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

Urska Velikonja

Emory University School of Law; Georgetown University Law Center


Stanford Law Review, Vol 67, pp. 331-395 (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.

Number of Pages in PDF File: 65

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

Open PDF in Browser Download This Paper

Date posted: February 25, 2014 ; Last revised: February 4, 2015

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: https://ssrn.com/abstract=2400189

Contact Information

Urska Velikonja (Contact Author)
Emory University School of Law ( email )
201 Dowman Drive
Atlanta, GA 30322
United States
HOME PAGE: http://law.emory.edu/faculty-and-scholarship/faculty-profiles/velikonja-profile.html
Georgetown University Law Center ( email )
600 New Jersey Avenue, NW
Washington, DC 20001
United States
Feedback to SSRN

Paper statistics
Abstract Views: 3,725
Downloads: 580
Download Rank: 35,364