Courtesy of Pam Martens.
SEC Headquarters, Washington, D.C.
For at least the past 20 years, the Government Accountability Office (GAO) has been telling the Securities and Exchange Commission to clean up its act when it comes to the proper handling, collection, disbursement and financial reporting of penalties and disgorgements it is supposed to be collecting from violators of securities laws.
Yesterday, the GAO filed yet another report on the subject, this time finding that “during our fiscal year 2014 audit, we identified continuing and new deficiencies in SEC’s internal control over disgorgement and penalty transactions that constituted a significant deficiency in SEC’s internal control over financial reporting.” Unfortunately, the GAO’s own opaque presentation on this subject leaves the public in the dark about just how bad the situation is at the SEC.
As part of the SEC’s enforcement responsibilities, ostensibly to catch and punish securities law violators, it is also frequently assigned the job of collecting and administering the penalties and disgorgements of the guilty parties. Once there is a final judgment naming the SEC as the designated party to collect the disgorgement or penalty, the SEC is supposed to promptly record an accounts receivable item for the amount the violator owes. Because the collected amounts are earmarked for either harmed investors or the general fund of the U.S. Treasury, the SEC is required to simultaneously record an equal and offsetting liability for those amounts on its balance sheet.
The GAO dropped the following bomb in its report yesterday and then walked away, leaving the reader completely in the dark as to what conclusion to draw from it:
“In fiscal year 2014, SEC recorded approximately $3.7 billion of new disgorgement and penalty accounts receivables. As of September 30, 2014, SEC’s disgorgement and penalties accounts receivable balance, net of an allowance for uncollectible amounts, was $381 million. SEC’s custodial revenue collected from disgorgement and penalties and transferred to the general fund of the Treasury during fiscal year 2014 was $825 million.”
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