SEC Enforcement:

Responses to GAO and SEC Recommendations Related to Microcap Stock Fraud

GGD-98-204: Published: Sep 30, 1998. Publicly Released: Oct 13, 1998.

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Thomas J. McCool
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Pursuant to a congressional request, GAO provided information on the actions taken by the Securities and Exchange Commission (SEC) and the self-regulatory organizations (SRO) in response to GAO's and SEC's recommendations to reduce microcap fraud.

GAO noted that: (1) SEC and the SROs have taken, or reported taking, actions that respond to many of the recommendations in GAO's and SEC reports that address issues related to microcap stock fraud; (2) in responding to these recommendations, actions have been taken to: (a) expand the disclosure of and public access to broker disciplinary information; (b) improve National Association of Securities Dealers branch office examination selection; (c) provide more focused sales practices examinations; (d) improve compliance with industry reporting requirements; and (e) implement a continuing professional education requirement for broker-dealers; (3) these actions should enhance regulatory oversight of microcap stock firms and help provide investors with additional protections against abusive practices by such firms; (4) actions have not been completed that would respond to other recommendations related to the: (a) migration of unscrupulous brokers from the securities industry to other financial services industries; (b) modernization of the central registration database to improve oversight of problem brokers and public access to broker disciplinary histories; (c) ability of SEC to identify, across firms, trends in violations found during its broker-dealer examinations; and (d) provision of information on the availability of broker disciplinary histories before activity occurs in an account; and (5) completing actions on these recommendations would further enhance regulatory oversight and investor protection.

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