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Home > Blog > Time to Drain the Swamp at the U.S. Securities & Exchange Commission?

Time to Drain the Swamp at the U.S. Securities & Exchange Commission?

As reported by Gretchen Morgenson in The New York Times on January 13, 2017 (“S.E.C. Inertia on Paybacks Adds to Investor Harm”), when securities laws are broken and investors get hurt, the U.S. Securities & Exchange Commission is charged with the responsibility to ride to the rescue, using its regulatory muscle to extract penalties that can be returned to victims.

Unfortunately, it is one thing to persuade a wrongdoer to pay reparations and quite another to get the SEC to disburse the money to aggrieved investors.

Case in point: in August 2015, when the S.E.C. struck a settlement with Citigroup over an exotic investment strategy known as ASTA, MAT and Falcon, an investment strategy involving municipal bonds that the bank sold to clients from 2002 to 2008, the SEC fined Citigroup approximately $180 million and ordered the creation of a so-called “fair fund” to be distributed to investors.
That was over 16 months ago. Today, the wronged investors are not only still awaiting their money, but they have yet to see any plan outlining how the $180 million will be distributed.

Fair funds were established by the Sarbanes-Oxley Act of 2002; they allow the S.E.C. to exact civil penalties in addition to recovering ill-gotten gains, a process known as disgorgement.

But as noted in the article, “the pace of the Citigroup restitution plan seems especially glacial. And it raises questions about how these plans are administered and whether those overseeing them are rewarded for slowing down the process.”
The New York Times article includes extensive quotes from the Resident Partner in the New York City office of our firm: “To me, it comes down to a bureaucratic quagmire of indifference and concealment,’ said Steven B. Caruso, a lawyer at Maddox Hargett & Caruso in New York City. There is simply no transparency in this process, and no effort being made by the S.E.C. to recognize that these are funds that belong to other people.”

Maddox Hargett & Caruso, P.C. represented hundreds of investors who had been deceived in connection with their ASTA, MAT and Falcon investments and, in 2011, it served as co-counsel in connection with an arbitration award that forced Citigroup to pay nearly $54 million (including $17 million of punitive damages) to two (2) individuals – an award that still stands as one of the largest arbitration recoveries ever obtained on behalf of retail investors in the history of the Financial Industry Regulatory Authority (“FINRA”).

The complete New York Times article can be accessed at: business/fair-game-gretchen-morgenson-investors-regulators-.html?ref=business.

If you are an individual or institutional investor who has any concerns about your investments with any brokerage firm or investment advisor, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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