Public Compensation for Private Harm: Evidence from the SEC's Fair Fund Distributions

65 Pages Posted: 25 Feb 2014 Last revised: 4 Feb 2015

See all articles by Urska Velikonja

Urska Velikonja

Georgetown University Law Center

Date Written: 2015


The SEC’s primary goal is enforcing compliance with securities laws. Almost as important but less visible is the SEC’s rise as a source of compensation for defrauded investors. The Sarbanes-Oxley Act in 2002 expanded the SEC’s ability to compensate investors by allowing the agency to distribute collected civil fines through fair funds.

Based on a couple of well-known cases, fair fund distributions have been derided as a smaller, feebler version of private securities litigation — a waste of the SEC’s resources on repetitive cases. This is the first empirical study to examine the population of 236 fair funds created between 2002 and 2013, through which the SEC will distribute $14.33 billion to defrauded investors. Contrary to conventional wisdom, the study finds that the SEC’s distributions are neither small nor, for the most part, circular transfers from shareholder victims to themselves. Two-thirds of fair funds compensate investors for what can best be described as consumer fraud or anticompetitive behavior by securities markets intermediaries.

Importantly, the study also reveals that private and public compensation for securities fraud are not coextensive. More than half of the time, the SEC compensates investors for losses where a private lawsuit is either unavailable or impractical. The Article thus exposes the limits of private securities litigation as an investors’ remedy. The rise of public compensation, such as the SEC’s distribution funds, fills a void in securities laws, which leaves many victims with no private remedy.

Keywords: SEC, securities enforcement, securities litigation, fair fund, Sarbanes-Oxley Act

Suggested Citation

Velikonja, Urska, Public Compensation for Private Harm: Evidence from the SEC's Fair Fund Distributions (2015). Stanford Law Review, Vol 67, pp. 331-395 (2015), Available at SSRN:

Urska Velikonja (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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