Investor Paybacks Small and Slow

In recent years, the General Accounting Office has criticized the SEC and the Justice Department for failing to put in place more rigorous systems to collect and distribute money to bilked investors. The SEC sent a report to Congress in January 2003 analyzing the agency's collections for the previous five years. The report also highlighted troubles inherent in seizing funds, including defendants hiding assets overseas and the difficulty of recovery when most of the money has been spent.

For instance, according to the report, to enforce a $73 million judgment against electronics retailer "Crazy Eddie" Antar, SEC lawyers searched the world for his assets, eventually finding $64 million. The agency said in the report that it is increasingly using asset freezes and temporary restraining orders to ensure that defendants do not spend money that could otherwise go to shareholders.

Things were even worse before Congress passed the Sarbanes-Oxley Act. That law for the first time gave the SEC the power to channel civil financial penalties, not simply disgorgement of bonuses and salaries, back to investors who had been defrauded. SEC Chairman William H. Donaldson said in a speech Wednesday that the agency had won orders for about $1.7 billion in penalties and disgorgement in the past eight months. It's unclear how much of that money will be collected and eventually returned to shareholders, though.

Joel Seligman, dean of the Washington University School of Law in St. Louis and author of a history of the SEC, said returning money to investors has become a higher priority at the agency in the past few years.

"It's not appropriate to expect the commission instantly to return the funds," Seligman said. "The question really is, are they making systematic efforts to identify and locate those who have been injured?"

The SEC is asking Congress for the power to seize more assets from wrongdoers who otherwise might shelter them under the protection of state bankruptcy laws and for the ability to hire outside law firms to help it collect payments. A House bill that would give the SEC that authority is pending before the Judiciary Committee.

Former SEC staffer Bullard said the public shouldn't demand that the agency invest a substantial portion of its resources into collecting penalties from wrongdoers. He said that is a task better suited to plaintiff lawyers.

For Merilyn Walter, recovery can't come quickly enough. She is spending $1,100 per month on rent for an apartment in a senior living community and has few independent sources of income.

"Any money at all I have I put in CDs," she said. "Low-risk and low-paying, but the money's always there."