SEC Is Seeking More Power
To Collect Funds It Is Owed

WASHINGTON -- Securities regulators say state laws and the time-consuming effort involved in forcing securities-law violators to pay their debts are hampering efforts to collect monies to repay defrauded investors, and they need help in securing the funds.

In the wake of corporate scandals that have cost investors hundreds of billions of dollars, the Securities and Exchange Commission is asking Congress for the authority to hire private-collection attorneys and to exclude securities cases from state laws that often shield property assets. The SEC also wants monetary penalties that violators pay to go toward compensating investors.

The Sarbanes-Oxley Act, which proposed new regulations to improve corporate accountability and financial reporting, directed the SEC to put ill-gotten gains that it collects into restitution funds to aid victims of securities fraud. In the past, most funds the SEC collects have gone into the U.S. Treasury.

The SEC said in a report on compensation funds required under Sarbanes-Oxley that its efforts to collect money had been hampered by legal limitations and complex financial transactions that often shield the true value of a defendant's assets.

The collection of illegal gains has long been an issue for the SEC, which was faulted last year by the General Accounting Office for failing to collect much of the money that securities-law violators were ordered to pay.

The SEC orders "disgorgement" from those who are found to have violated certain securities laws. The money is supposed to refund investors and recover "ill-gotten gains" so violators don't profit from breaking the law.

The report, released Monday, outlined how most of the disgorgement that was ordered comes from just a handful of defendants -- many of whom don't pay. Of the 207 defendants who were found to have committed fraud during securities offerings, four were ordered to pay $529 million -- just under half of all disgorgement ordered by the SEC. None of the four have paid, according to the report.

The SEC said it could hire private collection attorneys, who could devote the time needed to collecting the debts.

Write to Deborah Solomon at deborah.solomon@wsj.com¹

Updated January 29, 2003