Summary

In response to a congressional request, GAO reviewed the effectiveness of the Securities and Exchange Commission's (SEC) Enforcement Program. SEC was created to administer federal securities laws designed to protect the investing public and carries out this responsibility through programs designed to provide full disclosure to investors, prevent fraud in the securities market, and regulate the securities industry.

GAO found that the types of violations it investigated included: (1) trading on the basis of insider information; (2) market manipulation; and (3) sale of unregistered securities. SEC receives information on possible violations from many sources, such as public complaints, inspections of books and records of brokers and dealers, review and analysis of market surveillance, and referrals from federal, state, or local agencies. The enforcement staff must obtain SEC approval for each enforcement action before an official complaint can be filed with a federal district court or administrative law judge. According to SEC, the incidence of violations is proportional to the size and activity of the securities market and has increased the complexity of its enforcement mission. GAO observations did not indicate effectiveness in the program, because during the 7-year review, SEC appropriations and funding grew while enforcement staffing declined. Changes in the enforcement activities showed a reduced number of investigations, a decrease in the percentage of formal investigations, and an increase in the violations cited for administrative proceedings. However, GAO investigations did not show any significant changes in the types of defendants and showed that SEC consistently named more individuals than other legal entities in enforcement actions.