and may also deter future violations. The requesters asked GAO to evaluate the actions the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have taken to address earlier recommendations for improving their collection programs. The committees also asked GAO to update the fines collection rates from previous reports.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| United States Securities and Exchange Commission | The SEC Chairman should develop a formal strategy for referring pre-guidelines cases to the Financial Management Service and TOP that prioritizes cases based on collectability and establishes implementation time frames. |
SEC Enforcement Division staff are working with SEC's Office of Information Technology staff to extract a listing of cases that are eligible to be transferred to Treasury for subsequent collection activities. Once they are able to determine how many cases there actually are, they will determine what the appropriate strategy for proceeding with processing them for this transfer.
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| United States Securities and Exchange Commission | The SEC Chairman should take the necessary steps to implement the action plan to replace the Disgorgement and Penalties Tracking System by (1) meeting the fiscal year 2003 milestone for implementing phase one of the plan, (2) setting a milestone for completing the requirements analysis for phase two of the plan, and (3) establishing and meeting the implementation date for phase two. | Since we made this recommendation in 2003, SEC's planned solutions to address the deficiencies in its tracking of investigations and enforcement actions have continued to evolve. In 2004, as reported in GAO-05-670, SEC discontinued its use of the Disgorgement and Penalties Tracking System and modified its existing Case Activity Tracking System (CATS) to capture financial data. Since 2004 SEC has continued to upgrade CATS to improve the system's capabilities. Despite these efforts, CATS remains severely limited and virtually unusable as a management tool. Therefore, as reported in GAO-07-830, SEC is developing a new investigation information management system, known as the Hub, which is...
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| United States Securities and Exchange Commission | The SEC Chairman should analyze the data that have been collected on the Staff Regulatory Organizations' disciplinary programs, address any findings that result, and establish a time frame for implementing the new disciplinary database that is to replace the current database. | SEC's Office of Compliance Inspections and Examinations (OCIE), which has oversight responsibility over securities SROs and routinely inspects their disciplinary programs, has begun to analyze data on the SROs' disciplinary actions. On January 31, 2005, OCIE staff provided GAO with copies of analyses conducted to date. The analyses focused on six commonly-cited SRO rule violations and covered the following: misrepresentation or material omissions of fact, failure to respond truthfully and completely, outside business activities, net capital violations, conversion, and continuing education requirements. A senior OCIE official, Helene McGee, told GAO during a May 5, 2005, follow-up...
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| Commodity Futures Trading Commission | SEC and CFTC should work together and with the securities and futures SROs to address weaknesses in controls over fingerprinting procedures that could allow inappropriate persons to be admitted to the securities and futures industries. |
In response to our recommendation, since July 2004, CFTC worked with futures and securities regulators such as National Futures Association (NFA) to develop suggested best practices for fingerprinting procedures for the futures industry. According to Mr. Nathan, NFA made some adjustments to the fingerprinting guidance developed by the task force to tailor the suggested best practices to the futures industry. The guidance became available to NFA members on July 29, 2005.
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| United States Securities and Exchange Commission | SEC and CFTC should work together and with the securities and futures SROs to address weaknesses in controls over fingerprinting procedures that could allow inappropriate persons to be admitted to the securities and futures industries. |
Since July 2004, SEC has worked on a task force with CFTC, and several of their SROs to develop suggested best practices for fingerprinting procedures for the securities industry. The task force used the FBI's fingerprinting guidance for preventing fingerprinting fraud in civil and criminal cases. According to Mr. Etter, SEC's suggested best practices for fingerprinting procedures became effective on May 26, 2005, after NASD published a "Notice to Members" reminding its members to review and update their fingerprinting procedures so that the identity of persons submitting their fingerprints can be identified.
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Topics
Collection proceduresE-governmentFederal legislationFines (penalties)Internal controlsLaw enforcementProgram evaluationProgram managementSanctionsStrategic planning