How Victims Of Securities Law Violations May Recover Money – SEC

by Ike Obudulu Posted on July 1st, 2018

Washington, D.C., USA: The U.S. Securities and Exchange Commission, SEC’s Office of Investor Education and Advocacy (OIEA) is informing investors about how they may be able to recover money if they have been harmed by a violation of the federal securities laws.

Every year, thousands of U.S. investors lose money to fraud and other securities law violations. In some cases, harmed investors may be eligible to receive money recovered from fraudsters. A number of different processes exist to help harmed investors, including: SEC fair funds and disgorgement funds; receiverships; brokerage account customer protections; corporate bankruptcy proceedings; and private class action lawsuits.

It is important to understand that not all harmed investors will be able to recover money. Investors who do recover money may receive substantially less than their losses. In addition, even when harmed investors are able to recover money, the process for distributing the money to harmed investors may take a long time.

Fair Funds and Disgorgement Funds

When the SEC brings a successful enforcement action, the court or the SEC may order a wrongdoer to disgorge (give up) the ill-gotten gains resulting from the illegal conduct. The disgorged funds may be distributed to investors who were harmed by securities law violations.

In addition, the court or the SEC may impose a monetary penalty both to punish the guilty party and to deter others from committing similar misconduct. A monetary penalty may only be distributed to investors if the court or the SEC orders that any penalty collected be placed in what is called a “fair fund” for distribution to investors who were harmed by the violation(s).

When a monetary penalty or disgorgement is not paid as ordered, the SEC’s Division of Enforcement has an Office of Collections that uses every available method to identify, liquidate, and collect assets that can be used to satisfy the delinquent debt.  These efforts may include sending a demand letter, negotiating a payment plan, filing a property lien, garnishing wages, or filing a contempt action in federal court.

Enforcement actions can be brought in court or in an administrative proceeding

Enforcement actions In court proceedings

In court proceedings, documents filed in the case are generally publicly available. The court must approve an administration and distribution plan before any money can be distributed to harmed investors. Typically, a distribution agent will implement a claims process or other notification process to identify injured investors who may be eligible for distribution from a fair fund or disgorgement fund.

For a list of certain SEC court actions where a distribution of money to harmed investors is occurring or may occur (it may not be a complete list), see the SEC’s webpage: Information for Harmed Investors.

Enforcement actions In an administrative proceeding

In an administrative proceeding, the SEC publishes notice of a proposed plan of disgorgement or a proposed fair fund plan. The notice states how to obtain copies of the proposed plan and explains that anyone who desires to comment on the proposed plan may submit their views, in writing, to the SEC.

Receiverships

When the SEC brings a lawsuit in federal court, the SEC may ask the court to appoint a receiver. A receiver is a disinterested officer of the court who works to recover and to protect money and other assets that the defendant obtained in connection with the alleged securities law violation. If the defendant is found liable, the court may order that those assets be distributed to harmed investors.

For more information, read our Investor Bulletin: 10 Things to Know About Receivers. For information about certain receiverships in SEC Enforcement cases (it may not be a complete list), see the SEC’s webpage on Receiverships.

Brokerage Account Protection

SEC rules provide extensive protections to customers of U.S. registered broker-dealers. For example, the Customer Protection Rule requires a broker-dealer to segregate a customer’s securities and cash from the broker-dealer’s securities and cash, with the objective of making customer assets readily available to be returned to customers if the broker-dealer goes out of business.

In addition, if your broker-dealer goes out of business and is a member of the Securities Investor Protection Corporation (SIPC), your cash and securities held by the brokerage firm may be protected up to $500,000, including up to $250,000 protection for cash in the account. You can visit SIPC’s website to find out whether your broker-dealer is a member and, if your broker-dealer is in liquidation under the Securities Investor Protection Act, how you can file a claim form.

Corporate Bankruptcy

Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. The company’s reorganization plan will spell out your rights as an investor, and what you can expect to receive, if anything, from the company.

For more information, read our publication, Corporate Bankruptcy.

Private Class Actions

In some cases, a private party may file a lawsuit on behalf of all harmed investors. This is separate from any enforcement action filed by the SEC. You may be eligible to participate in any recovery obtained through a class action lawsuit. Visit the website of the Securities Class Action Clearinghouse to find out whether a private class action lawsuit relating to your investment has been filed.

In some cases the SEC’s Division of Enforcement may coordinate its investigations with criminal investigations involving the same conduct. The FBI’s Office of Victim Assistance provides services and resources for victims of crimes investigated by the FBI.

Victims may be at risk of being taken advantage of again

Investors who have already been victimized by fraudsters may be at risk of being taken advantage of again. For example:

Third party asset recovery companies may solicit victims of scams, including investment frauds, with promises to file complaints with regulatory agencies and to help recover victims’ money for a fee. Read What You Should Know About Asset Recovery Companies.

Government impersonators may target investors who have already been victims of fraud. Often, the impersonators will claim to help investors recover their investment-related losses for a fee. Read Beware of Government Impersonators Targeting Fraud Victims.

Report possible securities fraud to the SEC. Call OIEA at 1-800-732-0330, or email the SEC Help@SEC.gov

What you should know about asset recovery companies

Third party asset recovery companies solicit victims of scams, including investment frauds, with promises to file complaints with regulatory agencies and to help recover victims’ money for a fee. The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to urge investors and fraud victims to think carefully before paying money for asset recovery services that may be fruitless.

The SEC regularly receives questions and complaints from investors who have been contacted by asset recovery companies with promises to recover money lost to financial scams or investment frauds. The companies often charge a substantial fee – from hundreds to thousands of dollars – to provide these services. These companies typically find potential customers by pulling names and contact information of victims from court filings and other lists of investors.

Investors who’ve already been victimized by fraudsters should exercise caution before using these services – especially if the asset recovery company is merely taking steps the investor could take himself. Although these companies sometimes claim to have elaborate asset recovery expertise, or even legal expertise, some of them do little more than draft a demand letter to the original scam artist and send a boilerplate complaint to the logical regulatory agency. Those are two steps that victims can take easily on their own, free of charge.

Further, demand letters may be useless, especially if the original scam artist or the company involved is insolvent, bankrupt or subject to a court judgment, or if the statute of limitations (the time period to file a claim) has expired. Most regulatory agencies have free and simple mechanisms to file complaints on their websites, including the SEC, CFTC, FTC, CFPB, FINRA, and state securities regulators and attorneys general.

If you are considering paying an asset recovery company to seek funds lost to a scam, make sure you ask what measures the company will take on your behalf, and for what cost, and then consider if those are actions you can take yourself and, if so, are worth the money. You can also call the SEC’s Office of Investor Education and Advocacy at (800) 732-0330 or ask a question online.

Beware of government impersonators targeting fraud victims

The SEC’s Office of Investor Education and Advocacy (OIEA) is issuing this Investor Alert because we are aware of communications, including official looking documents, that falsely claim to be issued by the Securities and Exchange Commission and seek money from investors who have already been victims of fraud.

The SEC staff is aware of government impersonators targeting investors who have already been victims of fraud. Often, the impersonators will claim to help investors recover their investment-related losses for a fee. This fee may be disguised as some type of tax, deposit, or refundable insurance bond. Or the government impersonators may claim to offer legal services for a fee to help investors receive compensation or a settlement payout relating to a SEC enforcement action or a class action lawsuit. For example, we are aware of communications pretending to be from the SEC that claim to offer legal services to investors with regard to the SEC’s enforcement action against Banc de Binary.

Avoid becoming a victim twice. Be aware that:

Impersonators may copy or imitate the official SEC seal without authorization.
Fake documents may include forged signatures of SEC officials.
Fake documents may look authentic and include a link to the SEC’s website, www.sec.gov.
Impersonators may send email messages that appear to come from SEC email accounts.
If you receive an email message claiming to be from a U.S. government agency and the sender’s email address does not end in “.gov”, “.mil”, or “fed.us”, you should be particularly skeptical. Even if the sender’s email address appears to end in “.gov”, “.mil”, or “fed.us”, an impersonator may have sent the email message.
If you are unsure whether correspondence claiming to be from the SEC is authentic, call the SEC’s toll-free investor assistance line at (800) 732-0330 (or 1-202-551-6551 from outside of the U.S.), or submit a question online to the SEC.

If you have been contacted by someone pretending to be from the SEC, submit a Complaint Form to the SEC’s Office of Inspector General (OIG) or call the OIG’s toll-free hotline at (877) 442-0854.

In some cases, investors harmed by securities fraud or other securities law violations may be eligible to receive money recovered by the SEC. To learn more, read Investor Bulletin: How Harmed Investors May Recover Money. For information about SEC enforcement actions and any specific investor claims funds, you can call the SEC’s toll-free investor assistance line at (800) 732-0330 (or 1-202-551-6551 from outside of the U.S.).

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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