FOR IMMEDIATE RELEASE               Contact: Gretchen M. Wintermantel
Oct. 3, 2005                                        202.225.6511

Kanjorski and Frank Call for Fair Fund Hearings, Reforms
Senior House Financial Services Democrats Release
GAO Report on SEC and CFTC Penalty Collections

WASHINGTON - Congressmen Paul E. Kanjorski (D-PA), the most senior Democrat on the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, and Barney Frank (D-MA), the Ranking Democratic Member of the House Financial Services Committee, today released a report by the Government Accountability Office (GAO) that reviews the efforts of the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) to track and manage the collection and distribution of civil fines and ill-gotten gains from corporate wrongdoers.

"While I am pleased that the GAO report determines that the SEC has made progress in more effectively managing its collection of penalties and disgorgement funds and that it has successfully used the Fair Fund to collect money to help investors harmed by corporate misdeeds," said Congressman Kanjorski, "I am deeply troubled by the difficulties the agency has encountered in expeditiously returning these funds to American investors."

The GAO report in particular identifies a pressing need for the SEC to enhance the return of monies deposited in the Fair Fund to compensate defrauded investors. In releasing the report, both Congressmen therefore called upon the SEC to continue to focus on improving its administration of the Fair Fund, requested assistance from the SEC in identifying additional legislative reforms needed to improve the implementation of the Fair Fund, and called for congressional hearings to examine these matters.

Congressman Kanjorski added, "While the Fair Fund may never be a substitute for private litigation, the SEC needs to find ways to turn the Fair Fund into a more effective mechanism for returning funds to wronged investors, given the limitations of the law and the difficulties of identifying those injured by securities fraud. If the SEC needs additional statutory reforms to protect innocent investors, my Democratic colleagues and I stand ready to work in Congress to consider such changes."

Created by the Congress during the passage of the historic Sarbanes-Oxley Act of 2002, the Federal Account for Investor Restitution, commonly referred to as the Fair Fund, provided a new tool to help the SEC to return lost money to investors harmed by corporate wrongdoing. The GAO report, entitled SEC and CFTC Penalties determines that, as of April 2005, the SEC had successfully applied the Fair Fund provision in at least 75 cases since 2002 and collected more than $4.8 billion in disgorgements and penalties. At the same time, however, the SEC had only distributed approximately $60 million from only 3 of the 75 cases.

The GAO report also finds that the SEC has faced difficulties in identifying injured investors and returning money to them, especially in cases involving fraud on the markets by public companies. Unlike in actions brought against, for example, broker-dealers, the nature of frauds on the market makes it extremely difficult for the SEC to identify investors, particularly in the absence of private litigation where investors are self-identified.

"Congressman Frank and I believe that it is important for the SEC to continue its work to effectively implement the Fair Fund, thereby increasing the amount of money not only available for distribution, but actually returned, to wronged investors," said Congressman Kanjorski. "In light of the importance to investors of an efficient and manageable SEC collection and distribution process, we also have urged the leadership of the House Financial Services Committee to hold hearings on the subject, particularly with respect to implementation of the Fair Fund."

The U.S. House of Representatives has previously worked to improve the administration of the Fair Fund. During the 108^th Congress, the House Financial Services Committee approved H.R. 2179, the Securities Fraud Deterrence and Investor Restitution Act, by a voice vote. Although this legislation contained several reforms suggested by the SEC and aimed at improving the administration of the Fair Fund, it did not become law.

Congressman Kanjorski concluded, "The GAO report highlights the need for the Financial Services Committee to revisit as soon as possible in the 109^th Congress the issue of the Fair Fund's administration. We need in particular to better understand the challenges that the SEC is facing to determine whether more assistance is needed from the Congress to help American investors. The passage of the Fair Fund reforms found in H.R. 2179 from the last Congress would be an important first step, but I look forward to learning whether the SEC has additional ideas on these matters."

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Note:  An electronic copy of the GAO report on SEC and CFTC Penalties is attached.