SEC Has Only Collected Half of $20 Billion in Fines
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Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. Did you know the Securities and Exchange Commission has levied about $20 billion in fines on the bad guys over the past five years? Did you also know they've only been able to collect about half that amount? We'll fill in all the details in a moment. First, these money and market stories you should know. Smaller budgets and fewer workers at the IRS have taken their toll on the number of audits the agency carries out. In fact, last year, the IRS audited just six-tenths of a percent of individual tax returns.
How much in SEC fines were levied versus actually collected over the past five years?
That marks the seventh consecutive annual decline, and it's the lowest audit rate since 2002. And audits of the highest-income households dropped sharply last year as well, About 6.6% of returns of filers with more than $10 million in adjusted gross income were audited in 2018. That's down from 14.5% the previous year. And if you're looking to improve your quality of life, maybe think about heading to Zurich, Switzerland. Zurich topped a new ranking of world cities from Deutsche Bank. that tracked factors such as regional crime and safety, also health care availability, cost of consumer goods, and overall consumer purchasing power. Zurich was followed in the top five by Wellington, New Zealand, Copenhagen, Denmark, Edinburgh in the UK, and Vienna, Austria.
There were two U.S. cities in the top ten. Boston came in at number eight and San Francisco at number nine.
The Securities and Exchange Commission, known as the SEC, levied $20 billion in fines on wrongdoers in the five years ending in 2018. But so far, it's only collected about half of that.
What headlines and market stories set the context before the SEC discussion?
And that's not all that unusual to collect half the fines. Wall Street Journal reporter Dave Michaels is on the line with us to explain. So Dave, this is an ongoing struggle by the SEC to collect these fines.
That's right. The SEC has struggled for decades. the better part of a decade, basically as far back as you can go and find this data where the SEC reports how much of each year's fines they actually collect. And the recovery rate of the collection rate is more or less in a predictable range where over time it bounces around from between 35 and about 65%.
And in the five-year period from 2009 to 2013, the collection isn't much better. It's about 60%. But the SEC has also written off billions of uncollected fines as well, hasn't it?
Yes. For accounting purposes, the SEC writes off fines that are delinquent for two years or more. So over about 10 years, that amounts to over $10 billion worth of fines that it has written off. That doesn't mean that they never collect any of that money. In some cases, they probably do collect some of it. The SEC says they continue to hound those debtors and try to get some money out of them. But for the most part, if the SEC is going to collect any money, most of that money is going to happen in the year or so that is during the same year when the fine was actually levied.
Now, in 2018, specifically, the agency collected just 28% of fines levied, but that percentage was skewed lower by one case. Can you explain the Petrobras situation?
It's a strange case that disturbs this data a little bit. The SEC reached a settlement with Petrobras, which is the Brazilian oil company, and it The SEC took credit for $1.7 billion in penalties plus disgorgement, which is a type of fine that requires the company to give back illegally gotten profits. But the SEC really isn't going to see that money. It credited those amounts toward other litigation that Petrobras was involved in. One was a settlement that Petrobras had with a Brazilian regulator, and the second is a U.S. class action lawsuit. where investors sued Petrobras for securities fraud.
Now, aside from Petrobras, is this a lack of enforcement teeth that the SEC is suffering from and not being able to collect these fines?
I don't think it's a lack of enforcement teeth, but because if you think about levying fines, fines are the way that the public often thinks about whether the SEC has teeth or not.
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