Enforcing the Law

The SEC came to the aid of investors who lost access to their funds when the auction rate securities market froze in early 2008. The Enforcement Division immediately investigated the principal firms in this market, and reached preliminary settlements with six of them. These actions will result in up to $55 billion being returned to injured investors—by far the largest settlements in SEC history.

At the close of fiscal 2008, the SEC had more than 50 ongoing investigations involving lenders, banks, credit rating agencies, insurers, broker-dealers, and others who sold and resold subprime, Alt-A, and other shaky loans in various securitized forms.

When Fannie Mae issued false and misleading financial statements, the SEC charged the mortgage giant with fraud, and in fiscal 2008 returned $356 million to investors in Fannie who had been harmed. Following the SEC’s investigation of two Bear Stearns hedge funds, the agency charged the managers with violations of the securities laws.

Today, the Enforcement Division is conducting a nationwide investigation that was begun in 2008 to uncover potential fraud and manipulation of securities in some of the nation’s largest financial institutions, through means such as abusive naked short selling and the intentional spreading of false information. As part of this investigation into potential manipulation during the subprime mortgage crisis, the Commission approved orders requiring hedge funds, broker-dealers and institutional investors to file statements under oath regarding trading and market activity in the securities of financial firms. The orders cover equities as well as credit default swaps.