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Report to Congressional Requesters:

July 2003:

SEC and CFTC Fines Follow-Up:

Collection Programs Are Improving, but Further Steps Are Warranted:

GAO-03-795:

GAO Highlights:

Highlights of GAO-03-795, a report to House Ranking Minority Members 
of congressional committees

Why GAO Did This Study:

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.

What GAO Found:

SEC and CFTC have improved their collection programs since GAO issued 
its 2001 fines report. While it was too early to fully assess the 
effectiveness of their actions, SEC could be doing more to maximize 
its use of Treasury’s collection services. SEC has implemented 
regulations, procedures, collections guidelines, and controls for 
using the Treasury Offset Program (TOP), which applies payments the 
federal government owes to debtors to their outstanding debts. 
However, SEC has been focusing on referring to TOP those delinquent 
cases with amounts levied after its new collections guidelines went 
into effect. The agency has not developed a formal strategy for 
referring older cases, reducing the likelihood of collecting monies on 
what could be more than a billion dollars of delinquent debt. Further 
impeding collection efforts, SEC does not have a reliable system for 
tracking monies owed on these older cases and therefore could not 
determine which cases were not being referred to TOP. SEC has drafted 
an action plan for a new system to track all cases with a monetary 
judgment. Once the system is in place, the agency should have a tool 
for identifying all cases, including older delinquent cases that can 
be referred to TOP. However, SEC has not established a time frame for 
fully implementing the plan. 

GAO’s calculations for closed cases (collection actions completed) 
showed that regulators’ collection rates on fines imposed between 1997 
and August 2002 equaled or exceeded those from 1992 to 1996. 
Recalculating the rates to include closed and open cases (collection 
actions ongoing) affected SEC’s and CFTC’s collection rates, primarily 
because of a few large uncollected fines. 

What GAO Recommends:

SEC should (1) develop a strategy for referring older cases to 
Treasury for collection and (2) implement a reliable system to help 
manage all cases. SEC generally agreed with the facts presented and 
agreed to implement the recommendations made. 

www.gao.gov/cgi-bin/getrpt?GAO-03-795.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Davi D’Agostino at 
(202) 512-8678 or dagostinod@gao.gov.

[End of section]

Contents:

Letter: 

Results in Brief: 

Background: 

SEC and CFTC Have Taken Steps to Improve Their Collection Programs, but 
SEC Has Not Ensured That All Eligible Cases Are Referred to FMS and 
TOP:

SEC and CFTC Have Taken Steps to Improve Their Oversight of SROs' 
Sanctioning Practices, but Some Concerns Remain: 

We Calculated Collection Rates in Two Different Ways to Provide a More 
Complete Picture of Collection Efforts: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendixes:

Appendix I: Scope and Methodology:  

Appendix II: Comments from the Securities and Exchange Commission:  

Appendix III: Securities Regulators' Collection Rates for Open and 
Closed Cases by Calendar Year:  

Appendix IV: Futures Regulators' Collection Rates for Open and Closed 
Cases by Calendar Year:  

Appendix V: GAO Contacts and Staff Acknowledgments:  

GAO Contacts: 

Acknowledgments: 

Tables: 

Table 1: Collection Rates for Fines Levied on Closed Cases for 1997-
August 2002 and 1992-96: 

Table 2: Collection Rates for Fines Levied on Open and Closed Cases and 
Closed Cases for 1997-August 2002: 

Table 3: SEC's Collection Rates: 

Table 4: The American Stock Exchange's Collection Rates: 

Table 5: The Chicago Board Options Exchange's Collection Rates: 

Table 6: The Chicago Stock Exchange's Collection Rates: 

Table 7: NASD's Collection Rates: 

Table 8: NYSE's Collection Rates: 

Table 9: CFTC's Collection Rates: 

Table 10: The Chicago Board of Trade's Collection Rates: 

Table 11: The Chicago Mercantile Exchange's Collection Rates: 

Table 12: NFA's Collection Rates: 

Table 13: The New York Mercantile Exchange's Collection Rates: 

Figures: 

Figure 1: SEC's Actual Collection Rates for Open and Closed Cases, 1997-
August 2002, and Adjusted Collection Rates for Selected Years: 

Figure 2: CFTC's Actual Collection Rates for Open and Closed Cases, 
1997-August 2002, and Adjusted Collection Rates for Selected Years: 

Figure 3: NASD's Collection Rates for Open and Closed Cases, 1997-2002: 

Abbreviations: 

CFTC: Commodity Futures Trading Commission:

DPTS: Disgorgement and Penalties Tracking System:

FBI: Federal Bureau of Investigation:

FMS: Financial Management Service:

NFA: National Futures Association:

NYSE: New York Stock Exchange: 

SEC: Securities and Exchange Commission:

SRO: self-regulatory organization:

TOP: Treasury Offset Program:

Letter July 15, 2003:

The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Barney Frank: 
Ranking Minority Member: 
Committee on Financial Services: 
House of Representatives:

The Honorable Paul E. Kanjorski: 
Ranking Minority Member: 
Subcommittee on Capital Markets, Insurance, and Government Sponsored 
Enterprises: 
Committee on Financial Services: 
House of Representatives: 

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. While previous GAO reports[Footnote 
1] found that securities and futures regulators collected most of the 
fines imposed, the reports also identified weaknesses in the collection 
programs of the Securities and Exchange Commission (SEC) and the 
Commodity Futures Trading Commission (CFTC). These reports made several 
recommendations to help SEC and CFTC improve their collection programs 
and their oversight of the sanctioning practices of self-regulatory 
organizations (SRO).[Footnote 2]

This report responds to your July 30, 2001, request that we evaluate 
the actions that SEC and CFTC have taken in response to the 
recommendations made in our earlier fines collection reports. Also, as 
agreed in a September 5, 2002, meeting with your staff, we are updating 
the collection rates from our earlier reports. Our objectives were to 
(1) evaluate SEC's and CFTC's actions to improve their collection 
programs, (2) assess these agencies' efforts to enhance their oversight 
of the SROs' sanctioning practices, and (3) calculate the fines 
collection rates for SEC, CFTC, and nine securities and futures 
SROs[Footnote 3] for 1997-2002.[Footnote 4]

To evaluate SEC's and CFTC's actions to improve their collection 
programs, we reviewed relevant debt collection regulations, guidelines, 
procedures, controls, and laws; analyzed data related to their debt 
collection actions; and interviewed officials of these agencies and of 
the Financial Management Service (FMS) of the U.S. Department of 
Treasury. To assess SEC's and CFTC's efforts to enhance their oversight 
of the SROs' sanctioning practices, we interviewed agency officials and 
reviewed related data. To calculate the fines collection rates for 
1997-2002 for all the SROs except NASD, we used data provided by SEC, 
CFTC, and the regulators for fines levied from January 1997 through 
August 2002. Because of the way its financial system was designed, 
NASD's calculations are based on fines invoiced through December 2002. 
Limitations on SEC's data reliability affect the accuracy of 
calculations related to its collections activities as well as its 
overall fines collection rates. Appendix I contains a full description 
of our scope and methodology.

Results in Brief:

SEC and CFTC have continued to improve their collection programs since 
we issued our 2001 fines report, but SEC needs to make additional 
improvements to its program. First, SEC amended its debt collection 
regulations to allow cases to be referred to FMS's Treasury Offset 
Program (TOP).[Footnote 5] SEC also implemented procedures, collections 
guidelines, and a collections database--the latter to aid in tracking 
and referring to FMS, including TOP, those cases with fines and 
disgorgements[Footnote 6] levied after the guidelines went into effect. 
It was too soon to assess the effectiveness of SEC's strategy related 
to these post-guidelines cases, because most of them were not yet 
eligible for referral. In contrast, SEC did not have a formal strategy-
-one that prioritized cases based on their collection potential and 
established time frames for their referral--for cases with fines and 
disgorgements levied before the guidelines went into effect.[Footnote 
7] Further impeding collection efforts on these pre-guidelines cases, 
SEC's original system for tracking all cases with money judgments, the 
Disgorgement and Penalties Tracking System (DPTS), was unreliable. 
Because DPTS was unreliable, SEC could not determine which pre-
guidelines cases were not being referred to FMS and TOP or the amounts 
associated with them--potentially well over a billion dollars. SEC has 
drafted a two-phase action plan for replacing DPTS by the end of fiscal 
year 2003 but has not established a time frame for implementing the 
computer system for the second phase. In addition, SEC has developed 
procedures for making timely responses to offers presented by FMS to 
settle a violator's debt, and CFTC has implemented procedures designed 
to ensure the timely referral of delinquent cases to FMS. However, only 
four cases had been processed under each agency's procedures as of 
April 2003, an insufficient number to assess their effectiveness.

SEC and CFTC have also taken some actions to improve their oversight of 
the SROs' sanctioning practices, but SEC has not yet used the SROs' 
data to analyze these practices. In response to our 1998 
recommendation, SEC has been inputting the SROs' data into its database 
for use in analyzing violations and disciplinary sanctions. These 
analyses should help SEC identify any disparities among SROs and find 
ways to improve their disciplinary programs. However, technological 
problems have hampered SEC's ability to complete the analyses. SEC 
officials told us that the agency expects to initiate its first 
analysis during the summer of 2003. They also said that the agency 
plans to develop a new disciplinary database to collect and analyze 
data on sanctions in a timelier manner but has not established a date 
for implementing it. Also, consistent with our 2001 recommendation, SEC 
and CFTC have been monitoring readmission applications but have not yet 
received any from barred individuals. We found, however, that SEC, 
CFTC, the National Futures Association (NFA), and NASD have controls 
designed to ensure that inappropriate readmissions of barred 
individuals do not occur. Further, while examining the application 
review process, we found weaknesses in controls over fingerprinting 
that could result in inappropriate admissions to the securities and 
futures industries. But we did not determine the extent to which these 
weaknesses resulted in inappropriate admissions.

We calculated the fines collection rates in two ways in order to 
provide a more complete picture of the regulators' collection 
activities. The collection rates for closed cases (those for which all 
possible collection actions had been completed) for SEC,[Footnote 8] 
CFTC, and the SROs from January 1997 to August 2002 showed that the 
regulators had collected between 75 and 100 percent of the fines 
imposed and that they had either improved their performance over the 
1992-96 period or maintained a 100-percent performance rate.[Footnote 
9] Broadening the analysis to include open cases (those for which 
collection actions were ongoing) had the greatest impact on SEC's and 
CFTC's collection rates. Including open cases, they collected 40 and 45 
percent, respectively, of the total dollar amount of fines levied. 
However, the differences in the rates were largely explained by a few 
large uncollected fines. According to regulators, large fines are more 
difficult to collect than small ones, and a few large uncollected fines 
can significantly affect an agency's collection rate. The rates for the 
SROs changed much less when adding open cases because the SROs 
generally had fewer and smaller uncollected fines. According to SRO 
officials, SROs that were exchanges had higher collection rates in part 
because they could sell a member's "seat," or membership, to pay fines, 
giving members an incentive to pay their fines quickly. As discussed in 
a previous report,[Footnote 10] these results underscore the 
limitations of using the collection rate alone to measure the 
effectiveness of collection efforts. That is, the rate can be 
significantly influenced by factors that are beyond regulators' 
control. Nonetheless, examining the rates and the factors influencing 
them can be a starting point for obtaining an understanding of 
regulators' performance.

This report makes three recommendations to SEC for improving its 
tracking and referral of delinquent cases to FMS and TOP and for 
completing its analysis of SROs' disciplinary sanctions. It also makes 
a recommendation to SEC and CFTC for improving controls over the 
fingerprinting of industry applicants. We received comments on a draft 
of this report from SEC and CFTC. Both agencies generally agreed with 
the facts we presented and agreed to implement the recommendations we 
made. SEC's written comments are reprinted in appendix II.

Background:

The regulatory structure of the U.S. securities markets was established 
by the Securities Exchange Act of 1934, which created SEC as an 
independent agency to oversee the U.S. securities markets and their 
participants. Similarly, in 1974 the Commodity Exchange Act established 
CFTC as an independent agency to oversee the U.S. commodity futures and 
options markets. Both agencies have five-member commissions headed by 
chairpersons who are appointed by the President of the United States 
for 5-year terms. Among other things, the commissioners approve new SEC 
and SRO rules and amendments to existing rules. They also authorize 
enforcement actions. SEC and CFTC are headquartered in Washington, D.C. 
SEC has a combined total of 11 regional and district offices; CFTC has 
5 regional offices.

Within SEC and CFTC, the divisions of enforcement are responsible for 
investigating possible violations of the securities and futures laws, 
respectively. With their commissions' approval, they litigate or settle 
actions against alleged violators in federal civil courts and in 
administrative actions. Typically, enforcement staff investigate 
alleged violations of law, prepare a memorandum for the commissioners 
that describes alleged violations, and, if appropriate, make 
recommendations for further action. When the commissions decide that a 
case warrants further action, they can authorize filing a civil suit 
against the alleged violator in federal district court or instituting a 
proceeding before an administrative law judge. If either the court or 
the administrative law judge finds that a defendant has violated 
securities or futures laws, it can issue a judgment ordering sanctions 
such as fines and disgorgements and, in the case of futures violations, 
restitution; it can also bar or suspend violators from the securities 
and futures industries.

The collection process for delinquent debt begins when all or part of a 
fine or disgorgement becomes delinquent because the violator has failed 
to pay some or all of the amount due by the date ordered by the court 
or administrative law judge. If the court or administrative law judge 
has not specified a payment date and no stay has been entered, SEC 
considers the debt delinquent 10 days after the court enters the 
judgment. CFTC officials told us that absent an appeal, they consider 
the debt delinquent 15 or 60 days after the administrative law judge or 
court entered the judgment in administrative and civil cases, 
respectively. SEC and CFTC collect delinquent monetary judgments 
primarily through post-judgment litigation, negotiating payments with 
defendants, and making referrals to the Department of Treasury or the 
Department of Justice.

In accordance with the Debt Collection Improvement Act of 1996, SEC and 
CFTC have each entered into an agreement with the Department of 
Treasury to improve collections. Under this act, federal agencies are 
required to submit all nontax debts that are 180 days delinquent to 
Treasury's FMS.[Footnote 11] The act also requires that FMS either take 
appropriate steps to collect the debt or terminate collection actions. 
In addition to using traditional methods to collect these debts, such 
as sending demand letters and hiring private collection agencies, FMS 
can use TOP. Under TOP, FMS identifies federal payments, such as tax 
refunds, that are owed to individuals and applies the payments to their 
outstanding debt. All cases referred to FMS for collection are also 
eligible for referral to and servicing under TOP. FMS also uses 
collection agencies to negotiate compromise offers with individual 
debtors. A compromise offer is an agreement between a federal agency 
and an individual debtor, in which the federal agency agrees to 
discharge a debt by accepting less than the full amount. Once the 
collection agency negotiates a compromise offer with a debtor, it 
forwards the offer to FMS. In the absence of an agreement between FMS 
and the federal agency to approve compromise offers on its behalf, FMS 
refers the offer to the federal agency for final approval.

The U.S. securities and futures markets are regulated under their 
respective statutes through a combination of self-regulation (subject 
to federal oversight) and direct federal regulation. This regulatory 
scheme was intended to give SROs responsibility for administering their 
own operations, including most of the daily oversight of the securities 
and futures markets and their participants. Two of the SROs--NASD and 
NFA--are associations that regulate registered securities and futures 
firms and oversee securities and futures professionals, respectively. 
The remaining SROs include national exchanges that operate the markets 
where securities and futures are traded. These SROs are primarily 
responsible for establishing the standards under which their members 
conduct business; monitoring the way that business is conducted; and 
bringing disciplinary actions against their members for violating 
applicable federal statutes, their own rules, and the rules promulgated 
by their federal regulator. SROs can impose fines and other sanctions 
against members that violate securities or futures laws or SRO rules, 
as applicable, through their enforcement and disciplinary processes. 
Some SROs' disciplinary proceedings are decided by a hearing panel, 
which examines the evidence and decides on the appropriate sanction. 
SROs' actions are usually initiated by a customer complaint, a 
compliance examination, market surveillance, regulatory filings, or a 
press report.

SEC and CFTC Have Taken Steps to Improve Their Collection Programs, but 
SEC Has Not Ensured That All Eligible Cases Are Referred to FMS and 
TOP:

SEC and CFTC have taken actions to improve their collection programs, 
addressing the three recommendations in our 2001 fines report. However, 
it was too early to assess the effectiveness of their actions. After we 
made our first recommendation, SEC took various steps, among them, 
implementing collections guidelines that were intended to ensure that 
eligible delinquent cases are referred to FMS, including TOP. But SEC's 
actions have not ensured that all eligible cases are referred. To 
address our second recommendation, SEC developed procedures for 
responding to compromise offers submitted by FMS within 30 days. To 
address our third recommendation, CFTC implemented procedures for 
ensuring the timely referral of delinquent cases to FMS for collection.

SEC Has Implemented Regulations, Procedures, Guidelines, and a 
Collections Database, but Its Actions Have Not Ensured the Referral of 
All Eligible Cases to FMS and TOP:

SEC implemented regulations, related procedures and guidelines, and a 
collections database intended to ensure that eligible delinquent cases 
are referred to FMS, including TOP, as required by the Debt Collection 
Improvement Act of 1996. However, SEC has focused on referring post-
guidelines cases, and it was too early to assess the effectiveness of 
SEC's strategy as it related to these cases. In contrast, SEC did not 
have a formal strategy for referring pre-guidelines cases and, further 
impeding its collection efforts, it did not have a reliable agencywide 
system for tracking monies owed in these cases. Recognizing that its 
system was unreliable, SEC has drafted a two-phase action plan under 
which it will implement a centralized agencywide tracking system for 
all delinquent debt. However, it has not established a time frame for 
fully implementing the computer system for the second phase of the 
plan.

SEC's Strategy Has Focused on Referring Post-Guidelines Cases, but It 
Is Too Early to Assess the Effectiveness of This Strategy:

We recommended in our 2001 report that SEC take steps to ensure that 
regulations allowing SEC's delinquent fines to be submitted to TOP be 
adopted so that SEC would benefit from the associated collection 
opportunities. At the time of our review, SEC officials had told us 
that they had rewritten their rules for using TOP but that they could 
not estimate when the rules would be approved by the commission or 
implemented.

After we made our recommendation, SEC amended its debt collection 
regulations.[Footnote 12] In April 2002, SEC implemented related 
procedures to allow cases to be forwarded to TOP. Consistent with the 
Debt Collection Improvement Act of 1996, the procedures required that 
cases be referred to FMS after they had been delinquent for more than 
180 days. SEC subsequently issued additional guidelines and implemented 
a collections database that were intended to ensure that eligible 
delinquent post-guidelines cases are referred to FMS, including TOP, 
within 180 days of becoming delinquent. SEC imposed the more stringent 
requirement on itself in recognition of the enhanced probability of 
collecting monies ordered on newer cases.

The guidelines provided more detailed instructions for staff on how to 
pursue collections, specifying steps for referring eligible delinquent 
cases to FMS, including TOP, within 180 days. According to an agency 
official, the guidelines went into effect agencywide on September 2, 
2002. SEC also created a collections database for all post-guidelines 
fines and disgorgement cases that is maintained by headquarters and 
each regional or district office, as applicable. The database tracks 
actions that staff have taken to recover debt on delinquent cases, 
including preparing cases for referral to FMS, and is used to help 
ensure that staff are following the new collections guidelines. SEC 
officials told us that the agency was tracking only post-guidelines 
cases because the database had limited storage capacity and could 
become unstable if too many cases were added. In addition, the agency 
has assigned attorneys and administrative staff to every office to 
maintain the database and its related collection activities for 
delinquent cases, including ensuring that eligible cases are referred 
to FMS and TOP in a timely manner. According to an agency official, 
these staff received training on using the guidelines in the fall of 
2002.

It was too early to fully assess the effectiveness of SEC's strategy 
for tracking, collecting, and referring post-guidelines cases, because 
most of these cases were not yet 180 days delinquent. Based on a 
judgmental sample of 66 cases, we identified 4 delinquent fines and 
disgorgement cases valued at $4 million that were eligible for referral 
as of March 31, 2003. We found that SEC had referred two of the four 
cases within the 180-day time frame and was preparing the other two for 
referral.

SEC Did Not Have a Formal Strategy for Referring Pre-Guidelines Cases:

Although SEC had developed controls to better ensure that eligible 
post-guidelines cases were promptly referred to FMS and TOP, it had not 
developed a formal strategy for referring eligible pre-guidelines 
cases. Such a strategy would include prioritizing cases based on their 
collection potential and establishing time frames for making the 
referrals. Further impeding its collection efforts, SEC's original 
system for tracking monies owed in pre-guidelines cases--DPTS--was not 
reliable. As a result, SEC could not identify all the cases that had 
not been referred to FMS and TOP. SEC officials told us that the 
agency's April 2002 procedures applied to the pre-guidelines cases and 
that agency attorneys had followed these procedures in referring some 
pre-guidelines cases to Treasury. But SEC did not know the extent to 
which the procedures were being followed or whether eligible cases were 
not being referred. They explained that the attorneys would know the 
status of the cases assigned to them but that no agencywide information 
was available. They also told us that they expected all eligible cases 
to be referred to FMS and TOP eventually but noted that they had not 
prioritized the cases for referral or established time frames for 
referring them.

Neither we nor SEC could determine with any certainty the extent to 
which eligible pre-guidelines cases were not being referred to FMS and 
TOP due to the unreliability of DPTS. Using DPTS, the only information 
available, we identified about 900 pre-guidelines cases valued at about 
$2.8 billion that were 180 days past due and that might be eligible for 
referral. As of January 31, 2003, almost 54 percent of these cases were 
over 3 years old based on their judgment date, which, in the absence of 
better data, we used as a rough proxy for the delinquency date. SEC 
officials emphasized that these numbers do not accurately reflect the 
number of pre-guidelines cases eligible for referral to FMS and TOP. 
They said that some of the cases were ineligible for referral because 
they were on appeal, in post-judgment litigation, or had a receiver 
appointed to marshal and distribute assets. In addition, many cases 
might already have been referred for collection. SEC officials also 
pointed out that our calculations of the age of cases were inaccurate 
because we relied on the judgment date rather than the delinquency 
date, which is not tracked in DPTS. We recognize that many factors 
affect the accuracy of DPTS, including some that might not be mentioned 
here. However, we are reporting these numbers as the best information 
available.

SEC Had an Action Plan for Replacing DPTS but Had Not Established a 
Time Frame for Full Implementation of the Plan:

Both GAO and SEC have recognized DPTS's lack of reliability. Our 2002 
disgorgement report and a January 2003 report commissioned by the SEC 
Inspector General found that DPTS was not complete and accurate and 
could not be relied upon for financial accounting and reporting 
purposes. Recognizing that the agency did not have a system that 
provided an accurate assessment of levied amounts and payments (among 
other things), SEC developed a draft action plan for implementing a new 
system to replace DPTS. The April 2003 draft plan calls for 
implementing a comprehensive centralized system for tracking, 
documenting, and reporting on fines and disgorgements ordered, paid, 
and disbursed in SEC enforcement actions. The agency had been taking 
steps to address the milestones in the plan. If the plan is effectively 
implemented, the agency should have a tool for accurately identifying 
uncollected pre-guidelines cases for referral to FMS and TOP for 
collection.

SEC's action plan has been divided into two phases. In the first phase, 
SEC is tentatively scheduled to replace DPTS by the end of fiscal year 
2003. SEC officials described the replacement system as a comprehensive 
case tracking, record-keeping, and reporting system for fines and 
disgorgements ordered, paid, and distributed. They said that the system 
will be integrated with a database maintained by the Division of 
Enforcement. The replacement system is intended to, among other things, 
maintain the data on debt needed for general reporting and management 
purposes. According to SEC officials, one benefit of the replacement 
system will be to assist the agency in managing its delinquent cases. 
However, SEC will continue to rely on its new collections database, 
which tracks collection efforts on post-guidelines cases, to ensure the 
timely referral of these cases to FMS and TOP until phase two of the 
action plan is implemented. In phase two, SEC plans a comprehensive 
upgrade to its case tracking system, which will be integrated with 
several other databases, including the new collections database. SEC 
expects to begin the requirements analysis for the phase two computer 
system in fiscal year 2004 but has not established a milestone for 
completing this analysis. After the requirements analysis is complete, 
SEC plans to establish an implementation date for the system.

SEC Has Implemented Procedures for Responding to Compromise Offers in a 
Timely Manner:

We recommended in our July 2001 report that SEC continue to work with 
FMS to ensure that compromise offers presented by FMS are approved in a 
timely manner. Our recommendation resulted from a finding that SEC did 
not always respond to compromise offers promptly and that as a result 
some debts had never been collected. For example, we reported that FMS 
waited from between 42 and 327 days for SEC's decisions on three 
compromise offers. But by the time SEC made its decisions, the debtors 
no longer had the money to pay the amounts specified in the compromise 
offers. To address this concern, in April 2001 FMS proposed securing 
delegation authority from SEC--that is, permission to approve 
compromise offers that SEC did not respond to within 30 days.

In response to our recommendation, SEC took several steps to ensure 
that compromise offers are approved in a timely manner. First, in July 
2001 SEC implemented procedures specifying the actions required to 
address a compromise offer, including a schedule to ensure that a 
decision is made within 30 days. For example, within 5 days of 
receiving an offer, SEC staff are to have made a final decision on 
whether to recommend the offer to the commission for approval. SEC also 
implemented controls to monitor the status of offers. When it receives 
a compromise offer from FMS, SEC enters the offer into a system that 
tracks information such as the date the offer was made, the name of the 
attorney reviewing the offer, the date the offer was referred to the 
commission for a final decision, and the date of the final decision. 
The Division of Enforcement's chief counsel monitors the status of 
offers based on weekly reports generated from this system to ensure 
that follow-up action is taken to address any problems. Finally, SEC 
has designated two staff to respond to FMS inquiries about the status 
of compromise offers.

It is still too early to determine the effectiveness of SEC's actions. 
As of April 22, 2003, SEC had received four compromise offers from FMS 
under its new procedures. SEC and FMS data showed that SEC had 
responded to three of the offers within the 30-day guideline and to one 
offer within 40 days. The late offer represented a debt of $1.6 
million, and the settlement offer was for $50,000. SEC staff told us 
that the agency ultimately rejected the offer, at least in part because 
of the disparity between the amount offered and the amount owed. SEC 
officials attributed the delay in responding to this offer to 
scheduling conflicts caused by the holiday season. The officials told 
us that the agency was in touch with FMS before the end of 30 days to 
indicate, on an informal basis, that the reply to the compromise offer 
would be delayed and that the offer would be rejected. FMS officials 
told us that they did not view SEC's late response to this offer as a 
problem--that is, the delay did not represent weaknesses in agency 
policies, procedures, or controls. They said that SEC had shown marked 
improvement in responding to compromise offers and that as a result FMS 
was no longer seeking delegation authority from SEC.

CFTC Implemented Procedures for Ensuring the Timely Referral of 
Delinquent Debt to FMS:

We recommended in our 2001 report that CFTC take steps to ensure that 
delinquent fines were promptly referred to FMS, including creating 
formal procedures that addressed both sending debts to FMS within the 
required time frames and requiring all of the necessary information 
from the Division of Enforcement on these debts. Our recommendation 
flowed from a finding in an April 2001 report by CFTC's Inspector 
General showing that CFTC staff were not referring delinquent debts to 
FMS in a timely manner, potentially limiting FMS's ability to collect 
the monies owed. The report also noted that CFTC's collection 
procedures had not been updated to address referrals to FMS and, among 
other examples, identified a fine in the amount of $7 million that had 
not been referred to FMS for more than 2 years because of inadequate 
communication between CFTC's Division of Enforcement and its Division 
of Trading and Markets.

As we recommended, CFTC has improved its procedures for referring its 
debt to FMS in a timely manner and has taken steps to ensure that it 
has all the necessary enforcement information before making the 
referral. CFTC updated its collection procedures and implemented them 
in July 2002. They now include specific requirements for referring debt 
to FMS within 180 days of the date that the debt became delinquent. 
CFTC also implemented controls to ensure that it has identified all 
delinquent debt eligible for referral. For example, CFTC management 
reviews quarterly reports on the status of cases to ensure that all 
debts are referred to FMS within 180 days. According to CFTC officials, 
the agency's shift of all debt collection responsibility from its 
Division of Trading and Markets to its Division of Enforcement 
streamlined its debt referral process.

Although it is too early to fully assess the effectiveness of CFTC's 
actions, our review of CFTC's data on uncollected cases indicated that 
the agency had been referring all eligible debt to FMS within 180 days. 
As of April 24, 2003, CFTC had had four delinquent cases dating from 
the time its procedures went into effect. Using FMS's data, we 
confirmed that the cases had been referred to FMS within 123 days. 
Also, a review of CFTC's data of all delinquent cases levied before the 
procedures went into effect showed that CFTC had referred all eligible 
cases to FMS for collection. FMS officials told us that CFTC had been 
making debt referrals with complete information on all its cases.

SEC and CFTC Have Taken Steps to Improve Their Oversight of SROs' 
Sanctioning Practices, but Some Concerns Remain:

SEC and CFTC have taken steps to address our two recommendations for 
improving their oversight of SROs' sanctioning practices. But SEC has 
not fully implemented our 1998 recommendation that it analyze 
industrywide data on SRO-imposed sanctions to examine disparities and 
help improve disciplinary programs. The agency has experienced 
technological problems that have hampered its ability to complete these 
analyses. In addition--and consistent with our 2001 recommendation--SEC 
and CFTC have been monitoring readmission applications to the 
securities and futures industries. However, at the time of our review 
neither had received any applications since changing their fine 
imposition practices. Also, SEC, CFTC, NASD, and NFA have controls 
designed to ensure that inappropriate readmissions do not occur. 
Further, while examining the application review process, we found 
weaknesses in controls over fingerprinting that could result in 
inappropriate admissions to the securities and futures industries.

Technological Problems Have Hampered SEC's Ability to Analyze 
Disciplinary Actions Across SROs:

In our 1998 report, we recommended that SEC analyze industrywide 
information on disciplinary program sanctions, particularly fines, to 
identify possible disparities among the SROs and find ways to improve 
SROs' disciplinary programs. We concluded that analyzing industrywide 
data could provide SEC with an additional tool to identify disparities 
among SROs that might require further review. We reported in 2001 that 
SEC had developed a database to collect information on SROs' 
disciplinary actions.

As of June 30, 2003, according to agency officials, SEC was still 
inputting information into its database but had not yet completed any 
analyses because technological difficulties had hampered its ability to 
collect sufficient data to perform the analyses. First, the database 
had a limited number of fields and therefore could not capture multiple 
disciplinary violations or multiple parties in a single case. In 
October 2002, SEC officials told us that they had addressed this 
limitation by enhancing the database to incorporate the required fields 
and were continuing to add disciplinary information to the database. 
However, in November 2002, the enhanced database failed because it 
could not support multiple users. SEC repaired the database, and agency 
officials told us that they expected to complete their first data 
analyses in the summer of 2003. The analyses are expected to show 
whether SROs impose similar fines and sanctions for similar violations. 
An SEC official said that the agency expects these analyses to 
supplement the information obtained during agency inspections of the 
SROs' disciplinary programs.

SEC officials told us that the agency is planning to use funds from its 
fiscal year 2003 budget increase to develop a new disciplinary database 
that will replace the current one. According to SEC officials, this new 
disciplinary database is expected to allow SROs to submit data on-line 
rather than having to send it to SEC to be entered by staff. This 
streamlined process is expected to reduce data entry errors. An SEC 
official told us that while planning had begun for the new disciplinary 
database, no completion date had been established.

SEC and CFTC Have Monitored Readmission Applications and Have Controls 
Designed to Preclude Inappropriate Readmissions:

In our 2001 report, we recommended that SEC and CFTC periodically 
assess the pattern of readmission applications to ensure that the 
changes in NASD's and NFA's fine imposition practices do not result in 
any unintended consequences, such as inappropriate readmissions. NASD 
and NFA had stopped routinely assessing fines when barring individuals 
in October 1999 and December 1998, respectively, eliminating the 
related requirement that the fines be paid as a condition of reentry to 
the securities and futures industries. These fines had rarely been 
collected, because few violators ever sought reentry. We were concerned 
that because barred individuals were no longer required to pay a fine 
before reentry, they might be more willing to seek readmission.

Consistent with our recommendation, SEC and CFTC have monitored 
readmission applications. They found, and we confirmed, that no 
individuals who were barred after the changes in NASD's and NFA's fine 
imposition practices had applied for reentry. Also, NASD's and NFA's 
application review processes included controls designed to ensure that 
inappropriate applications for reentry are not approved. Officials of 
both SROs told us that as part of their background checks they did a 
database search against the names of past and current registrants in 
both industries to determine whether the applicants had a disciplinary 
history. In addition, both SROs submitted applicants' fingerprints to 
the Federal Bureau of Investigation (FBI) for a criminal background 
check. NASD and NFA required all individuals who had been suspended, 
expelled, or barred to be--at a minimum--sponsored by a registered firm 
before being considered for readmission. According to a CFTC official, 
finding a sponsor is difficult, as most firms would not hire an 
individual with a history of serious disciplinary problems, in part due 
to increased supervisory requirements and the risk of harming their 
reputations.

SEC and CFTC were reviewing the applications of all individuals who had 
been statutorily disqualified from registration, including any barred 
individuals, and had the authority to reverse an admission decision 
made by NASD or NFA, respectively.[Footnote 13] SEC and CFTC officials 
told us that they would consider various factors when reviewing a 
readmission application, including the facts and circumstances of the 
case, the appropriateness of the proposed supervision, and the 
prospective employer's ability to provide the proposed supervision. 
Officials from both agencies told us that if they were to begin 
receiving a large number of applications from barred applicants, they 
would reexamine the SROs' fine imposition practices.

Weaknesses in Fingerprinting Controls Could Result in Inappropriate 
Admissions to the Securities and Futures Industries:

While examining the application review process, we found that neither 
the related statutes, SEC, nor CFTC required the SROs to ensure that 
the fingerprints sent to the FBI for use in criminal history checks 
belonged to the applicants who submitted them. Further, in the absence 
of such a requirement, NASD,[Footnote 14] the New York Stock Exchange 
(NYSE),[Footnote 15] and NFA[Footnote 16] lacked related controls over 
fingerprinting, potentially allowing inappropriate persons to enter the 
securities and futures industries. The securities[Footnote 17] and 
futures laws[Footnote 18] require that applicants to these industries 
have their fingerprints taken and then sent for review to the FBI as 
part of a criminal background check. The goal of the criminal 
background check is to ensure that inappropriate individuals are not 
granted admission to the securities or futures industries. The statutes 
also require SRO member firms to be responsible for assuring that their 
personnel are fingerprinted. SEC and CFTC rules provide that applicants 
can satisfy this requirement by submitting fingerprints to the SROs who 
then send them to the FBI for processing.

However, neither the statutes, SEC, nor CFTC require SROs to ensure 
that the fingerprints sent to the FBI for use in criminal history 
checks belong to the applicants who submitted them. In the absence of 
such a requirement, NASD, NYSE, and NFA have not imposed requirements 
on member firms to help ensure that the identity of the person being 
fingerprinted matches the fingerprints being submitted for FBI review. 
The SROs told us that, consistent with the law, they required their 
members to be fingerprinted and that these fingerprints were submitted 
to the FBI for assessment. NYSE officials emphasized that their members 
were in full compliance with the law and related regulations, which do 
not require specific controls.

In the absence of specific requirements, firms have taken a variety of 
approaches to fingerprinting applicants. For example, while SEC and 
some SROs told us that most firms used their own personnel or police 
officers to obtain fingerprints, they said that a small number of firms 
may allow applicants to fingerprint themselves, a practice that 
provides an opportunity for individuals to perpetrate fraud by 
submitting someone else's fingerprints instead of their own. According 
to SEC and CFTC officials, their agencies have trained staff in their 
headquarters and some regional offices that take fingerprints of their 
employees using approved fingerprinting kits. An NFA official also 
stated that NFA headquarters has trained staff that take fingerprints 
of industry applicants, verifying their identities as part of the 
process. The FBI also informed us that it suggests using law 
enforcement or other trained personnel to take fingerprints. SEC and 
NYSE also said that many reputable businesses provide fingerprinting 
services and that SRO member firms could contract with these 
businesses.

In a 1996 CFTC review of NFA's registration fitness program, CFTC 
recommended that NFA conduct a review to determine the feasibility of 
adopting controls to ensure that the fingerprints submitted for 
criminal history checks belonged to the applicant. NFA found that a 
number of obstacles stood in the way of establishing an effective 
program to verify fingerprints. According to an NFA official, the 
agency examined the procedures of the Bureau of Citizenship and 
Immigration Services of the Department of Homeland Security (formerly 
the Immigration and Naturalization Service) in responding to CFTC's 
recommendation. On the basis of this examination, NFA concluded that it 
would not be cost-effective to replicate the bureau's procedures. For 
example, unlike NFA, the bureau has fingerprinting sites throughout the 
country with trained employees to take fingerprints.[Footnote 19] As 
part of its review, NFA considered requiring an attestation form, which 
would include the fingerprinter's name and address and the document 
used to verify the applicant's identity. Ultimately, however, NFA 
concluded that such a form could be subject to forgery and would not 
provide assurance that the fingerprints belonged to the applicant. CFTC 
accepted NFA's conclusions.

NYSE and NFA officials described other obstacles to establishing 
controls over fingerprinting. They explained that space limitations on 
the FBI fingerprint card made it difficult to identify the person 
taking the fingerprints. Further, they said that the card provided 
space for the fingerprinter's signature, which is often illegible, but 
not for the fingerprinter's printed name or the name of another contact 
who could verify information related to the fingerprints. NYSE 
officials also said that the FBI could adjust its fingerprint card so 
that it required more complete contact information for the person 
taking the fingerprints. An NFA official also told us that because some 
SROs process registration applications both nationally and 
internationally, these SROs would not be able to establish enforceable 
rules regarding who should take fingerprints.

We did not determine the extent to which individuals with a criminal 
history could submit someone else's fingerprints and thus enter the 
securities or futures industries undetected. However, SEC and CFTC 
officials said that the SROs' fingerprinting processes are vulnerable 
to such a practice because of the lack of controls for preventing 
applicants from using someone else's fingerprints as their own. SRO 
officials said that existing systems were reasonably designed to 
prevent fraud but were not foolproof, adding that the potential cost of 
imposing any unduly restrictive requirements was a concern. Some SRO 
officials said that to the extent they are needed, SEC and CFTC should 
establish industrywide standards. NFA officials said that since 
weaknesses in fingerprinting procedures apply equally to the securities 
and futures industries, SEC and CFTC should establish comparable 
requirements to ensure that one industry is not at a disadvantage to 
the other. NYSE officials said that SEC rulemaking would be the most 
appropriate method for changes to fingerprinting procedures in the 
securities industry.

We Calculated Collection Rates in Two Different Ways to Provide a More 
Complete Picture of Collection Efforts:

To provide a more complete picture of efforts by securities and futures 
regulators to collect fines, we calculated the collection rates in two 
different ways. The collection rates for closed cases (cases with a 
final judgment order for which all collection actions were completed) 
for SEC,[Footnote 20]CFTC, and the SROs from January 1997 to August 
2002 showed that the regulators collected most of the fines imposed. 
Broadening the analysis to include open cases (cases with a final 
judgment order that remained open while collection efforts continued) 
had the greatest impact on SEC's and CFTC's collection rates because of 
a few large uncollected fines. Our analysis of the collection rates 
highlights a theme introduced in an earlier report that the collection 
rate alone may not be a valid measure of the effectiveness of 
collection efforts, because collections can be influenced by factors 
that are outside regulators' control.[Footnote 21]

SEC, CFTC, and the SROs Collected Almost All Fines in Closed Cases:

SEC, CFTC, and the SROs collected between 75 and 100 percent of all the 
fines imposed in closed cases. For these cases, collection efforts had 
ceased either because the fines had been collected in full or in part 
or were unlikely to be collected and thus had been written off as bad 
debts. As shown in table 1, SEC and CFTC collected about 94 and 99 
percent, respectively, of the total dollars levied in cases closed from 
January 1997 through August 2002--the period immediately following the 
one covered in our 1998 fines report. These amounts represent an 11 and 
18 percentage point increase, respectively, over the rates presented in 
the 1998 report, which covered the 1992-96 period. CFTC wrote off fewer 
fines as uncollectible in the more recent period, and almost all of its 
collected fines were paid in full.

Table 1: Collection Rates for Fines Levied on Closed Cases for 1997-
August 2002 and 1992-96: 

Agencies and securities and futures SROs: SEC; Total fines on closed 
cases for 1997-August 2002: Amount levied: $186,880,769; Total fines on 
closed cases for 1997-August 2002: Amount collected: $175,446,541; 
Total fines on closed cases for 1997-August 2002: Percentage collected: 
94%; Total fines on closed cases for 1992-96: Percentage 
collected: 83%.

Agencies and securities and futures SROs: CFTC; Total fines on closed 
cases for 1997-August 2002: Amount levied: 163,230,782; Total fines on 
closed cases for 1997-August 2002: Amount collected: 161,228,782; Total 
fines on closed cases for 1997-August 2002: Percentage collected: 99; 
Total fines on closed cases for 1992-96: Percentage collected: 
81.

Agencies and securities and futures SROs: American Stock Exchange; 
Total fines on closed cases for 1997-August 2002: Amount levied: 
2,406,307; Total fines on closed cases for 1997-August 2002: Amount 
collected: 2,286,307; Total fines on closed cases for 1997-August 2002: 
Percentage collected: 95; Total fines on closed cases for 
1992-96: Percentage collected: 75.

Agencies and securities and futures SROs: Chicago Board Options 
Exchange; Total fines on closed cases for 1997-August 2002: Amount 
levied: 3,153,744; Total fines on closed cases for 1997-August 2002: 
Amount collected: 3,109,994; Total fines on closed cases for 1997-
August 2002: Percentage collected: 99; Total fines on closed 
cases for 1992-96: Percentage collected: 95.

Agencies and securities and futures SROs: Chicago Board of Trade; Total 
fines on closed cases for 1997-August 2002: Amount levied: 3,471,600; 
Total fines on closed cases for 1997-August 2002: Amount collected: 
3,313,100; Total fines on closed cases for 1997-August 2002: Percentage 
collected: 95; Total fines on closed cases for 1992-96: 
Percentage collected: 54.

Agencies and securities and futures SROs: Chicago Mercantile Exchange; 
Total fines on closed cases for 1997-August 2002: Amount levied: 
3,001,000; Total fines on closed cases for 1997-August 2002: Amount 
collected: 2,915,000; Total fines on closed cases for 1997-August 2002: 
Percentage collected: 97; Total fines on closed cases for 
1992-96: Percentage collected: 85.

Agencies and securities and futures SROs: Chicago Stock Exchange; Total 
fines on closed cases for 1997-August 2002: Amount levied: 257,500; 
Total fines on closed cases for 1997-August 2002: Amount collected: 
257,500; Total fines on closed cases for 1997-August 2002: Percentage 
collected: 100; Total fines on closed cases for 1992-96: 
Percentage collected: 100.

Agencies and securities and futures SROs: NASD; Total fines on closed 
cases for 1997-August 2002: Amount levied: 135,401,570[A]; Total fines 
on closed cases for 1997-August 2002: Amount collected: 129,027,116; 
Total fines on closed cases for 1997-August 2002: Percentage collected: 
95; Total fines on closed cases for 1992-96: Percentage 
collected: 24[B].

Agencies and securities and futures SROs: NFA; Total fines on closed 
cases for 1997-August 2002: Amount levied: 3,449,500; Total fines on 
closed cases for 1997-August 2002: Amount collected: 2,569,975; Total 
fines on closed cases for 1997-August 2002: Percentage collected: 75; 
Total fines on closed cases for 1992-96: Percentage collected: 
27.

Agencies and securities and futures SROs: New York Mercantile Exchange; 
Total fines on closed cases for 1997-August 2002: Amount levied: 
1,163,294; Total fines on closed cases for 1997-August 2002: Amount 
collected: 1,163,294; Total fines on closed cases for 1997-August 2002: 
Percentage collected: 100; Total fines on closed cases for 
1992-96: Percentage collected: Not Available.

Agencies and securities and futures SROs: NYSE; Total fines on closed 
cases for 1997-August 2002: Amount levied: 19,150,667; Total fines on 
closed cases for 1997-August 2002: Amount collected: 19,145,667; Total 
fines on closed cases for 1997-August 2002: Percentage collected: 100; 
Total fines on closed cases for 1992-96: Percentage collected: 
98.

Source: GAO analysis of SEC, CFTC, and SRO data, except NASD, which 
calculated its own rates. 

Note: Percentages are rounded to the nearest whole number.

[A] NASD data include cases invoiced from 1997 through 2002.

[B] Calculations may include cases with payment plans, which we were 
unable to exclude because of the design of NASD's system. 

[End of table]

The eight securities and futures SROs for which data were available had 
the same or higher collection rates on closed cases in the most recent 
period compared with the earlier period. The Chicago Board of Trade's 
collection rate showed significant improvement, increasing from 54 to 
95 percent of the total dollars levied. Its collection rate for the 
1992-96 period was heavily influenced by two large uncollected fines 
totaling $2.25 million. Excluding those two cases, the rate for this 
period would have been about 99 percent rather than 54 percent--much 
closer to the 95 percent rate for the more recent period. NASD's and 
NFA's rates also showed significant improvement, increasing 71 and 48 
percentage points, respectively, over the rates presented in the 1998 
report, which covered the 1992-96 period. However, NASD's and NFA's 
collection rates improved because, as we have noted, the regulators 
stopped routinely assessing fines when barring individuals from the 
securities and futures industry. These fines had been the most 
difficult to collect, because barred individuals had little incentive 
to pay them. 

Including Open Cases in the Calculations Had the Greatest Impact on 
SEC's and CFTC's Collection Rates Because of a Few Large Fines: 

SEC's and CFTC's collection rates were affected more than the SROs' 
rates when we added open cases to our calculations. As shown in table 
2, SEC collected about 40 percent of the total dollars levied in all 
cases, open and closed, from January 1997 through August 2002--54 
percentage points less than its rate for closed cases. 

Table 2: Collection Rates for Fines Levied on Open and Closed Cases and 
Closed Cases for 1997-August 2002:

Agencies and securities and futures SROs: SEC; Total fines on open and 
closed cases for 1997-August 2002: Amount levied: $480,375,353; Total 
fines on open and closed cases for 1997-August 2002: Amount collected: 
$190,103,396; Total fines on open and closed cases for 1997-August 
2002: Percentage collected: 40%; Total fines on closed cases 
for 1997-August 2002: Percentage collected: 94%.

Agencies and securities and futures SROs: CFTC; Total fines on open and 
closed cases for 1997-August 2002: Amount levied: 357,832,773; Total 
fines on open and closed cases for 1997-August 2002: Amount collected: 
161,269,894; Total fines on open and closed cases for 1997-August 
2002: Percentage collected: 45; Total fines on closed cases 
for 1997-August 2002: Percentage collected: 99.

Agencies and securities and futures SROs: American Stock Exchange; 
Total fines on open and closed cases for 1997-August 2002: Amount 
levied: 2,631,819; Total fines on open and closed cases for 1997-August 
2002: Amount collected: 2,286,307; Total fines on open and closed 
cases for 1997-August 2002: Percentage collected: 87; Total 
fines on closed cases for 1997-August 2002: Percentage collected: 95.

Agencies and securities and futures SROs: Chicago Board Options 
Exchange; Total fines on open and closed cases for 1997-August 2002: 
Amount levied: 3,168,744; Total fines on open and closed cases for 
1997-August 2002: Amount collected: 3,113,809; Total fines on open and 
closed cases for 1997-August 2002: Percentage collected: 98; 
Total fines on closed cases for 1997-August 2002: Percentage collected: 
99.

Agencies and securities and futures SROs: Chicago Board of Trade; Total 
fines on open and closed cases for 1997-August 2002: Amount levied: 
3,549,350; Total fines on open and closed cases for 1997-August 2002: 
Amount collected: 3,321,600; Total fines on open and closed cases for 
1997-August 2002: Percentage collected: 94; Total fines on 
closed cases for 1997-August 2002: Percentage collected: 95.

Agencies and securities and futures SROs: Chicago Mercantile Exchange; 
Total fines on open and closed cases for 1997-August 2002: Amount 
levied: 3,073,585; Total fines on open and closed cases for 1997-August 
2002: Amount collected: 2,962,585; Total fines on open and closed 
cases for 1997-August 2002: Percentage collected: 96; Total 
fines on closed cases for 1997-August 2002: Percentage collected: 97.

Agencies and securities and futures SROs: Chicago Stock Exchange; Total 
fines on open and closed cases for 1997-August 2002: Amount levied: 
284,500; Total fines on open and closed cases for 1997-August 2002: 
Amount collected: 257,500; Total fines on open and closed cases for 
1997-August 2002: Percentage collected: 91; Total fines on 
closed cases for 1997-August 2002: Percentage collected: 100.

Agencies and securities and futures SROs: NASD; Total fines on open and 
closed cases for 1997-August 2002: Amount levied: 210,568,908[A]; 
Total fines on open and closed cases for 1997-August 2002: Amount 
collected: 139,607,518; Total fines on open and closed cases for 1997-
August 2002: Percentage collected: 66; Total fines on closed 
cases for 1997-August 2002: Percentage collected: 95.

Agencies and securities and futures SROs: NFA; Total fines on open and 
closed cases for 1997-August 2002: Amount levied: 4,021,250; Total 
fines on open and closed cases for 1997-August 2002: Amount collected: 
2,676,725; Total fines on open and closed cases for 1997-August 2002: 
Percentage collected: 67; Total fines on closed cases for 
1997-August 2002: Percentage collected: 75.

Agencies and securities and futures SROs: New York Mercantile Exchange; 
Total fines on open and closed cases for 1997-August 2002: Amount 
levied: 1,422,294; Total fines on open and closed cases for 1997-August 
2002: Amount collected: 1,177,294; Total fines on open and closed 
cases for 1997-August 2002: Percentage collected: 83; Total 
fines on closed cases for 1997-August 2002: Percentage collected: 100.

Agencies and securities and futures SROs: NYSE; Total fines on open and 
closed cases for 1997-August 2002: Amount levied: 19,151,667; Total 
fines on open and closed cases for 1997-August 2002: Amount collected: 
19,146,667; Total fines on open and closed cases for 1997-August 2002: 
Percentage collected: 100; Total fines on closed cases for 
1997-August 2002: Percentage collected: 100.

Source: GAO analysis of SEC, CFTC, and SRO data, except NASD, which 
claculated its own rates.

Note: Percentages are rounded to the nearest whole number.

[A] NASD data include cases invoiced from 1997 through 2002.

[End of table]

We examined SEC's collection rates by year and found that the rates 
varied greatly over time because of a few large fines. (See appendix 
III for the collection rates of the securities regulators for open and 
closed cases by calendar year.) For example, in 1999 SEC collected 26 
percent of the total fines levied in that year, but one uncollected 
fine of $123 million significantly lowered the rate. Had SEC been able 
to collect this one fine, its collection rate for 1999 would have been 
89 percent (fig. 1). Also, in 2002, SEC collected 61 percent of all 
fines, but approximately half came from two payments made by two 
violators. Excluding these payments, the reported collection rate for 
2002 would have been about 30 percent (fig. 1).

Figure 1: SEC's Actual Collection Rates for Open and Closed Cases, 
1997-August 2002, and Adjusted Collection Rates for Selected Years:

[See PDF for image]

[End of figure]

To help control for the influence of large dollar amounts on SEC's 
collection rates, we analyzed the number of cases paid in full and 
found that SEC had collected the full amount of the fine in the 
majority of cases it levied. For the entire period from 1997 through 
2001, 72 percent of the fines levied had been paid in full. In 2002, 55 
percent of the fines levied were paid in full. The rate may be lower 
for 2002 because SEC has had less time--approximately 4 months--to 
collect on cases levied through August 2002.

CFTC collected about 45 percent of the total dollar amount of the fines 
it levied over the same period. Like SEC's rate, CFTC's was heavily 
influenced by a few large fines. A closer review of CFTC's annual rates 
from January 1997 through August 2002 showed that the regulator 
collected between 2 and 90 percent of the total fines levied. (See 
appendix IV for the collection rates of the futures regulators for open 
and closed cases by calendar year.) But in 2000, when CFTC's collection 
rate was just 2 percent, our calculations included a single uncollected 
fine of $90 million. Had CFTC been able to collect this one fine, its 
collection rate would have been 95 percent (fig. 2). Also, in 1998, 
when CFTC collected 90 percent of the total dollar amount levied 
through August 2002, one payment for $125 million heavily skewed the 
rate (fig. 2). Without this one payment and fine, CFTC's reported 
collection rate would have been approximately 7 percent (fig. 2). 

To help control for the influence that large dollar amounts can have on 
the rate, we again analyzed the number of cases paid in full. Over the 
entire period of our study, from 1997 through August 2002, CFTC had 
collected the full amount in slightly more than 50 percent of the cases 
it levied. Although CFTC's collection rates over the entire period of 
our study were relatively low, the agency was actively pursuing 
collections on all its uncollected cases, primarily through the 
Departments of Treasury and Justice. CFTC's Chief of Cooperative 
Enforcement told us that the agency would continue to levy large fines 
when appropriate, even though large uncollectible amounts could reduce 
the agency's collection rate. He said that levying fines that are 
commensurate with the related wrongdoing sends a message to the public 
that CFTC is serious about enforcing its statutes. 

Figure 2: CFTC's Actual Collection Rates for Open and Closed Cases, 
1997-August 2002, and Adjusted Collection Rates for Selected Years:

[See PDF for image]

[End of figure]

The collection rates for the nine securities and futures SROs were 
comparable in both sets of calculations (see table 2). When we included 
open cases in our calculations, these SROs' collection rates decreased 
slightly, with all but two (NASD's and the New York Mercantile 
Exchange's) declining between 1 and 9 percentage points. One reason for 
the relatively small decline was that these SROs generally had fewer 
and smaller uncollected fines, suggesting that they had been more 
successful in collecting on all cases than SEC and CFTC. According to 
an NFA official, one reason that the SROs that operate markets had 
higher collection rates was that in their role as exchanges they could 
sell a member's "seat," or membership, to pay off the fine, giving 
members an incentive to pay their fines. Because other regulators do 
not have this type of leverage, their rates are typically lower.

NASD's collection rate for closed cases was 95 percent and its rate for 
open and closed cases was 66 percent--a change of 29 percentage points. 
NASD's rate for open and closed cases[Footnote 22] was affected by low 
collections in 1997 and 1998. As a result, the rates did not 
necessarily reflect the effects of the changes NASD made to its fine 
imposition practices in October 1999. As indicated in figure 3, NASD's 
annual collection rates generally increased from January 1997 through 
December 2002. In 1997, NASD collected 26 percent of the total dollars 
invoiced. In 2002, it collected 96 percent--a 70 percentage point 
increase over 6 years. As we reported earlier, one of the primary 
reasons for the increases was a change in the way NASD imposes fines. 
Specifically, NASD stopped routinely assessing fines when barring an 
individual from the industry, reducing the number of fines it invoiced 
each year and improving its overall collection rate. Also, in 
calculating its rate, NASD excluded about $137 million in fines that 
would be due and payable only if the fined individuals were to reenter 
the securities industry. The New York Mercantile Exchange's collection 
rate for open and closed cases was 83 percent--a decline of 17 
percentage points from its closed case rate. When we excluded one 
uncollected $200,000 fine, the collection rate for open and closed 
cases declined by only 4 percentage points.

Figure 3: NASD's Collection Rates for Open and Closed Cases, 1997-2002:

[See PDF for image]

[End of figure]

Collection Rates Can Be Influenced by Factors That Are Beyond 
Regulators' Control:

Collection rates are the most widely available--and in some cases the 
only--measure of regulators' success in collecting fines for violations 
of securities and futures laws. But external factors over which 
regulators have no control can skew these rates. Nonetheless, examining 
the rates and the factors influencing them can be a starting point for 
obtaining an understanding of regulators' performance and changes to 
it. Also, in exploring these rates regulators can identify cases that 
account for a significant share of uncollected debts and decide whether 
continuing with collection efforts for these cases is worthwhile.

Primary among the external factors affecting collection rates are the 
large fines and payments that we have been discussing. Just one or two 
extremely large uncollected fines can lower a collection rate 
significantly. Similarly, one or two large payments on such fines can 
raise a collection rate. Other external factors that can influence 
collection rates include violators' ability to pay and the size of the 
fines themselves. For example, an SEC official said that some violators 
who have been barred from the industry cannot pay their fines because 
their earning capacity has been limited. In discussing CFTC's 
relatively low collection rate, an agency official told us that the 
courts, in an attempt to match the gravity of the sanction to the 
offense, have sometimes imposed fines that are more than what an agency 
might realistically be able to collect. This official said that in one 
case, a court fined a company $90 million--triple the monetary gain 
from its illegal activities. He also said that in another case, a court 
assessed fines totaling $4 million against four violators, although 
CFTC had sought $660,000.

Conclusions:

Since our last report, SEC and CFTC have made material improvements to 
their policies and procedures for collecting delinquent fines that, if 
followed, should improve collections on debts owed to the federal 
government. Nonetheless, SEC lacks a formal strategy for collecting on 
its pre-guidelines delinquent debt. Although the probability of 
collecting monies ordered on older cases diminishes over time, some 
portion of these pre-guidelines cases may have collection potential 
that is being overlooked. Developing a formal strategy that prioritizes 
pre-guidelines cases based on their collection potential and 
establishes time frames for their referral to FMS and TOP would improve 
the likelihood of collecting some portion of the debt associated with 
these cases, which could be more than $1 billion.

The success of SEC's efforts to collect this debt will be closely 
related to the timely replacement of DPTS. Phase one of SEC's action 
plan includes a tentative deadline for replacing DPTS by the end of 
fiscal year 2003. At that time, SEC will be able to identify all cases 
eligible for referral to FMS and TOP and develop a strategy for making 
these referrals. SEC has not yet set a milestone for completing the 
requirements analysis for phase two of its action plan or established a 
date to fully implement the computer system that will integrate SEC's 
now separate databases. We are concerned that, without target dates, 
progress in implementing phase two could be slowed, affecting SEC's 
ability to more efficiently address all cases that should be referred 
to FMS and TOP.

Further, SEC's progress has been slow in the 5 years since we 
recommended that the agency analyze industrywide information on SRO 
disciplinary program sanctions, in part because technological problems 
have hindered its ability to collect sufficient data to perform the 
analyses. SEC has not yet completed its first analysis and has no 
schedule for implementing the new disciplinary database intended to 
replace its current database. Finally, while controls were in place 
that should keep barred individuals from being readmitted to the 
securities and futures industries, neither the related statutes, SEC, 
or CFTC require the SROs to ensure that the fingerprints sent to the 
FBI for use in criminal history checks belong to the applicants who 
submit them. In the absence of such a requirement, the SROs lacked 
related controls that could help prevent inappropriate admissions to 
the securities and futures industries. SRO involvement in weighing 
alternatives for addressing fingerprinting requirements for the 
securities and futures industries would ensure that concerns about 
cost-effective solutions are appropriately considered and addressed.

Recommendations:

We recommend that the SEC Chairman:

* develop a formal strategy for referring pre-guidelines cases to FMS 
and TOP that prioritizes cases based on collectibility and establishes 
implementation time frames;

* take the necessary steps to implement the action plan to replace DPTS 
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; and:

* analyze the data that have been collected on the SROs' 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.

We also recommend that SEC and CFTC 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.

Agency Comments and Our Evaluation:

We requested comments on a draft of this report from the Chairmen, or 
their designees, of SEC and CFTC. SEC officials provided written 
comments, which are reprinted in appendix II. CFTC provided oral 
comments. In general, both agencies agreed with the facts we presented 
and also agreed to implement the recommendations we made. SEC 
emphasized that it expected to meet its milestone for implementing a 
replacement database for DPTS by the end of fiscal year 2003 and said 
that once the new system was in place, the agency would be able to 
identify delinquent debts that had not been referred to FMS and TOP and 
set deadlines for making referrals. While SEC said that further 
milestones for phase two of its action plan will be set at some time in 
the future, it made no reference to establishing a time frame for 
implementing its new disciplinary database. We believe that SEC needs 
to move quickly to set time frames for both of these projects, because 
in the absence of dates on which to focus, progress may be delayed. SEC 
also said that agency staff will contact CFTC to review the possibility 
of adopting new industrywide fingerprinting standards, including 
procedures to verify the identities of all individuals who are being 
fingerprinted. CFTC officials told us that they would work with SEC and 
the SROs to address our recommendation. Finally, we also received 
technical comments from SEC and CFTC that we incorporated into the 
report, as appropriate.

:

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Chairmen and Ranking Minority Members of the Senate Committee on 
Banking, Housing, and Urban Affairs and its Subcommittee on Securities 
and Investment; the Chairman, House Committee on Energy and Commerce; 
the Chairman, House Committee on Financial Services and its 
Subcommittee on Capital Markets, Insurance, and Government Sponsored 
Enterprises; and other interested congressional committees. We will 
send copies to the Chairman of SEC, the Chairman of CFTC, and other 
interested parties. We also will make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site http://www.gao.gov.

If you have any further questions, please call me at (202) 512-8678, 
dagostinod@gao.gov, or Cecile Trop at (312) 220-7705, tropc@gao.gov. 
Additional GAO contacts and staff acknowledgments are listed in 
appendix V.

Signed by:

Davi M. D'Agostino Director, Financial Markets and Community 
Investment:

[End of section]

Appendixes: 

Appendix I: Scope and Methodology:

To evaluate SEC's and CFTC's actions to improve their collection 
programs, we assessed their responses to our 2001 recommendations that 
(1) SEC take steps to ensure that regulations allowing SEC fines to be 
submitted to TOP are adopted; (2) SEC continue to work with FMS to 
ensure that compromise offers presented by FMS are approved in a timely 
manner; and (3) CFTC take steps to ensure that delinquent fines are 
referred promptly to FMS, including creating formal procedures that 
address both sending debts to FMS within the required time frames and 
requiring all of the necessary information from the Division of 
Enforcement on these debts. 

To assess steps SEC took to ensure that regulations allowing SEC fines 
to be submitted to TOP were adopted, we reviewed SEC's final 
regulations and related procedures and collection guidelines. To 
determine compliance with the new collection guidelines for referring 
delinquent cases to TOP, we selected a judgmental sample of 66 post-
guidelines fines and disgorgement cases using DPTS and obtained 
information from SEC on the referral status of those cases.[Footnote 
23] Of the 66 cases, four were eligible for referral at the time of our 
review. We selected cases where judgments or orders were entered after 
SEC's guidelines took effect, because staff told us they were tracking 
the referral of those cases. To determine the number, dollar amount 
owing, and age of the delinquent cases at the agency, we identified all 
cases with ongoing collections, using DPTS data as of January 31, 2003, 
and calculated the age from the judgment date (which in the absence of 
better data, we used as a rough proxy for the delinquency date) to 
January 31, 2003. Since DPTS was unreliable, the aging analysis 
provides only a rough estimate of the total number and age of cases. We 
interviewed SEC and FMS officials to obtain their views on SEC's 
progress in referring cases to FMS and TOP and information on any 
impediments to this progress.

To assess SEC's efforts to continue to work with FMS to ensure that 
compromise offers presented by FMS are approved in a timely manner, we 
examined SEC's procedures for processing compromise offers. We obtained 
data from SEC on the four compromise offers FMS submitted to SEC 
between July 1, 2001, and April 22, 2003, and analyzed the length of 
time it took for SEC to respond to the compromise offers. We obtained 
and used FMS's data to validate SEC's response time. We also 
interviewed SEC and FMS officials to discuss SEC's policies, 
procedures, and controls and to obtain information on the agencies' 
efforts to work together to ensure the timely approval of offers. We 
also obtained FMS's views on SEC's progress in responding to offers.

To assess steps CFTC took to ensure that delinquent fines are promptly 
referred to FMS, we reviewed CFTC's collection procedures, which it 
calls instructions, to ensure that they included time frames for 
referring cases to FMS and provisions for obtaining all necessary 
enforcement information. We also reviewed related agency controls. To 
assess staff's compliance with the revised procedures, we obtained data 
from CFTC on its only four delinquent cases and analyzed the length of 
time it took to refer them to FMS. We obtained and used FMS's data to 
validate that all of CFTC's cases have been transferred within 180 
days. We also interviewed CFTC officials to discuss the agency's 
procedures and controls and obtained FMS's views on CFTC's progress in 
referring fines.

To assess SEC's and CFTC's efforts to enhance their oversight of the 
SROs' sanctioning practices, we assessed their responses to our 1998 
and 2001 recommendations that (1) SEC analyze industrywide information 
on disciplinary program sanctions, particularly fines, to identify 
possible disparities among the SROs and find ways to improve the SROs' 
programs; and (2) SEC and CFTC periodically assess the pattern of 
readmission applications to ensure that the changes in NASD's and NFA's 
fine imposition practices do not result in any unintended consequences, 
such as inappropriate readmissions.

To assess the status of SEC's efforts to analyze industrywide 
information on SROs' disciplinary program sanctions, we interviewed SEC 
officials to discuss the types of analyses planned, any obstacles 
encountered, and efforts to overcome those obstacles. To assess both 
SEC's and CFTC's efforts to periodically assess the pattern of 
readmission applications, we interviewed officials of these agencies to 
determine the number of readmission applications from barred 
individuals and reviewed documentation that described the controls used 
to keep barred applicants from reapplying. We focused our review on 
permanent bars and application records since NASD and NFA changed their 
fine imposition practices in October 1999 and December 1998, 
respectively. To validate both agencies' statements that they had not 
reviewed any readmission applications from barred individuals since our 
2001 report, we obtained the names of barred individuals from NASD and 
NFA and verified that each individual had not applied for readmission. 
Specifically, for NASD, we compared the names of over 900 barred 
applicants who had not been fined against a list of readmission 
applications. We focused on these individuals because of concerns that 
individuals who had been barred and not fined might be more willing to 
seek readmission than those who had been barred and fined. For NFA, we 
researched the histories of 32 barred individuals, using NFA's database 
to validate that none of the individuals had applied for readmission. 
We examined all barred applicants, including both those who had been 
fined and those who had not been, because the data did not allow us to 
distinguish between these groups. To ensure that NFA's and NASD's data 
were sound, we interviewed agency officials to assess the controls 
these agencies had over their data systems, such as their processes for 
entering and updating data, safeguards for protecting the data against 
unauthorized changes, and any tests conducted to verify the accuracy 
and completeness of the data. We found that the data were useable for 
our purposes.

To address concerns that surfaced during our review about controls over 
the fingerprinting procedures used in criminal history checks, we 
interviewed officials at NASD, NFA, NYSE, and the FBI and reviewed laws 
and regulations related to fingerprinting. In addition to NYSE, other 
SROs that operate markets have agreements with the FBI under which they 
may submit fingerprints to the FBI for criminal history checks. We 
limited our review to NYSE because it is the largest SRO that operates 
a market, and we wanted to determine how another SRO's procedures might 
differ from those of NASD and NFA.

To calculate the fines collection rates for SEC, CFTC, and nine 
securities and futures SROs for 1997 through 2002 (all years were 
calendar years), we focused on these regulators' imposition and 
collection of fines through their enforcement and disciplinary 
programs. The nine SROs[Footnote 24] included the American Stock 
Exchange, the Chicago Board Options Exchange, the Chicago Board of 
Trade, the Chicago Mercantile Exchange, the Chicago Stock Exchange, 
NASD, NFA, the New York Mercantile Exchange, and NYSE. We excluded 
fines for minor rule infringements such as floor conduct, decorum, and 
record-keeping violations that normally do not undergo disciplinary 
proceedings. The exchanges generally referred to these violations as 
"traffic ticket" violations, and they are handled through summary 
proceedings and involve smaller fine amounts. We excluded amounts owed 
for disgorgement and restitution, except for NASD, because these 
sanctions are different from fines in that they are imposed to return 
illegally made profits or to restore funds illegally taken from 
investors. Due to the way NASD tracked its fines and payments, NASD was 
unable to exclude disgorgement amounts from its payment data. We also 
excluded fines that were not invoiced, because they would not be due 
unless the fined individual sought to reenter the securities industry. 
All other fines were factored into the rate, including fines dismissed 
in bankruptcy,[Footnote 25] to obtain the most complete view possible 
of the regulators' efforts to discipline violators.[Footnote 26]

To calculate annual fines collection rates and composite collection 
rates, we obtained and analyzed data from SEC, CFTC, and all SROs, 
except NASD, on fines levied from January 1997 through August 2002, and 
collected through December 2002. NASD's data include fines invoiced 
from 1997 through 2002. We limited our review to fines levied through 
August 2002 to allow regulators through December 2002 (4 months) to 
attempt collections. We calculated the collection rate in two ways. 
First, we calculated the rate by including only closed cases--that is, 
cases with a final judgment order for which all collection actions were 
completed. This approach is consistent with the one used in our 1998 
report.[Footnote 27] Second, to provide a more complete view of 
regulators' collection activities, we calculated the rate using all 
closed and open cases--that is, cases with a final judgment order for 
which collections actions were completed and cases with a final 
judgment order that remained open while collection efforts continued. 
For cases with a payment plan, we adjusted the levy amount to the 
amount owed as of December 31, 2002, because a portion of the original 
levied amount was not yet due. We could not do this for SEC or NASD 
because agency data did not specify the amount owed as of December 31, 
2002. As a result, SEC's and NASD's rate may be understated.

We also used NASD's calculations of its collection rates, because the 
design of NASD's financial system did not allow us to calculate these 
rates with an acceptable degree of accuracy using the approach we 
applied to other SROs. First, according to NASD officials, NASD's 
calculations used the date a fine was invoiced instead of the date it 
was levied. Fines were typically invoiced between 15 and 45 days after 
they were levied. This difference may have had a minor effect, 
particularly on the annual collection rates. Second, NASD's collection 
rates represent the total amount collected up to December 31, 2002, on 
fines invoiced from January 1997 through December 2002 (as opposed to 
the August 31, 2002, date for the other SROs). Third, because NASD's 
system could not identify cases on a payment plan, NASD's calculations 
do not adjust the fine amount to the amount owing as of December 31, 
2002, exerting a slight bias toward understating the collection rate. 
Fourth, NASD's collection rates (1) include disgorgement because NASD 
was not able to separate such amounts from its payment data and (2) 
exclude fines that were levied but not invoiced because such fines were 
not due unless the fined individual sought to reenter the securities 
industry.

We also assessed the reliability of the data provided by the 11 
regulators by asking officials about agency controls for collecting 
fines and payment data, supervising data entry, safeguarding the data 
from unauthorized changes, and processing that data. We also asked 
whether they performed data verification and testing. Although the 
controls varied across the agencies, each one demonstrated a basic 
level of system and application controls. We also performed basic tests 
of the integrity of the data we received from some of the regulators 
that provided us with individual fines data. We concluded that the data 
from all of the organizations, except SEC, was sufficiently reliable 
for the purposes of this report.

The number of errors we and SEC found in DPTS during the course of our 
work and the findings of the January 3, 2003, report to the SEC 
Inspector General that the data in DPTS were incomplete and inaccurate 
led us to conclude that DPTS fines data remain insufficiently reliable 
to calculate an accurate collection rate. While we cannot be sure of 
the magnitude or direction of the errors in the DPTS fines data, we are 
nevertheless reporting the number and dollar value of cases eligible 
for referral to FMS and TOP, the age of this debt, and SEC collection 
rates as the best estimates possible at this time.

We did our work in accordance with generally accepted government 
auditing standards between August 15, 2002, and July 1, 2003. We 
performed our work in Boston, Mass.; Chicago, Ill.; New York, N.Y.; and 
Washington, D.C.

[End of section]

Appendix II: Comments from the Securities and Exchange Commission:

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 
20549:

DIVISION OF ENFORCEMENT:

July 1, 2003:

Ms. Davi M. D'Agostino Director:

Financial Markets and Community Investment U.S. General Accounting 
Office:

441 G Street, N.W. Washington, D.C. 20548:

Re: Draft Report Entitled "Collection Programs Are Improving, but 
Further Steps Are Warranted":

Dear Ms. D'Agostino:

Thank you for providing us with the opportunity to review and comment 
on your draft report addressing the Securities and Exchange 
Commission's collection of fines. The report discusses the SEC's use of 
collection services provided by Treasury's:

Financial Management Service; the use of collection guidelines and the 
handling of pre-guideline cases; and the development and timeframe for 
implementation of a new system for tracking fines owed to the 
government. The report also discusses the SEC's analysis of 
disciplinary sanctions imposed by self-regulatory organizations, and 
makes a recommendation for improving controls over the fingerprinting 
of industry applicants.

As the report recognizes, the SEC has implemented regulations, 
procedures, collections guidelines, and controls for using the Treasury 
Offset Program (TOP), which applies payments the federal government 
owes to debtors to their outstanding debts. In addition, the SEC is in 
the process of replacing its current system for tracking amounts 
ordered and paid in Commission enforcement actions, with a new system 
that will track amounts ordered, paid and disbursed and that is 
integrated with the Division of Enforcement's current case tracking 
system.

Our specific comments as to the recommendations in the draft report 
follow:

1. Developing a Strategy for Referral of Pre-Guidelines Cases:

The draft report recommends that the SEC develop a strategy for 
referring pre-guidelines cases to FMS and TOP that prioritizes cases 
based on collectibility and establishes implementation time frames. The 
Division of Enforcement's collection guidelines require recording in 
the collection system, and set out a timeline for (i) 
sending the notices required for TOP, (ii) making determinations as to 
collection through additional litigation, and (iii) referring debts to 
FMS. Those guidelines are necessarily forward looking. The Division's 
policy continues to be that all disgorgement and civil penalties that 
remain unpaid for more than 180 days, and that are not being pursued in 
litigation, must be referred to FMS for collection. In the future, the 
replacement database will ensure that we can identify outstanding and 
delinquent debts that have not yet been referred to FMS and TOP. At 
that time, we will be in a position to set deadlines for mailing TOP 
notices and making referrals.

II. Meet Milestone for Replacement Database, and Establish Phase Two 
Milestones:

The draft report recommends that the SEC take necessary steps to 
implement plans for replacing the existing Disgorgement and Penalties 
Tracking System by (i) meeting the fiscal year 2003 milestone for 
implementing phase one of the action plan; (ii) setting a milestone for 
completing the requirements analysis for phase two of the plan; and 
(iii) establishing and meeting the implementation date for phase two. 
We are working aggressively to meet the milestone for implementation of 
a replacement database, and to date we are on track for meeting that 
milestone. We recognize the critical importance of this replacement 
database, both to our preparation of auditable financial statements and 
to collection of delinquent debts. The database will provide 
information on amounts ordered, paid and disbursed in our open cases 
and will, we anticipate, provide comprehensive, reliable data necessary 
to track these debts.

What your report calls phase two of our plan is a long anticipated 
comprehensive upgrade of the Division's current case tracking system. 
Again, we emphasize that we intend that the debt tracking system to be 
completed by the end of fiscal 2003 will meet current needs for 
tracking these debts; phase two is not intended to make major changes 
to the new system now being put in place. We anticipate that one of the 
enhancements of the new system will be to integrate a number of now 
separate databases into the case tracking system, including the now 
separate databases devoted to tracking collections. As your report 
indicates, the requirements phase of this project is scheduled to begin 
in fiscal 2004. Because of the scope of this project (of which debt 
tracking is only a part), further milestones have not been set, but 
will be set in the future.

III. Analyze Data from SRO Disciplinary Programs:

The draft report recommends that the SEC analyze the data that has been 
collected on the SRO's disciplinary programs, address any findings that 
result, and establish time frames for implementing the electronic 
system that is to replace the current database system. As always, 
Commission staff review and analyze SRO disciplinary sanctions and 
fines during inspections of each of the SRO's disciplinary programs. 
The staff, however, is inputting the SRO Rule 19d-1 disciplinary data 
into the disciplinary database. Once the database contains sufficient 
disciplinary information, the staff will analyze the data and address 
any findings that result. The staff also is working to develop a new 
enhanced disciplinary database that will replace the existing database.

The draft report also recommends that the SEC, CFTC and the self 
regulatory organizations work together to address weaknesses in 
fingerprinting procedures. SEC staff in the Division of Market 
Regulation will contact the CFTC to review the possibility of adopting 
new industry-wide fingerprint standards, including procedures to verify 
that each individual who is being fingerprinted is the individual named 
on the fingerprint card.

We appreciate the care and thought that is evident throughout your 
report and recommendations. If we can be of further assistance, please 
contact me at (202) 942-4540 or Joan McKown at (202) 942-4530.

Yours truly,

Stephen M. Cutler 
Director:

Signed by Stephen M. Cutler: 

[End of section]

Appendix III: Securities Regulators' Collection Rates for Open and 
Closed Cases by Calendar Year:

We calculated the collection rates using data from SEC and the SROs, 
except for NASD, which calculated its own rates (see appendix I for 
further details). The rates are based on fines levied from January 1997 
through August 2002 and include all amounts collected on those fines 
through December 2002, except for NASD. The fines data listed for each 
year represent collection activity on the fines levied in each of those 
years. Percentages were rounded to the nearest whole number.

Table 3: SEC's Collection Rates:

Year: 1997; Number of fines levied: 233; Percentage of fines paid in 
full: 80%; Amount levied: $56,302,014; Amount collected: $18,360,390; 
Percentage of dollars collected: 33%.

Year: 1998; Number of fines levied: 291; Percentage of fines paid in 
full: 72; Amount levied: 47,688,706; Amount collected: 26,530,896; 
Percentage of dollars collected: 56.

Year: 1999; Number of fines levied: 444; Percentage of fines paid in 
full: 76; Amount levied: 195,173,240; Amount collected: 50,111,404; 
Percentage of dollars collected: 26.

Year: 2000; Number of fines levied: 347; Percentage of fines paid in 
full: 74; Amount levied: 38,390,286; Amount collected: 21,188,325; 
Percentage of dollars collected: 55.

Year: 2001; Number of fines levied: 300; Percentage of fines paid in 
full: 72; Amount levied: 61,205,291; Amount collected: 24,108,247; 
Percentage of dollars collected: 39.

Year: 2002; Number of fines levied: 215; Percentage of fines paid in 
full: 55; Amount levied: 81,615,816; Amount collected: 49,804,134; 
Percentage of dollars collected: 61.

Year: Total; Number of fines levied: 1,830; Percentage of fines paid in 
full: 72%; Amount levied: $480,375,353; Amount collected: $190,103,396; 
Percentage of dollars collected: 40%.

Source: GAO analysis of SEC's data.

[End of table]

Table 4: The American Stock Exchange's Collection Rates:

Year: 1997; Number of fines levied: 17; Percentage of fines paid in 
full: 88%; Amount levied: $310,000; Amount collected: $237,500; 
Percentage of dollars collected: 77%.

Year: 1998; Number of fines levied: 13; Percentage of fines paid in 
full: 85; Amount levied: 341,500; Amount collected: 309,640; Percentage 
of dollars collected: 91.

Year: 1999; Number of fines levied: 8; Percentage of fines paid in 
full: 63; Amount levied: 355,000; Amount collected: 260,000; Percentage 
of dollars collected: 73.

Year: 2000; Number of fines levied: 5; Percentage of fines paid in 
full: 80; Amount levied: 217,243; Amount collected: 204,167; Percentage 
of dollars collected: 94.

Year: 2001; Number of fines levied: 8; Percentage of fines paid in 
full: 88; Amount levied: 1,300,000; Amount collected: 1,200,000; 
Percentage of dollars collected: 92.

Year: 2002; Number of fines levied: 7; Percentage of fines paid in 
full: 71; Amount levied: 108,076; Amount collected: 75,000; Percentage 
of dollars collected: 69.

Year: Total; Number of fines levied: 58; Percentage of fines paid in 
full: 81%; Amount levied: $2,631,819; Amount collected: $2,286,307; 
Percentage of dollars collected: 87%.

Source: GAO analysis of the American Stock Exchange's data.

[End of table]

Table 5: The Chicago Board Options Exchange's Collection Rates:

Year: 1997; Number of fines levied: 70; Percentage of fines paid in 
full: 99%; Amount levied: $1,048,401; Amount collected: $1,044,901; 
Percentage of dollars collected: 100%.

Year: 1998; Number of fines levied: 38; Percentage of fines paid in 
full: 97; Amount levied: 463,278; Amount collected: 453,278; Percentage 
of dollars collected: 98.

Year: 1999; Number of fines levied: 50; Percentage of fines paid in 
full: 96; Amount levied: 569,165; Amount collected: 561,565; Percentage 
of dollars collected: 99.

Year: 2000; Number of fines levied: 38; Percentage of fines paid in 
full: 92; Amount levied: 659,400; Amount collected: 633,065; Percentage 
of dollars collected: 96.

Year: 2001; Number of fines levied: 16; Percentage of fines paid in 
full: 94; Amount levied: 340,000; Amount collected: 332,500; Percentage 
of dollars collected: 98.

Year: 2002; Number of fines levied: 7; Percentage of fines paid in 
full: 100; Amount levied: 88,500; Amount collected: 88,500; Percentage 
of dollars collected: 100.

Year: Total; Number of fines levied: 219; Percentage of fines paid in 
full: 96%; Amount levied: $3,168,744; Amount collected: $3,113,809; 
Percentage of dollars collected: 98%.

Source: GAO analysis of the Chicago Board Options Exchange's data.

[End of table]

Table 6: The Chicago Stock Exchange's Collection Rates:

Year: 1997; Number of fines levied: 3; Percentage of fines paid in 
full: 100%; Amount levied: $11,000; Amount collected: $11,000; 
Percentage of dollars collected: 100%.

Year: 1998; Number of fines levied: 6; Percentage of fines paid in 
full: 100; Amount levied: 39,500; Amount collected: 39,500; Percentage 
of dollars collected: 100.

Year: 1999; Number of fines levied: 8; Percentage of fines paid in 
full: 88; Amount levied: 125,000; Amount collected: 100,000; Percentage 
of dollars collected: 80.

Year: 2000; Number of fines levied: 6; Percentage of fines paid in 
full: 67; Amount levied: 87,000; Amount collected: 85,000; Percentage 
of dollars collected: 98.

Year: 2001; Number of fines levied: 1; Percentage of fines paid in 
full: 100; Amount levied: 20,000; Amount collected: 20,000; Percentage 
of dollars collected: 100.

Year: 2002; Number of fines levied: 1; Percentage of fines paid in 
full: 100; Amount levied: 2,000; Amount collected: 2,000; Percentage of 
dollars collected: 100.

Year: Total; Number of fines levied: 25; Percentage of fines paid in 
full: 88%; Amount levied: $284,500; Amount collected: $257,500; 
Percentage of dollars collected: 91%.

Source: GAO analysis of the Chicago Stock Exchange's data.

[End of table]

Table 7: NASD's Collection Rates:

Year: 1997; Number of fines levied: 881; Percentage of fines paid in 
full: 64%; Amount levied[A]: $38,782,000; Amount collected: 
$10,189,309; Percentage of dollars collected: 26%.

Year: 1998; Number of fines levied: 916; Percentage of fines paid in 
full: 65; Amount levied[A]: 27,933,000; Amount collected: 11,032,446; 
Percentage of dollars collected: 39.

Year: 1999; Number of fines levied: 901; Percentage of fines paid in 
full: 66; Amount levied[A]: 42,714,100; Amount collected: 26,817,300; 
Percentage of dollars collected: 63.

Year: 2000; Number of fines levied: 701; Percentage of fines paid in 
full: 70; Amount levied[A]: 14,292,808; Amount collected: 11,979,986; 
Percentage of dollars collected: 84.

Year: 2001; Number of fines levied: 657; Percentage of fines paid in 
full: 76; Amount levied[A]: 16,677,000; Amount collected: 12,376,818; 
Percentage of dollars collected: 74.

Year: 2002; Number of fines levied: 659; Percentage of fines paid in 
full: 72; Amount levied[A]: 70,170,000; Amount collected: 67,211,659; 
Percentage of dollars collected: 96.

Year: Total; Number of fines levied: 4,715; Percentage of fines paid in 
full: 68%; Amount levied[A]: $210,568,908; Amount collected: 
$139,607,518; Percentage of dollars collected: 66%.

Source: NASD.

[A] NASD data include fines invoiced from 1997 through 2002. See 
appendix I for the potential impact of NASD's invoicing procedures on 
the amounts collected.

[End of table]

Table 8: NYSE's Collection Rates:

Year: 1997; Number of fines levied: 37; Percentage of fines paid in 
full: 100%; Amount levied: $1,637,500; Amount collected: $1,637,500; 
Percentage of dollars collected: 100%.

Year: 1998; Number of fines levied: 38; Percentage of fines paid in 
full: 100; Amount levied: 3,345,000; Amount collected: 3,345,000; 
Percentage of dollars collected: 100.

Year: 1999; Number of fines levied: 50; Percentage of fines paid in 
full: 100; Amount levied: 4,365,000; Amount collected: 4,365,000; 
Percentage of dollars collected: 100.

Year: 2000; Number of fines levied: 54; Percentage of fines paid in 
full: 100; Amount levied: 4,953,667; Amount collected: 4,953,667; 
Percentage of dollars collected: 100.

Year: 2001; Number of fines levied: 55; Percentage of fines paid in 
full: 98; Amount levied: 3,981,500; Amount collected: 3,976,500; 
Percentage of dollars collected: 100.

Year: 2002; Number of fines levied: 22; Percentage of fines paid in 
full: 100; Amount levied: 869,000; Amount collected: 869,000; 
Percentage of dollars collected: 100.

Year: Total; Number of fines levied: 256; Percentage of fines paid in 
full: 100%; Amount levied: $19,151,667; Amount collected: $19,146,667; 
Percentage of dollars collected: 100%.

Source: GAO analysis of NYSE's data.

[End of table]

[End of section]

Appendix IV: Futures Regulators' Collection Rates for Open and Closed 
Cases by Calendar Year:

We calculated the collection rates using data from CFTC and the SROs. 
The rates are based on fines levied from January 1997 through August 
2002 and include all amounts collected on those fines through December 
2002. The fines data listed for each year represent collection activity 
on the fines levied in each of those years. Percentages were rounded to 
the nearest whole number.

Table 9: CFTC's Collection Rates:

Year: 1997; Number of fines levied: 18; Percentage of fines paid in 
full: 67%; Amount levied: $2,767,000; Amount collected: $1,590,000; 
Percentage of dollars collected: 57%.

Year: 1998; Number of fines levied: 25; Percentage of fines paid in 
full: 44; Amount levied: 140,507,176; Amount collected: 126,078,305; 
Percentage of dollars collected: 90.

Year: 1999; Number of fines levied: 40; Percentage of fines paid in 
full: 38; Amount levied: 86,192,731; Amount collected: 22,955,045; 
Percentage of dollars collected: 27.

Year: 2000; Number of fines levied: 40; Percentage of fines paid in 
full: 80; Amount levied: 97,321,467; Amount collected: 2,255,255; 
Percentage of dollars collected: 2.

Year: 2001; Number of fines levied: 39; Percentage of fines paid in 
full: 44; Amount levied: 15,689,399; Amount collected: 7,886,289; 
Percentage of dollars collected: 50.

Year: 2002; Number of fines levied: 25; Percentage of fines paid in 
full: 44; Amount levied: 15,355,000; Amount collected: 505,000; 
Percentage of dollars collected: 3.

Year: Total; Number of fines levied: 187; Percentage of fines paid in 
full: 52%; Amount levied: $357,832,773; Amount collected: $161,269,894; 
Percentage of dollars collected: 45%.

Source: GAO analysis of CFTC's data.

[End of table]

Table 10: The Chicago Board of Trade's Collection Rates:

Year: 1997; Number of fines levied: 53; Percentage of fines paid in 
full: 98%; Amount levied: $334,500; Amount collected: $334,000; 
Percentage of dollars collected: 100%.

Year: 1998; Number of fines levied: 31; Percentage of fines paid in 
full: 90; Amount levied: 162,000; Amount collected: 141,500; Percentage 
of dollars collected: 87.

Year: 1999; Number of fines levied: 38; Percentage of fines paid in 
full: 95; Amount levied: 1,570,500; Amount collected: 1,545,500; 
Percentage of dollars collected: 98.

Year: 2000; Number of fines levied: 53; Percentage of fines paid in 
full: 92; Amount levied: 545,125; Amount collected: 497,125; Percentage 
of dollars collected: 91.

Year: 2001; Number of fines levied: 39; Percentage of fines paid in 
full: 90; Amount levied: 306,175; Amount collected: 273,925; Percentage 
of dollars collected: 89.

Year: 2002; Number of fines levied: 42; Percentage of fines paid in 
full: 88; Amount levied: 631,050; Amount collected: 529,550; Percentage 
of dollars collected: 84.

Year: Total; Number of fines levied: 256; Percentage of fines paid in 
full: 93%; Amount levied: $3,549,350; Amount collected: $3,321,600; 
Percentage of dollars collected: 94%.

Source: GAO analysis of the Chicago Board of Trade's data.

[End of table]

Table 11: The Chicago Mercantile Exchange's Collection Rates:

Year: 1997; Number of fines levied: 16; Percentage of fines paid in 
full: 94%; Amount levied: $811,500; Amount collected: $801,500; 
Percentage of dollars collected: 99%.

Year: 1998; Number of fines levied: 21; Percentage of fines paid in 
full: 86; Amount levied: 1,053,000; Amount collected: 1,032,000; 
Percentage of dollars collected: 98.

Year: 1999; Number of fines levied: 25; Percentage of fines paid in 
full: 100; Amount levied: 349,500; Amount collected: 349,500; 
Percentage of dollars collected: 100.

Year: 2000; Number of fines levied: 16; Percentage of fines paid in 
full: 81; Amount levied: 183,000; Amount collected: 138,000; Percentage 
of dollars collected: 75.

Year: 2001; Number of fines levied: 31; Percentage of fines paid in 
full: 97; Amount levied: 443,250; Amount collected: 433,250; Percentage 
of dollars collected: 98.

Year: 2002; Number of fines levied: 11; Percentage of fines paid in 
full: 91; Amount levied: 233,335; Amount collected: 208,335; Percentage 
of dollars collected: 89.

Year: Total.

Source: GAO analysis of the Chicago Mercantile Exchange's data.

[End of table]

Table 12: NFA's Collection Rates:

Year: 1997; Number of fines levied: 16; Percentage of fines paid in 
full: 94%; Amount levied: $426,500; Amount collected: $401,500; 
Percentage of dollars collected: 94%.

Year: 1998; Number of fines levied: 32; Percentage of fines paid in 
full: 47; Amount levied: 962,500; Amount collected: 450,000; Percentage 
of dollars collected: 47.

Year: 1999; Number of fines levied: 21; Percentage of fines paid in 
full: 90; Amount levied: 760,500; Amount collected: 733,000; Percentage 
of dollars collected: 96.

Year: 2000; Number of fines levied: 28; Percentage of fines paid in 
full: 57; Amount levied: 1,269,000; Amount collected: 638,375; 
Percentage of dollars collected: 50.

Year: 2001; Number of fines levied: 24; Percentage of fines paid in 
full: 54; Amount levied: 304,250; Amount collected: 239,250; Percentage 
of dollars collected: 79.

Year: 2002; Number of fines levied: 14; Percentage of fines paid in 
full: 29; Amount levied: 298,500; Amount collected: 214,600; Percentage 
of dollars collected: 72.

Year: Total; Number of fines levied: 135; Percentage of fines paid in 
full: 61%; Amount levied: $4,021,250; Amount collected: $2,676,725; 
Percentage of dollars collected: 67%.

Source: GAO analysis of NFA's data.

[End of table]

Table 13: The New York Mercantile Exchange's Collection Rates:

Year: 1997; Number of fines levied: 18; Percentage of fines paid in 
full: 100%; Amount levied: $186,100; Amount collected: $186,100; 
Percentage of dollars collected: 100%.

Year: 1998; Number of fines levied: 8; Percentage of fines paid in 
full: 75; Amount levied: 79,000; Amount collected: 39,000; Percentage 
of dollars collected: 49.

Year: 1999; Number of fines levied: 15; Percentage of fines paid in 
full: 100; Amount levied: 141,000; Amount collected: 141,000; 
Percentage of dollars collected: 100.

Year: 2000; Number of fines levied: 22; Percentage of fines paid in 
full: 91; Amount levied: 396,000; Amount collected: 191,000; Percentage 
of dollars collected: 48.

Year: 2001; Number of fines levied: 20; Percentage of fines paid in 
full: 95; Amount levied: 224,194; Amount collected: 224,194; Percentage 
of dollars collected: 100.

Year: 2002; Number of fines levied: 14; Percentage of fines paid in 
full: 100; Amount levied: 396,000; Amount collected: 396,000; 
Percentage of dollars collected: 100.

Year: Total; Number of fines levied: 97; Percentage of fines paid in 
full: 95%; Amount levied: $1,422,294; Amount collected: $1,177,294; 
Percentage of dollars collected: 83%.

Source: GAO analysis of the New York Mercantile Exchange's data.

[End of table]

[End of section]

Appendix V: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Davi D'Agostino, (202) 512-8678 Cecile Trop, (312) 220-7705:

Acknowledgments:

In addition to those named above, Emily Chalmers, Marc Molino, Carl 
Ramirez, Jerome Sandau, Michele Tong, Sindy Udell, and Anita 
Zagraniczny made key contributions to this report. 

(250092):

FOOTNOTES

[1] U.S. General Accounting Office, Money Penalties: Securities and 
Futures Regulators Collect Many Fines but Need to Better Use 
Industrywide Data, GAO/GGD-99-8 (Washington, D.C. Nov. 2, 1998) and 
SEC and CFTC: Most Fines Collected, but Improvements Needed in the Use 
of Treasury's Collection Service, GAO-01-900 (Washington, D.C. July 
16, 2001).

[2] SROs have an extensive role in regulating the U.S. securities and 
futures markets, including ensuring that members comply with federal 
securities and futures laws and SRO rules. SROs include the national 
securities and futures exchanges, registered securities and futures 
associations, registered clearing agencies, and the Municipal 
Securities Rulemaking Board.

[3] The nine SROs include the American Stock Exchange, Chicago Board 
Options Exchange, Chicago Board of Trade, Chicago Mercantile Exchange, 
Chicago Stock Exchange, NASD, National Futures Association, New York 
Mercantile Exchange, and New York Stock Exchange.

[4] All years in this report are calendar years. 

[5] Under TOP, FMS identifies federal payments, such as tax refunds, 
that are owed to individuals and applies the payments to their 
outstanding debt. All cases referred to FMS for collection are also 
eligible for referral to and servicing under TOP.

[6] Disgorgement is a type of sanction that requires violators to give 
up profits obtained as a result of violating the law.

[7] According to SEC officials, although SEC currently has no formal 
strategy regarding pre-guidelines cases, all eligible debts will 
ultimately be referred to FMS and TOP.

[8] Although DPTS was unreliable, we used the system because it was the 
only available source of data on SEC's collection efforts. 

[9] The closed case collection rate for 1992-96 appeared in our 1998 
fines report (GAO/GGD-99-8). 

[10] U.S. General Accounting Office, SEC Enforcement: More Actions 
Needed to Improve Oversight of Disgorgement Collections, GAO-02-771 
(Washington, D.C. July 12, 2002). 

[11] 31 U.S.C. § 3711 (g)(1).

[12] "Debt Collection--Amendments to Collection Rules and Adoption of 
Wage Garnishments Rules," Securities and Exchange Commission, Release 
No. 34-44965, 66 Fed. Reg. 54125 (Oct. 26, 2001). 

[13] Individuals who have been statutorily disqualified have been 
expelled or suspended from membership or participation in an SRO or 
barred and suspended from associating with a member of any SRO.

[14] Although several securities SROs have formal agreements with the 
FBI under which they may submit fingerprints for a criminal history 
check, according to an SEC official, the firms typically submit 
fingerprints to NASD because all industry registrants that do business 
with the public--the majority of registrants--must also be NASD 
members. 

[15] According to an SEC official, all the securities SROs have similar 
fingerprinting procedures for accepting and processing fingerprints. 
Because NYSE is the largest securities SRO that operates a market, and 
because we wanted to determine how another SRO's procedures might 
differ from those of NASD and NFA, we included NYSE in our review. 
According to an SEC official, NASD sends about 300,000 fingerprints to 
the FBI each year. A NYSE official told us that NYSE sends 
approximately 40,000.

[16] NFA is responsible for submitting the fingerprints of all futures 
industry applicants to the FBI. According to an NFA official, for the 
12-month period ending June 30, 2003, NFA sent approximately 11,000 
fingerprints to the FBI.

[17] 15 U.S.C. § 78g (f)(2).

[18] 7 U.S.C. § 6n and 17 C.F.R. § 3.10 (1997). 

[19] As of February 19, 2003, the bureau had 76 freestanding 
fingerprinting sites, 54 sites located in its offices, and 46 locations 
served by mobile routes. It had also designated 45 law enforcement 
agencies to take fingerprints. NFA officials told us that futures 
industry applicants were too widely dispersed to travel to the bureau's 
sites to be fingerprinted, precluding a contractual arrangement with 
the bureau. 

[20] Due to the unreliability of DPTS data, we could not accurately 
calculate SEC's collection rates. 

[21] GAO-02-771.

[22] Because of the way NASD's financial system was designed, we could 
not calculate the collection rate with an acceptable degree of accuracy 
using the approach we applied to other SROs. As a result, we relied on 
summary information that NASD provided. NASD's calculations use cases 
invoiced from January 1997 through December 2002; for the other SROs, 
we used cases levied through August 31, 2002. See appendix I for the 
potential impact of NASD's invoicing procedures on the amounts 
collected. 

[23] We included both fines and disgorgement cases, because the 
collection guidelines apply equally to both.

[24] As in our previous reports, we excluded regional securities 
exchanges that delegated their broker-dealer examination authority to 
the American Stock Exchange, Chicago Board Options Exchange, NASD, or 
NYSE because they administered few disciplinary actions. We also 
excluded some futures exchanges based on the same rationale. 

[25] Provisions of the Sarbanes-Oxley Act of 2002 have amended the 
federal Bankruptcy Code to prevent individual debtors from discharging 
in bankruptcy court certain debts, including judgments and settlements 
that result from violations of federal and state securities laws or 
regulations. Sarbanes-Oxley Act § 803, amending 11 U.S.C. 523(a).

[26] To the extent that cases were dismissed through bankruptcy 
proceedings, these cases would be included in the closed case analysis. 


[27] GAO/GGD-99-8.

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