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SEC Returned USD1 Billion To Harmed Investors In 2008

by Glen Shapiro, LawAndTax-News.com, New York

28 October 2008


The US Securities and Exchange Commission (SEC) has announced that the second-highest number of enforcement actions in agency history took place in fiscal year 2008.

For the second year in a row, the SEC has returned more than USD1 billion to harmed investors through Fair Fund distributions.

“The SEC’s role in policing the markets and protecting investors has never been more critical,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “The dedicated enforcement staff has been working around the clock to investigate and punish wrongdoing. The staff’s commitment is unwavering year-in and year-out. We look forward to continuing our vital mission of investor protection in the coming year.”

The SEC brought 671 enforcement actions during the just-completed fiscal year, with the number of insider trading and market manipulation cases up more than 25% and 45% respectively over the previous year. In addition, the SEC has more than 50 ongoing investigations relating to the subprime market.

The Division of Enforcement also reached preliminary settlements in principle with six of the largest firms in the auction rate securities market. Although not included in these Financial Year 2008 enforcement statistics, these settlements, which are subject to final approval by the Commission, would be the largest in the history of the SEC and would return more than USD50 billion to investors.

The SEC took a record number of enforcement actions against market manipulation in Financial Year 2008, including charges against a Wall Street short seller for spreading false rumors, and charging 10 insiders or promoters of publicly traded companies who made stock sales in exchange for illegal kickbacks.

Among the major fraud cases brought by the SEC in Financial Year 2008, the SEC sued two Bear Stearns hedge fund managers for fraudulently misleading investors about the financial state of the firm’s two largest hedge funds. The agency also charged five former employees of the City of San Diego for failing to disclose to the investing public buying the city’s municipal bonds that there were funding problems with its pension and retiree health care obligations and those liabilities had placed the city in serious financial jeopardy.

The SEC brought the highest number ever of insider trading cases in Financial Year 2008, including charging former Dow Jones Board Member David Li and three other Hong Kong residents in a USD24 million insider trading enforcement action, and charging the former chairman and CEO of a division of Enron Corp. with illegally selling hundreds of thousands of shares of Enron stock based on nonpublic information.

Combating accounting fraud, including illegal stock option backdating, also was a priority for fiscal year 2008. During the year, the SEC charged eight public companies and 27 executives with providing false information to investors based on improper accounting for backdated stock option grants.

Another growth area is cases against US public companies that use corporate funds to bribe foreign officials, an activity precluded by the Foreign Corrupt Practices Act (FCPA). In fiscal year 2008, the SEC filed 15 FCPA cases. Since January 2006, the SEC has brought 38 FCPA enforcement actions — more than were brought in all prior years combined since FCPA became law in 1977.


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