Public Agencies and Investor Compensation: Examples from the SEC and CFTC

Abstract

Investor compensation by financial regulators hits the headlines when an agency has been the white knight, recovering and distributing funds to injured investors. Rarely do the papers laud financial regulators when they provide the judges in the financial market equivalent of small claims court. The SEC’s and CFTC’s approaches to compensation track these two alternatives. The SEC’s Fair Fund power allows it to distribute money-penalty amounts to injured investors. In contrast, the CFTC’s longstanding “Reparations Program” resolves disputes between private parties (individual shareholders and financial professionals) in a role akin to that of an arbitrator or judge. This essay suggests revisiting the unglamorous business of resolving disputes between customers and brokers and recasting it as a potentially valuable source of industry information to the agencies tasked with enforcing securities and commodities laws. It also provides concrete case studies of public agencies’ involvement in the often private domain of compensatory remedies.

中文版在: http://ssrn.com/abstract=2159249

Keywords: SEC, Securities and Exchange Commission, CFTC, Commodity Futures Trading Commission, Reparations Program, financial regulation, compensation, investor compensation, remedies, Fair Fund, WorldCom, financial institutions, whistleblower, arbitration, securities arbitration, Treasury, public agencies

JEL Classification: G28, K20, K22, K23