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entitled 'Financial Audit: Securities and Exchange Commission Fiscal 
Years 2014 and 2013 Financial Statements' which was released on 
November 17, 2012. 

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GAO-14-166R: 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

November 17, 2013: 

The Honorable Mary Jo White: 
Chair:
United States Securities and Exchange Commission: 

Financial Audit: Securities and Exchange Commission's Fiscal Years 
2014 and 2013 Financial Statements: 

Dear Ms. White: 

This report transmits the GAO auditor’s report on the results of our 
audits of the fiscal years 2014 and 2013 financial statements of the 
United States Securities and Exchange Commission (SEC) and its 
Investor Protection Fund (IPF),[Footnote 1] which is incorporated in 
the enclosed U.S. Securities and Exchange Commission Fiscal Year 2014 
Agency Financial Report. 

As discussed more fully in the auditor’s report that begins on page 63 
of the enclosed agency financial report, we found: 

* the financial statements of SEC and its IPF are presented fairly, in 
all material respects, in accordance with U.S. generally accepted 
accounting principles; 

* SEC maintained, in all material respects, effective internal control 
over financial reporting for SEC and IPF as of September 30, 2014, 
although internal control deficiencies regarding disgorgements and 
penalty transactions exist that merit attention by those charged with 
governance; and; 

* no reportable noncompliance in fiscal year 2014 with provisions of 
applicable laws, regulations, contracts, and grant agreements we 
tested. 

The Accountability of Tax Dollars Act of 2002 requires that SEC 
annually prepare and submit audited financial statements to Congress 
and the Office of Management and Budget.[Footnote 2] The Securities 
Exchange Act of 1934, as amended in 2010 by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act), requires SEC to 
annually prepare and submit a complete set of audited financial 
statements for IPF to Congress.[Footnote 3] We audited SEC’s and IPF’s 
financial statements pursuant to our authority conferred by the Chief 
Financial Officers Act of 1990, as amended by the Government 
Management and Reform Act of 1994.[Footnote 4] Section 963 of the Dodd-
Frank Act further requires that (1) SEC annually submit a report to 
Congress describing management’s responsibility for internal control 
over financial reporting and for assessing the effectiveness of such 
internal control during the fiscal year, (2) the SEC Chairman and 
Chief Financial Officer attest to SEC’s report, and (3) GAO attest to 
and report on the assessment made by SEC.[Footnote 5] Accordingly, 
this report also includes our reporting in response to the requirement 
under the Dodd-Frank Act. 

We are sending copies of this report to the Chairmen and Ranking 
Members of the Senate Committee on Banking, Housing, and Urban 
Affairs; the Senate Committee on Homeland Security and Governmental 
Affairs; the House Committee on Financial Services; and the House 
Committee on Oversight and Government Reform. We are also sending 
copies to the Secretary of the Treasury, the Director of the Office of 
Management and Budget, and other interested parties. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have questions about this report, please contact 
me at (202) 512-3133 or dalkinj@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. 

Sincerely yours, 

Signed by: 

James R. Dalkin: 
Director: 
Financial Management and Assurance: 

Enclosure: 

Footnotes: 

[1] IPF was established in 2010 by section 922 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act to fund the activities of SEC’
s whistleblower award program and the SEC Office of Inspector General 
suggestion program. IPF is a separate SEC fund and its financial 
statements present SEC’s financial activity associated with its 
whistleblower and Inspector General suggestion programs. Accordingly, 
IPF’s financial transactions are also included in SEC’s overall 
financial statements. 

[2] 31 U.S.C. § 3515. 

[3] Section 21F(g)(5) of the Securities Exchange Act of 1934, 15 
U.S.C. § 78u-6(g)(5). 

[4] See the Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 
104 Stat. 2838 (Nov. 15, 1990), codified, in relevant part, as 
amended, at 31 U.S.C. § 3521(g); see also the Government Management 
Reform Act of 1994, Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 
1994), codified, in relevant part, as amended, at 31 U.S.C. § 3515(c). 

[5] Dodd-Frank Act, Pub. L. No. 111-203, § 963(a), (b) (2), 124 Stat. 
1376, 1910 (2010), codified at 15 U.S.C. § 78d-8(a), (b)(2). 

[End of section] 

U.S. Securities and Exchange Commission: 

Agency Financial Report: 
Fiscal Year 2014: 

About This Report: 

The U.S. Securities and Exchange Commission’s (SEC) fiscal year (FY) 
2014 Agency Financial Report (AFR) provides financial and high-level 
performance results that enable the President, Congress and the public 
to assess the SEC’s accomplishments and understand its financial 
picture. This report satisfies the reporting requirements contained in 
the following laws and regulations: 

* Accountability of Tax Dollars Act of 2002; 

* Chief Financial Officers Act of 1990, as amended by the Reports 
Consolidation Act of 2000; 

* Dodd-Frank Wall Street Reform and Consumer Protection Act Section 
922 Whistleblower Protection, and Section 963 Annual Financial 
Controls Audit; 

* Federal Financial Management Improvement Act of 1996; 

* Federal Managers Financial Integrity Act of 1982; 

* Government Management Reform Act of 1994; 

* GPRA Modernization Act of 2010; 

* Improper Payments Information Act of 2002, as amended by Improper 
Payments Elimination and Recovery Act of 2010 and Improper Payments 
Elimination and Recovery Improvement Act of 2012; 

* Office of Management and Budget Circular A-123, Management’s 
Responsibility for Internal Controls; 

* Office of Management and Budget Circular A-136, Financial Reporting 
Requirements; 

* Recovery Auditing Act, Section 831, Defense Authorization Act, for 
2002; 

For the third year in a row, the SEC is producing an AFR, with a 
primary focus on financial results, and an Annual Performance Report 
(APR), which focuses on strategic goals and performance results, in 
lieu of a combined Performance and Accountability Report. The FY 2014 
APR will be included in the SEC FY 2016 Congressional Budget 
Justification in February 2015. Additionally, SEC will publish a 
Summary of Performance and Financial Information (SPFI), also to be 
released in February 2015. This AFR and prior year SEC AFRs are 
electronically available at [hyperlink, 
http://www.sec.gov/about/secreports.shtml]. To comment on this report, 
email SECAFR@sec.gov. 

Certificate of Excellence in Accountability Reporting: 

The SEC’s FY 2013 AFR received the Certificate of Excellence in the 
Accountability Reporting from the Association of Government 
Accountants, which represents the eighth year in a row the SEC has 
received this honor. The award is presented to Federal Government 
agencies whose annual reports achieve the highest standards 
demonstrating accountability and communicating results. In addition, 
the SEC received a Best in Class Award for its Chief Financial Officer 
Message. 

[End of section] 

Contents: 

Message from the Chair: 

Introduction to the Agency Financial Report: 

Management’s Discussion and Analysis: 

Vision, Mission, Values and Goals: 

History and Purpose: 

Organizational Structure and Resources: 

FY 2014 Year in Review: 

Looking Forward: 

Financial Highlights: 

Performance Highlights: 

Verification and Validation of Performance Data: 

Strategic and Performance Planning Framework: 

Performance Achievements: 

Management Assurances and Compliance with Laws: 

Annual Assurance Statement: 

Management’s Responsibility for Internal Control: 

Other Reviews: 

Financial Management Systems Conformance: 

Federal Information Security Management Act: 

Financial Section: 

Message from the Chief Financial Officer: 

Report of Independent Auditors 63 

Enclosure I: Management’s Response to Audit Opinion: 

Financial Statements: 

Notes to the Financial Statements: 

Required Supplementary Information (Unaudited): 

Investor Protection Fund Financial Statements: 

Notes to the Investor Protection Fund Financial Statements: 

Other Information: 

Schedule of Spending (Unaudited): 

Inspector General’s Statement on Management and Performance Challenges: 

Management’s Response to Inspector General’s Statement: 

Summary of Financial Statement Audit and Management Assurances: 

Improper Payments Elimination and Recovery Act Reporting Details: 

Appendices: 

Appendix A: Chair and Commissioners: 

Appendix B: Major Enforcement Cases: 

Appendix C: SEC Divisions and Offices: 

Appendix D: Glossary of Selected Terms: 

Appendix E: Acronyms: 

Available on the Web at [hyperlink, 
http://www.sec.gov/about/secafr2014.shtml] 

To contact the SEC, please see www.sec.gov or “Contact Us” at 
[hyperlink, http://www.sec.gov/contact.shtml]. To comment on this 
report, email SECAFR@sec.gov. For further information on selected 
terms and topics, please see “Fast Answers” at [hyperlink, 
http://www.sec.gov/answers.shtml]. 

[End of section] 

Message from the Chair: 

During the past year, the talented and dedicated men and women of the 
U.S. Securities and Exchange Commission have tirelessly carried out 
the agency’s mission to protect investors, foster capital formation 
and promote fair, orderly and efficient markets. 

Together, we have achieved many important accomplishments in Fiscal 
Year 2014 (FY 2014). We brought a record number of cutting edge 
enforcement actions, proposed and adopted rules that strengthened our 
financial system and increased transparency, promoted compliance 
through detailed, risk-based examinations of registrants and furthered 
enhanced transparency through our disclosure review program. 

Our success did not stop there. We hired our first Investor Advocate 
to lead our newly-established Office of the Investor Advocate. The 
agency expanded direct outreach to investors and market participants 
by issuing more investor bulletins and alerts than ever before. These 
efforts go to the very core of our investor protection mission. 

Sophisticated economic analysis informed the agency’s rulemakings, and 
shed new light on complex areas of financial market structure. 

We continued to focus on advancing rulemakings required under the Dodd-
Frank Wall Street Reform and Accountability Act (Dodd-Frank) and 
Jumpstart Our Business Startups (JOBS) Acts. Under the Dodd-Frank Act, 
the SEC joined the Federal banking regulators and the Commodity 
Futures Trading Commission (CFTC) in adopting the Volcker Rule, which 
will limit proprietary trading by financial institutions affiliated 
with banks and will generally restrict these institutions from 
sponsoring hedge funds and private equity funds, or investing in such 
funds. We also adopted important enhancements to the offering process, 
disclosure and reporting for asset-backed securities and oversight of 
credit rating agencies. We adopted foundational rules for implementing 
the regulatory framework for security-based swaps, and removed 
references to credit ratings in our rules. 

In FY 2014, the Commission advanced the major rules required by the 
JOBS Act, including proposed rules to permit companies to raise funds 
through crowdfunding, and rules that create an exemption from 
registration under the Securities Act that will make it easier for 
smaller companies to raise capital. 

In addition to the congressionally mandated rulemakings, the 
Commission also adopted important rules that reform the way that money 
market funds operate. To reduce the risk of damaging runs, these 
reforms included a combination of targeted floating net asset value 
for prime institutional funds, liquidity fees and redemption gates for 
non-government money market funds, enhanced disclosure, reporting 
diversification and stress testing. 

During the past year our examination and enforcement programs 
benefited from effective deployment of sophisticated technology and 
from risk-based resource allocation and targeted strategy to extend 
the SEC’s presence to every corner of the marketplace, by participants 
at every level. The SEC’s National Exam Program continued to enhance 
its data analytics capabilities by using technology to collect and 
process massive quantities of data to target irregularities and 
identify potential deficiencies. 

The Division of Enforcement continued to mount increasingly 
sophisticated investigations, redoubling efforts in traditional areas, 
like accounting fraud, and expanding its focus on gatekeepers who must 
act in investors’ interests. This year, in addition to bringing more 
cases than ever before, Enforcement also brought a number of first-
ever cases that span the securities industry, including actions 
involving whistleblower retaliation, the market access rule and the “
pay-to-play” rule for investment advisers. The result is a strong 
deterrent message to all would-be wrongdoers. 

The Commission’s focus on equity market structure remained a priority 
in FY 2014. The agency unveiled an innovative equity market structure 
website that provides investors with access to evolving data, research 
and analysis that will help to inform the public debate. The 
Commission remains committed to bolstering the resilience of the 
market systems and to continue to engage in efforts to foster market 
infrastructure and reduce system disruptions. Earlier this year, the 
Commission held a roundtable on cybersecurity, which addressed issues 
facing financial market participants. Commission staff also continued 
to develop rules that, among other things, will require exchanges, 
clearing agencies, and other market platforms to take new measures to 
better ensure the operational capability of their systems and promote 
market stability. 

I am pleased to report the SEC’s independent auditors, the Government 
Accountability Office, issued an unmodified audit opinion on the SEC’s 
financial statements and has affirmed that the agency’s financial 
statements are presented fairly in all material respects, in 
conformity with the U.S. generally accepted accounting principles. 
Based on our review, we can confirm that the financial and performance 
data presented in this report are complete, reliable and conform to 
the Office of Management and Budget guidance. 

These are only a few examples of the tremendous accomplishments of the 
more than 4,000 men and women of the SEC in FY 2014. In every division 
and office of the agency, our professionals demonstrated teamwork, 
innovation and a fierce commitment to the agency’s mission. In the 
year to come, we will continue to further initiatives, regulations and 
programs that will allow us to keep pace with a changing marketplace 
and pursue the agency’s mission more effectively than ever. 

Signed by: 

Mary Jo White: 
Chair: 

November 14, 2014: 

[End of section] 

Introduction to the Agency Financial Report: 

The SEC Agency Financial Report (AFR) is organized in the following 
three major sections, and supplemental appendices. 

Management’s Discussion and Analysis:  

This section provides an overview of SEC’s history, mission, 
organization, strategic goals and objectives, year in review, forward 
looking information, performance highlights and a summary of financial 
information. This section concludes with management’s assurance on 
internal controls, financial systems and controls, and compliance with 
laws and regulations. 

Financial Section: 

This section contains a message from the Chief Financial Officer 
followed by the independent auditor’s report on our principal 
financial statements, management’s response to the audit report, 
audited financial statements and accompanying notes, and required 
supplementary information. Concluding this section are stand-alone 
comparative financial statements and accompanying notes for the 
Investor Protection Fund as required by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. 

Other Information: 

This section contains the statement prepared by the agency’s Office of 
Inspector General (OIG) summarizing what the OIG considers to be the 
more serious management and performance challenges facing the agency, 
followed by the SEC Chair’s response outlining the agency’s progress 
in addressing the challenges. Also included are a Summary of Financial 
Statement Audit and Management Assurances listing internal control 
material weaknesses and financial systems non-conformances; a schedule 
of spending showing how and where the SEC spends its funds; and a 
detailed explanation of any significant erroneous payments and 
overpayments recaptured as required by the Improper Payments 
Information Act of 2002, as amended. 

Appendices: 

This section includes biographies of the SEC Chair and Commissioners, 
a summary of the SEC’s major enforcement cases, a listing of the SEC 
divisions and offices, a glossary of selected terms, and a list of 
acronyms used within the AFR. 

[End of section] 

Management’s Discussion and Analysis: 

The U.S. Securities and Exchange Commission’s (SEC) Management’s 
Discussion and Analysis (MD&A) serves as a brief overview of the 
agency’s mission, organization, goals, and the 2014 program and 
financial performance: 

* Vision, Mission, Values and Goals: The listed vision, mission and 
values statements as set forth in SEC’s Strategic Plan establishes the 
direction the SEC is undertaking in meeting its four strategic goals. 

* History and Purpose: Provides background on the SEC and 
responsibilities for overseeing the nation’s securities markets and 
certain primary participants. 

* Organization Structure and Resources: Highlights SEC’s office 
locations, organization, employment statistics, and a summary of 
programs by responsible divisions and offices. 

* FY 2014 Year in Review: Provides a summary of SEC’s efforts in 
pursuing its investor protection and market stability missions in FY 
2014. 

* Looking Forward: An overview of actions the SEC will continue to 
focus its ever-increasing on-going regulatory and oversight 
responsibilities. 

* Financial Highlights: Provides an overview of the SEC’s financial 
information, including an analysis of the financial data presented in 
the audited financial statements. The sources and uses of SEC’s funds 
and the limitations of the financial statements are also explained. 

* Performance Highlights: Explains the SEC’s strategic and performance 
planning framework, discusses the process used to verify and validate 
the performance results contained in the Agency Financial Report 
(AFR), displays the FY 2014 operating costs by strategic goal, 
summarizes the FY 2014 performance results by strategic goal, and 
highlights key performance accomplishments. 

* Management Assurances and Compliance with Other Laws: Provides 
management’s assessment and assurances on the SEC’s internal controls 
related to the Federal Manager’s Financial Integrity Act of 1982 
(FMFIA) and our compliance with the Federal Financial Management 
Improvement Act (FFMIA) related to compliance of our financial systems 
with Federal requirements. Also addressed is our compliance with 
Federal Information Security Management Act (FISMA) and other laws and 
regulations. 

[End of section] 

Vision, Mission, Values and Goals: 

Vision: 

The SEC strives to promote a market environment that is worthy of the 
public’s trust and characterized by: 

* Transparent disclosure to investors of the risks of particular 
investments; 

* Oversight of key market participants, including exchanges, brokers 
and dealers, investment advisers, and others; 

* Focus on strengthening market structure and systems; 

* Promotion of disclosure of market-related information; 

* Protection against fraud and abuse; and; 

* Evaluation, development and maintenance of appropriate rules and 
regulations. 

MIssion: 

The mission of the SEC is to protect investors, maintain fair, 
orderly, and efficient markets, and facilitate capital formation. 

Values: 

Integrity: As the SEC is the independent Federal agency entrusted with 
regulating and conducting enforcement for the U.S. securities markets; 
each member of the Commission’s workforce has a responsibility to 
demonstrate the highest ethical standards to inspire confidence and 
trust. 

Excellence: The SEC is committed to the highest standards of 
excellence in pursuit of its mission. The investing public and the 
U.S. securities markets deserve nothing less. 

Accountability: The SEC embraces the responsibility with which it is 
charged. In carrying out its mission, SEC employees hold themselves 
accountable to the public and take responsibility for achieving SEC 
goals. 

Effectiveness: The SEC strives to work creatively, proactively, and 
effectively in assessing and addressing risks to the securities 
markets, the public, and other market participants. The staff is 
committed to finding innovative and flexible approaches to the SEC’s 
work and using independent judgment to explore new ways to fulfill the 
SEC’s mission in the most efficient and effective manner possible. 

Teamwork: The SEC recognizes that its success depends on a diverse, 
coordinated team committed to the highest standards of trust, hard 
work, cooperation, and communication. The staff is committed to 
working together and coordinating effectively with investors, 
business, governments, and other organizations in the U.S. and abroad. 

Fairness: The SEC treats investors, market participants, and others 
fairly and in accordance with the law. As an employer, the SEC seeks 
to hire and to retain a skilled and diverse workforce, and to ensure 
that all decisions affecting employees and applicants are fair and 
ethical. 

Strategic Goals and Strategic Objectives: 

Strategic Goal 1: Establish and maintain an effective regulatory 
environment: 

Strategic Objective 1.1: The SEC establishes and maintains a 
regulatory environment that promotes high-quality disclosure, 
financial reporting and governance, and that prevents abusive 
practices by registrants, financial intermediaries and other market 
participants. 

Strategic Objective 1.2: The SEC promotes capital markets that operate 
in a fair, efficient, transparent and competitive manner, fostering 
capital formation and useful innovation. 

Strategic Objective 1.3: The SEC adopts and administers regulations 
and rules that are informed by robust economic analysis and public 
comment and that enable market participants to understand clearly 
their obligations under the securities laws. 

Strategic Objective 1.4: The SEC engages with a multitude of 
stakeholders to inform and enhance regulatory activities domestically 
and internationally. 

Strategic Goal 2: Foster and enforce compliance with the Federal 
securities laws: 

Strategic Objective 2.1: The SEC fosters compliance with the Federal 
securities laws. 

Strategic Objective 2.2: The SEC promptly detects and deters 
violations of the Federal securities laws. 

Strategic Objective 2.3: The SEC prosecutes violations of Federal 
securities laws and holds violators accountable through appropriate 
sanctions and remedies. 

Strategic Goal 3: Facilitate access to the information investors need 
to make informed investment decisions: 

Strategic Objective 3.1: The SEC works to ensure that investors have 
access to high-quality disclosure materials that facilitate informed 
investment decision-making. 

Strategic Objective 3.2: The SEC works to understand investor needs 
and educate investors so they are better prepared to make informed 
investment decisions. 

Strategic Goal 4: Enhance the Commission’s performance through 
effective alignment and management of human, information and financial 
capital: 

Strategic Objective 4.1: The SEC promotes a results-oriented work 
environment that attracts, engages, and retains a technically 
proficient and diverse workforce, including leaders who provide 
motivation and strategic direction. 

Strategic Objective 4.2: The SEC encourages a collaborative 
environment across divisions and offices and leverages technology and 
data to fulfill its mission more effectively and efficiently. 

Strategic Objective 4.3: The SEC maximizes the use of agency resources 
by continually improving agency operations and bolstering internal 
controls. 

[End of section] 

History and Purpose: 

During the peak of the Depression, Congress passed the Securities Act 
of 1933[Footnote 1] (Securities Act). This law, along with the 
Securities Exchange Act of 1934[Footnote 2] (Exchange Act), which 
created the SEC, was designed to restore investor confidence in our 
capital markets by providing investors and the markets with more 
reliable information and clear rules of honest dealing. The main 
purposes of these laws were to ensure that: 

* Companies publicly offering securities for investment dollars must 
tell the public the truth about their businesses, the securities they 
are selling, and the risks involved in investing. 

* People who sell and trade securities – brokers, dealers and 
exchanges – must treat investors fairly and honestly, putting investors’
interests first. 

The SEC is responsible for overseeing the nation’s securities markets 
and certain primary participants, including broker-dealers, investment 
companies, investment advisers, clearing agencies, transfer agents, 
credit rating agencies, and securities exchanges, as well as 
organizations such as the Financial Industry Regulatory Authority 
(FINRA), Municipal Securities Rulemaking Board (MSRB), and Public 
Company Accounting Oversight Board (PCAOB). Under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act[Footnote 3] (Dodd-Frank 
Act), the agency’s jurisdiction was expanded to include certain 
participants in the derivatives markets, private fund advisers, and 
municipal advisors, among other changes. 

The SEC consists of five presidentially appointed Commissioners, with 
staggered five-year terms. One of them is designated by the President 
as Chair of the Commission (see Appendix A: Chair and Commissioners). 
President Franklin Delano Roosevelt appointed Joseph P. Kennedy to 
serve as the first Chairman of the SEC. 

By law, no more than three of the Commissioners may belong to the same 
political party. The Commission convenes regularly at meetings that 
are open to the public and the news media unless the discussion 
pertains to confidential subjects, such as whether to begin an 
enforcement investigation. 

Each year, the SEC brings hundreds of civil enforcement actions 
against individuals and companies for violation of securities laws. 
Examples of infractions include insider trading, accounting fraud, and 
providing false or misleading information about securities or the 
companies that issue them. One of the major sources of information 
that the SEC relies on to bring enforcement action is investors 
themselves – another reason that educated and careful investors are 
critical to the functioning of efficient markets. To help inform 
investors, the SEC offers the public a wealth of educational 
information on its website at [hyperlink, http://www.investor.gov], as 
well as an online database of disclosure documents at [hyperlink, 
http://www.sec.gov/edgar/searchedgar/companysearch.html] that public 
companies and other market participants are required to file with the 
SEC. 

Footnotes: 

[1] Securities Act of 1933 [hyperlink, 
http://www.sec.gov/about/laws/sa33.pdf]. 

[2] Securities Exchange Act of 1934 [hyperlink, 
http://www.sec.gov/about/laws/sea34.pdf]. 

[3] Dodd-Frank Wall Street Reform and Consumer Protection Act 
[hyperlink, http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf]. 

[End of section] 

Organizational Structure and Resources: 

SEC Office Locations: 

The SEC’s headquarters are in Washington, DC, and the agency has 11 
regional offices located throughout the country. The regional offices 
are responsible for investigating and litigating potential violations 
of the securities laws. The offices also have examination staff, who 
inspect regulated entities such as investment advisers, investment 
companies and broker-dealers. The map below shows the locations of the 
regional offices, and the states that are included in each region. 

Chart 1.1: SEC Headquarters And Regional Office Locations: 

[REfer to PDF for image: illustrated U.S. map] 

SEC Headquarters: 
Washington, DC. 

Atlanta Regional Office: 
Georgia, North Carolina, South Carolina, Tennessee, Alabama. 

Boston Regional Office: 
Connecticut, Maine, Massachusetts, New Hampshire, Vermont, Rhode 
Island. 

Chicago Regional Office: 
Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, 
Ohio, Wisconsin. 

Denver Regional Office: 
Colorado, Kansas, Nebraska, New Mexico, North Dakota, South Dakota, 
Wyoming. 

Fort Worth Regional Office: 
Texas, Oklahoma, Arkansas, Kansas (except for the exam program which 
is administered by the Denver Regional Office). 

Los Angeles Regional Office: 
Arizona, Hawaii, Guam, Nevada, Southern California (zip codes 93599 
and below, except for 93200-93299). 

Miami Regional Office: 
Florida, Mississippi, Louisiana, U.S. Virgin Islands, Puerto Rico. 

New York Regional Office: 
New York, New Jersey. 

Philadelphia Regional Office: 
Delaware, Maryland, Pennsylvania, Virginia, West Virginia, District of 
Columbia. 

Salt Lake Regional Office: 
Utah. 

San Francisco Regional Office: 
Washington, Oregon, Alaska, Montana, Idaho, Northern California (zip 
codes 93600 and up, plus 93200-93299).  

[End of chart] 

SEC Organization Structure: 

The SEC is an independent Federal agency established pursuant to the 
Exchange Act. It is headed by a bipartisan five-member Commission, 
comprised of the Chair and four Commissioners, who are appointed by 
the President and confirmed by the Senate (see Appendix A: Chair and 
Commissioners). The Chair serves as the chief executive. The agency’s 
functional responsibilities are organized into five divisions and 23 
offices, each of which is headquartered in Washington, DC. The SEC 
also has 11 regional offices which are comprised primarily of staff 
from the national enforcement and examination programs. 

In fiscal year (FY) 2014, the agency employed 4,150 full-time 
equivalents (FTE), including 3,996 permanent and 154 temporary FTEs. 
The SEC organization chart below is as of September 30, 2014. 

Chart 1.2: SEC Organization Chart: 

[Refer to PDF for image: Organization Chart] 

Top level: 
Chairman (Office of the Chairman); 
Associated with the Office of the Chairman: 
* Commissioners (4). 

Second level, reporting to the Office of the Chairman: 
* Enforcement: 
* Corporation Finance: 
* Investment Management: 
* Trading and Markets: 
* Risk, Strategy, and Financial Innovation: 
* Executive Director: 
* General Counsel: 
* Secretary: 
* Chief Operating Officer: 
* Credit Ratings; 
* Ethics Counsel; 
* Chief Accountant: 
* Investor Education and Advocacy: 
* Compliance Inspection and Examinations: 
* Administrative Law Judges: 
* Equal Employment Opportunity: 
* Information Technology: 
* Inspector General: 
* International Affairs: 
* Legislative and Intergovernmental Affairs: 
* Investor Advocate; 
* Municipal Securities; 
* Public Affairs: 
* Office of Minority and Women Inclusion. 

Third level, reporting to the Chief Operating Officer: 
* Financial Management: 
* Human Resources: 
* Acquisitions: 
* Support Operations; 
* Information Technology. 

Fourth level: regional offices: 
* New York: 
* Boston: 
* Philadelphia: 
* Atlanta: 
* Miami: 
* Chicago: 
* Fort Worth: 
* Denver: 
* Salt Lake: 
* Los Angeles: 
* San Francisco: 

[End of chart] 

SEC Programs: 

The SEC organizes its divisions and offices under the 10 major 
programs outlined below in Table 1.1, SEC Programs and Program 
Descriptions. 

Program: Enforcement; 
Divisions and Offices: 
Division of Enforcement and enforcement staff within the SEC’s 
regional offices; 
Program Descriptions: 
This program investigates and brings civil charges in Federal district 
court or in administrative proceedings based on violations of the 
Federal securities laws. An integral part of the program’s function is 
to seek penalties and the disgorgement of ill-gotten gains in order to 
return funds to harmed investors. Also organized within the 
Enforcement program is the new Office of the Whistleblower, created 
under the Dodd-Frank Act to administer the SEC’s Whistleblower Program 
that rewards individuals who provide the agency with tips that lead to 
successful enforcement actions. 

Program: Compliance Inspections and Examinations; 
Divisions and Offices: 
Office of Compliance Inspections and Examinations and examinations 
staff within the SEC’s regional offices; 
Program Descriptions: 
This program conducts the SEC’s examinations of registrants such as 
investment advisers, investment companies, broker-dealers, self-
regulatory organizations (SROs), credit rating agencies, transfer 
agents, and clearing agencies. 

Program: Corporation Finance; 
Divisions and Offices: 
Division of Corporation Finance; 
Program Descriptions: 
This program performs functions to help investors gain access to 
materially complete and accurate information about securities, and to 
deter fraud and misrepresentation in the public offering, trading, 
voting, and tendering of securities. 

Program: Trading and Markets; 
Divisions and Offices: 
Division of Trading and Markets; 
Program Descriptions: 
This program conducts activities to establish and maintain standards 
for fair, orderly and efficient markets, while fostering investor 
protection and confidence in the markets. 

Program: Investment Management; 
Divisions and Offices: 
Division of Investment Management; 
Program Descriptions: 
This program seeks to minimize the financial risks to investors from 
fraud, mismanagement, self-dealing, and misleading or incomplete 
disclosure in the investment company and investment adviser segments 
of the financial services industry. 

Program: Risk, Strategy, and Financial Innovation; 
Divisions and Offices: 
Division of Risk, Strategy, and Financial Innovation; 
Program Descriptions: 
The division provides economic analyses as part of Commission’s 
rulemaking process; supports its rule review, examination and 
enforcement programs with data-driven, risk-based analytical methods; 
and oversees its Tips, Complaints and Referrals (TCR) and interactive 
data programs. 

Program: General Counsel; 
Divisions and Offices: 
Office of the General Counsel; 
Program Descriptions: 
The Office of the General Counsel (OGC) serves as the chief legal 
officer of the Commission and provides independent legal analysis and 
advice to the Chairman, Commissioners, and operating divisions on all 
aspects of the Commission’s activities. The General Counsel also 
defends the Commission in Federal district courts, represents the 
Commission in all appellate matters and amicus curiae filings, and 
oversees the SEC’s bankruptcy program. 

Program: Other Program Offices; 
Divisions and Offices: 
* Office of the Chief Accountant;
* Office of Investor Education and Advocacy;
* Office of International Affairs; 
* Office of Administrative Law Judges;
* Office of the Investor Advocate
* Office of Credit Ratings; and; 
* Office of Municipal Securities. 

Program Descriptions: 
These offices are responsible for: 

* Serving as the chief advisor to the Commission on all accounting and 
auditing policy and overseeing private sector standards setting; 

* Serving investors who contact the SEC, ensuring that retail investors’
perspectives inform the Commission’s regulatory policies and 
disclosure program, and improving investors’ financial literacy; 

* Administering the rules of the Commission with respect to the 
practices of municipal securities brokers and dealers, municipal 
advisors, and investors in municipal securities, and the practices of 
nationally recognized statistical rating organizations (NRSRO), 
including examinations of NRSROs; 

* Advancing international regulatory and enforcement cooperation, 
promoting converged high regulatory standards worldwide, and 
facilitating technical assistance programs in foreign countries; and; 

* Adjudicating allegations of securities law violations. 

Program: Agency Direction and Administrative Support;
Divisions and Offices: 
* The Chairman and Commission;
* Office of Legislative and Intergovernmental Affairs;
* Office of Public Affairs;
* Office of the Secretary;
* Office of the Chief Operating Officer;
* Office of Financial Management;
* Office of Information Technology;
* Office of Human Resources;
* Office of Acquisitions;
* Office of Support Operations;
* Office of the Ethics Counsel;
* Office of Minority and Women Inclusion; and; 
* Office of Equal Employment Opportunity. 
Program Descriptions: 
The Chairman is responsible for overseeing all aspects of agency 
operations, and the Chairman and Commissioners are responsible for the 
review and approval of enforcement cases and formal orders of 
investigation and the development, consideration, and execution of 
policies and rules. The other offices in Agency Direction and 
Administrative Support are responsible for:
* Working with Members of Congress on issues that affect the Commission;
* Coordinating the SEC’s communications with the media, the general 
public, and foreign visitors; 
* Reviewing all documents issued by the Commission, and preparing and 
maintaining records of Commission actions;
* Maximizing the use of SEC resources by overseeing the strategic 
planning, information technology, financial management, records 
management, human resources, and administrative functions of the 
agency; 
* Ensuring that the SEC is an equal opportunity employer in full 
compliance with all Federal equal employment opportunity laws; and
* Enhancing the diversity of the SEC’s workforce, contractors, and 
regulated entities in accordance with existing Federal laws and 
regulations. 

Program: Inspector General; 
Divisions and Offices: 
Office of Inspector General; 
Program Descriptions: 
The Office of Inspector General (OIG) is an independent office that 
conducts audits of programs and operations of the SEC and 
investigations into allegations of misconduct by staff or contractors. 
The mission of OIG is to detect fraud, waste, and abuse and to promote 
integrity, economy, efficiency, and effectiveness in the SEC’s 
programs and operations. 

[End of table] 

As shown in the Statements of Net Cost on page 75, the SEC presents 
its net costs of operations by the programs outlined above, consistent 
with the presentation used by the agency in submitting its budget 
requests. 

[End of section] 

Fiscal Year 2014 in Review: 

Continuing the Commitment to Excellence: 

Under the strong leadership of Chair Mary Jo White, Fiscal Year (FY) 
2014 marked a year of significant achievement across the SEC. With 
accomplishments ranging from robust and effective rulemaking that 
strengthened our markets and increased protection for America’s 
investors, to aggressive enforcement that employed new investigative 
techniques and the innovative use of data to bring actions that 
spanned the securities industry, this past year has been a high water 
mark for the Commission. 

Strong and Effective Rulemaking: 

The SEC finalized a number of significant rules central to financial 
market reform and the Dodd-Frank Wall Street Reform and Accountability 
Act (Dodd-Frank Act), including the Volcker Rule and ground-breaking 
regulations for money market funds, credit rating agencies, asset-
backed securities, and over-the-counter derivatives. The Commission 
also advanced important rules under the Jumpstart Our Business 
Startups (JOBS) Act aimed at encouraging the growth of small 
businesses through securities-based crowdfunding and an expanded 
exemption for securities offerings of up to $50 million. 

Aggressive Enforcement: 

The Enforcement Division (Enforcement) continued to bring new and 
innovative approaches to widen its enforcement footprint and deter 
wrongdoers. The Commission vigorously prosecuted executives and 
companies for accounting and financial fraud, held gatekeepers 
accountable for their illegal actions, and continued to focus 
enforcement efforts on insider trading. The Commission used powerful 
tools to crack down on wrongdoers, such as barring them from the 
securities industry and demanding admissions of wrongdoing where the 
circumstances warranted. In the past year, the Enforcement Division 
also saw several “firsts,” such as charging violations of the market 
access rule, the first enforcement action to halt a fraudulent 
municipal bond offering, the largest ever penalty for net capital rule 
violations, and the first case applying Dodd-Frank Act whistleblower 
anti-retaliation authority. 

The successful results over the past year sent a strong message to the 
financial markets that violations would be uncovered and punished, 
regardless of the size of the entity, position of the individual or 
magnitude of the wrongdoing. 

Enhanced Review Program: 

The Office of Compliance Inspections and Examinations (OCIE) continued 
to promote compliance through a multi-level outreach program, and to 
detect and prevent fraud through an increasingly sophisticated 
examination process. 

OCIE engaged registrants through a wide variety of channels ranging 
from its second annual public statement of examination priorities, to 
meetings with senior management, heads of control functions and 
independent directors. It also continued to enhance its ability to 
uncover fraud and suspicious activity by refining its risk-based 
targeting methodologies and improving its in-house expertise, with 
specialized working groups in key areas. It significantly expanded the 
scope of its data collection and analysis program, while skilled 
technologists in its Quantitative Analytics Unit (QAU) put powerful 
tools in the hands of Commission examiners. 

The SEC also worked to address the stability and resilience of the 
financial system, coordinating closely with the markets’ self-
regulatory organizations (SROs) on measures designed to improve the 
stability and resilience of the system. 

Comprehensive Review of Core Commission Programs: 

The Commission initiated and advanced broad-based reviews of core 
agency programs involving equity market structure, including 
enforcement actions against exchanges and alternative trading systems 
(ATS), and the effectiveness of its overall disclosure rules to 
protect investors and promote capital formation. 

Leveraging Data and Technology to Better Protect Investors and 
Strengthen Markets: 

In the past year, the Commission made great strides in improving its 
technology, particularly through the development of tools that permit 
it to better use data to monitor and enhance the integrity of the 
markets and inform the Commission’s exam program. The Market 
Information Data Analytics System (MIDAS) continues to fuel the review 
of market structure, and the National Exam Analytics Tool (NEAT) 
system enables examiners to review years of trading data and millions 
of transactions in minutes. These and other technology investments 
have enabled the Commission to fulfill its mission to protect 
investors and enable our markets to operate more efficiently and 
effectively. 

In addition to uncovering fraud and wrongdoing, the Commission used 
data-driven analysis to refine the rulemaking process and to deepen 
the understanding of current, complex market structure issues. 
Examinations of ATS and over-the-counter trading were posted for the 
public and market participants on the SEC’s new market structure 
website, which has rapidly become a trusted and influential resource 
within the financial community. 

A continuing focus on information technology (IT) upgrades also 
yielded a platform upgrade for the agency’s Tips, Complaints and 
Referrals Intake and Resolution portal and systems that will allow 
Enforcement to better and more efficiently analyze, store and review 
the millions of electronic records that hold the key to successful 
actions. 

Increased Outreach to Investors: 

The Commission continued to provide educational programs and 
materials, coordinate with foreign counterparts, and scrutinize 
disclosures to ensure that investors are getting appropriate 
information. 

Throughout the agency, the SEC’s talented and dedicated staff are 
creating and embracing new tools and technology, deploying new and 
innovative strategies to protect investors, keep markets safe and 
encourage capital formation – more effectively than ever before. 

In FY 2014, the SEC embraced the challenges of a growing mandate and 
increasingly complex marketplace by providing strong and effective 
rulemakings; innovative strategies for vigorous enforcement; enhanced 
examinations and oversight; a deepened determination to oversee the 
most complex and rapidly evolving corners of the financial markets; 
and a recommitment to traditional priorities including investor 
education and international cooperation. The SEC continued its strong 
commitment to protect investors, ensure that our nation has the safest 
and most dynamic financial markets in the world and provide better 
opportunities for capital formation. 

A Focused Rulemaking Agenda: 

In FY 2014, the SEC focused on advancing both important discretionary 
policy initiatives and rules required under the Dodd-Frank and JOBS 
Acts in those areas that are central to protecting investors, 
maintaining fair, orderly, and efficient markets, and facilitating 
capital formation. Under the Dodd-Frank Act, the Commission completed 
new rules regarding the regulation of proprietary trading, 
derivatives, asset-backed securities, and credit ratings. Under the 
JOBS Act, the Commission proposed new rules to facilitate crowdfunding 
and securities offerings up to $5 million within a 12-month period. At 
the same time, the SEC continued to push a broader agenda beyond these 
statutes, including the adoption of new rules regarding money market 
funds. 

The Dodd-Frank Act: 

With the efforts of the last fiscal year, the Commission has now 
completed virtually all of its mandatory rulemaking in six of the 
eight significant areas targeted for SEC action by the Dodd-Frank Act: 
the regulation of private fund advisers; restrictions on proprietary 
trading; enhanced standards for clearing agencies; a new regulatory 
framework for municipal advisors; better regulation of credit rating 
agencies and credit ratings; and stronger protections for investors in 
asset-backed securities. In addition to fulfilling these mandates, the 
SEC continued rulemaking to execute its mandates in the two remaining 
significant areas addressed by the Dodd-Frank Act – over-the-counter 
derivatives and executive compensation. 

Volcker Rule: 

In December 2013, the Commission joined the Federal banking agencies 
and the Commodity Futures Trading Commission (CFTC) in adopting a 
final rule implementing Section 619 of the Dodd-Frank Act, known as 
the “Volcker Rule.” This rule generally restricts financial 
institutions affiliated with banks – including broker-dealers and 
investment advisers – from engaging in proprietary trading, sponsoring 
hedge funds and private equity funds, or investing in such funds. At 
the same time, consistent with the Dodd-Frank Act, this rule preserves 
certain financial services essential to the healthy functioning of the 
U.S. financial system, including market making and underwriting. 

Following adoption of the Volcker Rule, the Commission staff has 
continued to work closely with the staffs of the other financial 
regulators to address implementation issues including, among other 
things, coordinated responses to interpretive questions, technical 
issues related to the collection of metrics data, and approaches to 
supervising and examining banking entities. 

Clearing Agencies: 

The Commission continued to work to improve the supervision of 
clearing agencies, particularly those designated by the Financial 
Stability Oversight Council as systemically important. In March 2014, 
the SEC proposed additional standards for systemically important 
clearing agencies and clearing agencies that clear security-based 
swaps. The proposed rules would subject covered clearing agencies to 
new requirements regarding their financial risk management, 
operations, and governance, as well as their disclosures to market 
participants and the public. 

Credit Rating Agencies: 

In August 2014, the Commission adopted an expansive set of rules under 
the Dodd-Frank Act to enhance the governance of credit rating agencies 
and improve the quality of their credit ratings. The new requirements 
for credit rating agencies address internal controls, conflicts of 
interest, disclosure of credit rating performance statistics, 
procedures to protect the integrity and transparency of rating 
methodologies, disclosures to promote the transparency of credit 
ratings, and standards for training, experience, and qualifications of 
credit analysts. The requirements provide for an annual certification 
by the Chief Executive Officer (CEO) concerning the effectiveness of 
internal controls and additional certifications to accompany credit 
ratings attesting that the rating was not influenced by other business 
activities. 

Reliance on Credit Ratings: 

In December 2013, as mandated by the Dodd-Frank Act, the Commission 
removed references to credit ratings from the broker-dealer financial 
responsibility rules and certain portfolio requirements for funds, 
marking the removal of references from 22 Commission rules and forms 
since the statute was enacted. The SEC continues to work to finish the 
removal of four remaining references, re-proposing in July 2014 to 
remove references in provisions regulating money market funds. This re-
proposal would also eliminate an exclusion from the issuer 
diversification provisions applicable to money market funds for 
securities with certain guarantees. 

Securitization: 

In August 2014, the SEC adopted rules that revise the offering 
process, disclosure, and reporting for asset-backed securities to 
require issuers to include loan-level disclosure for certain assets, 
such as residential and commercial mortgages and automobile loans. The 
rules, which implement provisions of the Dodd-Frank Act, also provide 
more time for investors to review and consider a securitization 
offering, revise the eligibility criteria for using an expedited 
offering process known as “shelf offerings,” and significantly enhance 
reporting requirements. 

The SEC also continued its efforts with five other Federal agencies to 
finalize rules requiring sponsors of securitization transactions to 
retain risk in those transactions. 

Derivatives: 

The SEC completed its proposals to implement Title VII of the Dodd-
Frank Act, which requires the creation of an entirely new regulatory 
framework for over-the-counter derivatives, and commenced the adoption 
of final rules. In April 2014, the SEC proposed recordkeeping and 
reporting rules for firms engaged in security-based swap activities, 
which are designed to promote better risk management and improve 
regulatory oversight. 

In June 2014, the SEC adopted a series of rules, and issued guidance 
on cross-border security-based swap activities for market 
participants. The rules and guidance represent the initial threshold 
step in the agency’s efforts to establish a framework to address 
market participants that may be subject to more than one set of 
regulations across different jurisdictions as a result of their cross-
border swaps activity. Importantly, the adoption of these rules will 
also enable the Commission to move forward with the remainder of its 
outstanding proposals for substantive rules under Title VII, including 
those regarding security-based swap reporting and trading, as well as 
the registration and regulation of dealers and major market 
participants. 

Investor Advisory Committee and the Office of the Investor Advocate: 

The SEC’s Investor Advisory Committee (IAC), established by the Dodd-
Frank Act, continued to advise the Commission on regulatory 
priorities, the regulation of securities products, trading strategies, 
fee structures, the effectiveness of disclosure, and on initiatives to 
protect investor interests, and promote investor confidence and the 
integrity of the securities marketplace. 

In April 2014, the Commission issued a release seeking comment on an 
IAC recommendation regarding disclosure by target date funds. In 2010, 
the Commission proposed rule amendments that would require marketing 
material for target date funds to include, among other disclosures, an 
illustration of the changes in the fund’s asset allocation over time, 
i.e., an illustration of the fund’s asset allocation glide path. The 
Commission reopened the comment period on the proposal to request 
comment on the IAC’s recommendation that the Commission develop a 
glide path illustration based on a standardized measure of fund risk 
as a replacement for, or supplement to, the proposed asset allocation 
glide path illustration. 

[Photograph: From left to right: Investor Advocate Rick Fleming, 
Commissioner Kara M. Stein, Commissioner Luis A. Aguilar, Chair Mary 
Jo White, Commissioner David M. Gallagher, and Commissioner Michael S. 
Piwowar] 

The SEC also appointed Rick Fleming to serve as the first Investor 
Advocate in the agency’s Office of the Investor Advocate established 
by Section 915 of the Dodd-Frank Act, completing the senior leadership 
team for the five new offices established by the Act. 

Studies and Reports: 

In FY 2014, the SEC also neared completion of its work on the 28 
studies and reports mandated by the Dodd-Frank Act. The SEC staff 
completed a report to Congress in November 2013 regarding the 
independence of credit rating agencies and how that affects the credit 
ratings they issue, including an evaluation of the management of 
conflicts of interest raised by a credit rating agency providing 
ancillary services, such as risk management advice or consulting. 

The SEC staff also completed a report to Congress in June 2014 
regarding the feasibility, benefits, and costs of requiring the real-
time reporting of certain short sale positions, and adding new, short 
sale-related marks to the public dissemination of securities 
transactions in a voluntary pilot program for issuers. 

The JOBS Act:  

Over the last fiscal year, the Commission advanced all of the 
outstanding major rules mandated by the JOBS Act, which requires a 
number of initiatives designed to promote initial public offerings 
(IPOs) of smaller companies and small business capital formation. 

Crowdfunding: 

In October 2013, the Commission proposed rules under the JOBS Act to 
permit companies to offer and sell securities through crowdfunding, an 
evolving method of raising capital. Crowdfunding has been used outside 
of the securities arena to raise funds through the internet for a 
variety of projects, ranging from innovative product ideas to artistic 
endeavors such as films or music. The JOBS Act created an exemption 
from registration under the Securities Act so that this type of 
funding method can be used to offer and sell securities. The JOBS Act 
also established the foundation for the regulatory structure of this 
new market. 

Regulation A+: 

The Commission proposed rules in December 2013 intended to increase 
access to capital for smaller companies under a JOBS Act mandate. The 
proposal built on Regulation A, an existing exemption from Securities 
Act registration for securities offerings up to $5 million within a 12-
month period. The updated exemption, commonly referred to as “
Regulation A+,” would enable companies to offer and sell up to $50 
million of securities within a 12-month period. 

Additional JOBS Act Activities: 

The Commission staff continued to monitor the effect of the 
elimination of the ban on general solicitation and general advertising 
on the securities markets, as well as the public comment on the 
Commission’s proposed amendments to Regulation D and certain other 
rules from last fiscal year. 

The SEC staff also conducted a review of the disclosure requirements 
in Regulation S-K, and concluded to undertake further efforts to study 
ways in which the disclosure rules could be modernized, made more 
effective, and simplified to reduce the costs and other burdens for 
emerging growth companies, while simultaneously improving the 
readability and navigability of disclosure documents for investors. 

Money Market Fund Reform: 

In July 2014, drawing on legal expertise, economic analysis, and 
regulatory experience from across the Agency, the SEC adopted measures 
to reduce the risk of contagion from rapid heavy redemptions in money 
market funds. The Commission’s reforms included a combination of a 
targeted floating net asset value for prime institutional funds as 
well as a liquidity fees and redemption gates regime for all non-
government money market funds. These reforms also enhanced money 
market fund disclosure, reporting, diversification, and stress testing 
requirements. 

In an effort to reduce costs associated with these reforms and their 
impact on investors, the Commission and its staff worked closely with 
the Treasury Department and the Internal Revenue Service to facilitate 
the issuance of new regulations that should significantly mitigate tax 
compliance issues and costs for investors in floating net asset value 
funds. 

In addition, the Commission staff has formed a working group to 
maintain an ongoing, comprehensive review of the implementation and 
impact of the money market mutual fund reforms. 

Enhancing Market Structure and Resiliency: 

During FY 2014, the Commission has closely focused on bolstering 
resilience throughout critical market systems. In particular, after 
the August 2013 interruption in the trading of Nasdaq-listed 
securities, the equities and options exchanges, the Financial Industry 
Regulatory Authority (FINRA), and the clearing corporations have been 
working together with other market participants to identify a series 
of concrete measures designed to address specific areas where 
robustness and resilience of market systems could be improved. 

The exchanges have conducted a series of specific enhancements to 
improve robustness and resilience of the securities information 
processors, or SIPs. The exchanges have also developed more robust SIP 
backup capabilities, and have implemented a new “hot-warm” backup, 
with a ten-minute recovery standard. 

In addition to these initiatives, the Commission continues its efforts 
to foster robust market infrastructure and reduce the number of 
systems disruptions through a focus on systems compliance and 
integrity. For example, in March 2013, the Commission proposed 
Regulation SCI, which, among other things, would require that 
exchanges and other key market players maintain policies and 
procedures reasonably designed to ensure their operational capability 
and compliance with relevant laws and rules, and that these entities 
take appropriate corrective action if problems occur. Commission staff 
is working to prepare a recommendation for the Commission’s 
consideration with respect to the adoption of Regulation SCI. In 
addition, in March 2014, the Commission conducted a Cybersecurity 
Roundtable, which addressed the cybersecurity landscape and the 
cybersecurity issues faced by financial market participants today. 

The Commission’s continued focus on equity market structure was 
enhanced by the roll-out in October 2013 of its equity market 
structure website. The website is intended to promote a market-wide 
dialogue and fuller empirical understanding of the equity markets. It 
serves as a central location for SEC staff to publicly share evolving 
data, research, and analysis. 

The website includes detailed analyses of trading data by the Division 
of Trading and Markets’ Office of Analytics and Research (OAR). OAR 
has implemented a Market Information Data Analytics System (MIDAS) to 
collect and analyze market data from both the public consolidated data 
feeds and the “proprietary” data feeds provided by the exchanges to 
their customers. OAR has analyzed MIDAS data to address key issues 
raised by the current market structure, including trading speed, quote 
lifetimes, trade-to-order volume ratios, hidden volume ratios, and odd-
lot rates. 

Last month, the SROs submitted a proposal National Market System (NMS) 
plan related to the establishment of a consolidated audit trail that 
would capture customer and order event information for orders in NMS 
securities, across all markets, from the time of order inception 
through routing, cancellation, modification, or execution. Commission 
staff is in the process of reviewing the proposed NMS plan and will 
provide a recommendation to the Commission regarding publication of 
the plan for notice and comment in Federal Register. After 
publication, Commission staff will review the comments and provide a 
recommendation to the Commission regarding whether to approve the 
proposed NMS plan. 

The equity market structure website reflects the Commission’s data-
driven approach to a wide range of important and pressing market 
structure issues. The Commission is particularly focused on whether 
market structure rules and regulatory arrangements continue to meet 
their objectives of investor protection, fair and orderly markets, and 
capital formation. Continued evaluation and, as appropriate, advancing 
initiatives to address aspects of market structure issues is a 
priority for the Commission in FY 2015. 

In an effort to assess higher quality markets for smaller companies, 
the Commission issued an order directing the exchanges and FINRA to 
submit a NMS plan to implement a tick size pilot, which would widen 
the quoting and trading increment for certain small capitalization 
companies. The tick size pilot was submitted to the Commission on 
August 25, 2014, including the trade-at rule. 

Commission staff is doing a comprehensive review of market structure 
issues and is pursuing initiatives to address issues regarding high 
frequency trading, fragmentation in the equity markets, and broker 
conflicts. For example, the staff is working on establishing a new 
Market Structure Advisory Committee of experts. Once the Committee is 
established, it is anticipated that staff will provide materials for 
the Committee to consider on a wide range of market structure issues 
including whether the Commission’s own rules, such as the trade-
through rule of Regulation NMS, have contributed to excessive 
fragmentation across all types of venues and whether the current 
regulatory model for exchanges and other trading venues makes sense 
for today’s markets. 

Commission staff is also preparing two recommendations for the 
Commission: the first, a rule to clarify the status of unregistered 
active proprietary traders to subject them to our rules as dealers; 
and second, a rule to eliminate an exemption from securities 
association membership requirements for dealers that trade in off-
exchange venues. Dealer registration and FINRA membership should 
significantly strengthen regulatory oversight over active proprietary 
trading firms and the strategies they use. 

Commission staff is also preparing recommendations to improve firms’ 
risk management of trading algorithms and to enhance regulatory 
oversight over their use. In this regard, FINRA is currently pursuing 
an initiative to provide suggested supervision and control practices 
for firms engaging in algorithmic trading strategies and to require 
that persons responsible for the design or development of algorithmic 
trading strategies to register as associated persons. 

Commission staff is preparing a recommendation to the Commission to 
expand the information about ATS operations submitted to the 
Commission and to make the information available to the public. In 
addition, Commission staff is preparing a recommendation to the 
Commission for a rule that would enhance order routing disclosures. 
This rule proposal would require disclosure of the customer-specific 
information that a broker is expected to provide to each institutional 
customer on request. This rule would help to ensure that information 
disclosed to customers is useful, reliable, and uniformly available on 
request to all institutional customers. 

In June, the exchanges and FINRA were asked to consider including a 
time stamp in the consolidated data feeds that indicates when a 
trading venue, for example, processed the display of an order or 
execution of a trade. The exchanges were also asked to develop 
proposed rule changes to disclose how they are using data feeds. The 
exchanges and FINRA have initially responded to this request by 
seeking authorization from the SIP committees to establish a new time 
stamp for public dissemination and the exchanges have submitted rule 
changes to disclose their use of market data feeds in their 
operations. In addition, FINRA is pursuing an initiative to expand 
transparency in the over-the-counter market by disseminating non-ATS 
volume information. 

Commission staff also is developing a recommendation to the Commission 
for an anti-disruptive trading rule. The rule would address the use of 
aggressive, destabilizing trading strategies in vulnerable market 
conditions, when they could most seriously exacerbate price 
volatility. It is anticipated that the rule would apply to active 
proprietary traders in short time periods when liquidity is most 
vulnerable and the risk of price disruption caused by aggressive short-
term trading strategies is highest. 

Finally, the exchanges have undertaken a comprehensive review of their 
order types and how they operate in practice, the results of which are 
expected to be provided to the Commission before the end of the 
calendar year. 

Building on a Strong Enforcement Program:  

In FY 2014, the SEC built an impressive record of cases that spanned 
the spectrum of the securities industry. These actions punished 
securities law violators, served as a strong deterrent to misconduct, 
returned funds to injured investors, and sent important messages to 
the market. Some of the notable actions Enforcement brought include 
actions against: exchanges, to ensure that they operate fairly and in 
compliance with applicable rules; investment advisers and broker-
dealers, for taking undisclosed fees and disrupting the markets 
through failures in their trading systems; issuers, for significant 
financial reporting failures; auditors and others who serve as 
gatekeepers to our financial system; large international corporations, 
for violations of the Foreign Corrupt Practices Act (FCPA); municipal 
issuers for disclosure failures; and an array of insider trading cases. 

The SEC ended FY 2014 with 755 enforcement actions and obtained orders 
for $4.16 billion in penalties and disgorgement. The quality, breadth, 
and impact of these actions helped boost investor confidence and 
increase market integrity. Enforcement continued to focus on ensuring 
that its actions sent a strong deterrent message by pursuing 
significant monetary penalties and continuing to require admissions in 
appropriate cases. This fiscal year was also marked by Enforcement’s 
pursuit of creative strategies for conducting investigations and 
bringing actions. Enforcement developed and used new tools to harness 
and mine data sources, which expanded the SEC’s ability to target 
misconduct, and increased coordination with those inside the agency as 
well as the SEC’s law enforcement and regulatory partners. 

A Year of Firsts: 

FY 2014 was marked by a number of first-of-their-kind actions driven 
by an enforcement effort committed to using innovative approaches to 
uncover misconduct and hold wrongdoers accountable. Some of these 
actions include those described below. 

* The SEC filed its first enforcement actions charging violations of 
the market access rule. This rule, adopted in 2010 as Rule 15c3-5 of 
the Securities Exchange Act of 1934 (Exchange Act), requires firms to 
have adequate risk controls in place before providing customers with 
access to the market. 

- In the first action, Knight Capital Americas LLC paid a $12 million 
penalty to settle charges that it violated the market access rule in 
connection with a trading incident that resulted in market disruption. 
According to the SEC’s order, as a result of two critical technology 
missteps, a Knight Capital order router rapidly sent more than four 
million orders into the market when attempting to fill just 212 
customer orders. The SEC’s order also charged Knight Capital with 
violating the market access rule in various ways, including by relying 
on financial risk controls that were not capable of preventing the 
entry of orders that exceeded pre-set capital thresholds for the firm 
in the aggregate. 

- In the second action, the SEC charged Wedbush Securities, one of the 
largest volume market access providers in the United States, and two 
individuals, with violating the market access rule and a host of other 
regulatory requirements as a result of trading by its market access 
customers. Enforcement charged that Wedbush allowed thousands of 
essentially anonymous foreign traders to send orders directly to U.S. 
trading venues to trade billions of shares every month, but failed to 
establish, document, and maintain a system of risk management controls 
and procedures reasonably designed to manage the risks associated with 
its business. 

* In the first case under its new authority to bring anti-retaliation 
enforcement actions, the SEC charged Paradigm Capital Management, a 
hedge fund adviser, for engaging in prohibited principal transactions 
and subsequently retaliating against the employee who reported the 
trading activity to the SEC. The firm’s owner was charged with causing 
the improper principal transactions. The firm and its owner agreed to 
pay $2.2 million to settle the charges. 

* The SEC charged TL Ventures, a private equity firm, with violations 
of the investment adviser pay-to-play rules in the first action 
involving violations of these rules. The pay-to-play rules, adopted in 
2010, prohibit investment advisers from providing compensatory 
advisory services for two years following a campaign contribution by 
the firm or certain associates to political candidates or officials in 
a position to influence the selection or retention of advisers to 
manage public pension funds. According to the SEC’s order, TL Ventures 
continued to receive compensation from two public pension funds within 
two years after an associate made campaign contributions to a mayoral 
candidate and a governor. TL Ventures agreed to settle the charges by 
paying nearly $300,000. 

[Photograph: Chair Mary Jo White and Director of the Enforcement 
Division Andrew Ceresney] 

* A municipal issuer in the state of Washington’s Wenatchee Valley 
region agreed to pay a $20,000 penalty – the first-ever against a 
municipal issuer – and undertake remedial efforts to settle charges 
that it misled investors in a bond offering. The SEC also settled 
charges against the underwriter and outside developer of the project, 
and three individuals involved in the offering. 

* The SEC obtained a court order against the City of Harvey, Illinois 
and its comptroller to halt a fraudulent municipal bond offering. This 
was the first time that the SEC has sought an emergency court order to 
stop a municipal bond offering. The SEC alleged that the city was 
marketing new bonds without disclosing that it had previously diverted 
at least $1.7 million of bond proceeds from a prior bond offering to 
pay the city’s operational costs. 

* The SEC charged Scottrade, a brokerage firm, with failing to provide 
the agency with complete and accurate information concerning trades 
executed by the firm and its customers over a six-year period. 
Scottrade agreed to settle the charges by paying a $2.5 million 
penalty, admitting it violated the Federal securities laws, and 
retaining an independent compliance consultant to remediate its 
compliance failures. This was the SEC’s first action to enforce the 
recordkeeping requirements established by Rules 17a-25 and 17a-
4(f)(3)(v) of the Exchange Act. 

* The SEC charged Ernst & Young LLP with violating auditor 
independence rules for actions taken by its subsidiary to lobby 
congressional staff on behalf of two audit clients. The lobbying 
activities were impermissible under the SEC’s auditor independence 
rules because they put the firm in the position of being an advocate 
for those audit clients. The SEC’s order found that despite these 
lobbying activities, Ernst & Young repeatedly represented that it was 
“independent” in audit reports issued on the clients’ financial 
statements. This marked the SEC’s first action involving violations of 
the auditor independence rules in connection with lobbying activity. 
Ernst & Young agreed to pay $4 million to settle the SEC’s charges. 

* The SEC charged Wells Fargo Advisors LLC with failing to maintain 
and enforce procedures reasonably designed to prevent employees from 
misusing material nonpublic information obtained from retail customers 
and clients, unreasonably delaying its production of documents during 
an SEC investigation, and providing an internal document related to a 
compliance review of a broker’s trading that had been altered by a 
compliance officer. This is the SEC’s first action against a broker-
dealer for such failures to protect a customer’s information that had 
been misappropriated by an employee. The SEC’s action against Wells 
Fargo arose out of a prior insider trading case against a Wells Fargo 
broker who learned confidentially from his customer that Burger King 
was being acquired. The broker then traded on that information ahead 
of the public announcement and tipped others who also traded. Wells 
Fargo agreed to settle the SEC’s charges by admitting wrongdoing, 
paying a $5 million penalty, and agreeing to retain an independent 
consultant. 

Market Structure, Exchanges, and Broker-Dealers: 

The proliferation of sophisticated trading technologies and trading 
venues has radically transformed the markets. Enforcement is keenly 
focused on keeping pace with these changes by leveraging the knowledge 
of its specialized units, closely collaborating with the other SEC 
divisions and OCIE, and employing technology to more effectively use “
big data.” During FY 2014, Enforcement amplified its focus on market 
structure issues and filed a number of actions against market 
participants who pose a risk to the markets by failing to operate 
within the rules. These included significant cases against exchanges, 
ATSs, broker-dealers, and other key market participants relating to 
failures in controls, failures to safeguard customer information, and 
manipulative trading. 

* The SEC charged the New York Stock Exchange LLC and two affiliated 
exchanges for repeatedly engaging in business practices that either 
violated exchange rules or required a rule when the exchanges had none 
in effect. The exchanges agreed to settle the SEC’s charges by 
retaining an independent consultant and, together with an affiliated 
routing broker who was also charged, paying a $4.5 million penalty. 

* The SEC charged Liquidnet Inc., a brokerage firm that operates an 
ATS known as a “dark pool,” with improperly using subscribers’ 
confidential trading information in marketing its services. The SEC’s 
order found that Liquidnet violated Regulation ATS, which, among other 
things, requires all ATSs to have safeguards and procedures to protect 
their subscribers’ confidential trading data. Liquidnet agreed to pay 
a $2 million dollar penalty to settle the charges. 

* LavaFlow, a brokerage firm operating an ATS known as an electronic 
communications network, agreed to pay $5 million to settle the SEC’s 
charges that it failed to protect the confidential trading data of its 
subscribers. The settlement included a $2.85 million penalty – the 
largest penalty to date against an ATS. The SEC also charged LavaFlow 
with aiding and abetting an affiliate’s broker-dealer registration 
violations. 

* The SEC charged three brokerage subsidiaries of ConvergEx Group, a 
global trading services provider, plus two former employees of certain 
subsidiaries, with fraud for deceiving customers about hidden fees to 
buy and sell securities. In a separate action, the SEC also charged 
the former CEO of a broker-dealer subsidiary of ConvergEx for 
deceiving customers in connection with the same scheme. The SEC 
alleged that the former CEO concealed the fees and encouraged traders 
under his management to do the same. The ConvergEx subsidiaries agreed 
to pay more than $107 million and admit wrongdoing to settle the SEC’s 
charges. The two former employees also settled the SEC’s charges. 

* The SEC charged Latour Trading LLC, a high frequency trading firm, 
and its former Chief Operating Officer (COO) for the firm’s repeated 
violations of the net capital rule and related recordkeeping 
provisions and filing requirements. The SEC’s order found that Latour 
routinely failed to maintain its required minimum net capital by 
millions of dollars. To settle these charges, Latour agreed to pay a 
$16 million penalty – the largest ever penalty for net capital rule 
violations – and the former COO agreed to pay a $150,000 penalty. 

* The SEC charged the owner of a New Jersey-based brokerage firm with 
a manipulative trading practice known as “layering.” The alleged 
scheme involved the owner tricking others into buying or selling 
stocks at artificial prices driven by orders that he later canceled. 
The SEC also charged the owner and others with registration 
violations. The two firms and five individuals charged by the SEC 
agreed to, among other things, pay a combined total of nearly $3 
million to settle the charges and the owner agreed to a bar from the 
securities industry. 

Insider Trading: 

Unlawful insider trading always receives significant enforcement 
attention, and this fiscal year was no exception. In FY 2014, the SEC 
brought 52 insider trading actions. These cases, which sent a strong 
deterrent message to would be-violators, involved a wide range of 
entities and individuals including financial professionals, lawyers, 
and corporate insiders who breached their duties in pursuit of their 
own personal gain. Notable examples included: 

* The SEC charged a former trader for the hedge fund Level Global 
Investors, L.P., with insider trading in the securities of Carter’s 
Inc., a youth clothing company. The trader caused Level Global to 
trade in advance of market-moving news concerning Carter’s after 
receiving tips through a consulting agreement with a former Carter’s 
VP of investor relations. The total profits and losses avoided on the 
trades exceeded $3 million. 

* The SEC charged three founders of Lawson Software with insider 
trading ahead of the company’s sale by misusing nonpublic information 
to take unfair advantage of incorrect media speculation and analyst 
reports about the company’s acquisition. They agreed to pay nearly 
$5.8 million to settle the charges. 

* The SEC charged a stockbroker and a managing clerk at a major law 
firm with insider trading in a $5.6 million scheme in which the clerk 
tipped the stockbroker through a middleman about more than a dozen 
corporate transactions for which his law firm provided advice. The 
middleman, who the SEC also charged for his role in the scheme, met 
the stockbroker at Grand Central Terminal where he would show the 
stockbroker a piece of paper with the relevant ticker symbol and then 
eat the tip to destroy the evidence. 

* The SEC charged four individuals in a $12 million serial insider 
trading scheme that lasted more than three years in which they traded 
in Ross Stores stock options based on nonpublic information about 
monthly sales results leaked by a former Ross Stores’ employee. 

Financial Reporting/Accounting and Disclosure Fraud: 

In FY 2014, Enforcement intensified its focus on financial reporting 
and accounting fraud. Comprehensive, accurate, and reliable financial 
reporting is critical to ensuring that investors and the markets 
receive information needed to make informed decisions. Enforcement 
actions in this area are essential to ensuring public confidence in 
our securities markets. 

* CVS Caremark Corp. paid $20 million to settle SEC charges that it 
misled investors about significant financial setbacks and used 
improper accounting that artificially boosted its financial 
performance. The SEC alleged that in offering documents for a $1.5 
billion bond offering, CVS fraudulently omitted that it had recently 
lost significant Medicare Part D and contract revenues in the pharmacy 
benefits segment. In addition, the SEC alleged that CVS further misled 
investors by manipulating how it calculated its retention rate, a key 
metric for pharmacy benefits managers. CVS also allegedly made 
improper accounting adjustments that overstated the financial results 
for its retail pharmacy line of business. The retail controller who 
was charged with orchestrating these improper adjustments agreed to 
settle the SEC’s charges by paying a $75,000 penalty and being barred 
for at least one year from practicing as an accountant on behalf of 
any publicly traded company or entity regulated by the SEC. 

* The SEC charged five executives and finance professionals in 
connection with a $150 million fraudulent bond offering by Dewey & 
LeBoeuf LLP, the international law firm where they worked. The SEC 
alleged that the senior financial officers inflated the firm’s 
profitability by millions of dollars to conceal breaches of debt 
covenants in the firm’s loan agreements and that this information was 
then incorporated into bond offering documents. The SEC further 
alleged that the firm continued to conceal its improper accounting by 
making fraudulent quarterly certifications in connection with the 
offering. 

* The SEC charged Diamond Foods, Inc., a snack foods company, and its 
former Chief Financial Officer (CFO) in an accounting scheme to 
falsify walnut costs in order to boost earnings and meet analyst 
estimates. The former CEO was also charged for his role in the company’
s false financial statements filed with the SEC, which included 
omitting material facts from representations to Diamond’s outside 
auditors. Diamond agreed to pay $5 million to settle the SEC’s 
charges. The former CEO, who returned or forfeited more than $4 
million in bonuses and other benefits, also agreed to pay a $125,000 
penalty to settle the SEC’s charges. 

* The SEC charged Lions Gate Entertainment Corp. with failing to fully 
and accurately disclose to investors a set of extraordinary corporate 
transactions that put millions of newly issued company shares in the 
hands of a management-friendly director in order to thwart a hostile 
takeover bid. Lions Gate admitted the facts underlying the misconduct 
and paid $7.5 million to settle the SEC’s charges. 

* The SEC used its authority under the “clawback” provision of the 
Sarbanes-Oxley Act of 2002 to require the former CEO of Saba Software, 
Inc. to reimburse the company $2.5 million in bonuses and stock 
profits he received while an accounting fraud occurred at the company. 
At the same time, the SEC charged Saba Software and two former 
executives behind the accounting fraud scheme in which U.S.-based 
managers directed consultants in India to falsify timesheets so that 
the company could achieve quarterly revenue and margin targets. Saba 
Software agreed to pay $1.75 million to settle the SEC’s charges and 
the two former executives agreed to settle the case as well. The 
clawback provision does not require a finding that a CEO personally 
engage in misconduct in order to trigger a reimbursement obligation. 

Gatekeepers: 

Enforcement remained focused on gatekeepers to our financial system, 
including attorneys, accountants, fund directors, board members and 
other industry professionals who play a critical role in the 
functioning of the securities industry. Gatekeepers are integral to 
protecting investors in our financial system because they are best 
positioned to detect and prevent the compliance breakdowns and 
fraudulent schemes that cause investor harm. Actions against 
gatekeepers included: 

* The SEC charged AgFeed Industries, Inc., an animal feed company, and 
eight of its executives with conducting a massive accounting fraud in 
which they repeatedly reported fake revenues from their China 
operations to meet financial targets and prop up the company’s stock 
price. Among those charged was the company’s U.S.-based audit 
committee chair who learned of the misconduct. The SEC alleged that 
instead of taking meaningful action after learning of the fraud, the 
audit committee chair, along with the company’s CFO at the time, 
engaged in efforts to raise capital for expansion and acquisitions. 
The SEC settled its charges against the former interim CEO, who agreed 
to be barred from serving as an officer or director of a public 
company, and paid a $100,000 penalty. A former CFO of the company who 
cooperated with the SEC’s investigation also settled the SEC’s charges 
by agreeing to an order suspending him from practicing as an 
accountant for at least five years. AgFeed subsequently agreed to pay 
$18 million to settle the SEC’s charges. Under the proposed 
settlement, which is subject to court approval, the $18 million will 
be distributed to victims of the company’s fraud. 

* The SEC charged transfer agent Registrar and Transfer Company (R&T) 
and its CEO for violations of the registration provisions of the 
securities laws and failing to supervise firm employees who enabled an 
unlawful, unregistered distribution of the shares of Heathrow Natural 
Food & Beverage, Inc. Heathrow, a microcap company, was the subject of 
a “pump and dump” scheme orchestrated by its CEO, who the SEC also 
charged. An SEC examination of R&T revealed that it repeatedly failed 
to detect and address red flags in connection with more than 54 share 
issuance requests from Heathrow’s CEO. R&T and its CEO agreed to 
settle the charges by paying a combined total of more than $150,000 
and R&T’s CEO also agreed to be suspended for 12 months from serving 
in a supervisory capacity with a transfer agent. 

* The SEC charged Sherb & Co., LLP, an audit firm, and four auditors 
for their roles in the failed audits of three China-based companies. 
An SEC investigation found that Sherb & Co. and its auditors falsely 
represented in audit reports that their audits were done in accordance 
with U.S. auditing standards. In reality, the audits were replete with 
failures and improper professional conduct, and one of the companies 
they audited was charged by the SEC with financial fraud. To settle 
the charges, Sherb & Co. and the four individual auditors agreed to be 
barred from practicing as accountants on behalf of any publicly traded 
company or other entity regulated by the SEC, and the firm also agreed 
to pay a $75,000 penalty. 

* The SEC also brought actions under a risk-based initiative 
internally designated “Operation Broken Gate,” which seeks to identify 
auditors who may have violated the Federal securities laws or failed 
to comply with U.S. auditing standards during their audits and reviews 
of financial statements for publicly traded companies. This ongoing 
initiative has led to multiple actions against auditors and their 
affiliated firms, resulting in suspensions from auditing public 
companies. 

Microcap Fraud: 

Enforcement sent a strong message that the SEC is bringing its 
resources to bear to halt microcap fraud. During the last fiscal year, 
Enforcement took proactive steps to combat microcap fraud by more 
frequently suspending trading in securities that are the objects of 
pump and dumps, targeting repeat players who help facilitate these 
schemes, and building on the SEC’s relationships with its regulatory 
and law enforcement counterparts. Enforcement’s efforts in this area 
included: 

* Suspending trading in 255 dormant shell companies, any of which 
might have been the next vehicle for stock manipulators. 

* Charging a penny stock promoter, who ran a pair of well-known 
websites that disseminated emails promoting penny stocks, with a 
fraudulent practice known as “scalping.” The SEC alleged that the 
promoter disseminated emails to approximately 700,000 people 
recommending a penny stock, but the emails failed to disclose that the 
promoter held more than 1.4 million shares of the stock that he 
intended to sell immediately. The SEC obtained an emergency asset 
freeze to prevent the promoter from liquidating $1.9 million in 
trading profits he made from exploiting the run up in the price of a 
microcap stock he touted. The promoter settled the charges by 
consenting to a judgment that required him to pay $3.73 million in 
sanctions, barred him from participating in any penny stock offering, 
and enjoined him from recommending stocks without making certain 
disclosures. 

* Charging four penny stock promoters for manipulating the securities 
of six different thinly-traded penny stock companies in an alleged 
$2.5 million scheme involving pre-arranged, manipulative matched 
orders and wash trades that created the illusion of an active trading 
market. 

* Charging six penny stock promoters and the CEO of a microcap company 
in a joint law enforcement effort focused on penny stock fraud. The 
SEC alleged that five of the penny stock promoters engaged in various 
manipulation schemes involving undisclosed payments to induce 
purchases of microcap stock to generate the false appearance of market 
interest. The same day, the SEC announced charges against a microcap 
company and its CEO for orchestrating a pair of illicit kickback 
schemes and an insider trading scheme involving the company’s stock. 
The SEC also charged a sixth promoter for his role in the insider 
trading scheme. 

Municipal Securities: 

In FY 2014, the SEC continued its focus on the municipal securities 
market, bringing significant, novel actions charging the full spectrum 
of market participants. Areas of focus this year included conflicts of 
interest, pay-to-play schemes, and a new initiative to encourage self-
reporting of certain securities law violations by municipal issuers 
and underwriters. 

* Enforcement launched the Municipalities Continuing Disclosure 
Cooperation (MCDC) initiative to encourage issuers and underwriters of 
municipal securities to self-report certain violations of the Federal 
securities laws relating to the continuing disclosure obligations 
specified in Rule 15c2-12 under the Exchange Act. Under the 
initiative, Enforcement agreed to recommend standardized, favorable 
settlement terms to settle actions with municipal issuers and 
underwriters who self-report violations. 

* The SEC filed its first action under the MCDC initiative against 
Kings Canyon Joint Unified School District, which resulted in Kings 
Canyon settling charges concerning an inaccurate continuing disclosure 
affirmation made in connection with a 2010 bond offering. Kings Canyon 
consented to an order to cease and desist from committing or causing 
any future violations of Section 17(a) of the Securities Act and 
agreed to, among other things, adopt written policies for its 
continuing disclosure obligations. 

* The SEC charged the state of Kansas with fraud for failing to 
disclose its multi-billion-dollar pension liability in bond offering 
documents, which created a repayment risk for investors in those 
bonds. Kansas settled the SEC’s charges by consenting to an order 
requiring it to cease and desist from committing future violations. 
Kansas also adopted new policies and procedures to improve disclosures 
about its pension liabilities. This enforcement action stemmed from a 
nationwide review of municipal bond disclosures that had resulted in 
prior actions against the states of New Jersey and Illinois. 

Investment Advisers: 

Investment advisers and the funds they manage remained a key focus of 
Enforcement during FY 2014. Enforcement brought actions against a wide 
range of investment advisers, including those who engaged in 
fraudulent conduct, had deficient compliance programs, and breached 
their fiduciary duties to their clients. 

* The SEC charged Barclays Capital Inc. with failing to maintain an 
adequate internal compliance system to ensure the firm did not violate 
any Federal securities laws after its wealth management business in 
the U.S. acquired the advisory business of Lehman Brothers in 
September 2008. An SEC examination and subsequent investigation found 
that Barclays failed to enhance its compliance infrastructure to 
integrate and support the acquisition and rapid growth of the advisory 
business from Lehman. According to the SEC’s order, the deficiencies 
in its compliance systems contributed to other securities law 
violations by Barclays. To settle the SEC’s charges, Barclays agreed 
to pay a $15 million penalty and undertake remedial measures, 
including engaging an independent compliance consultant. 

* The SEC charged Western Asset Management Company, an investment 
adviser, with fraud for concealing investor losses that resulted from 
a coding error and engaging in cross trading that favored some clients 
over others. Western Asset settled the SEC’s charges by agreeing to 
distribute more than $17 million to harmed clients, to pay a $2 
million penalty, and to retain an independent compliance consultant to 
address these failures. 

* The SEC charged Ambassador Capital Management, an investment 
advisory firm, and its portfolio manager for deceiving the trustees of 
a money market fund and failing to comply with rules that limit risk 
in a money market fund’s portfolio. The action stemmed from an ongoing 
analysis of money market fund data by the SEC’s Division of Investment 
Management, which recognized that the performance of the money market 
fund was consistently different from the rest of the market. In 
September 2014, Enforcement received a favorable initial decision in 
this matter, which among other things, permanently barred Ambassador 
Capital from association with any investment company, censured the 
portfolio manager, and ordered Ambassador Capital and the portfolio 
manager to pay combined civil penalties of more than $800,000.
* The SEC charged three investment advisory firms for violating the “
custody rule” that requires them to meet certain standards when 
maintaining custody of their clients’ funds or securities. The SEC’s 
investigation of these firms stemmed from referrals by the Agency’s 
OCIE examiners. These investigations found that New York-based Further 
Lane Asset Management, Massachusetts-based GW & Wade, and Minneapolis-
based Knelman Asset Management Group failed to maintain client assets 
with a qualified custodian or engage an independent public accountant 
to conduct surprise exams. The SEC also charged the CEO of Further 
Lane and the CEO and Chief Compliance Officer of Knelman for custody 
rule and other violations. All agreed to settle the charges and pay 
monetary sanctions in addition to other relief. 

[Photograph: Commissioner Luis A. Aguilar] 

International Enforcement: 

In coordination with the SEC’s Office of International Affairs (OIA), 
Enforcement continued to expand its international enforcement efforts. 
FY 2014 included several significant actions that involved cooperation 
with the SEC’s law enforcement and regulatory counterparts both at 
home and abroad. 

* The SEC charged global aluminum producer Alcoa, Inc. with FCPA 
violations related to illicit payments by subsidiaries to government 
officials in Bahrain to maintain a key source of business. The SEC 
alleged that more than $110 million in corrupt payments were made to 
Bahraini officials with influence over contract negotiations between 
Alcoa and a major government-operated aluminum plant. Alcoa agreed to 
pay $175 million to settle the SEC’s charges as part of a $384 million 
settlement that also resolved a parallel criminal case announced by 
the United States Department of Justice (DOJ). 

* The SEC charged Hewlett-Packard Company with violating the FCPA when 
its subsidiaries in Russia, Poland, and Mexico made improper payments 
in excess of $3.5 million to government officials to obtain or retain 
lucrative public contracts. Hewlett-Packard agreed to pay more than 
$31 million to settle the SEC’s charges as part of a $108 million 
settlement with the SEC and the DOJ. 

* The SEC charged Weatherford International Ltd. with violating the 
FCPA by authorizing bribes and improper travel and entertainment for 
foreign officials in the Middle East and Africa to win business, 
including kickbacks in Iraq to obtain United Nations Oil-for-Food 
contracts. Weatherford agreed to pay the SEC more than $65 million as 
part of a global settlement of more than $250 million to resolve the 
SEC’s charges and parallel actions by the DOJ and three other agencies. 

OIA continued to facilitate international cooperation and assistance 
to support the SEC’s enforcement efforts. Among other accomplishments 
in FY 2014: 

* OIA’s Enforcement Cooperation Group handled 960 SEC Enforcement 
Division requests for international assistance, 548 requests for 
assistance from foreign regulatory and law enforcement authorities, 
and 878 tips, complaints and referrals (TCRs) with international 
aspects (incoming and outgoing). 

* Through work with the International Organization of Securities 
Commissions (IOSCO), OIA worked to increase to 103 the signatories to 
the Multilateral Memorandum of Understanding (MMoU), which constitutes 
a net addition of six signatories from the end of FY 2013. The MMoU is 
the principal framework by which securities regulators around the 
world exchange information critical to the investigation and 
prosecution of cross-border securities violations. 

* OIA also opened 30 formal investigations to assist the SEC’s foreign 
regulatory counterparts. 

Complex Financial Instruments: 

In FY 2014, the SEC brought a number of actions involving complex 
financial instruments, which built on the SEC’s already strong record 
of pursuing financial crisis-related cases. 

* The SEC charged Bank of America Corporation with failing to disclose 
known uncertainties about potential increased costs related to 
mortgage loan repurchase claims stemming from more than $2 trillion in 
residential mortgage sales. Bank of America admitted this failure and 
agreed to settle these charges in addition to securities fraud charges 
that the SEC filed in 2013 relating to a residential mortgage-backed 
securities (RMBS) offering. The bank agreed to pay $245 million to 
resolve the SEC’s charges as part of a major global settlement with 
the DOJ and other government agencies. 

* The SEC charged RBS Securities Inc., a subsidiary of the Royal Bank 
of Scotland plc, with misleading investors in a 2007 subprime mortgage-
backed security offering. The SEC alleged that RBS represented that 
the loans backing the offering generally met the lender’s underwriting 
guidelines even though nearly 30 percent of the loans fell short and 
should have been excluded from the offering. According to the SEC’s 
complaint, this gave investors a misleading impression of the quality 
of the loans backing the offering and the likelihood of their 
repayment. RBS agreed to pay more than $150 million to settle the 
matter, which will be used to compensate harmed investors. 

* The SEC also charged three Morgan Stanley entities with misleading 
investors in two RMBS securitizations that the firms underwrote, 
sponsored, and issued. The SEC’s order found that Morgan Stanley 
misrepresented the current or historical delinquency status of 
mortgage loans underlying the two securitizations. Morgan Stanley 
agreed to settle the charges by paying $275 million, which will be 
distributed to harmed investors. 

Pursuing Compliance-Based Violations: 

In FY 2014, the SEC brought a number of large, complex cases, but also 
remained focused on pursuing smaller, compliance-related violations 
through streamlined investigative and settlement approaches. 

* Enforcement’s Compliance Program Initiative, which targets firms 
that have been previously warned by SEC examiners about compliance 
deficiencies but failed to effectively remediate them, generated 
actions in which the SEC sanctioned three investment advisory firms 
for repeatedly ignoring problems with their compliance programs. The 
firms settled the SEC’s charges by agreeing to pay financial penalties 
and hire compliance consultants. 

* In another noteworthy effort, the SEC charged 34 individuals and 
entities in a novel Enforcement initiative designed to root out those 
who repeatedly fail to comply with Federal securities laws requiring 
them to promptly report information about their holdings and 
transactions in company stock. Enforcement staff used quantitative 
data analytics to identify individuals and companies with especially 
high rates of filing deficiencies. All but one of the 34 individuals 
and companies charged agreed to settle the charges and pay financial 
penalties totaling $2.6 million. 

* Enforcement also continued its successful initiative to target 
violations of Rule 105, an anti-manipulation rule that prohibits firms 
from improperly participating in public offerings after short-selling 
those same stocks during a restricted period – generally five business 
days before a public offering. In a second sweep under this 
initiative, the SEC obtained a combined total of more than $9 million 
in disgorgement, interest and penalties in settlements with 19 firms 
and one individual trader for their Rule 105 violations. 

Trial Victories: 

Enforcement had a number of important trial victories in FY 2014. 

* After a lengthy trial, a jury returned a verdict in favor of the SEC 
on all claims in its action against two corporate insider brothers. 
The SEC alleged that the brothers engaged in a 13-year fraudulent 
scheme to hold and trade tens of millions of securities of public 
companies while they were members of the boards of directors of those 
companies, without disclosing their ownership and their trading of 
those securities. The SEC also alleged that the brothers realized 
gains in excess of $550 million as a result of the scheme. Prior to 
trial, the brothers’ former attorney, who was also charged by the SEC, 
agreed to settle the SEC’s charges by admitting certain facts, paying 
almost $795,000 in disgorgement and prejudgment interest, and 
consenting to an order suspending him from appearing or practicing as 
an attorney before the SEC. Following the liabilities and remedies 
phase of the trial, the court issued an opinion and order requiring 
the brothers to pay disgorgement totaling more than $187 million in 
addition to prejudgment interest for the entire period of the fraud. 

* Following a five-week trial, a jury returned a verdict in favor of 
the SEC on its fraud claims against a Minneapolis attorney; a real 
estate finance fund; and the fund’s manager, which the attorney owned. 
The SEC alleged that the defendants engaged in securities fraud in 
connection with their offer and sale of interests in the real estate 
fund. The attorney and the other defendants raised over $21 million 
from investors while making materially false and misleading statements 
that effectively hid the real estate fund’s deteriorating financial 
condition. In June 2014, the court issued an order imposing permanent 
injunctions against all three defendants, barring the attorney from 
serving as an officer or director of a publicly-traded company for a 
period of ten years, and imposing financial sanctions exceeding $14.5 
million against the real estate fund, $3.3 million against the 
attorney and the fund’s advisor, jointly and severally, and $1.8 
million against the attorney individually. 

* The SEC won its jury trial against a Connecticut-based hedge fund 
manager and his firms, which he used to facilitate a multi-billion 
dollar Ponzi scheme operated by Minnesota businessman. The SEC alleged 
that the fund manager funneled several hundred million dollars of 
investor money into the scheme and falsely assured investors that 
their money would be protected. In September 2014, the court issued an 
opinion and order imposing permanent injunctions and monetary 
sanctions of over $80 million against the fund manager and his firms. 

* The SEC obtained a jury verdict in its favor on all counts against 
AIC, Inc., Community Bankers Securities, LLC, and an individual who 
was their founder, President and CEO. The SEC alleged that the founder 
devised and orchestrated an offering fraud in which he sold millions 
of dollars of AIC promissory notes and stock. The defendants 
misrepresented and omitted material information to investors, many of 
whom were elderly, about a variety of important matters, including the 
safety and risk, associated with the investments. In August 2014, the 
court issued an opinion and final judgments against the defendants 
imposing permanent injunctive relief, disgorgement and prejudgment 
interest, and civil penalties. Altogether, the court imposed nearly 
$70 million in disgorgement, prejudgment interest, and civil penalties 
against the defendants and relief defendants. 

* In August 2014, a jury returned a verdict against Sage Advisory 
Group, LLC and its principal in a fraud case filed by the SEC. The SEC 
charged that the principal engaged in a scheme to induce his former 
brokerage customers to transfer their assets to Sage, his new advisory 
firm. The SEC further charged that the founder made a number of 
materially false and misleading statements to his customers about 
moving their accounts to his new firm and that the founder failed to 
disclose that the switch would result in significant savings that 
would flow to him and Sage rather than the advisory clients. 

Continued Excellence in the Examination Program: 

OCIE plays a critical role in protecting investors and the integrity 
of our capital markets. Every year, OCIE examiners conduct risk-based 
examinations of many kinds of registered entities, including broker-
dealers, investment advisers, investment companies, national 
securities exchanges, self-regulatory organizations (SROs), transfer 
agents, and clearing agencies to evaluate their compliance with 
applicable regulatory requirements. OCIE uses the findings from these 
examinations to address deficiencies directly with registrants and, 
more broadly, to improve industry compliance, detect and prevent 
fraud, inform policy, and identify risks. 

In FY 2014, OCIE conducted more than 1,850 formal examinations of 
registrants, an increase over each of the prior four fiscal years. As 
described below, in addition to examinations, OCIE also performed 
thousands of desk reviews to evaluate the business activities of its 
registrants. OCIE’s examinations resulted in the return of more than 
$40 million to investors. More than $300 million in fines, penalties, 
and disgorgement was assessed as a result of enforcement actions 
concluded in FY 2014 that involved a referral to Enforcement from an 
OCIE examination. 

Developing Technology and Data Analytics: 

In FY 2014, OCIE continued to make significant enhancements in data 
analytics. This effort has made OCIE more efficient and effective in 
analyzing massive amounts of data from registrants to detect potential 
violations of laws, rules, and regulations. 

For several years, OCIE’s Risk Assessment and Surveillance Group (RAS) 
has aggregated and analyzed data from SEC filings concerning 
registrants and individuals to identify activity that may warrant 
examination. In FY 2014, RAS significantly expanded its data analysis 
and monitoring efforts to surveil data from sources internal and 
external to the Commission, including, for example, data collected by 
or filed with other regulators, SROs, and exchanges; and information 
that registrants provide to data aggregators, regarding, for example, 
their business activities and marketing-related efforts. This expanded 
data collection and analysis has not only enhanced OCIE’s ability to 
identify operational red flags throughout entire industries – such as 
firms with aberrant swings in reported assets under management, 
changes in key individuals, business activities, and affiliates, and 
other possible indicia of heightened risk – but has also enabled 
examiners to better understand each firm’s business activities prior 
to conducting an examination. 

Other OCIE teams have also leveraged technology to evaluate large 
amounts of data for signs of fraud and suspicious activity. OCIE has 
hired highly skilled technologists in its Quantitative Analytics Unit 
(QAU) to develop tools that bring powerful analytic capabilities to 
each examiner in the National Examination Program. In FY 2014, the QAU 
developed the “National Exam Analytics Tool,” commonly referred to as “
NEAT,” which enables examiners to access and systematically analyze 
years’ worth of a registrant’s trading data in minutes. NEAT replaced 
what was formerly a labor-intensive process that often consumed weeks 
or months of examiner time and resulted in a sampling of a limited 
time period of such data, as opposed to the systematic and complete 
analysis of years’ worth of data that NEAT facilitates. QAU has also 
been developing technologies to help examiners detect suspicious 
activity in areas such as money laundering and high frequency trading 
that will further expand and enhance OCIE’s capabilities to fight and 
deter fraud. 

OCIE’s Risk Analysis Examination Group (RAE) has also leveraged 
technology to examine clearing firms and large broker-dealers. The RAE 
team analyzes all transactions cleared by selected firms over a period 
of years and then subjects that data to a broad range of queries 
designed to identify problematic behavior. Applying such methods, the 
RAE team identified a wide range of problematic behavior across 
multiple firms, including unsuitable recommendations, 
misrepresentations, inadequate supervision, churning, and reverse 
churning. In FY 2014, RAE collected and analyzed approximately 1.3 
billion transactions from 350 firms, which, in turn, resulted in 
referrals for focused examinations by OCIE and investigation by 
Enforcement. 

[Photograph: Commissioner Michael S. Piwowar] 

Continuing to Promote and Improve Industry Compliance: 

OCIE improves industry compliance with the Federal securities laws and 
promotes better industry risk management practices through 
examinations, communication, and outreach initiatives with the 
industry. In FY 2014: 

* OCIE published its second annual public statement of examination 
priorities to inform investors and registrants about areas that the 
staff believes present heightened risk and to support the SEC’s 
mission. The examination priorities were selected through a 
collaborative process in which OCIE’s senior management and senior 
representatives of other SEC Divisions and Offices worked side-by side 
to analyze and perform a risk-based assessment of a voluminous amount 
of information from a number of sources. These sources included 
information reported by registrants in required filings, as well as 
information gathered through examinations; communications with other 
Federal, state and foreign regulators; comments and tips received from 
investors and registrants; data maintained in third-party databases; 
interactions with registrants, industry groups, and service providers 
outside of examinations; and industry and media publications. 

* OCIE issued public “Risk Alerts,” one of which summarized OCIE staff 
observations on due diligence practices of certain investment advisers 
that manage or recommend alternative investments to their clients, and 
the other of which provided information about OCIE’s initiative to 
assess cyber-security preparedness. 

* OCIE conducted over 55 outreach conferences with the industry and 
securities regulators, both regionally and nationally, and OCIE staff 
appeared at more than 240 events in order to promote transparent 
communications and coordination among industry participants and 
regulators. 

* OCIE engaged directly with senior management, heads of control 
functions, and independent directors of the largest broker-dealer 
holding companies and management organizations to emphasize the 
critical role of compliance in those institutions’ enterprise risk 
management. 

* OCIE launched a number of focused examination initiatives to promote 
compliance and increase awareness of regulatory risks with certain 
entities. For example, OCIE commenced an initiative to examine 
investment advisory firms that have been registered with the 
Commission for at least three years, but have not yet been examined. 
OCIE also commenced an initiative to focus on newly registered 
Municipal Advisors that registered under SEC rules, which went into 
effect during FY 2014. 

Continuing to Identify and Prevent Fraud: 

OCIE identifies and prevents fraud and other misconduct through 
examinations. When OCIE uncovers information in an examination that 
establishes or suggests misconduct, examiners refer the matter to 
Enforcement for investigation and appropriate action. In FY 2014, OCIE 
made more than 200 referrals, many of which resulted in enforcement 
investigations and/or actions. Notable examples of enforcement actions 
that have involved OCIE referrals include: 

* The Commission charged a Detroit-based investment advisory firm, 
Ambassador Capital Management (ACM), and a portfolio manager for 
deceiving the trustees of one of ACM’s money market funds and failing 
to comply with rules that limit risk in a money market fund’s 
portfolio. 

* Based on a referral from OCIE, the Commission charged Liquidnet, 
Inc., the operator of an ATS, commonly known as a “dark pool,” for 
failing to protect its clients’ confidential trading information. 

* An OCIE examination resulted in the SEC charging the operators of a 
South Florida-based boiler room scheme with defrauding seniors and 
other investors, whom they pressured into purchasing stock in a 
company that purportedly developed ground-breaking technology for the 
National Football League to use in the Super Bowl. The SEC alleged 
that two business partners induced investors into investing over $2.4 
million in a Miami Beach-based company, Thought Development Inc. 
(TDI), by representing that their investments would be used to develop 
TDI’s technology. In fact, 75 percent of the offering proceeds were 
allegedly retained by the respondents’ own company or paid to sales 
agents through undisclosed commissions and fees. 

* Based on facts discovered during an OCIE examination of Manhattan-
based private equity adviser Camelot Acquisitions Secondary 
Opportunities Management (Camelot), Enforcement obtained an emergency 
court order to freeze the assets of Camelot, its principal, another 
individual, and three entities involved in the alleged theft of more 
than $9 million in investor funds. 

* In a matter involving a transfer agent, Illinois Stock Transfer 
Company, and its owner, OCIE examiners determined that the firm and 
its owner were misusing funds belonging to corporate clients and the 
clients’ shareholders to fund payroll and business obligations. OCIE 
promptly referred the matter to Enforcement, which resulted in a 
Commission action to freeze assets and place control of the transfer 
agent under a court-appointed third-party receiver. 

* In a matter involving a broker-dealer, based on a referral from 
OCIE, the SEC charged an employee of that broker-dealer, with 
misappropriating hundreds of thousands of dollars from elderly clients. 

* In a matter involving another broker-dealer, Crucible Capital Group, 
Inc., OCIE examiners determined that the broker-dealer submitted 
falsified financial records to OCIE staff. Accordingly, OCIE referred 
the matter to Enforcement, which ultimately resulted in charges 
against the firm for failing to maintain minimum net capital and 
failing to maintain accurate records. 

* Based on examination referrals from OCIE, the SEC charged several 
investment advisers for violating the “custody rule” under the 
Investment Advisers Act of 1940. The custody rule promotes the safety 
of investor assets by requiring advisers to meet certain standards 
when maintaining custody of their clients’ funds or securities. The 
SEC alleged that New York-based Further Lane Asset Management, 
Massachusetts-based GW & Wade, and Minneapolis-based Knelman Asset 
Management Group failed to maintain client assets with a qualified 
custodian or engage an independent public accountant to conduct 
surprise exams. The SEC also charged the CEO of Further Lane and the 
CEO and Chief Compliance Officer of Knelman for custody rule and other 
violations. All agreed to settle the charges and pay monetary 
sanctions in addition to other relief. 

In order to be more effective in identifying and preventing fraud in 
examinations, OCIE continues to broaden its expertise and capacity. In 
addition to developments in technology and analytics, OCIE has 
implemented specialized working groups (SWGs) in nine key areas: 
Equity Market Structure and Trading Practices; Fixed Income and 
Municipals; Marketing and Sales Practices; Microcap Fraud; New and 
Structured Products; Valuation; Private Funds; Transfer Agents; and 
Investment Companies. The SWGs are an invaluable resource to examiners 
and managers, providing subject matter expertise in their respective 
areas. OCIE has also established a Private Funds Unit, which is led by 
OCIE’s hedge fund and private equity senior specialized examiners. The 
Private Fund Unit not only conducts risk-based examinations of private 
fund advisers, but, through the participation of its leadership team, 
provides experience and training for examiners to enable them to 
become subject matter experts. 

Continuing to Inform Policy: 

As the SEC’s “eyes and ears” in the field, OCIE uses its perspective 
to provide structured support to the rule-making process and other 
guidance issued by the SEC, and its Divisions and Offices. 

* OCIE provided substantial input into the Commission’s Dodd-Frank 
rulemaking process participating in more than 15 working groups to 
interface with the policy divisions on such rulemaking. OCIE’s Dodd-
Frank rulemaking involvement was most notable in the following areas: 

- the final rules for municipal advisors; 

- the proposed rules related to Title VIII concerning payment, 
clearing and settlement supervision; and; 

- the proposed rules under Title VII concerning swap data repositories 
and cross-border swap transactions. 

* In addition to its valuable contributions to Dodd-Frank rule-making, 
OCIE staff also participated in several other rule-makings, which are 
in various stages, including the crowdfunding JOBS Act-related rule-
makings, Regulation SCI, the money market reform rules, the transfer 
agent concept release, and removal of references to credit rating 
agencies. 

* OCIE also provided useful information from examinations to the rule-
making divisions of the SEC for a number of other purposes. For 
example, OCIE staff highlighted to rule-making divisions instances in 
which, based on observations in examinations registrants have 
misinterpreted the rules and instances in which more guidance may be 
needed. OCIE staff also provided valuable insight into certain risk 
management practices and profiles. 

Continuing to Identify New and Emerging Risks: 

OCIE continues to improve its ability to assess and monitor risk. 
Because OCIE’s examination programs are risk-based, these enhanced 
capabilities have enabled each program to better allocate its limited 
resources to high-risk firms and practices. In addition to the 
developments in technology and analytics described above, the 
following are examples of OCIE initiatives to monitor and examine for 
new and emerging risks: 

* OCIE has continued to expand the use of targeted examinations as a 
technique to identify and address higher risk activities such as, for 
example: 

- the potential misuse by mutual funds of payments to intermediaries 
as payment for distribution; ¦¦the use of purported “alternative” 
investment strategies by registered investment companies; 

- the fulfillment of fiduciary and contractual obligations by 
investment advisers when advising wrap fee programs; 

- compliance with exemptive orders and relevant no-action letters in 
securities lending arrangements; 

- representations of investment advisers and broker-dealers and sales 
practices when recommending to customers a movement of retirement plan 
assets into rollover vehicles; 

- broker-dealers’ compliance with Exchange Act Rule 15c3-5 when having 
direct market access to exchanges or ATSs; and; 

- cyber-security practices of broker-dealers and investment advisers. 

* OCIE continued its monitoring and examination efforts with respect 
to some of the nation’s largest broker-dealers. Among other things, 
OCIE has coordinated efforts within the Commission and with other 
regulators to increase coverage in important areas affecting these 
broker-dealers, such as operational risk, technology governance, 
automated trading and controls, liquidity risk management, and 
effectiveness of control functions, including strategic initiatives to 
remediate control deficiencies and meet future enhanced requirements. 

* RAS has continued to devote significant resources to help guide 
OCIE’s risk-based examination strategy across the following program 
areas: broker-dealer, investment adviser, investment company, and 
market oversight. In addition to RAS’ development of its data 
gathering and analytics described above, other examples of RAS’ 
efforts include: 

- close collaboration with the regions and others throughout the 
Commission, including the Division of Economic and Risk Analysis 
(DERA) and the rule-making offices, to focus examinations on 
registrants and practices that pose the greatest risk to capital 
markets and investors; 

- ongoing surveillance of registrants and markets and communicate 
risks to OCIE staff; and; 

- enhancing information gathering and data analysis techniques to use 
information submitted by private fund advisers on Form PF, as well as 
information about disciplinary and employment histories of bad actors 
in the financial industry to utilize such intelligence to identify 
risks to investors and the markets. 

* OCIE’s QAU has continued to develop OCIE’s quantitative system 
architecture through software projects. In addition to the QAU-
developed NEAT, the QAU has supported individual exam teams in OCIE’s 
Investment Adviser/Investment Company examination program nationwide, 
the development of improved risk identification methods, and 
collaboration with DERA and RAS. 

* OCIE’s Technology Controls Program (TCP), the successor to the 
Division of Trading and Markets’ (Trading and Markets) Automated 
Review Program, continues to develop its technology controls 
examination program. OCIE has leveraged TCP’s strong technology 
knowledge base to support other examination programs nationally, 
including by serving as technical risk experts for exam teams. TCP has 
also regularly liaised with other regulators to share identified 
technology risks and communicate those to OCIE’s examination programs 
as appropriate. 

* OCIE’s Office of Market Oversight continued its successful approach 
to monitoring and assessing risk at the national securities exchanges 
and FINRA. Examinations in this area included reviews of the 
regulatory service agreements and equity order types at the exchanges, 
and FINRA district offices, as well as FINRA home office enforcement. 
The Market Oversight Office also conducted examinations of many 
registrants to ensure compliance with Section 31 of the Exchange Act, 
which requires each SRO to pay certain fees to the Commission based on 
the aggregate dollar amount of certain sales of securities. 

* OCIE improved collaboration efforts in other areas with divisions 
and offices throughout the SEC to help ensure that higher risk 
activities and issues are addressed in the most effective manner. For 
example, OCIE coordinates efforts and utilizes data produced by the 
Risk and Examinations Office in the Division of Investment Management 
(Investment Management) to identify and address higher risk firms and 
activities. OCIE also regularly shares examination trends, findings, 
and industry observations with other offices in order to identify 
mutual areas of interest and concern. 

OCIE has expanded efforts to coordinate processes with other 
regulators and agencies, including FINRA, the DOJ, the Department of 
Labor, banking regulators and state regulators, on a number of 
matters, as well as foreign regulators. Among other things, this type 
of coordination and collaboration helps ensure that all regulators are 
informed of ongoing risks and issues related to broad market practices 
as well as specific entities of mutual interest. 

Promoting Effective Disclosure: 

Effective disclosure is crucial to informed investment decision-
making. In FY 2014, the Divisions of Corporation Finance (Corporation 
Finance) and Investment Management continued to work to ensure that 
companies disclose material information appropriately and effectively. 

* Through its review program, Corporation Finance continued to improve 
the effectiveness of company disclosures and enhance investor 
protection through focused comments on periodic reports and offering 
documents, including the registration statements for several high-
profile initial public offerings. 

* Corporation Finance has continued to look at ways to improve the 
quality and consistency of its comments as well as the overall 
effectiveness of its filing review process. 

* Corporation Finance also published significant interpretive guidance 
to assist companies in improving their disclosures, such as updates to 
Corporation Finance’s Financial Reporting Manual and the publication 
of guidance reminding CFOs of the need to properly tag and report 
their company financial information in eXtensible Business Reporting 
Language (XBRL). 

* Corporation Finance launched efforts to identify ways to make 
disclosure rules more effective. The staff will continue its 
comprehensive review of the disclosure requirements and make 
recommendations on how to update them to facilitate timely, material, 
and more meaningful disclosure by companies to their shareholders. As 
part of this review, staff members are coordinating with the Financial 
Accounting Standards Board to identify ways to improve the 
effectiveness of disclosures in corporate financial statements, and to 
minimize duplication with other existing disclosure requirements. 

* Investment Management continued to protect investors and promote 
informed investment decisions through review and comment on 
disclosures of mutual funds, exchange-traded funds, variable 
annuities, and other investment companies. In its review of investment 
company disclosures, Investment Management focused on a number of 
areas, including fees, investment strategies, and industry trends such 
as the growth in “alternative” mutual funds, the use of derivatives by 
funds, and changes to existing variable annuity products. 

* Investment Management monitored fund industry operations that could 
be affected by certain world events, including fund exposures to 
Russia-related securities and the potential impact on liquidity, 
valuation, and the risk disclosures provided to investors. Investment 
Management also focused on exchange-traded funds (ETFs) creation and 
redemption activity, liquidity, spreads, and risk planning in light of 
Office of Foreign Assets Control (OFAC) sanctions. In addition, 
following the downgrade of certain Puerto Rican municipal securities, 
Investment Management monitored funds’ exposure to that debt and 
related risk disclosures. 

* Investment Management published Guidance Updates on several topics 
related to disclosures, including the use of fund names that suggest 
safety or protection from loss. 

An Ongoing Commitment to Robust Economic Analysis: 

DERA has continued its use of sophisticated and transparent economic 
analysis to support a broad range of Commission activities. DERA’s 
data-driven economic analyses, which inform rulemakings and other 
policy initiatives, garnered praise broadly and in the context of 
specific rulemakings. The Division also supports many data-driven 
initiatives and programs, including risk assessment activities and the 
use of structured data, and leads a significant effort to process data 
and develop data analytics. The DERA staff includes a broad spectrum 
of experts, including PhD financial economists, accountants, 
statisticians, database administrators, operational research analysts, 
attorneys, and program managers, and works with nearly every division 
and office throughout the Agency. 

Incorporating Economic Analysis in Rulemaking:  

DERA’s financial economists and other market experts are fully 
integrated into the Commission’s rulemaking process. From the earliest 
stages of policy development, economists provide economic insights to 
inform Commission action. 

* Economists were closely involved in the development of the money 
market fund reform rulemaking adopted by the Commission. The fully 
integrated economic analysis reflected in that rulemaking contained 
sophisticated qualitative and quantitative analyses of the potential 
impact and economic effects of the Commission’s policy choices. 

* DERA staff continued its data-driven approach to analyzing issues 
related to the application of the Dodd-Frank Act Title VII rules to 
cross-border security-based swaps. Using data on the credit default 
swaps market, DERA provided a number of novel data analyses of the 
characteristics of the security-based-swaps market to better 
understand the impacts of the Commission’s rules. 

* DERA is also part of several cross-agency monitoring efforts, 
including those related to private offerings, money market funds, and 
credit default swaps. DERA staff collaborates closely with colleagues 
in Corporation Finance, Investment Management, and Trading and Markets 
to ensure the ongoing availability of data related to market activity 
in these, and other, areas. 

Engaging in Cutting-edge Research: 

DERA staff produces papers and studies on significant economic issues 
to help support the Commission’s mission. These staff-authored white 
papers and memoranda are publicly available on the DERA website and 
are often cross-referenced in Commission rulemakings or other policy 
initiatives. These papers showcase DERA’s expert staff’s academically 
rigorous, research that informs policy as it is being developed. 
Notable contributions include: 

* Two significant papers on ATS and over-the-counter (OTC) trading, 
which were cross-posted on the SEC’s new market structure website. 
These papers provide new and sophisticated data analyses of the off-
exchange market. The first white paper provided the first publicly 
available measurement of ATS market share that did not rely on self-
reported data. It also documented that trade sizes in dark pools 
appear surprisingly similar to trade sizes on exchanges, despite 
assertions that these venues are used to effect block transactions. 
The second white paper focused on a little-studied area, examining the 
off-exchange market other than ATSs. That paper found that the non-ATS 
portion of the off-exchange market is a larger share of the market 
than the ATS portion. Contrary to the prevailing belief that this part 
of the market is largely retail, the paper finds that while a few 
“retail” market makers seem to capture a large portion of the non-ATS 
off-exchange volume, other trading comprises the majority of off-
exchange, non-ATS trading. Additional papers are planned as part of 
this series and will directly inform the Commission’s ongoing study 
and regulation of market structure. 

* In a series of memoranda related to money market fund reform, DERA 
staff analyzed a variety of issues relevant to the Commission’s 
consideration of further reform of money market funds. They addressed 
questions as to: (1) the increase in average liquidity cost for trades 
made during the financial crisis of 2008 relative to normal times for 
securities equivalent to what money market fund portfolios contain; 
(2) how much exposure municipal money market funds have to parents of 
guarantors of assets held by money market funds; (3) the usage of non-
government securities by government funds; and (4) the impact, given 
the evidence of the supply and demand of global safe assets, of 
adopting more stringent portfolio requirement for government money 
market funds on that market. These memoranda were made available for 
comment by interested parties and then directly informed the final 
rulemaking. 

* DERA’s former Chief Economist and two other DERA economists authored 
a white paper on interconnectedness in the credit default swap (“CDS”) 
market. That paper studied the structure of the CDS market using 
connections based on a variety of metrics, and provided statistics 
that characterized the CDS market, the degree of counterparty 
concentration, and size of different contracts, and underlying 
contractual features. The paper directly informs the ongoing and 
important discussions regarding the structure and resulting fragility 
or stability of the CDS market as well as studying potential contagion 
among its participants. 

* DERA staff issued a white paper on computing tools for promoting 
sound investment decisions, which introduced a computing tool that can 
assist individual retail investors to better assess the risk and 
return characteristics of their portfolios by displaying simulated 
portfolio returns. 

DERA’s economists and accountants also publish original research on 
topics germane to the SEC’s mission in a range of economic, finance, 
and accounting journals. They frequently participate in conferences by 
presenting this research, critically discussing the work of others, 
and moderating research sessions. Through these efforts, DERA staff 
maintains an awareness and understanding of significant financial 
market issues and potential solutions to potential failures or risks. 
These articles and presentations showcase the staff’s expertise, 
inform the public of new and interesting work, and ensure an ongoing 
exchange of ideas with the academic community. By producing cutting-
edge research and engaging the academic community of financial 
researchers, DERA staff incorporates the most recent market insights 
into their work at the Commission and receives valuable feedback on 
that work from the academic community. This interplay helps ensure 
that the SEC’s rulemaking, surveillance activity, and examination work 
keep pace with industry innovations and financial market risks. 

* DERA hosted more than 19 academics from leading universities around 
the country to present their research at the SEC, covering topics that 
included securitization, OTC derivatives, high frequency trading, dark 
pools, executive compensation, fair value accounting, credit ratings, 
and systemic risk, ensuring that these new scholarly insights were 
accessible to staff from across the SEC. 

* On an ongoing basis, DERA also facilitates a variety of programs to 
bring market experts to the SEC. Leading academics frequently present 
their work through the DERA Seminar Series and Brown Bag Series. In FY 
2014, DERA organized an Outside Perspective Series, which features SEC-
wide lectures from both academic and industry experts. DERA has also 
recently established a Visiting Scholar Series where prominent 
academics visit the DERA for a week and present research and training 
seminars to the staff.  

* DERA staff has published numerous articles and participated in each 
of the major conferences on securities market issues. 

Continuing the Commitment to Structured Data: 

DERA has continued to deploy its expertise to support the use of 
structured data across the Commission. DERA staff works closely with 
various divisions and offices to provide technical input on the 
structuring of Commission forms, providing expert input on the content 
and structure of the forms. These efforts are central to ensuring that 
the information submitted to the Commission is usable and accessible 
by investors and other users. 

Further, in its commitment to ensuring that the data submitted to the 
Commission through forms and filings is useful to investors, market 
participants, and the Commission, DERA staff are monitoring the 
quality of the submitted XBRL data. Throughout the year, DERA staff 
conducted a variety of outreach efforts such as conferences, webcasts, 
and frequently asked questions, or “FAQs,” to provide further guidance 
to filers regarding XBRL related issues. 

* The staff recently completed an initial assessment of custom tag 
rate use in XBRL exhibits and posted the results on the SEC XBRL 
website. Among the findings, staff reported that some of the perceived 
quality issues associated with XBRL data are related to third-party 
providers of XBRL software and services, but that overall, there has 
been a steady decline in custom tag use by larger filers, indicating 
improvements in the U.S. GAAP taxonomy and companies’ selections of 
tags. The study also highlighted that many of the reporting challenges 
reside with smaller filers. 

* The staff also completed an assessment of required calculations in 
XBRL exhibits, observing that smaller filers accounted for 98 percent 
of filers with problematically low submissions of required 
calculations, with the vast majority using the same three third-party 
providers. Based on DERA staff’s assessment, Corporation Finance 
published guidance to CFOs on the need to tag and report financial 
information properly. 

Supporting Sophisticated Data-Driven Analytics:  

In September 2013, DERA launched its Quantitative Research Analytical 
Data Support (“QRADS”) Program. This program focuses significant 
contractor support on a variety of complicated data-driven 
initiatives, in particular, the generation of standardized 
quantitative reports of financial markets and registrant activity, and 
the refinement of large and sophisticated datasets needed for 
Commission rulemaking and risk assessment activities. As with many of 
DERA’s initiatives, this program engages staff from across the agency 
in a broad effort to proactively identify the types of data and data 
analytics that are key to understanding the capital markets. The 
program is flexible and is designed to meet the growing and changing 
data needs of the Commission. Currently, QRADS is processing and 
analyzing FINRA-produced financial market data, OTC market 
transactions data involving security-based swaps, and mutual fund flow 
data. The availability of this kind of consolidated data will allow 
for proactive identification of market issues, including the build-up 
of pockets of risk in the financial market and a better understanding 
of asset flows. 

Developing Tools to Identify Financial Market Risks: 

DERA staff continues to develop and use sophisticated tools and data 
analytics to support the risk assessment activities of various offices 
and divisions. For example, DERA works closely with Enforcement’s 
Financial Reporting and Audit Task Force and with Corporation Finance 
to assist in identifying financial reporting irregularities that may 
indicate financial fraud and help assess corporate issuer risk. In 
addition, DERA continues its already-robust support of OCIE and 
Enforcement with the deployment and ongoing refinement of data-driven 
tools that assist with risk-targeting firms and issues for inquiries, 
investigations, and examinations. Importantly, by developing these 
models in close collaboration with staff in these other divisions and 
offices, DERA staff is able to incorporate feedback from SEC staff to 
help ensure that the models are effective in assisting staff to 
identify potential risks. 

Protecting Investors Through Education: 

Providing investors with the information they need to avoid securities 
fraud and make informed investment decisions remained a high priority 
for the Commission in FY 2014. The SEC’s Office of Investor Education 
and Advocacy (OIEA) continued to support the Commission’s investor 
protection mission by: 

* posting educational content to Investor.gov, which was recognized by 
a popular global business magazine on its list of “5 Federal websites 
people use (and actually work)” based on the website’s high customer 
satisfaction scores, which significantly exceeded Federal government 
benchmarks. Investor.gov attracted over one million new visitors, an 
increase of 140 percent compared to FY 2013, due in part to its 
growing digital and social media presence, including over 40,000 
followers on Twitter; 

* publishing a record number of 28 investor alerts and bulletins 
warning investors of possible fraudulent schemes, including affinity 
fraud and schemes involving virtual currencies, and educating them on 
investment-related matters; 

* conducting in-person outreach, in partnership with FINRA, state 
securities regulators, law enforcement agencies, and outside groups; 
and; 

* distributing educational publications through the General Services 
Administration’s Federal Citizen Information Center. 

In addition, OIEA continued to handle investment-related complaints 
and questions from tens of thousands of individual investors, 
participated in the Elder Justice Coordinating Council and supported 
IOSCO’s Committee on Retail Investors, whose primary mandate is to 
conduct policy work on retail investor education and financial 
literacy. 

[Photograph: From left to right: Commissioner Kara M. Stein, 
Commissioner Luis A. Aguilar, Chair Mary Jo White, Commissioner Daniel 
M. Gallagher, and Commissioner Michael S. Piwowar] 

Continued International Collaboration: 

In today’s global securities markets, internationally active 
registrants and cross-border transactions are commonplace. As part of 
the SEC’s effort to ensure rigorous oversight of the U.S. market, it 
continues to focus on coordinated international approaches in key 
regulatory areas. The work of the SEC staff is mainly coordinated 
through OIA’s Regulatory Policy Group. Through its work with IOSCO, 
the Financial Stability Board (FSB) and the OTC Derivatives Regulators 
Group, among others, the SEC continues to promote international 
regulatory convergence toward high-quality standards and practices. 

In FY 2014, the SEC worked tirelessly with its international 
counterparts to address regulatory issues of common interest. Such 
issues included considering the impact of minimum haircuts for certain 
secured financing transactions on financial stability, seeking 
understandings on key elements for developing consistent approaches to 
regulating participants in the OTC derivatives market, reducing 
reliance on credit ratings, developing and refining toolkits for cross-
border regulation of internationally active entities, and bringing 
securities market regulator expertise to bear in ongoing assessments 
and peer reviews of financial regulatory reforms by IOSCO, the FSB and 
other international bodies. 

Enhanced Operational Efficiencies: 

Strong operational performance, financial controls, and information 
systems allow the SEC to maximize the impact of its staff, resources 
and budget in pursuit of the agency’s vital mission. The SEC’s Office 
of the Chief Operating Officer (OCOO) continues to significantly 
improve performance in each of these areas. 

Improved Financial Management and Performance: 

* OCOO employed strategic sourcing initiatives to produce cost savings 
in a number of ways, such as negotiating better, longer-term and less 
costly contracts, and broadening the search for diverse suppliers with 
competitive prices. In FY 2014, 75 percent of contract dollars were 
awarded competitively, and 57 percent of eligible spending dollars 
went to small businesses. 

* OCOO reorganized and restructured the agency’s Library, realigned 
staff and purged outdated materials, dramatically reducing the 
library’s footprint and operating budget. 

* In addition, OCOO continued to optimize the SEC’s space utilization 
rate through consolidation and realignment of office space, leveraging 
benefits from the agency’s expanded telework program. 

Investing in Talent: 

* The SEC’s Office of Human Resources (OHR) streamlined the hiring 
process and reduced the hiring timeline by 10 percent between the 
first and fourth quarter of FY 2014. 

* OHR continued to build a comprehensive suite of e-learning, 
training, and educational resources for employees covering securities 
market structure and trading issues, legal and accounting skills, 
management strategies and other areas needed for effective operations, 
investor protection, and regulatory oversight. 

Technological Advancements: 

* The SEC continues to modernize its technology systems, enhancing 
agency effectiveness, public responsiveness and oversight of the 
financial markets. 

* The Office of Information Technology made further enhancements to 
the sec.gov website – the general public’s primary portal to the SEC. 
The website now offers 148,000 static web pages and 21 million company 
filings and, with more than 1.2 billion hits per month, has become the 
most visited government website. 

* The agency upgraded its TCR Intake and Resolution System to allow 
the public to submit tips and documentation regarding suspicions or 
evidence of wrongdoing in a more user-friendly manner, and to provide 
SEC staff the ability to access real-time, centralized TCR data and 
apply more robust analytics tools. 

These technological capabilities further augment ongoing IT upgrades, 
efficiencies and contract renegotiations, which are yielding 
operations savings of millions of dollars a year. 

[End of section] 

Looking Forward: 

In FY 2015, the SEC will continue to promote, policies and programs to 
protect investors, maintain fair, orderly, and efficient markets, and 
facilitate capital formation. The agency will continue to build upon 
its robust enforcement and examination programs using innovative data 
analysis and cutting-edge technology. The SEC will also continue to 
make progress on important rulemakings – both those mandated by 
Congress and those that cover other mission-critical areas; and will 
push forward on initiatives to strengthen the resiliency and 
operational integrity of our securities markets. In FY 2015, the SEC 
will also strive to enhance its operations, bolster its investor 
outreach and use sophisticated data analytics to improve its 
efficiency and effectiveness. 

Rulemaking for a Dynamic Economy: 

In the coming fiscal year, the Commission will seek to complete the 
remaining major rulemakings required by the Dodd-Frank and JOBS Acts. 
As this rulemaking is completed, the SEC will also continue to focus 
on discretionary rulemaking in areas of critical importance for 
investors and other market participants, including asset management, 
equity and fixed income market structure, and financial infrastructure. 

The Dodd-Frank Act: 

With over 90 percent of the required rules proposed or adopted, the 
Commission is nearing the completion of its Dodd-Frank rulemaking in 
many key areas. In FY 2015, the SEC will strive to advance the final 
rules required to build a more stable and transparent financial system 
by: 

* continuing to implement the comprehensive regulatory framework for 
over-the-counter derivatives market called for by the Dodd-Frank Act, 
including the adoption of rules for regulation of market participants, 
mandatory clearing, and transaction reporting and execution, as well 
as rules establishing the SEC’s approach to the cross-border aspects 
of that market; 

* accelerating the implementation of the provisions of the Dodd-Frank 
Act related to executive compensation, including the disclosure 
requirements regarding the ratio of CEO compensation to median 
employee pay, pay for performance, employee and director hedging, and 
compensation clawbacks; 

* developing revised rules to require reporting issuers engaged in the 
commercial development of oil, natural gas, or minerals to disclose in 
an annual report certain payments made to the United States or a 
foreign government; 

* targeting the removal of the final references to credit ratings in 
SEC rules and forms; 

* evaluating recommendations from a staff report to consider a uniform 
fiduciary standard of conduct for investment advisers and broker-
dealers when providing personalized investment advice to retail 
investors about securities, as well as ways to better harmonize the 
regulatory requirements of investment advisers and broker-dealers when 
they are providing the same or substantially similar services to 
retail investors; and; 

* advancing the remaining reviews, studies and reports required by the 
Dodd-Frank Act, including a review of the important definition of the 
term “accredited investor” to determine whether there should be any 
adjustments or modifications to it. 

The JOBS Act: 

The SEC is also working to complete the remaining rulemakings required 
by the JOBS Act, encouraging greater capital formation for small 
businesses and emerging growth companies while preserving strong 
investor protections by: 

* seeking to adopt final rules to implement exemptions under the 
Securities Act for securities-based crowdfunding offerings and 
offerings conducted pursuant to “Regulation A+”; 

* considering final amendments to enhance the Commission’s ability to 
evaluate the development of market practices in Rule 506 offerings and 
to address concerns that may arise in connection with permitting 
issuers to engage in general solicitation and general advertising in 
such offerings; 

* continuing to work to implement the changes to the thresholds for 
registration and deregistration under Section 12(g) of the Exchange 
Act, which were effective immediately upon enactment of the JOBS Act; 
and; 

* continuing to provide interpretive guidance to issuers and their 
advisers on the implementation and application of the JOBS Act, and 
review emerging practices in the securities market following the 
implementation of JOBS Act rules. 

Other Major Regulatory Initiatives: 

Beyond these statutory mandates, the SEC will continue to develop 
rules for a dynamic economy that seeks to facilitate capital formation 
while protecting investors and maintaining fair, orderly, and 
efficient markets. In particular, in the coming fiscal year, the SEC 
will: 

* advance a comprehensive set of rules for improving equity market 
structure, including through enhanced oversight of trading algorithms, 
dealer registration requirements for active proprietary traders, 
membership requirements for dealers that trade in off-exchange venues, 
enhanced order routing disclosures by broker-dealers, expanded public 
information concerning alternative trading system (ATS) operations, 
and an anti-disruptive trading rule applicable to active proprietary 
traders to address the use of aggressive, destabilizing trading 
strategies in vulnerable market conditions; 

* develop potential rules for enhanced pre-trade transparency in the 
fixed income markets, including in the trading of municipal securities;
* continue to work toward a stronger financial responsibility 
framework for broker-dealers, including through new capital and 
liquidity requirements; 

* advance improvements to the quality of reports and other information 
provided to investors in mutual funds and variable annuities; 
* consider significant enhancements to the risk management practices 
of investment funds and advisers, including through new requirements 
addressing liquidity risk management, stress testing, the use of 
derivatives, and transition planning; 

* enhance content and usability of data reporting by investment as 
well as mutual funds, ETFs and other registered investment companies 
to facilitate data analysis and risk monitoring; 

* assess potential new requirements for mitigating the conflicts of 
interest at credit rating agencies that are inherent in the “issuer pay”
 model; and; 

* review potential updates and improvements to core agency programs, 
including the disclosure framework for public companies, the 
regulatory framework for transfer agents, and the regulatory treatment 
of exchange-traded funds and target date funds. 

Continuing Strong Enforcement and Examination Efforts: 

Enforcement and OCIE will continue to build on their very strong 
results from FY 2014 by focusing on current and emerging high-priority 
areas, and on enhancing their use of cutting-edge technology and 
analytics. Enforcement’s priorities for the coming year include a 
continued focus complex financial products, gatekeepers, financial 
reporting, market structure, insider trading, investment advisers and 
private funds, and municipal securities. OCIE will continue to invest 
in and use data analytics that enable preemptive detection of risk 
throughout entire industries and more effective identification of 
fraud in examinations. 

* Enforcement filed a series of financial reporting cases in the last 
fiscal year and will continue the momentum in pursuing financial 
reporting and accounting fraud. These efforts will include leveraging 
the work of Enforcement’s Financial Reporting and Audit Task Force, 
which is focused on identifying violations relating to the preparation 
of financial statements, issuer reporting and disclosure, and audit 
failures. 

* Enforcement’s Broker-Dealer Task Force will remain focused on 
bolstering efforts to address current issues and practices within the 
broker-dealer community. This includes developing and rolling out 
nationwide initiatives to combat problematic practices in this area 
such as churning and the failure to comply with anti-money laundering 
requirements. 

* Enforcement’s Microcap Fraud Task Force will continue its proactive 
efforts to root out microcap fraud through the use of strategies like 
trading suspensions and efforts to target repeat players and 
gatekeepers in this area. 

* Enforcement will continue its focus on halting pyramid schemes, 
including taking steps to disrupt these schemes through a coordinated 
effort of timely, aggressive enforcement actions along with community 
outreach and investor education. 

* Enforcement will continue to use technology to better process and 
understand large volumes of data. This includes employing technology 
to identify and investigate potential violations, including high-risk 
areas that could harm investors, markets or regulated entities. 

* OCIE will continue to focus on issues affecting investors’ 
retirement accounts, including sales and marketing practices related 
to financial advisers’ recommendations that retirement plan assets be 
placed in investment vehicles offered by their firms. 

* OCIE will make governance and supervision of information technology 
systems a priority, including operational capability, business 
continuity planning, and cybersecurity. 

* OCIE will track individuals that have prior disciplinary histories 
and assess the compliance programs of firms that hire or conduct 
business with such individuals. 

* OCIE will examine certain areas of higher risk in broker-dealers’ 
trading activities, including execution of trades in fixed income 
securities, equity order routing, and trades in sub-accounts. 

* OCIE will conduct reviews to assess implementation of compliance 
frameworks at municipal advisors in light of rules finalizing 
registration requirements adopted in FY 2013. 

Enhancing Market Stability: 

The SEC continues to advance a broad-based program for improving the 
operational integrity and operation of our securities markets, seeking 
improvements in critical market infrastructure and enhancing data and 
analytical capabilities. 

In FY 2015, the SEC will finalize rules to improve the design, 
deployment, integrity and operation of automated systems controlled by 
exchanges and other key market participants to help ensure that they 
are prepared to respond quickly and effectively to system errors and 
malfunctions. The SEC will continue to work closely with the exchanges 
and FINRA on the development of measures that will focus on certain 
market infrastructure systems that can halt or severely disrupt 
trading when a problem occurs. 

The SEC will continue to support the development of a consolidated 
audit trail by the exchanges and FINRA and will also leverage existing 
data analytics in its evaluation of additional market structure 
initiatives. 

Continuing to Refine and Use Cutting-edge Data Analytics: 

The SEC will continue to develop and enhance sophisticated models and 
data analytics, and use them across the Agency to assess risk and, 
more broadly, to further its mission. 

* DERA recently created the Office of Risk Assessment (ORA), which 
reflects the Commission’s ongoing focus on deploying data-driven 
analytics to assist with the identification of financial market risk. 

* ORA will build on DERA’s successes by centralizing many of the 
resources needed to develop, apply, and support risk analysis methods 
and tools. ORA will provide financial and risk modeling expertise and 
support to Divisions and Offices with broker-dealer, corporate issuer, 
and investment adviser risk assessment and oversight responsibilities. 

* ORA will also support OCIE and other Agency staff with examination 
planning, including providing guidance on the collection and analysis 
of data to help promote risk-based examination programs. 

* DERA is working closely with Corporation Finance to assist in 
identifying financial reporting irregularities that may indicate 
financial fraud and help assess corporate issuer risk. 

* DERA and Corporation Finance will also use information collected 
from Form D to track the use of general solicitation and general 
advertising in Rule 506 offerings to assess the impact of its use on 
capital raising in private markets, including the impact on the size 
of offerings, number of participating investors, and the use of 
placement agents and other intermediaries. 

* Trading and Markets will continue to refine the Commission’s equity 
market structure web site, updating it with trading data and research 
papers concerning various types of trading. 

* Trading and Markets will also continue to expand its analytical work 
in the equity options market, using advanced technologies to analyze 
options trade and quote data to inform on a wide variety of SRO rule 
proposals. 

* Investment Management will enhance its capability to track and 
categorize disclosure filings, including substantive disclosure and 
accounting comments made to mutual funds and other registered 
investment companies, which, in turn, will enhance its analysis of 
emerging trends, frequency of issues, and related patterns in fund 
disclosure and product development activity. 

* Investment Management also plans to conduct analysis of money market 
fund monthly portfolio data, obtained through the Form N-MFP, as part 
of its overall focus on implementation of the money market mutual fund 
reforms adopted by the Commission in FY 2014. 

* OCIE will continue to develop advanced technology, including text 
analytics, visualization, search and predictive analysis, through its 
risk analysis and quantitative teams, to review large volumes of trade 
data sets from a wide range of financial firms, seeking to identify 
improper trading activity and other serious risks to investors. 

[Photograph: Commissioner Daniel M. Gallagher] 

Promoting Investor Education: 

In FY 2015, the SEC will continue to look for new and innovative ways 
to educate investors including: 

* increasing investor education outreach to target audiences, 
including seniors, millennials, affinity groups, and the military to 
convey key investor education messages, including, among others, 
understanding fees, and identifying fraud; 

* using research to inform and enhance investor education initiatives, 
including feedback from Investor.gov’s customer satisfaction survey; 
and; 

* educating individuals about the importance of checking the 
registration status of an investment professional before investing. 
OIEA will aim to increase online searches of the SEC’s Investment 
Adviser Public Disclosure database. 

Continuing to Enhance Operations: 

The SEC considers continuous improvement in all aspects of its 
finances and operations critical to its mission, and will continue to 
enhance its ability to deliver effective and efficient services in FY 
2015. 

Workforce: 

The SEC’s strongest asset is its staff. In FY 2015, the agency will 
seek to continue hiring and retaining a diverse, dedicated and 
talented workforce. 

The SEC will also work to identify additional training needs, and 
procure or develop high-quality training that will continue to allow 
SEC staff to perform at the highest levels. 

Technology: 

Since FY 2013, the SEC has been working on a multi-year technology 
transformation plan called “Working Smarter.” Under the Working 
Smarter initiative, the agency has worked to standardize enterprise-
wide platforms, modernize SEC.gov and the EDGAR filer system, develop 
advanced search and discovery capabilities, and build complex, 
predictive analytical capabilities. In FY 2015, the agency will 
continue to build on this initiative in an effort to lower costs, 
deliver better services to both employees and the public, and increase 
accountability, transparency, and security. 

In FY 2015, the SEC will also continue to enhance its electronic 
discovery tools, and to improve its document storage, organization, 
and analytic capabilities. 

In addition, the agency plans to review its current disclosure systems 
and processes and identify ways to use technology to improve the 
submission and analysis of disclosure documents. 

Finance: 

The SEC is committed to further improving its financial systems, 
processes, and controls. The agency is building a financial data mart, 
as part of a broader SEC-wide Electronic Data Warehouse initiative. 
This data mart is designed to integrate data from a variety of SEC 
systems, facilitating financial decision-making by providing 
comprehensive management and financial reporting on a regular basis. 

The SEC also will continue to participate in the Federal government-
wide deployment of a new travel system, work to replace the system 
supporting budget execution and formulation, and focus on reforming 
the systems related to filing fees and disgorgements and penalties. 

In addition, the agency will continue to search for cost savings, such 
as through its efforts with the General Services Administration to 
optimize the use of leased space across our real estate portfolio. 

[Photograph: Commissioner Kara M. Stein] 

Conclusion: 

In FY 2014, the SEC continued to achieve important results by 
leveraging technology, employing sophisticated data analytics and 
pursing focused rulemaking and policy initiatives, aggressive 
enforcement and risk-based examinations. Through the work of its 
talented and dedicated staff, the SEC is committed to building on its 
successes in FY 2015. The agency will continue to promote its 
strategic values of integrity, accountability, effectiveness, 
teamwork, fairness and a commitment to excellence through improving 
collaboration and coordination among its divisions and offices, 
employing new technology, and supporting the more than 4,000 talented 
men and women who work tirelessly to fulfill the agency’s important 
mission. 

[End of section] 

Financial Highlights: 

This section provides an analysis of the financial position, results 
of operations, and the underlying causes for significant changes in 
balances presented in the SEC’s FY 2014 financial statements. As 
described further below, the SEC’s finances have several main 
components: 

* An annual appropriation from Congress; 

* Securities transaction fees, charged in accordance with Section 31 
of the Securities Exchange Act, which offset the agency’s annual 
appropriation; 

* Securities registration, tender offer and merger fees (also called 
filing fees), of which $50 million is deposited into the Reserve Fund 
each year. The Reserve Fund may provide resources up to $100 million 
to pay for SEC expenses, and they are not subject to annual 
appropriation or apportionment; 

* Disgorgement and penalties ordered and collected from violators of 
the securities laws, some of which are then returned to harmed 
investors and the remainder of which are transferred to the Investor 
Protection Fund or the Treasury; and; 

* The SEC Investor Protection Fund, which is funded through 
disgorgement and penalties not distributed to harmed investors, and 
which is used to make payments to whistleblowers who give tips to aid 
the SEC’s enforcement efforts in certain circumstances, as well as to 
cover the expenses of the SEC Office of Inspector General’s (OIG) 
Employee Suggestion Program. 

Sequestration Order for FY 2014: 

On March 1, 2013, the President issued the Sequestration Order for FY 
2013 which reduced FY 2013 budget authority. As determined by the 
Office of Management and Budget (OMB), for FY 2014, the sequestration 
order was applicable to mandatory appropriations and spending 
authority from offsetting collections, which included the Reserve Fund 
and the Investor Protection Fund, of the SEC as follows: 

Reserve Fund: 
The budget authority of $75 million was reduced by 7.2 percent or $5.4 
million. 

Investor Protection Fund: 
The budget authority of $90 million was reduced by 7.2 percent or $6 
million. 

Rescission for FY 2014: 

On January 17, 2014, Congress passed the Consolidated Appropriations 
Act, 2014. Within the appropriation language, a $25 million rescission 
was applied to the unobligated balance of the Reserve Fund. 

Overview of Financial Position: 

Assets. At September 30, 2014, the SEC’s total assets were $10.6 
billion, an increase of $638 million or six percent over FY 2013.
Investments, Net increased $473 million, or 37 percent, due to large 
Disgorgement and Penalty collections for cases that were subsequently 
invested and remained invested at the end of FY 2014. These 
investments include collections from the following cases: 

* J. P. Morgan Securities LLC; 
* British Petroleum PLC; 
* RBS Securities Inc. 

Accounts Receivable, Net increased $120 million due to the remaining 
Disgorgement and Penalty receivables for Alcoa Inc., Bank of America 
Corporation, and AIC, Inc. 

In addition to the disgorgement related receivables, the SEC 
experienced a $35 million increase in Section 31 Fees receivable in FY 
2014 due to the increased transaction volume and the increased fee 
rate established in March of FY 2014, which rose from $17.40 per 
million to $22.10 per million transactions. 

Property and Equipment, Net decreased by $14 million due, in part, to 
the change in the capitalization threshold implemented later in FY 
2013. 

Chart 1.3: FY 2014 Assets By Type: 

[Refer to PDF for image: pie-chart] 

Fund Balance with Treasury: 77%; 
Investments - Disgorgement and Penalties Fund: 13%; 
Investments - Investor Protection Fund: 4%; 
Accounts Receivable, Net: 5%; 
Property and Other Assets: 1%. 

[End of chart] 

Table 1.2: Assets as of September 30, 2014 and 2013 (Dollars In 
Millions): 

Fund Balance with Treasury: 
FY 2014: $8,211; 
FY 2013: $8,155. 

Investments – Disgorgement and Penalties Fund: 
FY 2014: $1,360; 
FY 2013: $848. 

Investments – Investor Protection Fund: 
FY 2014: $395; 
FY 2013: $434. 

Accounts Receivable, Net: 
FY 2014: $507; 
FY 2013: $387. 

Property and Equipment, Net: 
FY 2014: $113; 
FY 2013: $127. 

Other Assets: 
FY 2014: $4; 
FY 2013: $2. 

Total Assets: 
FY 2014: $10,590; 
FY 2013: $9,953. 

[End of table] 

Liabilities. The SEC’s total liabilities were $2.9 billion as of 
September 30, 2014, an increase of $602 million or 26 percent from FY 
2013. The change was mainly related to the increase in the liabilities 
for Disgorgement and Penalty cases recorded during FY 2014, such as 
against: 

* Morgan Stanley and Company; 
* RBS Securities Inc. 
* AIC Inc. 
* Amerindo Investment Advisors Inc. 

The increase in liabilities was offset by distributions to harmed 
investors totaling $195 million. 

For the assets received resulting from judgments, the SEC recognizes a 
corresponding liability, which is either custodial if the collections 
are transferred to the U.S. Treasury General Fund or the Investor 
Protection Fund, or governmental if the collections are held pending 
distribution to harmed investors. 

Unearned filing fees held in a SEC deposit account and earned filing 
fees being returned to the U.S. Treasury General Fund result in SEC 
recognizing a corresponding liability. 

Ending Net Position. The SEC’s net position, comprised of both 
unexpended appropriations and the cumulative results of operations, 
increased approximately by $35 million, or less than one percent, 
between September 30, 2014 and 2013. 

Chart 1.4: FY 2014 Liabilities by Type: 

[Refer to PDF for image: pie-chart] 

Liability for Disgorgement and Penalties: 85%; 
Custodial Liability: 8%; 
Accrued Payroll, Benefits and Leave: 3%; 
Registrant Deposits: 1%; 
Accounts Payable and Other Liabilities: 3%. 

[End of chart] 

Table 1.3: Liabilities as of September 30, 2014 and 2013 (Dollars In 
Millions): 

Liability for Disgorgement and Penalties; 
FY 2014: $2,451; 
FY 2013: $2,065. 

Custodial Liability; 
FY 2014: $223; 
FY 2013: $69. 

Accrued Payroll, Benefits and Leave; 
FY 2014: $101; 
FY 2013: $70. 

Accounts Payable; 
FY 2014: $72; 
FY 2013: $44. 

Registrant Deposits; 
FY 2014: $35; 
FY 2013: $33. 

Other Liabilities; 
FY 2014: $18; 
FY 2013: $17. 

Total Liabilities; 
FY 2014: $2.900; 
FY 2013: $2,298. 

[End of table] 

Results of Operations: 

Earned Revenues. Total earned revenues for the year ended September 
30, 2014 increased by $142 million or eight percent when compared to 
that of FY 2013. As a result of higher transaction volume, and an 
increase in the transaction fee rate effective in March 2014, revenue 
for Section 31 Transaction Fees increased by $69 million in FY 2014. 

The majority of the SEC’s filing fees is no longer used to partially 
fund the SEC’s operations and are now deposited to the U.S. Treasury 
General Fund upon collection. 

Reserve Fund. Section 991(e) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) authorized the creation of a 
Securities and Exchange Commission Reserve Fund (Reserve Fund). Funded 
from filing fee collections, the SEC can deposit up to $50 million per 
fiscal year, and the fund cannot hold more than $100 million in total. 
Excess filing fees are deposited to the U.S. Treasury General Fund. 

For the fiscal year ended September 30, 2014, filing fee revenues were 
$580 million. Fifty million dollars was deposited into the Reserve 
Fund, of which $25 million was rescinded and $5.4 million was 
sequestered. The excess of $530 million was earned on behalf of the 
U.S. Treasury General Fund. 

Filing fees deposited to the Reserve Fund can be used to fund the SEC’
s operations, create budgetary authority, and are reported as a 
component of Appropriations (Discretionary and Mandatory) on the SEC’s 
Statement of Budgetary Resources. Filing fees deposited to the U.S. 
Treasury General Fund cannot be used to fund the SEC’s operations. 
These amounts do not create budgetary authority, and are reported as a 
component of Other Financing Sources: Other on the SEC’s Statement of 
Changes in Net Position. 

Reserve Fund resources totaling $66 million were obligated, with $35 
million in delivered orders paid, as of September 30, 2014, for both 
capitalized and non-capitalized information technology related 
hardware, software, and contracting, leaving a remaining amount of 
$327 thousand of available resources. 

Table 1.4: Earned Revenues For The Years Ended September 30, 2014 And 
2013 (Dollars In Millions): 

Section 31 Securities Transaction Fees: 
FY 2014: $1,326; 
FY 2013: $1,257. 

Securities Registration, Tender Offer, and Merger Fees (Filing Fees): 
FY 2014: $580; 
FY 2013: $507. 

Total Earned Revenue: 
FY 2014: $1,906; 
FY 2013: $1,764. 

[End of table] 

Chart 1.5: Reserve Fund Earned Revenue (Dollars In Millions): 

[Refer to PDF for image: vertical bar graph] 

FY 2012: 
Earned on Behalf of the U.S. Treasury General Fund: $328. 
Reserve Fund: $50; 
Total Earned Revenue: $378; 

FY 2013: 
Earned on Behalf of the U.S. Treasury General Fund: $457. 
Reserve Fund: $50; 
Total Earned Revenue: $507; 

FY 2014: 
Earned on Behalf of the U.S. Treasury General Fund: $530. 
Reserve Fund: $50; 
Total Earned Revenue: $580; 

[End of chart] 

Chart 1.6: FY 2014 Filing Fee Deposits: 

[Refer to PDF for image: pie-chart] 

U.S. Treasury General Fund: $530; 
Reserve Fund: $20; 
Sequestration: $5; 
Rescission: $25. 

[End of chart] 

Program Costs. Total Program Costs were $1.4 billion for the year 
ended September 30, 2014, an increase of $110 million or eight percent 
when compared to the prior year. Salary and Benefit Expenses increased 
more than $91 million, because the SEC had higher expenses in the 
areas of Pay and Benefits as the result of increased staffing and 
compensation. Other Expenses remained stable when comparing FY 2014 to 
FY 2013, with the exception of accrued Whistleblower payments from the 
SEC’s Investor Protection Fund, which totaled more than $25 million. 

The SEC had increased expenses in the areas of personnel compensation 
and benefits which correlates to an increase of 127 full-time 
equivalent employees; information technology service contracts and 
licensing; capitalized and non-capitalized information systems 
software and hardware; and whistleblower award payments. 

Budgetary Resources: 

In FY 2014, the SEC’s total budgetary resources equaled $1.551 
billion, an 11 percent increase above the FY 2013 amount of $1.402 
billion. Significant components of the SEC’s Total Budgetary Resources 
are described below. 

Unobligated Balance Brought Forward – Unfunded Lease Obligations. The 
SEC’s unobligated balance, brought forward was $441 million for FY 
2014. The balance reflects the funding actions and recoveries related 
to the unfunded lease obligations plus the carry-over authority in the 
Salaries and Expenses Fund and the Reserve Fund. 

Unfunded lease obligations totaled $358 million as of September 30, 
2014. This represents a reduction relative to the FY 2013 amount, 
because of funding actions of $83 million. 

Chart 1.7: Program Costs: 

[Refer to PDF for image: vertical bar graph] 

Salaries and Benefit Expenses: 
FY 2014: $947 million; 
FY 2013: $856 million. 

Other Expenses: 
FY 2014: $494 million; 
FY 2013: $475 million. 

[End of chart] 

Chart 1.8: FY 2013 Sources Of Funds: 

[Refer to PDF for image: pie-chart] 

Unobligated Balance, Brought Forward, October 1 - Without Unfunded 
Lease Obligations: 29%; 
Recoveries of Prior Year Unpaid Obligations: 2%; 
Appropriations: 4%; 
Spending Authority from Offsetting Collections: 65%. 

Percentages do not include the Unobligated Balance Brought Forward, 
October 1 – Interpretation for Lease Obligations. 

[End of chart] 

Spending Authority from Offsetting Collections. The Spending Authority 
from Offsetting Collections increased $84 million primarily for two 
reasons. Firstly, an increase in fees collected of $18 million 
occurred in FY 2014. 

Secondly, the $66 million sequestered during FY 2013 was reverted to 
Unapportioned Authority during the first quarter of FY 2014. Since 
then, this amount was reclassified during the third quarter of FY 2014 
to a temporary reduction/cancellation returned by appropriation. This 
is in line with Treasury and OMB guidance, as these funds are not 
available in FY 2014. 

Spending Authority from Offsetting Collections and Appropriations: 

During the fiscal year, the SEC receives an appropriation to fund its 
operations. This appropriation establishes the SEC’s new budget 
authority in its Salaries and Expenses Fund for the fiscal year. The 
SEC’s new budget authority of $1.35 billion was for FY 2014. 

The SEC’s Section 31 fee collections are used to offset the 
appropriation, and the appropriated authority is returned to the U.S. 
Treasury General Fund. On March 18, 2014, the increase in the Section 
31 fee rate from $17.40 to $22.10 per million dollars transacted 
became effective. With an increase in transaction volume during FY 
2014, the Section 31 transaction fee rate has led to increased 
earnings between the periods ending September 30, 2014 and 2013. 

The SEC’s Section 31 fee collections totaled $1,291 million for FY 
2014. Therefore, the SEC retained appropriated authority equal to $59 
million. 

Table 1.5: Total Budgetary Resources For The Years Ended September 30, 
2014 And 2013 (Dollars In Millions): 

Unobligated Balance, Brought Forward, October 1: 

Salaries and Expenses Fund - Without Unfunded Lease Obligations; 
FY 2014: $108; 
FY 2013: $102. 

Interpretation for Lease Obligations; 
FY 2014: ($441); 
FY 2013: ($523). 

Reserve Fund; 
FY 2014: $44; 
FY 2013: $13. 

Investor Protection Fund; 
FY 2014: $434; 
FY 2013: $451. 

Unobligated Balance, Brought Forward, October 1; 
FY 2014: $145; 
FY 2013: $43. 

Recoveries of Prior Year Unpaid Obligations; 
FY 2014: $34; 
FY 2013: $31.  

Downward Adjustments of Prior Year Unfunded Lease Obligations; 
FY 2014: 0; 
FY 2013: $2. 

Appropriation (Discretionary and Mandatory): 

Salaries and Expenses Fund; 
FY 2014: $59; 
FY 2013: $48. 

Reserve Fund; 
FY 2014: $22; 
FY 2013: $72. 

Investor Protection Fund; 
FY 2014: ($1); 
FY 2013: ($2). 

Spending Authority from Offsetting Collections; 
FY 2014: $1,292; 
FY 2013: $1,208. 

Total Budgetary Resources; 
FY 2014: $1,551; 
FY 2013: $1,402.  

[End of table] 

Chart 1.8: Offsetting Collections Vs. New Budgetary Authority: Section 
31 Exchange And Filing Fees (dollars in millions): 

[Refer to PDF for image: vertical bar and line graph] 

FY 2005 - FY 2011 Offsetting Collections includes filing
fees and transaction fees. 

FY 2005: 
Total Actual Offsetting Collections: $1,665; 
New Budgetary Authority: $856. 

FY 2006: 
Total Actual Offsetting Collections: $1,903; 
New Budgetary Authority: $863. 

FY 2007: 
Total Actual Offsetting Collections: $1,538; 
New Budgetary Authority: $868. 

FY 2008: 
Total Actual Offsetting Collections: $984; 
New Budgetary Authority: $843. 

FY 2009: 
Total Actual Offsetting Collections: $1,016; 
New Budgetary Authority: $843. 

FY 2010: 
Total Actual Offsetting Collections: $1,443; 
New Budgetary Authority: $1,095. 

FY 2011: 
Total Actual Offsetting Collections: $1,598; 
New Budgetary Authority: $1,185. 

FY 2012 and beyond, Offsetting Collections includes transaction
fees only. 

FY 2012: 
Total Actual Offsetting Collections: $1,321; 
New Budgetary Authority: $1,288; 
Appropriations: $33. 

FY 2013: 
Total Actual Offsetting Collections: $1,321; 
New Budgetary Authority: $1,273; 
Appropriations: $48. 

FY 2014: 
Total Actual Offsetting Collections: $1,350; 
New Budgetary Authority: $1,291; 
Appropriations: $59; 

[End of chart] 

Investor Protection Fund: 

The SEC prepares stand alone financial statements for the Investor 
Protection Fund as required by the Dodd-Frank Act. The Investor 
Protection Fund was established in the fourth quarter of FY 2010 to 
provide funding for a whistleblower award program and to finance the 
operations of the SEC OIG’s Employee Suggestion Program. 

For FY 2014, the balance of the Investor Protection Fund (Fund Balance 
with Treasury and Investments, net of Liabilities) decreased by $24 
million between October 1, 2013 and September 30, 2014. The Investor 
Protection Fund recognized non-exchange revenues totaling $579 
thousand, from interest earned on investments in U.S. Treasury 
Securities. In addition, the Investor Protection Fund accrued expenses 
of $25 million for whistleblower awards and $47 thousand for salary 
and benefit cost in the OIG’s Employee Suggestion Program. 

Additional information regarding the Investor Protection Fund and the 
Office of the Whistleblower is available in the 2013 Annual Report on 
the Dodd-Frank Whistleblower Program. This report may be found at 
[hyperlink, http://www.sec.gov/whistleblower]. 

Limitations of the Financial Statements: 

The principal financial statements included in this report have been 
prepared by SEC management to report the financial position and 
results of operations of the SEC, pursuant to the requirements of 31 
U.S. Code Section 3515(b). While the statements have been prepared 
from the books and records of the SEC in accordance with generally 
accepted accounting principles (GAAP) for Federal entities and the 
formats prescribed by OMB, the statements are in addition to the 
financial reports used to monitor and control budgetary resources, 
which are prepared from the same books and records. The statements 
should be read with the understanding that they are for a component of 
the U.S. Government, a sovereign entity. 

Table 1.6: Investor Protection Fund Activity For The Years Ended 
September 30, 2014 And 2013 (Dollars In Thousands): 

Balance of Fund at beginning of preceding fiscal year: 
FY 2014: $439,197; 
FY 2013: $453,429. 

Amount of earnings on investments during the preceding fiscal year: 
FY 2014: $579; 
FY 2013: $651. 

Amount paid from the Fund during the preceding fiscal year to 
whistleblowers: 
FY 2014: ($25,069); 
FY 2013: ($14,832). 

Amount paid from the Fund during the preceding fiscal year for 
expenses incurred by Employee Suggestion Program: 
FY 2014: ($47); 
FY 2013: ($51). 

Balance of the Fund at the end of the preceding fiscal year: 
FY 2014: $414,660; 
FY 2013: $439,197. 

[End of table] 

[End of section] 

Performance Highlights: 

The SEC’s performance data provides a foundation for both programmatic 
and organizational decision-making and is critical for gauging the 
agency’s success in meeting its objectives. The SEC is committed to 
using performance management best practices to promote greater 
accountability. This section provides information on its key 
performance measures for FY 2014. It outlines the SEC’s strategic and 
performance planning framework, provides information on the costs 
incurred by the agency’s four strategic goals and 10 national 
programs, and highlights the agency’s progress toward reaching key 
performance targets. 

The SEC’s FY 2014 Annual Performance Report (APR) will be issued with 
the agency’s FY 2016 Congressional Budget Justification, and will 
provide a complete discussion of all of the agency’s strategic goals, 
including a description of performance goals and objectives, data 
sources, performance results and trends, and information about 
internal reviews and evaluations. A summary of the SEC’s verification 
and validation of all performance data also will be included in the 
APR. The SEC’s APR is expected to be available in February 2015 at 
[hyperlink, http://www.sec.gov/about/secreports.shtml]. 

Verification and Validation of Performance Data: 

The SEC’s programs require accurate data to properly assess program 
performance and to make good management decisions. To ensure data is 
correct, a system of data verification and validation is used. Data 
verification is a systematic process for evaluating a set of data 
against a set of standards to ascertain its completeness, correctness, 
and consistency, using the methods and criteria defined in the project 
documentation. Data validation follows the data verification process 
and is an effort to ensure that performance data are free of 
systematic error or bias and that what is intended to be measured is 
actually measured. Together, these processes are used to evaluate 
whether the information has been generated according to 
specifications, satisfies acceptance criteria, and is appropriate and 
consistent with its intended use. 

The SEC ensures that the performance data presented in this report is 
complete, reliable and accurate by taking the following steps: 

(1) The agency develops performance goals through its strategic 
planning process. 

(2) The SEC’s divisions and offices provide: 

* the procedures used to obtain assurance as to the accuracy and 
reliability of the data; 

* the data definitions for reference; 

* documentation and explanation of the performance goal calculations; 
and; 

* the sources of the underlying data elements. 

(3) The divisions and offices calculate and report the performance 
goals to the Office of Financial Management, and the performance goals 
are approved by the division directors and office heads. This process 
ensures that the data used in the calculation of performance goals is 
accurate and reliable and that internal control is maintained 
throughout the approval process. 

Strategic and Performance Planning Framework: 

The SEC’s FY 2014 strategic and performance planning framework is 
based on the FY 2014 – FY 2018 Strategic Plan, available at 
[hyperlink, http://www.sec.gov/about/sec-strategic-plan-2014-
2018.pdf]. The Strategic Plan outlines the agency’s mission, vision, 
values, strategic goals, and strategic objectives. The SEC’s work is 
structured around four strategic goals, and 12 strategic objectives 
the agency plans to achieve in support of those four goals. The SEC’s 
goals and priorities in the Strategic Plan are influenced by several 
external environmental factors, including global, complex and 
constantly evolving securities markets. Table 1.7 displays the 
agency’s FY 2014 costs for its four strategic goals, as well as how 
these costs are divided among the SEC’s programs described in Table 
1.1. 

Table 1.7: 

Strategic Goal: Establish an and maintain an effective regulatory 
environment; 
Cost: $142.0 million; 
Contributing Programs (dollars in millions): 
Agency Direction and Administrative Support: $7.1; 
Corporation Finance: $24.2; 
Economic and Risk Analysis: $19.1; 
Enforcement: $4.5; 
Inspector General: $0; 
Investment Management: $23.5; 
Trading and Markets: $39.6; 
General Counsel: $7.3; 
Other Program Offices: $15.5; 
Compliance Inspections and Examinations: $1.2. 

Strategic Objective: 
The SEC establishes and maintains a regulatory environment that 
promotes high-quality disclosure, financial reporting, and governance, 
and that prevents abusive practices by registrants, financial 
intermediaries, and other market participants. 

Strategic Objective: 
The SEC promotes capital markets that operate in a fair, efficient, 
transparent and competitive manner, fostering capital formation and 
useful innovation. 

Strategic Objective: 
The SEC adopts and administers regulations and rules that are informed
by robust economic analysis and public comment and that enable market
participants to understand clearly their obligations under the 
securities laws. 

Strategic Objective: 
The SEC engages with a multitude of stakeholders to inform and enhance
regulatory activities domestically and internationally. 

Strategic Goal: Foster and enforce compliance with the Federal 
securities laws; 
Cost: $852.8 million; 
Contributing Programs (dollars in millions): 
Agency Direction and Administrative Support: $2.2; 
Corporation Finance: $2.7; 
Economic and Risk Analysis: $19.1; 
Enforcement: $469.1; 
Inspector General: $0.1; 
Investment Management: $13.8; 
Trading and Markets: $15.1; 
General Counsel: $26.9; 
Other Program Offices: $26.4; 
Compliance Inspections and Examinations: $277.4. 

Strategic Objective: 
The SEC fosters compliance with the Federal securities laws. 

Strategic Objective: 
The SEC promptly detects and deters violations of the Federal 
securities laws. 

Strategic Objective: 
The SEC prosecutes violations of Federal securities laws and holds 
violators accountable through appropriate sanctions and remedies. 

Strategic Goal: Facilitate access to the information investors need to 
make informed investment decisions; 
Cost: $218.1 million; 
Contributing Programs (dollars in millions): 
Agency Direction and Administrative Support: $39.5; 
Corporation Finance: $112.7; 
Economic and Risk Analysis: $2.2; 
Enforcement: $2.2; 
Inspector General: $0.1; 
Investment Management: $18.3; 
Trading and Markets: $23.8; 
General Counsel: $1.4; 
Other Program Offices: $17.4; 
Compliance Inspections and Examinations: $0.6. 

Strategic Objective: 
The SEC works to ensure that investors have access to high-quality 
disclosure materials that facilitate informed investment decision-
making. 

Strategic Objective: 
The SEC works to understand investor needs and educate investors so 
they are better prepared to make informed investment decisions. 

Strategic Goal: Enhance the Commission’s performance through effective 
alignment and management of human, information, and financial capital
Cost: $228.1 million; 
Contributing Programs (dollars in millions): 
Agency Direction and Administrative Support: $183.8; 
Corporation Finance: $6.7; 
Economic and Risk Analysis: $3.0; 
Enforcement: $11.2; 
Inspector General: $8.6; 
Investment Management: $1.7; 
Trading and Markets: $0.8; 
General Counsel: $7.3; 
Other Program Offices: $2.4; 
Compliance Inspections and Examinations: $2.5. 

Strategic Objective: 
The SEC promotes a results-oriented work environment that attracts, 
engages, and retains a technically proficient and diverse workforce, 
including leaders who provide motivation and strategic direction. 

Strategic Objective: 
The SEC encourages a collaborative environment across divisions and 
offices and leverages technology and data to fulfill its mission more 
effectively and efficiently. 

Strategic Objective: 
The SEC maximizes the use of agency resources by continually improving
agency operations and bolstering internal controls. 

[End of table] 

The SEC expended about $1,441 million in FY 2014 to achieve its four 
strategic goals and 12 strategic objectives. Seventy four percent of 
the total costs in FY 2014 were directed toward achieving Strategic 
Goal 2 Foster and enforce Federal securities laws and Strategic Goal 3 
Facilitate access to the information investors need to make informed 
investment decisions. The agency’s APR will provide a complete 
explanation of how many planned performance goal targets were 
exceeded, met, and not met. Where the agency met or exceeded its 
planned performance targets, the report will provide a discussion of 
the increased efficiencies and improved processes employed by the 
agency. When a planned performance target was not met, the report will 
provide a description of actions that will be taken to achieve the 
target in the future. 

Performance Achievements: 

The SEC seeks to encourage a strong culture of compliance among 
organizations, to foster ethical behavior and decision-making. As part 
of its efforts to promote compliance within the industry, the Office 
of Compliance Inspections and Examinations (OCIE) exceeded its target 
by conducting 63 outreach and education programs during the year, 
including Compliance Outreach seminars, targeted sessions with never 
before examined advisers, and various other outreach initiatives with 
registrants and regulators (Performance Goal 2.1.1). Further, the 
National Examination Program issued two National Risk Alerts and 
participated in a number of other outreach efforts, including speaking 
at more than 240 industry conferences and other related engagements 
that are not reflected in the numbers below. The program will continue 
to expand and improve on these efforts during FY 2015 and FY 2016 as 
these are critical elements in fostering and promoting compliance with 
Federal securities laws. 

Table 1.8: Performance Goal 2.1.1:  

Number of industry outreach and education programs targeted to areas 
identified as raising particular compliance risks: 

Description: Targeted communication with industry participants on 
topics shaping the examination program is intended to enhance 
compliance practices and prevent violations before they occur. This 
metric identifies the number of major outreach efforts conducted 
including the SEC’s national and regional compliance outreach events, 
published risk alerts, and other educational programs and initiatives. 

Fiscal Year: FY 2009; 
Number of major outreach efforts: N/A. 

Fiscal Year: FY 2010; 
Number of major outreach efforts: 6. 

Fiscal Year: FY 2011; 
Number of major outreach efforts: 5. 

Fiscal Year: FY 2012; 
Number of major outreach efforts: 12. 

Fiscal Year: FY 2013; 
Number of major outreach efforts: 15. 

Fiscal Year: FY 2014 Plan; 
Number of major outreach efforts: 16. 

Fiscal Year: FY 2014 Actual; 
Number of major outreach efforts: 63. 

Fiscal Year: FY 2014 Results; 
Number of major outreach efforts: Exceeded. 

Responsible Division/Office: Office of Compliance Inspections and 
Examinations. 

Data Source: Internal tracking, although the events noted above are 
referenced on the SEC’S Website at [hyperlink, 
http://www.sec.gov/ocie]. 

[End of table] 

While the agency did not meet its targets for the percentage of 
investment companies examined during the year, the agency did exceed 
its targets for percentage of investment advisors and broker dealers 
examined during the year (Performance Goal 2.2.1). Staff continued to 
exert considerable time and effort in FY 2014 on enhancing risk 
assessment and surveillance capabilities to ensure that resources were 
focused on those firms presenting the highest risk. Staff collected 
and analyzed data about registrants to ensure that the agency focused 
on the highest risk entities and selected appropriate candidates for 
onsite examination. Examinations of high-risk firms often take 
significant time to complete and are frequently of large and complex 
entities. For example, the investment advisers examined in FY 2014 
represented more than 30 percent of the overall assets under 
management of currently registered advisers. In addition, examination 
resources in FY 2014 were allocated to other efforts intended to 
improve the long-term performance, including industry outreach 
initiatives, rule-making efforts and other program improvement efforts. 

Table 1.9: Performance Goal 2.2.1: 

Percentage of investment advisers, investment companies, and broker-
dealers examined during the year: 

Description: This metric indicates the number of registrants examined 
by the SEC or an SRO as a percentage of the total number of 
registrants. This metric includes all types of examinations: risk 
priority examinations, cause inspections to follow up on tips and 
complaints, limited-scope special inspections to probe emerging risk 
areas, oversight examinations of broker-dealers to test compliance and 
the quality of examinations by FINRA. 

Fiscal Year: FY 2009; 
Investment advisers: 10%; 
Investment companies: 29%; 
Broker-Dealers (exams by SEC and SROs): 54%. 

Fiscal Year: FY 2010; 
Investment advisers: 9%; 
Investment companies: 10%; 
Broker-Dealers (exams by SEC and SROs): 44%. 

Fiscal Year: FY 2011; 
Investment advisers: 8%; 
Investment companies: 13%; 
Broker-Dealers (exams by SEC and SROs): 58%. 

Fiscal Year: FY 2012; 
Investment advisers: 8%; 
Investment companies: 12%; 
Broker-Dealers (exams by SEC and SROs): 49%. 

Fiscal Year: FY 2013; 
Investment advisers: 9%; 
Investment companies: 11%; 
Broker-Dealers (exams by SEC and SROs): 46%. 

Fiscal Year: FY 2014 Plan; 
Investment advisers: 9%; 
Investment companies: 12%; 
Broker-Dealers (exams by SEC and SROs): 48%. 

Fiscal Year: FY 2014 Actual; 
Investment advisers: 10%; 
Investment companies: 10%; 
Broker-Dealers (exams by SEC and SROs): 49%. 

Fiscal Year: FY 2014 Results; 
Investment advisers: Exceeded; 
Investment companies: Not Met; 
Broker-Dealers (exams by SEC and SROs): Exceeded. 

Responsible Division/Office: Office of Compliance Inspections and 
Examinations. 

Data Source: Tracking and Reporting Exam National Documentation System 
(TRENDS), Commission Filings, and SRO Databases (BD SRO Data). 

Plan for Improving Program Performance: During FY 2015, staff will 
continue to implement improved processes and procedures that have been 
identified as part of OCIE’s ongoing improvement process. Significant 
improvement initiatives in the areas of strategy, people, processes, 
and technology have been completed in the last few years or are 
currently underway. The agency expects that these improvements, which 
include enhancements to the exam program’s risk assessment processes, 
will lead to more effective coverage of registered entities. 
Furthermore, certain targeted initiatives aimed at high risk firms and 
activities have already been implemented and it is anticipated that 
these efforts will result in improved coverage levels in FY 2015. 

[End of table] 

Filing enforcement actions in a timely manner is an important measure 
of the Division of Enforcement’s (Enforcement) effectiveness. In FY 
2014, the average months between opening a matter under inquiry (MUI) 
or investigation and commencing an enforcement action was 21 months, 
which is the same as the prior fiscal years (Performance Goal 2.3.3). 
Timely actions have an increased deterrent impact. However, many of 
Enforcement’s cases are complex and can take extended periods of time 
to develop successfully, which will negatively impact the timeliness 
of actions. Indeed, many of the cases filed by Enforcement in FY 2014 
involved complex financial products, market transactions, and other 
types of conduct that are difficult to investigate. Enforcement 
continues to focus on complex areas of the marketplace, including 
emerging threats involving new trading technologies such as high-
frequency and algorithmic trading, large volume trading, systemic 
insider trading and manipulation schemes, and financial disclosure, 
among other complex areas. 

Table 1.10: Performance Goal 2.3.3: 

Average months between opening a matter under inquiry or an 
investigation and commencing an enforcement action: 

Description: This metric captures the average number of months between 
the opening of an investigation and the filing of the first 
enforcement action arising out of that investigation. If the 
investigation was preceded by a matter under inquiry, the metric draws 
on the date of opening of the matter inquiry. In conducting 
investigations, the enforcement program continually strives to balance 
the need for complete, effective, and fair investigation with the need 
to file enforcement actions in as timely a manner as possible. While 
not all investigations result in the filing of enforcement actions, 
this metric provides information concerning the pace of investigations 
that do lead to such actions and supplements the previous goal, which 
measures the percentage of first enforcement actions filed within two 
years. 

Fiscal Year: FY 2009; 
Months: N/A. 

Fiscal Year: FY 2010; 
Months: N/A. 

Fiscal Year: FY 2011; 
Months: 22. 

Fiscal Year: FY 2012; 
Months: 21. 

Fiscal Year: FY 2013; 
Months: 21. 

Fiscal Year: FY 2014 Plan; 
Months: 20. 

Fiscal Year: FY 2014 Actual; 
Months: 21. 

Fiscal Year: FY 2014 Results; 
Months: Not met. 

Responsible Division/Office: Division of Enforcement. 

Data Source: HUB case management and tracking system for the Division 
of Enforcement. 

Plan for Improving Program Performance: To achieve its goal of 20 
months on this metric, Enforcement will continue to look for ways to 
manage investigations effectively in order to promote speed and 
efficiency while maintaining an appropriate degree of thoroughness and 
completeness. Enforcement will strive to improve through effective 
management of cases, as well as by leveraging various processes and 
initiatives designed to promote efficiencies in investigations, such 
as technology, training, and regular case assessments. Enforcement 
leadership also will encourage appropriate use of tools such as 
subpoena enforcement actions in order to ensure that investigations 
proceed on an appropriate timeframe. 

[End of table] 

Providing investors with the information they need to avoid securities 
fraud and make informed investment decisions remained a high priority 
for the agency in FY 2014. The SEC’s Office of Investor Education and 
Advocacy (OIEA) continued to support the agency’s investor protection 
mission through the Investor.gov website, which provides key 
information for citizens to inform their investment decisions. 
Investor.gov attracted over one million new visitors due in part to 
its growing digital and social media presence, and the website’s high 
customer satisfaction scores significantly exceeded the Federal 
Government benchmark (Performance Goal 3.2.3). Moreover, OIEA 
published a record number of 28 investor alerts and bulletins warning 
investors of possible fraudulent schemes, including affinity fraud and 
schemes involving virtual currencies, and educating them on investment-
related matters. 

Table 1.11: Performance Goal 3.2.3: 

Customer satisfaction rating of OIEA’s online investor education 
resources. 

Description: This metric gauges the effectiveness, helpfulness, and 
usability of OIEA’s online investor education resources. 

Fiscal Year: FY 2009; 
Satisfaction index: Prior-year data not available. 

Fiscal Year: FY 2010; 
Satisfaction index: Prior-year data not available. 

Fiscal Year: FY 2011; 
Satisfaction index: Prior-year data not available. 

Fiscal Year: FY 2012; 
Satisfaction index: Prior-year data not available. 

Fiscal Year: FY 2013; 
Satisfaction index: 81. 

Fiscal Year: FY 2014 Plan; 
Satisfaction index: 73. 

Fiscal Year: FY 2014 Actual; 
Satisfaction index: 83. 

Fiscal Year: FY 2014 Results; 
Satisfaction index: Exceeded. 

Responsible Division/Office: Office of Investor Education and Advocacy. 

Data Source: ForeSee results online portal. 

[End of table] 

[End of section] 

Management Assurances: 

In FY 2014, the SEC demonstrated its continued commitment to 
maintaining strong internal controls. Internal control is an integral 
component of effective agency management, providing reasonable 
assurance that the following objectives are being achieved: 
effectiveness and efficiency of operations, reliability of financial 
reporting, and compliance with laws and regulations. The Federal 
Managers’ Financial Integrity Act of 1982 (FMFIA) establishes management
’s responsibility to assess and report on internal accounting and 
administrative controls. Such controls include program, operational, 
and administrative areas, as well as accounting and financial 
management. The FMFIA requires Federal agencies to establish controls 
that reasonably ensure obligations and costs are in compliance with 
applicable law; funds, property, and other assets are safeguarded 
against waste, loss, unauthorized use, or misappropriation; and 
revenues and expenditures are properly recorded and accounted for to 
maintain accountability over the assets. The FMFIA also requires 
agencies to annually assess and report on the internal controls that 
protect the integrity of Federal programs (FMFIA § 2) and whether 
financial management systems conform to related requirements (FMFIA § 
4). Guidance for implementing the FMFIA is provided through Office of 
Management and Budget (OMB) Circular A-123, Management’s 
Responsibility for Internal Control. In addition, it requires agencies 
to provide an assurance statement on the effectiveness of programmatic 
internal controls and financial system conformance, and internal 
control over financial reporting. 

Section 963 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) describes the responsibility of SEC 
management to establish and maintain adequate internal controls and 
procedures for financial reporting. The Dodd-Frank Act requires an 
annual financial controls audit, a Government Accountability Office 
(GAO) audit of the SEC’s assessment of the effectiveness of internal 
control, and attestation by the Chair and the Chief Financial Officer. 
Section 922 of the Dodd-Frank requires the SEC to submit audited 
financial statements of the Investor Protection Fund to the Committee 
on Banking, Housing and Urban Affairs of the Senate and the Committee 
on Financial Services of the House of Representatives. 

The following Assurance Statement is issued in accordance with the 
FMFIA, OMB Circular A-123 and Section 922 and 963 of the Dodd-Frank 
Act. 

Annual Assurance Statement: 

Assurance Statement On Internal Control Over Operations: The SEC 
management is responsible for establishing and maintaining effective 
internal control and financial management systems that meet the 
objectives of the Federal Managers’ Financial Integrity Act of 1982 
(FMFIA). In accordance with OMB Circular A-123, the SEC conducted its 
annual assessment of the effectiveness of internal controls. Based on 
the results of the assessment for the period ending September 30, 
2014, the SEC is able to provide an unqualified statement of assurance 
that the internal controls and financial systems, both for the agency 
as a whole and for the Investor Protection Fund, meet the objectives 
of the FMFIA. No material weaknesses were found in the design or 
operation of the internal controls for the fiscal year ended September 
30, 2014. 

Assurance Statement On Internal Control Over Financial Reporting 
(ICFR): In accordance with Appendix A of OMB Circular A-123, the SEC 
conducted its assessment of the effectiveness of internal control over 
financial reporting, which includes safeguarding of assets and 
compliance with applicable laws and regulations. Based on the results 
of the assessment, the SEC is able to provide reasonable assurance 
that internal control over financial reporting, both for the agency as 
a whole and for the Investor Protection Fund, met the objectives of 
FMFIA and were operating effectively as of September 30, 2014. No 
material weaknesses were found in the design or operation of controls. 

SEC also conducted reviews of its financial management systems in 
accordance with OMB Circular A-123 Appendix D, Compliance with the 
Federal Financial Management Improvement Act of 1996 (FFMIA). Based on 
the results of these reviews, SEC can provide reasonable assurance 
that its financial management systems substantially comply with the 
requirements of the FFMIA as of September 30, 2014. 

Signed by: 

Mary Jo White: 
Chair: 
November 13, 2014: 

Kenneth A. Johnson: 
Chief Financial Officer: 
November 13, 2014: 

[End of Annual Assurance Statement] 

Management’s Responsibility for Internal Control: 

The FMFIA requires the head of the agency, based on the agency’s 
internal evaluation, to provide an annual Statement of Assurance on 
the effectiveness of their management, administrative, and financial 
reporting controls. OMB Circular A-123, Management’s Responsibility 
for Internal Control, implements the FMFIA and defines management’s 
responsibility for internal control in Federal agencies. The FY 2014 
annual assurance statements for FMFIA and ICFR are provided on the 
preceding page. 

FMFIA § 2 requires agencies to establish internal controls and 
financial systems which provide reasonable assurance that the 
following objectives are achieved: 

* Effective and efficient operations, 

* Compliance with applicable laws and regulations, and, 

* Reliability of financial reporting. 

The Chair’s FMFIA assurance statement is primarily based on individual 
assurance statements from each division director and office head. The 
individual statements assessed internal controls related to the 
effectiveness of the controls over programs and operations, financial 
reporting, and compliance with laws and regulations. These statements 
were based on self-assessments and internal reviews supported by 
enhanced control testing, as well as recommendations for improvement 
from audits, investigations, and reviews conducted by the Office of 
Inspector General (OIG) and Government Accountability Office (GAO). 

The results of these statements were considered with other sources of 
information when determining whether any management control 
deficiencies or non-conformances needed to be reported in the annual 
assurance statement. Other information sources included, but were not 
limited to, the following: 

* An entity-level control assessment; 

* Internal management reviews, self-assessments, and tests of internal 
controls; 

* Management’s personal knowledge gained from daily operations;
* Reports from GAO and the OIG; 

* Reviews of financial management systems under OMB Circular A-123 
Appendix D, Compliance with the Federal Financial Management 
Improvement Act of 1996; 

* Reports pursuant to the Federal Information Security Management Act 
(FISMA) and OMB Circular A-130, Management of Federal Information 
Resources; 

* Annual reviews and reports pursuant to the Improper Payments 
Elimination and Recovery Act; 

* Reports and other information from Congress or agencies such as OMB, 
the Office of Personnel Management (OPM), or the General Services 
Administration (GSA) reflecting the adequacy of internal controls; and; 

* Additional reviews relating to a division or office’s operations, 
including those discussed in the Other Reviews section below. 

FMFIA § 4 requires that agencies annually evaluate and report on 
whether financial management systems conform to government-wide 
requirements. The SEC evaluated its financial management systems for 
the fiscal year ending September 30, 2014, in accordance with the 
FFMIA and OMB Circular A-123 Appendix D, Compliance with the Federal 
Financial Management Improvement Act of 1996, as applicable. 

Appendix A of OMB Circular A-123 requires the agency head to provide a 
separate statement of assurance on the effectiveness of ICFR, in 
addition to the overall FMFIA assurance statement. SEC management 
assessed internal control at the entity-level, process, transaction, 
and application level. This report also provides a Summary of 
Financial Statement Audits and Management Assurances under the section 
entitled Other Accompanying Information, as required by OMB Circular A-
136, Financial Reporting Requirements. 

The effectiveness of process level controls was assessed through 
detailed test procedures related to the agency’s financial reporting 
objectives. As part of this effort, the agency performed a 
comprehensive risk assessment in which SEC management identified: 

* Significant financial reports; 

* Significant line items and accounts; 

* Major classes of transactions; 

* Relevant assertions, risks of material misstatement and control 
objectives; 

* Reporting and regulatory requirements; and; 

* Existing deficiencies and corrective action plans. 

From the results of the risk assessment, SEC management selected 
processes fundamental to the agency’s financial management. SEC 
management updated documentation of the business processes and control 
activities designed to mitigate significant financial reporting and 
compliance risks. 

These control activities were tested for design and operating 
effectiveness. The agency also tested the operating effectiveness of 
control activities that were found to be deficient in prior years. 
These test results served as a basis for management’s assessment of 
the effectiveness of ICFR. 

The results of testing completed prior to and as of September 30th 
formed the basis of the annual management assurance statement. SEC 
management also analyzed the magnitude of the internal control 
deficiencies and the level of assurance provided under the FMFIA 
requirements. SEC management analyzed the internal control 
deficiencies, both individually and in the aggregate, to determine if 
a material weakness[Footnote 1] existed in the financial reporting 
processes. ICFR testing conducted during FY 2014 did not identify any 
deficiencies that rose to the level of a material weakness. 

Significant factors considered for assessing each deficiency included 
the following: 

* Nature of the control deficiency (e.g., design, operation); 

* Internal control objectives and activities impacted; 

* Potential impact on financial statement line items, accounts, and 
disclosures; 

* The interaction of control deficiencies with other deficiencies; and; 

* The materiality of account balances impacted by the deficiency. 

Each year, the agency’s Financial Management Oversight Committee 
(FMOC) advises the Chair as to whether the SEC had any deficiencies in 
internal control or financial system design significant enough to be 
reported as a material weakness or non-conformance. This advice is 
based on the assurance statements from directors and office heads and 
other supplemental sources of information. 

Other Reviews: 

The SEC’s financial statements were audited by GAO. The objective of 
GAO’s audit was to express an opinion on the financial statements and 
on internal control over financial reporting, and to report on tests 
of compliance with selected laws and regulations. 

The OIG conducts, coordinates, and supervises independent audits and 
evaluations of the SEC’s programs and operations. As described in the 
OIG’s semiannual reports to Congress, during FY 2014, the OIG issued 
five audit and evaluation reports that contained numerous 
recommendations for corrective action. 

Improper Payments Information Act: 

Please refer to the Other Information Section, Improper Payments 
Elimination and Recovery Act Reporting Details, of this report on the 
SEC’s compliance with the Improper Payments Elimination and Recovery 
Improvement Act (IPERIA). 

Financial Management System Conformance: 

The FFMIA requires that each agency implement and maintain financial 
management systems that comply substantially with Federal financial 
management systems requirements, applicable Federal accounting 
standards, and the U.S. Standard General Ledger at the transaction 
level. The purpose of the FFMIA is to advance Federal financial 
management by verifying that financial management systems provide 
accurate, reliable, and timely financial management information in 
order to manage daily operations, produce reliable financial 
statements, maintain effective internal control, and comply with legal 
and regulatory requirements. Although the SEC is exempt from the 
requirement to determine substantial compliance with FFMIA, the agency 
assesses its financial management systems annually for conformance 
with the requirements of OMB Circular A-123, Appendix D and other 
Federal financial system requirements. 

The SEC used the methodology provided in OMB Circular A-123 Appendix 
D. It is a risk and evidence based assessment model that leverages 
existing audit tests, evaluations, and reviews that auditors, agency 
management, and others already performed. The SEC assessed each of its 
financial systems and mixed systems to determine the risk category for 
each financial management goal. The systems were reviewed individually 
for compliance, and then collectively a risk rating was determined for 
the agency’s system compliance. Based on the results of the FY 2014 
review, the SEC concluded that its risk rating was low and its 
financial system and mixed systems were in substantial compliance with 
Section 803(a) of the FFMIA requirements. This was based in part on 
notable progress made by SEC management and staff in implementing 
remediation activities in response to a significant deficiency noted 
by GAO in FY 2013 in information security. 

Summary of Current Financial System and Future Strategies: 

The FY 2014 ICFR assessment demonstrated that a low risk rating would 
be appropriate and therefore, it can be concluded that the agency 
substantially complied with the requirements of Section 803(a) of the 
FFMIA. The SEC’s financial system, Delphi, is a Financial Systems 
Integration Office (FSIO) certified system and met all of the 
requirements of FFMIA. 

FY 2014 marks our second full year of operations with the Delphi 
financial system and contracted services provided by a Federal Shared 
Service Provider (FSSP), the Department of Transportation’s (DOT) 
Enterprise Services Center (ESC). This year, we continued our progress 
in achieving more efficient and effective financial operations under 
the FSSP model. In FY 2014, the SEC also continued its efforts to 
strengthen the agency’s internal controls program. For example, the 
agency streamlined the key controls for all process cycles, and fully 
implemented a quarterly internal controls self-assessment. In FY 2015, 
the SEC will continue to build on this progress by further 
strengthening its internal controls program and remediating 
deficiencies identified by GAO. 

Federal Information Security Management Act: 

The Federal Information Security Management Act (FISMA) requires 
Federal agencies to “develop, document, and implement an agency-wide 
information security program to provide information security for the 
information and information systems that support the operations and 
assets of the agency, including those provided or managed by another 
agency, contractor, or other source.” In addition, FISMA requires 
Federal agencies to conduct annual assessments of their information 
security and privacy programs, to develop and implement remediation 
efforts for identified weaknesses and vulnerabilities, and to report 
compliance to OMB. The SEC’s OIG, Chief Information Security Officer, 
and Privacy Officer annually perform a joint review of the Commission’
s compliance with FISMA requirements. The Commission will submit its 
2014 report to OMB on or before November 14, 2014. 

Oversight and Compliance: 

The SEC’s Office of Information Technology (OIT), collaborating with 
business owners, completed assessment and authorization activities for 
17 reportable systems. As a result, the SEC has now assessed and 
authorized a total of 58 reportable systems in accordance with OMB 
policy and guidance from the National Institute of Standards and 
Technology (NIST). OIT completed contingency testing on the majority 
of the SEC’s authorized systems as part of disaster recovery 
exercises, unscheduled events, and weather occurrences. OIT Security’s 
assessment team visited one of the 11 SEC regional offices (Fort 
Worth) as part of a three-year review cycle and performed a technical 
assessment of both the local network infrastructure and physical 
security. Two additional regional offices were given remote technical 
assessments (Denver and Philadelphia). The assessment team also 
conducted a disaster recovery simulation exercise at the Fort Worth 
Regional Office. The exercises included a successful failover to 
alternate servers. OIT facilitated the remediation of 308 self-
identified deficiencies associated with the SEC’s network 
infrastructure and major applications, closed 20 OIG recommendations 
and submitted artifacts to support resolution of 42 matters for 
consideration to GAO. GAO accepted OIT’s work and concurred with 
closure of the 42 items. 

OIT conducted 85 privacy reviews, which included the approval and 
publishing of 12 privacy impact assessments (PIAs). OIT also published 
six systems of record notices (SORNs) in the Federal Register. 

Training and Communications: 

OIT delivered on-line cyber security and privacy awareness training to 
the SEC user community and achieved 99 percent completion. The Privacy 
Office conducted two on-site regional office assessments. In-person 
privacy training focused on the safe handling of personally 
identifiable information (PII) and was delivered to approximately 78 
percent of users in those regional offices. OIT published monthly 
newsletters providing guidance and tips about data protection and 
cyber security tips. 

Policy and Technology: 

OIT continues updating governance documentation to be consistent with 
OMB policy and NIST guidance. The SEC continues to safely explore 
cloud computing technologies and solutions based on Federal 
information protection requirements. SEC leveraged three cloud 
providers that have been through the Federal Risk and Authorization 
Management Program (FedRAMP) and is exploring additional cloud service 
providers that are registered in FedRAMP but have not yet received 
provisional authorization from either an agency or the Joint 
Authorization Board (JAB). 

Management Assurances Footnote: 

[1] A material weakness is a significant deficiency, or combination of 
significant deficiencies, that create a reasonable possibility that 
program objectives are not met, or results in the risk of control 
failure not being mitigated. 

[End of section] 

Financial Section: 

This section of the Agency Financial Report contains the U.S. 
Securities and Exchange Commission’s (SEC) financial statements and 
other additional information for FY 2014 and FY 2013. Information 
presented here satisfies the financial reporting requirements of the 
Accountability of Tax Dollars Act of 2002 and Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act). The SEC prepares 
these statements and accompanying notes in conformity with U.S. 
generally accepted accounting principles (GAAP) for the Federal 
Government and OMB Circular A-136, Financial Reporting Requirements. 
SEC Financial Statements: 

* Balance Sheets: Presents, as of a specific time, amounts of future 
economic benefits owned or managed by the SEC (assets), amounts owed 
by the entity (liabilities), and amounts which comprise the difference 
(net position). 

* Statements of Net Cost: Presents the gross cost incurred by the SEC 
less exchange revenue earned from its activities, including 
registration and filing fees. The SEC presents net cost of operations 
by program to provide cost information at the program level. The SEC 
recognizes collections as exchange revenue on the Statement of Net 
Cost, even when the collections are transferred to other entities. 

* Statements of Changes in Net Position: Reports the change in net 
position during the reporting period. This statement presents changes 
to Cumulative Results of Operations and Unexpended Appropriations. 

* Statements of Budgetary Resources[A]: Provides information about how 
budgetary resources were made available as well as their status at the 
end of the year. 

* Statements of Custodial Activity: Reports the collection of revenue 
for the Treasury General Fund. The SEC accounts for sources and 
disposition of the collections as custodial activities on this 
statement. Custodial collections of non-exchange revenue, such as 
amounts collected from violators of securities laws as a result of 
enforcement proceedings, are reported only on the Statement of 
Custodial Activity. 

* Accompanying Notes to the Financial Statements: Provides a 
description of significant accounting policies and detailed 
information on select statement line items. 

* Required Supplementary Information (Unaudited): Reports the 
Statements of Budgetary Resources by fund account[B]. 

Investor Protection Fund Financial Statements: 

* Investor Protection Fund Financial Statements: Provides stand alone, 
comparative financial statements (Balance Sheets, Statements of Net 
Cost, Statements of Changes in Net Position, and Statements of 
Budgetary Resources) as required by the Dodd-Frank Act. 

* Accompanying Notes to the Investor Protection Fund Financial 
Statements: Provides a description of significant accounting policies 
and detailed information on select statement line items as required by 
the Dodd-Frank Act. 

[A] Budgetary information aggregated for purposes of the Statement of 
Budgetary Resources is disaggregated for each of the SEC’s major 
budget accounts and is presented as Required Supplementary Information. 

[B] The SEC does not have stewardship over resources or 
responsibilities for which supplementary stewardship reporting would 
be required. 

[End of section] 

Message from the Chief Financial Officer: 

I am delighted to join Chair White in presenting the SEC’s Agency 
Financial Report (AFR) for fiscal year (FY) 2014. We hope you find the 
AFR a useful summary of the SEC’s use of resources, operating 
performance, financial stewardship, and internal controls. 

Over the last few years, the SEC had made significant strides forward 
in its multi-year initiative to build and maintain a strong, 
sustainable internal control posture. Between 2010 and 2013, the SEC’s 
audit results significantly improved, from two material weaknesses in 
FY 2010 to one significant deficiency in FY 2013, as the result of our 
efforts to remediate or downgrade the severity of several internal 
control issues. During that time the SEC also migrated to a Shared 
Service Provider model, both to host our financial system and handle 
our financial transactions. 

For FY 2014, our independent auditor, the U.S. Government 
Accountability Office (GAO), has issued an unqualified opinion on our 
financial statements and internal controls. In addition, the SEC 
successfully downgraded the severity of the one significant deficiency 
from FY 2013 related to internal controls over information technology 
security. We achieved these results through steps that included: 

* Fully integrating the operation and support of the Electronic Data 
Gathering, Analysis, and Retrieval system (EDGAR) into Office of 
Information Technology (OIT) operations; 

* Performing a comprehensive security assessment and authorization 
(SA&A) of EDGAR; and; 

* Expanding OIT Security continuous monitoring efforts by rolling out 
more sensors and improving reporting. 

In FY 2014, the SEC will once again have one significant deficiency in 
the area of accounting for disgorgements and penalties. We found that 
judgments and orders were not always getting recorded into the 
accounting records on a timely basis. Therefore, the SEC enhanced the 
controls in this area late in the fiscal year to address the timely 
recording of transactions. The Office of Financial Management has 
begun working more regularly with the agency’s case management 
specialists, who have deep institutional knowledge with respect to 
individual cases. We expect the ongoing communication to help ensure 
proper recording of judgments and orders. This will continue to be an 
area of focus for us in FY 2015. 

In the coming year we also expect to concentrate on further improving 
the systems that support financial processes and controls. The SEC 
will participate in the Federal government-wide deployment of a new 
travel system, work to replace the system supporting budget execution 
and formulation, and focus on reforming the systems related to filing 
fees and property management. The SEC also is in the early stages of 
building a financial data mart, which is expected to integrate data 
from various systems for more comprehensive management and financial 
reporting. 

This section provides citizens with detailed information about the SEC’
s finances and its internal controls over financial reporting. It 
contains the results of the FY 2014 audit conducted by GAO and the 
agency’s response. The section also includes the SEC’s financial 
statements and notes, both for the entity as a whole and for the 
Investor Protection Fund, as required under Section 922 of the Dodd-
Frank Act. 

Thank you for taking the time to learn about the SEC’s activities in 
FY 2014. We hope you will find these materials both useful and 
informative. 

Sincerely, 

Signed by: 

Kenneth A. Johnson: 
Chief Financial Officer: 
November 14, 2014: 

[End of section] 

Report of Independent Auditors: 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

Independent Auditor’s Report: 

To the Chair of the United States Securities and Exchange Commission: 

In our audits of the 2014 and 2013 financial statements of the United 
States Securities and Exchange Commission (SEC) and the Investor 
Protection Fund (IPF), we found: 

* SEC’s and IPF’s financial statements as of and for the fiscal years 
ended September 30, 2014, and 2013, are presented fairly, in all 
material respects, in accordance with U.S. generally accepted 
accounting principles; 

* although internal controls could be improved, SEC maintained, in all 
material respects, effective internal control over financial reporting 
for SEC and IPF as of September 30, 2014; and; 

* no reportable noncompliance in fiscal year 2014 with provisions of 
applicable laws, regulations, contracts, and grant agreements we 
tested. The following sections discuss in more detail (1) our report 
on SEC’s and IPF’s financial statements and on internal control over 
financial reporting, which includes required supplementary information 
(RSI)[Footnote 1] and other information[Footnote 2] included with the 
financial statements; (2) our report on compliance with laws, 
regulations, contracts, and grant agreements; and (3) SEC’s comments. 

Report on SEC’s and IPF’s Financial Statements and on Internal Control 
over Financial Reporting: 

The Accountability of Tax Dollars Act of 2002 requires that SEC 
annually prepare and submit audited financial statements to Congress 
and the Office of Management and Budget.[Footnote 3] The Securities 
Exchange Act of 1934, as amended in 2010 by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act), requires that SEC 
provide separate annual audited financial statements for IPF to 
Congress.[Footnote 4] IPF’s financial transactions are also included 
in SEC’s overall financial statements. We audited the financial 
statements of SEC and IPF pursuant to our authority conferred by the 
Chief Financial Officers Act of 1990, as amended by the Government 
Management and Reform Act of 1994.[Footnote 5] Further, in accordance 
with the Dodd-Frank Act, we have assessed the effectiveness of the 
internal control structure and SEC’s procedures for financial 
reporting, evaluated SEC’s assessment of such effectiveness, and are 
attesting to SEC’s assessment of its internal control over financial 
reporting.[Footnote 6] SEC’s financial statements comprise the balance 
sheets as of September 30, 2014, and 2013; the related statements of 
net cost of operations, changes in net position, budgetary resources, 
and custodial activity for the fiscal years then ended; and the 
related notes to the financial statements. IPF’s financial statements 
comprise the balance sheets as of September 30, 2014, and 2013; the 
related statements of net cost of operations, changes in net position, 
and budgetary resources for the fiscal years then ended; and the 
related notes to the financial statements. We also have audited SEC’s 
internal control over financial reporting for SEC and IPF as of 
September 30, 2014, based on criteria established under 31 U.S.C. § 
3512(c), (d), commonly known as the Federal Managers’ Financial 
Integrity Act (FMFIA). 

We conducted our audits in accordance with U.S. generally accepted 
government auditing standards. We believe that the audit evidence we 
obtained is sufficient and appropriate to provide a basis for our 
audit opinions. 

Management’s Responsibility: 

SEC management is responsible for (1) the preparation and fair 
presentation of its financial statements and those of IPF in 
accordance with U.S. generally accepted accounting principles; (2) 
preparing, measuring, and presenting the RSI in accordance with U.S. 
generally accepted accounting principles; (3) preparing and presenting 
other information included in documents containing the audited 
financial statements and auditor’s report, and ensuring the 
consistency of that information with the audited financial statements 
and the RSI; (4) maintaining effective internal control over financial 
reporting, including the design, implementation, and maintenance of 
internal control relevant to the preparation and fair presentation of 
financial statements that are free from material misstatement, whether 
due to fraud or error; (5) evaluating the effectiveness of internal 
control over financial reporting based on the criteria established 
under FMFIA; and (6) providing its assertion about the effectiveness 
of internal control over financial reporting as of September 30, 2014, 
based on its evaluation, included in the Management Assurance section 
of the annual financial report. 

Auditor’s Responsibility: 

Our responsibility is to express opinions on SEC’s and IPF’s financial 
statements and opinions on SEC’s internal control over financial 
reporting for SEC and for IPF based on our audits. U.S. generally 
accepted government auditing standards require that we plan and 
perform the audits to obtain reasonable assurance about whether the 
financial statements are free from material misstatement, and whether 
effective internal control over financial reporting was maintained in 
all material respects. We are also responsible for applying certain 
limited procedures to the RSI and other information included with the 
financial statements. 

An audit of financial statements involves performing procedures to 
obtain audit evidence about the amounts and disclosures in the 
financial statements. The procedures selected depend on the auditor’s 
judgment, including the auditor’s assessment of the risks of material 
misstatement of the financial statements, whether due to fraud or 
error. In making those risk assessments, the auditor considers 
internal control relevant to the entity’s preparation and fair 
presentation of the financial statements in order to design audit 
procedures that are appropriate in the circumstances. An audit of 
financial statements also involves evaluating the appropriateness of 
the accounting policies used and the reasonableness of significant 
accounting estimates made by management, as well as evaluating the 
overall presentation of the financial statements. An audit of internal 
control over financial reporting includes obtaining an understanding 
of internal control over financial reporting, assessing the risk that 
a material weakness exists, evaluating the design and operating 
effectiveness of internal control over financial reporting based on 
the assessed risk, and testing relevant internal control over 
financial reporting.[Footnote 7] Our audit of internal control also 
considered the entity’s process for evaluating and reporting on 
internal control over financial reporting based on criteria 
established under FMFIA. Our audits also included performing such 
other procedures as we considered necessary in the circumstances. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly established under FMFIA, such as those controls 
relevant to preparing performance information and ensuring efficient 
operations. We limited our internal control testing to testing 
controls over financial reporting. Our internal control testing was 
for the purpose of expressing an opinion on whether effective internal 
control over financial reporting was maintained, in all material 
respects. Consequently, our audit may not identify all deficiencies in 
internal control over financial reporting that are less severe than a 
material weakness. 

Definitions and Inherent Limitations of Internal Control over 
Financial Reporting: 

An entity’s internal control over financial reporting is a process 
effected by those charged with governance, management, and other 
personnel, the objectives of which are to provide reasonable assurance 
that (1) transactions are properly recorded, processed, and summarized 
to permit the preparation of financial statements in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use, or 
disposition, and (2) transactions are executed in accordance with laws 
governing the use of budget authority and with other applicable laws, 
regulations, contracts, and grant agreements that could have a direct 
and material effect on the financial statements. 

Because of its inherent limitations, internal control over financial 
reporting may not prevent, or detect and correct, misstatements due to 
fraud or error. We also caution that projecting any evaluation of 
effectiveness to future periods is subject to the risk that controls 
may become inadequate because of changes in conditions, or that the 
degree of compliance with the policies or procedures may deteriorate. 

Opinion on SEC’s Financial Statements In our opinion, SEC’s financial 
statements present fairly, in all material respects, SEC’s financial 
position as of September 30, 2014, and 2013, and its net cost of 
operations, changes in net position, budgetary resources, and 
custodial activity for the fiscal years then ended in accordance with 
U.S. generally accepted accounting principles. 

Opinion on IPF’s Financial Statements: 

In our opinion, IPF’s financial statements present fairly, in all 
material respects, IPF’s financial position as of September 30, 2014, 
and 2013, and its net cost of operations, changes in net position, and 
budgetary resources for the fiscal years then ended in accordance with 
U.S. generally accepted accounting principles. 

Opinions on Internal Control over Financial Reporting: 

Although certain internal controls could be improved, SEC maintained, 
in all material respects, effective internal control over financial 
reporting for SEC and IPF as of September 30, 2014, based on criteria 
established under FMFIA. Our opinions on SEC’s internal control are 
consistent with SEC’s assertion that its internal control over 
financial reporting, both for the agency as a whole and for IPF, was 
operating effectively as of September 30, 2014, and that no material 
weaknesses were found in the design or operation of the controls. 
[Footnote 8] 

However, during our fiscal year 2014 audit, we identified continuing 
and new deficiencies in SEC’s internal control over disgorgement and 
penalty transactions [Footnote 9] that constituted a significant 
deficiency in SEC’s internal control over financial reporting. 
[Footnote 10] This significant deficiency pertained to SEC’s overall 
financial reporting but not that of IPF because IPF does not include 
disgorgement and penalty transactions. 

We have reported deficiencies in SEC’s controls over disgorgement and 
penalty transactions in prior years. In fiscal year 2013, we concluded 
that these deficiencies did not individually or collectively represent 
a material weakness or significant deficiency. Nonetheless, these 
deficiencies warranted SEC management’s attention and were included in 
our report to SEC management in May 2014.[Footnote 11] In fiscal year 
2014, SEC took action to address some of these deficiencies; however, 
our testing results this year identified new deficiencies in 
accounting for disgorgement and penalty transactions, which, combined 
with the remaining control deficiencies from our prior audits, are 
important enough to merit the attention of those charged with 
governance of SEC. Therefore, while not considered a material 
weakness, we consider these issues to collectively represent a 
significant deficiency in SEC’s internal control over financial 
reporting as of September 30, 2014. 

For all significant errors and issues that were identified, SEC made 
necessary adjustments to the financial statements, the notes 
accompanying the financial statements, and other required 
supplementary information, as appropriate. Consequently, SEC was able 
to prepare financial statements that were fairly presented in all 
material respects for fiscal years 2014 and 2013. Although the 
significant deficiency in internal control did not materially affect 
SEC’s fiscal year 2014 financial statements, misstatements may occur 
in other financial information reported by SEC and not be prevented or 
detected and corrected on a timely basis because of this significant 
deficiency. This significant deficiency is discussed in more detail 
below. 

During fiscal year 2014, SEC made progress in addressing other 
internal control deficiencies we reported in fiscal year 2013. 
Specifically, SEC sufficiently addressed the deficiencies in its 
information security such that we no longer consider the remaining 
control deficiencies in this area, individually or collectively, to 
represent a significant deficiency as of September 30, 2014. 

During our 2014 audit, we also identified deficiencies in SEC’s 
internal control over financial reporting that we do not consider to 
be material weaknesses or significant deficiencies. Nonetheless, these 
deficiencies warrant SEC management’s attention. We have communicated 
these matters to SEC management and, where appropriate, will report on 
them separately. 

Significant Deficiency over Accounting for Disgorgement and Penalties: 

As part of its enforcement responsibilities, SEC issues orders and 
administers judgments ordering, among other things, disgorgement, 
civil monetary penalties, and interest against violators of federal 
securities laws. When SEC is designated in an order or a final 
judgment to collect the assessed disgorgement, penalties, and interest 
on behalf of harmed investors or for payment to the general fund of 
the U.S. Treasury (Treasury), SEC records an accounts receivable for 
the amount the violator owes, accompanied by an equal and offsetting 
liability to reflect the amount payable to the harmed investors or to 
the Treasury. SEC recognizes amounts collected that are to be 
deposited in the general fund of the Treasury as revenue on its 
Statement of Custodial Activity. In fiscal year 2014, SEC recorded 
approximately $3.7 billion of new disgorgement and penalty accounts 
receivables. As of September 30, 2014, SEC’s disgorgement and 
penalties accounts receivable balance, net of an allowance for 
uncollectible amounts, was $381 million. SEC’s custodial revenue 
collected from disgorgement and penalties and transferred to the 
general fund of the Treasury during fiscal year 2014 was $825 million. 

During this year’s audit, we noted continuing and new deficiencies in 
SEC’s accounting for disgorgement and penalty transactions that 
increase the likelihood that the affected balance sheet amounts and 
custodial balances could be misstated and not be detected and 
corrected in a timely manner. Specifically, we found continuing 
deficiencies related to (1) insufficient procedures for ensuring funds 
availability before transferring disgorgement and penalty-related 
funds to the Treasury, (2) ineffective monitoring of disgorgement and 
penalty-related cases filed in courts to ensure all cases that should 
be recorded as receivables are timely identified, and (3) insufficient 
safeguarding controls at service providers that collect SEC cash 
receipts, including payments from violators for disgorgement, 
penalties, and related interest on SEC’s behalf. We reported these 
issues to SEC management in May 2014.[Footnote 12] 

During fiscal year 2014, we also found new deficiencies related to 
disgorgement and penalties. Specifically, we found that SEC’s controls 
were not effective in ensuring that disgorgement and penalty 
transactions were recorded timely and accurately in SEC’s general 
ledger, and were not effective in timely detecting and correcting any 
errors. For example, SEC’s routine monitoring procedures did not 
consistently detect and correct errors in a timely manner. Instead, as 
individual errors were found and brought to its attention, SEC would 
investigate further to identify any similar issues, and it was these 
ad hoc reviews that would result in the identification and correction 
of additional errors. The errors we found this year were largely 
caused by (1) ineffective policies or procedures for tracking and 
recording accounts receivable transactions, (2) a lack of consistent 
information sharing between the Office of Financial Management (OFM) 
and the Division of Enforcement, and (3) ineffective implementation of 
existing policies. 

Specifically, we tested a statistical sample of 72 disgorgement and 
penalty accounts receivable amounts and found that 4 of the sample 
items were not recorded in the general ledger in the proper accounting 
period. These errors were caused by ineffective procedures for 
tracking, analyzing, and recording civil court judgments and resulted 
in understatements to gross accounts receivables of about $42 million. 
We also found that SEC recorded certain disgorgement and penalty 
accounts receivable before the money was determined to be owed to SEC, 
resulting in an overstatement to gross accounts receivable of about 
$10 million. According to SEC policy,[Footnote 13] an accounts 
receivable amount and the related liability amount should be recorded 
after issuance of a final civil court judgment or administrative 
order. However, we found that 6 of the 72 accounts receivable amounts 
we tested in our statistical sample were adjustments to correct 
amounts that SEC had originally recorded based on civil court 
judgments that were not final. These errors were caused by a lack of 
systematic information sharing between OFM, which is responsible for 
recording disgorgement and penalty transactions in the general ledger, 
and the Division of Enforcement, which is responsible for conducting 
investigations into possible violations of the federal securities laws 
and prosecuting SEC's civil suits in the federal courts as well as in 
its administrative proceedings. We found that the OFM staff did not 
always have sufficient information to properly record these 
transactions, and did not have a process in place to consistently 
obtain such information from the Division of Enforcement. 

Further, we found that SEC had not established controls to ensure that 
all offsets of disgorgement-related accounts receivables were recorded 
in the general ledger in a timely manner.[Footnote 14] Specifically, 
we noted that SEC did not have a process in place to ensure that OFM 
received all relevant documentation of offsets in a timely and 
consistent manner from the Division of Enforcement. OFM must, at 
times, rely on the Division of Enforcement to provide documentation 
related to offsets, such as when an offset depends on restitution in a 
criminal court case. We also noted that final court judgments may 
include language that would necessitate SEC recording both a new 
accounts receivable amount for amounts ordered payable to SEC as well 
as an offset amount. However, limitations in SEC’s general ledger 
system do not allow it to record both the accounts receivable amount 
and offset at the same time, which has resulted in SEC relying on a 
manual process to enter the offset amount at a later time. 

Finally, we found that SEC recorded certain disgorgement and penalty 
transactions to incorrect customer numbers in the general ledger. 
[Footnote 15] This was caused by ineffective implementation of 
existing SEC policies. For example, we found that one of the 45 
accounts receivable amounts we tested as part of a statistical sample 
was recorded to an incorrect customer number. In addition, SEC 
identified a disgorgement and penalty accounts receivable amount that 
was recorded twice in the general ledger because it was initially 
recorded to an incorrect customer number, resulting in an 
overstatement of SEC’s gross accounts receivable of $4.4 million, 
which was subsequently corrected. SEC’s procedures require staff to 
determine whether an accounts receivable has already been recorded 
before initiating the recording of a new receivable and require review 
of new receivables as they are recorded. However, we noted that OFM 
staff did not sufficiently review the customer number as part of their 
review. Although the deficiencies we identified did not result in 
material misstatements to the financial statement balances, without 
effective controls to help ensure that amounts are recorded timely and 
accurately, SEC is at increased risk of misstatement in its financial 
statements related to disgorgement and penalty accounts receivable. We 
consider these issues collectively to represent a significant 
deficiency in internal control over disgorgement and penalty 
transactions for fiscal year 2014. 

Other Matters: 

Required Supplementary Information: 

U.S. generally accepted accounting principles issued by the Federal 
Accounting Standards Advisory Board (FASAB) require that the RSI be 
presented to supplement the financial statements.[Footnote 16] 
Although not a part of the financial statements, FASAB considers this 
information to be an essential part of financial reporting for placing 
the financial statements in appropriate operational, economic, or 
historical context. We have applied certain limited procedures to the 
RSI in accordance with U.S. generally accepted government auditing 
standards, which consisted of inquiries of management about the 
methods of preparing the RSI and comparing the information for 
consistency with management’s responses to the auditor’s inquiries, 
the financial statements, and other knowledge we obtained during the 
audit of the financial statements, in order to report omissions or 
material departures from FASAB guidelines, if any, identified by these 
limited procedures. We did not audit and we do not express an opinion 
or provide any assurance on the RSI because the limited procedures we 
applied do not provide sufficient evidence to express an opinion or 
provide any assurance. 

Other Information: 

SEC’s other information contains a wide range of information, some of 
which is not directly related to the financial statements. This 
information is presented for purposes of additional analysis and is 
not a required part of the financial statements or RSI. We read the 
other information included with the financial statements in order to 
identify material inconsistencies, if any, with the audited financial 
statements. Our audit was conducted for the purpose of forming an 
opinion on SEC’s and IPF’s financial statements. We did not audit and 
do not express an opinion or provide any assurance on the other 
information. 

Report on Compliance with Laws, Regulations, Contracts, and Grant 
Agreements: 

In connection with our audits of SEC’s and IPF’s financial statements, 
we tested compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements consistent with our 
auditor’s responsibility discussed below. We caution that 
noncompliance may occur and not be detected by these tests. We 
performed our tests of compliance in accordance with U.S. generally 
accepted government auditing standards. 

Management’s Responsibility: 

SEC management is responsible for complying with laws, regulations, 
contracts, and grant agreements applicable to SEC and IPF. 

Auditor’s Responsibility: 

Our responsibility is to test compliance with selected provisions of 
laws, regulations, contracts, and grant agreements applicable to SEC 
and IPF that have a direct effect on the determination of material 
amounts and disclosures in the SEC and IPF financial statements, and 
perform certain other limited procedures. Accordingly, we did not test 
compliance with all laws, regulations, contracts, and grant agreements 
applicable to SEC and IPF. 

Results of Our Tests for Compliance with Laws, Regulations, Contracts, 
and Grant Agreements: 

Our tests for compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements disclosed no instances of 
noncompliance for fiscal year 2014 that would be reportable under U.S. 
generally accepted government auditing standards. However, the 
objective of our tests was not to provide an opinion on compliance 
with laws, regulations, contracts, and grant agreements applicable to 
SEC and IPF. Accordingly, we do not express such an opinion. 

Intended Purpose of Report on Compliance with Laws, Regulations, 
Contracts, and Grant Agreements: 
The purpose of this report is solely to describe the scope of our 
testing of compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements, and the results of that 
testing, and not to provide an opinion on compliance. This report is 
an integral part of an audit performed in accordance with U.S. 
generally accepted government auditing standards in considering 
compliance. Accordingly, this report on compliance with laws, 
regulations, contracts, and grant agreements is not suitable for any 
other purpose. 

Agency Comments: 

In commenting on a draft of this report, SEC’s Chair expressed her 
pleasure that GAO found that SEC remediated the significant deficiency 
identified in 2013 related to information security, and attributed 
this accomplishment to the hard work and dedication of staff in SEC’s 
Office of Information Technology. The Chair stated that SEC will 
continue to strengthen controls over information security, while 
focusing on the newly identified significant deficiency in the area of 
accounting for disgorgements and penalties. The Chair added that SEC 
will undertake a thorough assessment of the controls and 
organizational approach in that area, specifically by taking 
corrective actions to consistently implement and evidence effective 
internal control over the timely recording of judgments and orders. 
The Chair stated that OFM is working closely with the Division of 
Enforcement to review orders in individual cases, and that SEC expects 
this ongoing communication to help ensure proper recording of 
judgments and orders. The Chair further commented that in the coming 
year, SEC expects to concentrate on further improving the systems that 
support its financial processes and controls to further SEC’s 
endeavors to maintain a strong, sustainable internal controls 
environment. The complete text of SEC’s comments is reprinted in 
enclosure I. 

Signed by: 

James R. Dalkin: 
Director: 
Financial Management and Assurance: 
November 14, 2014: 

Report of Independent Auditors Footnotes: 

[1] The RSI consists of Management’s Discussion and Analysis and the 
Statements of Budgetary Resources by Fund, which are included with the 
financial statements. 

[2] Other information consists of information included with the 
financial statements, other than the RSI and the auditor’s report. 

[3] 31 U.S.C. § 3515. 

[4] Section 21F(g)(5) of the Securities Exchange Act of 1934, 15 
U.S.C. § 78u-6(g)(5). 

[5] See the Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 
104 Stat. 2838 (Nov. 15, 1990), codified, in relevant part, as 
amended, at 31 U.S.C. § 3521(g); see also the Government Management 
Reform Act of 1994, Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 
1994), codified, in relevant part, as amended, at 31 U.S.C. § 3515(c). 

[6] Pub. L. No. 111-203, § 963(a), (b)(2), 124 Stat. 1376, 1910 
(2010), codified at 15 U.S.C. § 78d-8(a), (b). 

[7] A material weakness is a deficiency, or combination of 
deficiencies, in internal control over financial reporting, such that 
there is a reasonable possibility that a material misstatement of the 
entity’s financial statements will not be prevented, or detected and 
corrected, on a timely basis. A deficiency in internal control exists 
when the design or operation of a control does not allow management or 
employees, in the normal course of performing their assigned 
functions, to prevent, or detect and correct, misstatements on a 
timely basis. 

[8] Dodd-Frank Act, Pub. L. No. 111-203, § 963, 124 Stat. 1376, 1910 
(2010), codified at 15 U.S.C. § 78d-8, requires that (1) SEC submit 
annual reports to Congress describing management’s responsibility for 
establishing and maintaining an adequate internal control structure 
and procedures for financial reporting and assessing the effectiveness 
of such internal control during the fiscal year, (2) the SEC Chair and 
Chief Financial Officer attest to SEC’s reports, and (3) GAO attest to 
and report on the assessment made by SEC. SEC conducted an evaluation 
of its internal control over financial reporting in accordance with 
the Office of Management and Budget’s Circular No. A-123, Management’s 
Responsibility for Internal Control, based on criteria established 
under FMFIA. 

[9] A disgorgement is the repayment of illegally gained profits (or 
avoided losses) for distribution to harmed investors whenever 
feasible. A penalty is a monetary payment from a violator of 
securities law that SEC obtains pursuant to statutory authority. A 
penalty is fundamentally a punitive measure, although penalties 
occasionally can be used to compensate harmed investors. 

[10] A significant deficiency is a deficiency, or a combination of 
deficiencies, in internal control that is less severe than a material 
weakness, yet important enough to merit attention by those charged 
with governance. 

[11] GAO, Management Report: Improvements Needed in SEC’s Internal 
Controls and Accounting Procedures, GAO-14-416R (Washington, D.C.: May 
12, 2014). 

[12] GAO-14-416R. 

[13] United States Securities and Exchange Commission, Office of 
Financial Management, “Investments and Disgorgement Management: 
Enforcement Accounts Receivable Procedures Guide,” ch. 46.07 in OFM 
Reference Guide (April 2014), p.13. 

[14] SEC records an offset when a court orders that an SEC debt may be 
satisfied in part or fully by the amount of criminal restitution or 
forfeiture imposed (or paid) in a parallel criminal action or when 
balances are reduced or collections paid to other entities in which 
the debtor receives credit toward the SEC debt. 

[15] Customer number refers to the field in the general ledger that 
SEC uses to identify the specific securities law violator. 

[16] The RSI is comprised of Management’s Discussion and Analysis and 
the Statements of Budgetary Resources by Fund, which are included with 
the financial statements. 

[End of section] 

Enclosure I: Management’s Response to Audit Opinion: 

United States Securities and Exchange Commission: 
The Chair: 
Washington, DC 20549: 

November 12, 2014: 

Mr. James R. Dalkin: 
Director: 
Financial Management and Assurance: 
United States Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Dalkin:  

Thank you for the opportunity to review and comment on the audit 
report of the Government Accountability Office (GAO). I am pleased 
that the GAO’s FY 2014 audit found that the SEC’s financial statements 
and notes were presented fairly, in all material respects, and in 
conformity with U.S. generally accepted accounting principles. 

Furthermore, I am pleased the GAO found that the SEC no longer has a 
significant deficiency related to information security as was 
identified in 2013. This accomplishment was the result of the hard 
work and dedication of staff in the SEC’s Office of Information 
Technology. We will continue to strengthen our controls in this area, 
while focusing on the newly identified significant deficiency in the 
area of accounting for disgorgements and penalties. We will undertake 
a thorough assessment of our controls and organizational approach in 
this area. The agency also will take specific corrective actions to 
consistently implement and evidence effective internal control over 
the timely recording of judgments and orders. The Office of Financial 
Management is working closely with the Division of Enforcement to 
review orders in individual cases, and we expect this ongoing 
communication to help ensure proper recording of judgments and orders. 

In the coming year, we also expect to concentrate on further improving 
the systems that support our financial processes and controls. The SEC 
will participate in the federal government-wide deployment of a new 
travel system; work to replace the system supporting budget execution 
and formulation; and focus on reforming the systems related to filing 
fees, disgorgement and penalties, and property management. We expect 
these efforts to further our endeavors to maintain a strong, 
sustainable internal controls environment. 

As always, I very much appreciate the professional manner in which you 
and your team conducted the audit. I look forward to continuing our 
productive dialogue in the coming months on the SEC’s efforts to 
address the areas noted in your report. If you have any questions at 
any time, please feel free to contact me. 

Sincerely, 

Signed by: 

Mary Jo White: 
Chair: 

[End of section] 

SEC Financial Statements: 

* Financial Statements; 

* Notes to the Financial Statements; 

* Required Supplementary Information (Unaudited). 

Financial Statements: 

The accompanying notes are an integral part of these financial 
statements. 

U.S. Securities And Exchange Commission: 
Balance Sheets: 
As of September 30, 2014 and 2013: 
(Dollars In Thousands) 

Assets (Note 2): 

Intragovernmental: 

Fund Balance with Treasury (Note 3); 
FY 2014: $8,210,610; 
FY 2013: $8,154,737. 

Investments, Net (Note 5); 
FY 2014: $1,755,689; 
FY 2013: $1,282,642. 

Accounts Receivable (Note 6); 
FY 2014: $19; 
FY 2013: 0. 

Advances and Prepayments; 
FY 2014: $3,488; 
FY 2013: $1,623. 

Total Intragovernmental; 
FY 2014: $9,969,806; 
FY 2013: $9,439,002. 

Cash and Other Monetary Assets (Note 4); 
FY 2014: $731; 
FY 2013: $389. 

Accounts Receivable, Net (Note 6); 
FY 2014: $506,605; 
FY 2013: $387,027. 

Property and Equipment, Net (Note 7); 
FY 2014: $113,292; 
FY 2013: $126,871. 

Total Assets; 
FY 2014: $10,590,434; 
FY 2013: $9,953,289. 

Liabilities (Note 8): 

Intragovernmental: 

Accounts Payable; 
FY 2014: $7,249; 
FY 2013: $5,675. 

Employee Benefits; 
FY 2014: $4,017; 
FY 2013: $3,086. 

Unfunded FECA and Unemployment Liability; 
FY 2014: $1,286; 
FY 2013: $1,308. 

Custodial Liability;
FY 2014: $223,363; 
FY 2013: $68,831. 

Liability for Non-Entity Assets; 
FY 2014: $3,752; 
FY 2013: $3,069. 

Total Intragovernmental; 
FY 2014: $239,667; 
FY 2013: $81,969. 

Accounts Payable; 
FY 2014: $64,830; 
FY 2013: $38,313. 

Actuarial FECA Liability; 
FY 2014: $6,821; 
FY 2013: $7,155. 

Accrued Payroll and Benefits; 
FY 2014: $37,931; 
FY 2013: $15,405. 

Accrued Leave; 
FY 2014: $58,498; 
FY 2013: $51,706. 

Registrant Deposits; 
FY 2014: $34,766; 
FY 2013: $32,857. 

Liability for Disgorgement and Penalties (Note 16); 
FY 2014: $2,451,397; 
FY 2013: $2,065,202. 

Other Accrued Liabilities (Note 8); 
FY 2014: $5,830; 
FY 2013: $5,509. 

Total Liabilities; 
FY 2014: $2,899,740; 
FY 2013: $2,298,116. 

Commitments and Contingencies (Note 10): 

Net Position: 

Unexpended Appropriations – Other Funds; 
FY 2014: $764; 
FY 2013: $764. 

Cumulative Results of Operations – Earmarked Funds (Note 11); 
FY 2014: $7,688,738; 
FY 2013: $7,653,217. 

Cumulative Results of Operations – Other Funds; 
FY 2014: $1,956; 
FY 2013: $1,192. 

Total Net Position; 
FY 2014: $7,690,694; 
FY 2013: $7,653,217. 

Total Liabilities and Net Position; 
FY 2014: $10,590,434; 
FY 2013: $9,953,289. 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Net Cost: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

Program Costs (Note 12): 

Enforcement; 
FY 2014: $487,047; 
FY 2013: $451,072.  

Compliance Inspections and Examinations; 
FY 2014: $281,738; 
FY 2013: $265,348.  

Corporation Finance; 
FY 2014: $146,276; 
FY 2013: $141,777.  

Trading and Markets; 
FY 2014: $79,246; 
FY 2013: $76,213. 

Investment Management; 
FY 2014: $57,328; 
FY 2013: $50,366.  

Risk, Strategy and Financial Innovation; 
FY 2014: $43,366; 
FY 2013: $29,504.  

General Counsel; 
FY 2014: $42,826; 
FY 2013: $41,417.  

Other Program Offices; 
FY 2014: $61,830; 
FY 2013: $51,768. 

Agency Direction and Administrative Support; 
FY 2014: $232,575; 
FY 2013: $216,077. 

Inspector General; 
FY 2014: $8,764; 
FY 2013: $7,032. 

Total Program Costs; 
FY 2014: $1,440,996; 
FY 2013: $1,330,574. 

Less: Earned Revenue Not Attributed to Programs (Note 12); 
FY 2014: $1,906,258; 
FY 2013: $1,764,267. 

Net (Income) Cost from Operations (Note 15); 
FY 2014: ($465,262); 
FY 2013: ($433,693). 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Net Cost: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

FY 2014: 

Cumulative Results Of Operations: 

Beginning Balances;
Funds from Dedicated Collections: $7,653,217;
All Other Funds: $1,192;
Consolidated Total: $7,654,409. 

Budgetary Financing Sources: 

Appropriations Used;
Funds from Dedicated Collections: $59,013;
All Other Funds: 0;
Consolidated Total: $59,013. 

Non-Exchange Revenue;
Funds from Dedicated Collections: $579;
All Other Funds: 0; 
Consolidated Total: $579. 

Other Financing Sources: 

Imputed Financing (Note 13);
Funds from Dedicated Collections: $39,556;
All Other Funds: 0; 
Consolidated Total: $39,556. 

Other (Note 17); 
Funds from Dedicated Collections: 0; 
All Other Funds: ($528,889);
Consolidated Total: ($528,889). 

Total Financing Sources;
Funds from Dedicated Collections: $99,148;
All Other Funds: ($528,889);
Consolidated Total: ($429,741). 

Net Income (Cost) from Operations;
Funds from Dedicated Collections: ($63,627);
All Other Funds: $528,889;
Consolidated Total: $465,262. 

Net Change;
Funds from Dedicated Collections: $35,521;
All Other Funds: 0;
Consolidated Total: $35,521. 

Cumulative Results of Operations (Note 11);
Funds from Dedicated Collections: $7,688,738;
All Other Funds: $1,192;
Consolidated Total: $7,689,930. 

Unexpended Appropriations: 

Beginning Balances;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Budgetary Financing Sources: 

Appropriations Received;
Funds from Dedicated Collections: $59,013; 
All Other Funds: 0; 
Consolidated Total: $59,013. 

Other Adjustments;
Funds from Dedicated Collections: 0; 
All Other Funds: 0; 
Consolidated Total: 0. 

Appropriations Used;
Funds from Dedicated Collections: ($59,013);
All Other Funds: 0; 
Consolidated Total: ($59,013). 

Total Budgetary Financing Sources;
Funds from Dedicated Collections: 0; 
All Other Funds: 0; 
Consolidated Total: 0. 

Total Unexpended Appropriations;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Net Position, End of Period;
Funds from Dedicated Collections: $7,688,738;
All Other Funds: $1,956;
Consolidated Total: $7,690,694. 

FY 2013: 

Cumulative Results Of Operations: 

Beginning Balances;
Funds from Dedicated Collections: $7,596,330;
All Other Funds: $1,195;
Consolidated Total: $7,597,525. 

Budgetary Financing Sources: 

Appropriations Used;
Funds from Dedicated Collections: $47,546;
All Other Funds: 0;
Consolidated Total: $47,546. 

Non-Exchange Revenue;
Funds from Dedicated Collections: $655;
All Other Funds: 0; 
Consolidated Total: $655. 

Other Financing Sources: 

Transfers In/Out Without Reimbursement;
Funds from Dedicated Collections: 0;
All Other Funds: 0;
Consolidated Total: 0. 

Imputed Financing (Note 13);
Funds from Dedicated Collections: $32,958;
All Other Funds: 0; 
Consolidated Total: $32,958. 

Other (Note 17); 
Funds from Dedicated Collections: ($10); 
All Other Funds: ($457,964);
Consolidated Total: ($457,964). 

Total Financing Sources;
Funds from Dedicated Collections: $81,155;
All Other Funds: ($457,964);
Consolidated Total: ($376,809). 

Net Income (Cost) from Operations;
Funds from Dedicated Collections: ($24,268);
All Other Funds: $457,961;
Consolidated Total: $433,693. 

Net Change;
Funds from Dedicated Collections: $56,887;
All Other Funds: ($3);
Consolidated Total: $56,884. 

Cumulative Results of Operations (Note 11);
Funds from Dedicated Collections: $7,653,217;
All Other Funds: $1,192;
Consolidated Total: $7,654,409. 

Unexpended Appropriations: 

Beginning Balances;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Budgetary Financing Sources: 

Appropriations Received;
Funds from Dedicated Collections: $47,641; 
All Other Funds: 0; 
Consolidated Total: $47,641. 

Other Adjustments;
Funds from Dedicated Collections: ($95); 
All Other Funds: 0; 
Consolidated Total: ($95). 

Appropriations Used;
Funds from Dedicated Collections: ($47,546);
All Other Funds: 0; 
Consolidated Total: ($47,546). 

Total Budgetary Financing Sources;
Funds from Dedicated Collections: 0; 
All Other Funds: 0; 
Consolidated Total: 0. 

Total Unexpended Appropriations;
Funds from Dedicated Collections: 0; 
All Other Funds: $764;
Consolidated Total: $764. 

Net Position, End of Period;
Funds from Dedicated Collections: $7,653,217;
All Other Funds: $1,956;
Consolidated Total: $7,655,173. 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Budgetary Resources: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
FY 2014: $144,766; 
FY 2013: $43,672. 

Recoveries of Prior Year Unpaid Obligations; 
FY 2014: $33,554; 
FY 2013: $30,777. 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
FY 2014: 0; 
FY 2013: $2,009. 

Unobligated Balance from Prior Year Budget Authority, Net; 
FY 2014: $178,320; 
FY 2013: $76,458. 

Appropriations (Discretionary and Mandatory); 
FY 2014: $79,763; 
FY 2013: $117,811. 

Spending Authority from Offsetting Collections (Discretionary and 
Mandatory); 
FY 2014: $1,550,513; 
FY 2013: $1,208,208. 

Total Budgetary Resources; 
FY 2014: $1,550,513; 
FY 2013: $1,402,477. 

Status Of Budgetary Resources: 

Obligations Incurred (Note 14); 
FY 2014: $1,426,869; 
FY 2013: $1,257,711. 

Unobligated Balance, End of Year: 

Apportioned; 
FY 2014: $455,849; 
FY 2013: $518,816. 

Exempt from Apportionment; 
FY 2014: $327; 
FY 2013: $43,749. 

Unapportioned; 
FY 2014: ($332,532); 
FY 2013: ($47,799). 

Total Unobligated Balance, End of Year; 
FY 2014: $123,644; 
FY 2013: $144,766. 

Total Budgetary Resources; 
FY 2014: $1,550,513; 
FY 2013: $1,402,477. 

Change In Obligated Balance: 

Unpaid Obligations, Brought Forward, October 1 (Gross); 
FY 2014: $854,647; 
FY 2013: $954,598. 

Obligations Incurred; 
FY 2014: $1,426,869; 
FY 2013: $1,257,711. 

Outlays (Gross); 
FY 2014: ($1,332,116); 
FY 2013: ($1,324,876). 

Recoveries of Prior Year Unpaid Obligations; 
FY 2014: ($33,554); 
FY 2013: ($40,777). 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
FY 2014: 0; 
FY 2013: ($2,099). 

Unpaid Obligations, End of Year: 
FY 2014: $915,846; 
FY 2013: $854,647. 

Uncollected Payments: 

Uncollected Customer Payments from Federal Sources, Brought Forward, 
October 1; 
FY 2014: ($252); 
FY 2013: ($189). 

Change in Uncollected Customer Payments from Federal Sources; 
FY 2014: ($183); 
FY 2013: ($63). 

Uncollected Customer Payments from Federal Sources, End of Year; 
FY 2014: ($435); 
FY 2013: ($252). 

Obligated Balance, End of Year; 
FY 2014: $915,411; 
FY 2013: $854,395. 

Obligated Balance, Start of Year: 
FY 2014: $854,395; 
FY 2013: $954,409. 

Obligated Balance, End of Year; 
FY 2014: $915,411; 
FY 2013: $854,395. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
FY 2014: $1,372,193; 
FY 2013: $1,326,019. 

Actual Offsetting Collections (Discretionary and Mandatory); 
FY 2014: ($1,292,247); 
FY 2013: ($1,274,195). 

Change in Uncollected Customer Payments from Federal Sources 
(Discretionary and Mandatory); 
FY 2014: ($183); 
FY 2013: ($63). 

Budget Authority, Net (Discretionary and Mandatory); 
FY 2014: $79,763; 
FY 2013: $51,761. 

Outlays, Gross (Discretionary and Mandatory); 
FY 2014: $1,332,116; 
FY 2013: $1,324,876. 

Actual Offsetting Collections (Discretionary and Mandatory); 
FY 2014: ($1,292,247); 
FY 2013: ($1,274,195). 

Outlays, Net (Discretionary and Mandatory); 
FY 2014: $39,869; 
FY 2013: $50,681. 

Distributed Offsetting Receipts; 
FY 2014: ($1,929); 
FY 2013: ($3,150). 

Agency Outlays, Net (Discretionary and Mandatory); 
FY 2014: $37,940; 
FY 2013: $47,531. 

[End of table] 

U.S. Securities And Exchange Commission: 
Statements of Custodial Activity: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

Revenue Activity: 

Sources of Cash Collections: 

Disgorgement and Penalties; 
FY 2014: $825,027; 
FY 2013: $518,592. 

Other; 
FY 2014: $2,702; 
FY 2013: $1,355. 

Total Cash Collections; 
FY 2014: $827,729; 
FY 2013: $519,947. 

Accrual Adjustments; 
FY 2014: $154,532; 
FY 2013: $6,344. 

Total Custodial Revenue; 
FY 2014: $982,261; 
FY 2013: $526,281. 

Disposition Of Collections: 

Amounts Transferred to: 

Department of the Treasury; 
FY 2014: $827,729; 
FY 2013: $519,947. 

Amounts Yet to be Transferred; 
FY 2014: $154,532; 
FY 2013: $6,344. 

Total Disposition of Collections; 
FY 2014: $982,261; 
FY 2013: $526,281. 

Net Custodial Activity: 
FY 2014: 0; 
FY 2013: 0. 

[End of table] 

Notes to the Financial Statements: 

U.S. Securities And Exchange Commission: 
As of September 30, 2014 and 2013: 

Note 1. Significant Accounting Policies: 

A. Reporting Entity: 

The U.S. Securities and Exchange Commission (SEC) is an independent 
agency of the U.S. Government established pursuant to the Securities 
Exchange Act of 1934 (Exchange Act), charged with regulating this 
country’s capital markets. The SEC’s mission is to protect investors; 
maintain fair, orderly, and efficient markets; and facilitate capital 
formation. The SEC works with Congress, other executive branch 
agencies, Self-Regulatory Organizations (SROs) (e.g., stock exchanges 
and the Financial Industry Regulatory Authority (FINRA)), accounting 
and auditing standards setters, state securities regulators, law 
enforcement officials, and many other organizations in support of the 
agency’s mission. 

The agency’s programs protect investors and promote the public 
interest by fostering and enforcing compliance with the Federal 
securities laws; establishing an effective regulatory environment; 
facilitating access to the information investors need to make informed 
investment decisions; and enhancing the SEC’s performance through 
effective alignment and management of human, information, and 
financial capital. 

The SEC consists of five presidentially-appointed Commissioners, with 
staggered five-year terms. The SEC is organized into five divisions 
and multiple offices. The five divisions are the Division of 
Enforcement, the Division of Corporation Finance, the Division of 
Trading and Markets, the Division of Investment Management, and the 
Division of Economic and Risk Analysis. The offices include the Office 
of Compliance Inspections and Examinations, the Office of General 
Counsel, the Office of Investor Education and Advocacy, the Office of 
the Chief Accountant, the Office of International Affairs, the Office 
of Administrative Law Judges, the Office of Credit Ratings, the Office 
of the Investor Advocate, the Office of Municipal Securities, the 
Office of Inspector General, eleven regional offices, and various 
supporting services. 

The SEC reporting entity includes the Investor Protection Fund (See 
Note 1.T, Investor Protection Fund). In addition to being included in 
the SEC’s financial statements, the Investor Protection Fund’s 
financial activities and balances are also presented separately as 
stand-alone financial statements, as required by Exchange Act Section 
21F(g)5. 

As discussed in Note 10.A, Commitments: Securities Investor Protection 
Act, the SEC reporting entity does not include the Securities Investor 
Protection Corporation (SIPC). 

As discussed in Note 1.S, Disgorgement and Penalties, disgorgement 
funds collected and held by the SEC on behalf of harmed investors are 
part of the SEC reporting entity. However, disgorgement funds held by 
the U.S. Courts and by non-Federal receivers on behalf of harmed 
investors are not part of the SEC reporting entity. 

B. Basis of Presentation and Accounting: 

The accompanying financial statements present the financial position, 
net cost of operations, changes in net position, budgetary resources, 
and custodial activities of the SEC as required by the Accountability 
of Tax Dollars Act of 2002. The statements may differ from other 
financial reports submitted pursuant to Office of Management and 
Budget (OMB) directives for the purpose of monitoring and controlling 
the use of the SEC’s budgetary resources, due to differences in 
accounting and reporting principles discussed in the following 
paragraphs. The SEC’s books and records serve as the source of the 
information presented in the accompanying financial statements. 

The agency classifies assets, liabilities, revenues, and costs in 
these financial statements according to the type of entity associated 
with the transactions. Intragovernmental assets and liabilities are 
those due from or to other Federal entities. Intragovernmental 
revenues are earned from other Federal entities. Intragovernmental 
costs are payments or accruals due to other Federal entities. 

The SEC’s financial statements are prepared in conformity with 
generally accepted accounting principles (GAAP) for Federal reporting 
entities and presented in conformity with OMB Circular A-136, 
Financial Reporting Requirements. The Balance Sheet, Statement of Net 
Cost, and Statement of Changes in Net Position are prepared using the 
accrual basis of accounting. Accordingly, revenues are recognized when 
earned and expenses are recognized when incurred without regard to the 
receipt or payment of cash. These principles differ from budgetary 
accounting and reporting principles on which the Statement of 
Budgetary Resources is prepared. The differences relate primarily to 
the capitalization and depreciation of property and equipment, as well 
as the recognition of other assets and liabilities. The Statement of 
Custodial Activity is presented on the modified cash basis of 
accounting. Cash collections and amounts transferred to Treasury or 
the Investor Protection Fund are reported on a cash basis. The change 
in receivables and related payables are reported on an accrual basis. 

The SEC presents net cost of operations by program. OMB Circular A-136 
defines the term “major program” as describing an agency’s mission, 
strategic goals, functions, activities, services, projects, processes, 
or any other meaningful grouping. The presentation by program is 
consistent with the presentation used by the agency in submitting its 
budget requests. 

C. Use of Estimates: 

The preparation of financial statements in conformity with GAAP 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities. These estimates and 
assumptions include, but are not limited to, the disclosure of 
contingent liabilities at the date of the financial statements and the 
reported amounts of revenue and expenses during the reporting period. 
Actual results may differ from these estimates. Estimates are also 
used when computing the allowance for uncollectible accounts and in 
the allocation of costs to the SEC programs presented in the Statement 
of Net Cost. 

D. Intra- and Inter-Agency Relationships: 

The SEC is comprised of a single Federal agency with limited intra-
entity transactions. The Investor Protection Fund can finance the 
operations of the SEC Office of Inspector General’s Employee 
Suggestion Program and the Office of the Whistleblower on a 
reimbursable basis. This has given rise to a small amount of intra-
entity eliminations of the related revenue and expense transactions 
between the Investor Protection Fund and the SEC’s General Salaries 
and Expenses Fund. 

E. Fund Accounting Structure: 

The SEC, in common with other Federal agencies, utilizes various 
Treasury Appropriation Fund Symbols (Funds), to recognize and track 
appropriation authority provided by Congress, collections from the 
public and other financial activity. These funds are described below: 

(1) Funds from Dedicated Collections: 

* Salaries and Expenses: Earned revenues from securities transaction 
fees from SROs are deposited into Fund X0100, Salaries and Expenses, 
Securities and Exchange Commission. These collections are dedicated to 
carrying out the SEC’s mission, functions, and day to day operations 
and may be used in accordance with spending limits established by 
Congress. Collections in excess of Congressional spending limits are 
unavailable by law and reported as Non-Budgetary Fund Balance with 
Treasury (See Note 3, Fund Balance with Treasury). 

* Investor Protection Fund: The Investor Protection Fund is a fund for 
dedicated collections that provides funding for the payment of 
whistleblower awards as required by the Dodd-Frank Act. The Investor 
Protection Fund is financed by a portion of monetary sanctions 
collected by the SEC in judicial or administrative actions brought by 
the SEC. Persons may receive award payments from the Fund if they 
voluntarily provide original information to the SEC that results in a 
successful enforcement action and other conditions are met. In 
addition, the Fund can be used to finance the operations of the Office 
of the Whistleblower and the SEC Office of Inspector General’s 
Employee Suggestion Program for the receipt of suggestions for 
improvements in work efficiency and effectiveness, and allegations of 
misconduct or mismanagement within the SEC. This activity is 
recognized in Fund X5567, Monetary Sanctions and Interest, Investor 
Protection Fund, Securities and Exchange Commission (Investor 
Protection Fund). See Note 1.T, Investor Protection Fund. 

* Reserve Fund: A portion of SEC registration fee collections up to 
$50 million in any one fiscal year may be deposited in the Reserve 
Fund, the balance of which cannot exceed $100 million. The Reserve 
Fund is a fund for dedicated collections that may be used by the SEC 
to obligate up to $100 million in one fiscal year as the SEC 
determines necessary to carry out its functions. Although amounts 
deposited in the Reserve Fund are not subject to apportionment, the 
SEC must notify Congress when funds are obligated. Resources available 
in the Reserve Fund may be limited or sequestered through 
Congressional action. This activity is recognized in Fund X5566, 
Securities and Exchange Commission Reserve Fund. 

(2) Miscellaneous Receipt Accounts: 

* The Miscellaneous Receipt Accounts hold non-entity receipts and 
accounts receivable from custodial activities that the SEC cannot 
deposit into funds under its control. These accounts include 
registration fee collections in excess of amounts deposited into the 
Reserve Fund, receipts pursuant to certain SEC enforcement actions and 
other small collections that will be sent to the U.S. Treasury General 
Fund upon collection. This activity is recognized in Fund 0850.150, 
Registration, Filing, and Transaction Fees, Securities and Exchange 
Commission; Fund 1060, Forfeitures of Unclaimed Money and Property; 
Fund 1099, Fines, Penalties, and Forfeitures, Not Otherwise 
Classified; Fund 1435, General Fund Proprietary Interest, Not 
Otherwise Classified; and Fund 3220, General Fund Proprietary 
Receipts, Not Otherwise Classified. Miscellaneous Receipt Accounts are 
reported as “All Other Funds” on the Statement of Changes in Net 
Position. 

(3) Deposit Funds: 

* The Deposit Funds hold disgorgement, penalties, and interest 
collected and held on behalf of harmed investors, registrant monies 
held temporarily until earned by the SEC, and collections awaiting 
disposition or reclassification. This activity is recognized in Fund 
X6561, Unearned Fees, Securities and Exchange Commission and Fund 
X6563, Disgorgement and Penalty Amounts Held for Investors, Securities 
and Exchange Commission. Deposit Funds do not impact the SEC’s Net 
Position and are not reported on the Statement of Changes in Net 
Position. 

The SEC’s lending and borrowing authority is limited to authority to 
borrow funds from Treasury and loan funds to the Securities Investor 
Protection Corporation, as discussed in Note 10, Commitments and 
Contingencies. The SEC has custodial responsibilities, as disclosed in 
Note 1.M, Liabilities. 

F. Funds from Dedicated Collections: 

A fund from dedicated collections is financed by specifically 
identified revenues, often supplemented by other financing sources, 
which remain available over time. The SEC collects specifically 
identified revenues and is required to use those revenues for 
designated activities, benefits or purposes and to account for them 
separately from the Government’s general revenues. As described in 
Note 1.E, Fund Accounting Structure, the SEC’s funds from dedicated 
collections are deposited into Fund X0100, Salaries and Expenses; Fund 
X5567, Investor Protection Fund; and Fund X5566, Reserve Fund. 

G. Entity and Non-Entity Assets: 

Entity assets are assets that the SEC may use in its operations. 

Non-entity assets are assets that the SEC holds on behalf of another 
Federal agency or a third party and are not available for the SEC’s 
use. The SEC’s non-entity assets include the following: (a) 
disgorgement, penalties, and interest collected and held or invested 
by the SEC; (b) disgorgement, penalties, and interest receivable that 
will be collected by the SEC; (c) securities registration, tender 
offer, merger, and other fees collected and receivable from 
registrants, in excess of amounts deposited in the SEC’s Reserve Fund; 
and (d) other miscellaneous receivables and collections such as 
registrant deposit accounts that have not been returned to registrants. 

H. Fund Balance with Treasury: 

Fund Balance with Treasury (FBWT) reflects amounts the SEC holds in 
the U.S. Treasury that have not been invested in Federal securities. 
The components of the SEC’s FBWT are in the various funds described in 
Note 1.E, Fund Accounting Structure. 

The SEC conducts all of its banking activity in accordance with 
directives issued by the U.S. Department of the Treasury’s Bureau of 
the Fiscal Service. 

I. Investments: 

The SEC has the authority to invest disgorgement funds in Treasury 
securities including civil penalties collected under the “Fair Fund” 
provision of the Sarbanes-Oxley Act of 2002. As the funds are 
collected, the SEC holds them in a deposit fund account and may invest 
them in overnight and short-term market-based Treasury securities 
through the Bureau of the Fiscal Service. The interest earned is 
subject to taxation under Treasury Regulation Section 1.468B-2, 
Taxation of Qualified Settlement Funds and Related Administrative 
Requirements. 

The SEC also has authority to invest amounts in the Investor 
Protection Fund in overnight and short-term market-based Treasury 
securities through the Bureau of the Fiscal Service. The interest 
earned on the investments is a component of the balance of the Fund 
and available to be used for expenses of the Investor Protection Fund. 

Additional information regarding the SEC’s investments is provided in 
Note 5, Investments. 

J. Accounts Receivable and Allowance for Uncollectible Accounts: 

SEC’s entity and non-entity accounts receivable consist primarily of 
amounts due from the public. Entity accounts receivable are amounts 
that the SEC may retain upon collection. Non-entity accounts 
receivable are amounts that the SEC will forward to another Federal 
agency or to the public after the funds are collected. 

Entity Accounts Receivable: 

The bulk of the SEC’s entity accounts receivable arise from securities 
transaction fees. In addition, the SEC has small amounts of activity 
arising from the sale of services provided by the SEC to other Federal 
agencies; reimbursement of employee travel by outside organizations; 
and employee-related debt. Entity accounts receivable balances are 
normally small at year-end due to the timing and payment requirements 
relative to the largest categories of accounts receivable activity. 
Specifically, securities transaction fees are payable to the SEC twice 
a year: in March for the period September through December, and in 
September for the period January through August. Accordingly, the year-
end accounts receivable accrual generally represents fees payable to 
the SEC for one month of securities transaction fee activity 
(September). 

Non-Entity Accounts Receivable: 

Non-entity accounts receivable arise mainly from amounts assessed 
against violators of securities laws, including disgorgement of 
illegal gains, civil penalties, and related assessed interest. The SEC 
is responsible for collection, and recognizes a receivable, when an 
order of the Commission or a Federal court directs payment to the SEC 
or the U.S. Treasury. 

Interest recognized by the SEC on non-entity accounts receivable 
includes prejudgment interest specified by the court or administrative 
order as well as post-judgment interest on collectible accounts. The 
SEC does not recognize interest revenue on accounts considered to be 
uncollectible. 

The SEC’s enforcement investigation and litigation activities often 
result in court orders directing violators of Federal securities laws 
to pay amounts assessed to a Federal court or to a non-Federal 
receiver acting on behalf of harmed investors. These orders are not 
recognized as accounts receivable by the SEC because the debts are 
payable to, and collected by, another party. 

Securities registration, tender offer, merger, and other fees from 
registrants (filing fee) collections in excess of those deposited into 
the SEC’s Reserve Fund are not available for the SEC’s operations and 
are transferred to the U.S. Treasury General Fund. Accounts receivable 
amounts arising from filing fees in excess of those deposited into the 
Reserve Fund are non-entity and are held on behalf of the U.S. 
Treasury. 

Allowance for Uncollectible Amounts: 

The SEC uses a three-tiered methodology for calculating the allowance 
for loss on its disgorgement and penalty accounts receivable. The 
first tier involves making an individual collection assessment of 
cases that represent at least 65 percent of the portfolio. The second 
and third tiers are composed of the remaining cases that are equal to 
or less than 30 days old and over 30 days old, respectively. For the 
second and third tiers, the SEC applies an allowance rate based on 
historical collection data analysis. 

The SEC calculates the allowance for uncollectible amounts and the 
related provision for estimated losses for filing fees and other 
accounts receivable using an analysis of historical collection data. 
No allowance for uncollectible amounts or related provision for 
estimated losses has been established for securities transaction fees 
payable by SROs, as these amounts are fully collectible based on 
historical experience. 

The SEC writes off receivables aged two or more years by removing the 
debt amounts from the gross accounts receivable and any related 
allowance for uncollectible accounts. 

K. Other Assets: 

Payments made in advance of the receipt of goods and services are 
recorded as advances or prepayments and recognized as expenses when 
the related goods and services are received. 

L. Property and Equipment, Net: 

The SEC’s property and equipment consists of software, general-purpose 
equipment used by the agency, capital improvements made to buildings 
leased by the SEC for office space, and, when applicable, internal-use 
software development costs for projects in development. The SEC 
reports property and equipment purchases and additions at historical 
cost. The agency expenses property and equipment acquisitions that do 
not meet the capitalization criteria as well as normal repairs and 
maintenance. 

The SEC depreciates property and equipment over the estimated useful 
lives using the straight-line method of depreciation. The agency 
removes property and equipment from its asset accounts in the period 
of disposal, retirement, or removal from service. The SEC recognizes 
the difference between the book value and any proceeds as a gain or 
loss in the period that the asset is removed. 

M. Liabilities: 

The SEC recognizes liabilities for probable future outflows or other 
sacrifices of resources as a result of events that have occurred as of 
the Balance Sheet date. The SEC’s liabilities consist of routine 
operating accounts payable, accrued payroll and benefits, legal 
liabilities, liabilities to offset non-entity assets such as 
registrant deposit accounts that have not been returned to 
registrants, disgorgement and penalties collected and receivable, and 
amounts collected or receivable on behalf of the U.S. Treasury. Refer 
to Note 1.G, Entity and Non-Entity Assets, for additional information. 

Enforcement Related Liabilities: 

A liability for disgorgement and penalties arises when an order is 
issued for the SEC to collect disgorgement, penalties, and interest 
from securities law violators. When the Commission or court issues 
such an order, the SEC establishes an accounts receivable due to the 
SEC offset by a liability. The presentation of this liability on the 
Balance Sheet is dependent upon several factors. If the court or 
Commission order indicates that collections are to be retained by the 
Federal Government, either by transfer to the U.S. Treasury General 
Fund or to the Investor Protection Fund, the liabilities are 
classified as custodial (that is, collected on behalf of the 
Government) and intragovernmental. If the order indicates that the 
funds are eligible for distribution to harmed investors, the SEC will 
recognize a Governmental liability (that is, a liability of the 
Government to make a payment to the public). This liability is not 
presented as a custodial liability. The SEC does not record 
liabilities on its financial statements for disgorgement and penalty 
amounts that another Government entity such as a court, or a non-
governmental entity, such as a receiver, has collected or will collect. 

In accordance with the provisions of the Dodd-Frank Act, collections 
not distributed to harmed investors may be transferred to either the 
Investor Protection Fund or the U.S. Treasury General Fund. 
Collections not distributed to harmed investors are transferred to the 
Investor Protection Fund if the Fund’s balance does not exceed $300 
million at the time of collection. Refer to Note 16, Disgorgement and 
Penalties for additional information. 

Liability Classification: 

The SEC recognizes liabilities that are covered by budgetary 
resources, liabilities that are not covered by budgetary resources, 
and liabilities that do not require the use of budgetary resources.
Liabilities that are covered by budgetary resources are liabilities 
incurred for which budgetary resources are available to the SEC during 
the reporting period without further Congressional action. The SEC 
also recognizes liabilities not covered by budgetary resources. 
Budgetary and financial statement reporting requirements sometimes 
differ on the timing for the required recognition of an expense. For 
example, in the financial statements, annual leave expense must be 
accrued in the reporting period when the annual leave is earned. 
However, in the budget, annual leave is required to be recognized and 
funded in the fiscal year when the annual leave is either used or paid 
out to a separating employee, not when it is earned. As a result of 
this timing difference, accrued annual leave liability is classified 
as a liability “not covered by budgetary resources” as of the 
financial statement date. Liabilities that do not require the use of 
budgetary resources include registrant deposit accounts that have not 
been returned to registrants and offsetting liabilities that 
correspond to non-entity assets that the SEC holds, such as 
collections and receivables from disgorgements and penalties. 
Liabilities that do not require the use of budgetary resources are 
covered by assets that do not represent budgetary resources to the 
SEC. Refer to Note 8, Liabilities Covered and Not Covered by Budgetary 
Resources, for more information. 

N. Employee Retirement Systems and Benefits: 

The SEC’s employees may participate in either the Civil Service 
Retirement System (CSRS) or the Federal Employees Retirement System 
(FERS), depending on when they started working for the Federal 
Government. FERS and Social Security automatically cover most 
employees hired after December 31, 1983. Employees who are rehired 
after a break in service of more than one year and who had five years 
of Federal civilian service prior to 1987 are eligible to participate 
in the CSRS offset retirement system or may elect to join FERS. All 
employees are eligible to contribute to a Thrift Savings Plan (TSP). 
For those employees participating in FERS, the TSP is automatically 
established, and the SEC makes a mandatory 1 percent contribution to 
this plan. In addition, the SEC matches contributions ranging from 1 
to 4 percent for FERS-eligible employees who contribute to their TSP. 
Employees participating in CSRS do not receive matching contributions 
to their TSP. The SEC contributes the employer’s matching amount to 
the Social Security Administration under the Federal Insurance 
Contributions Act, which fully covers FERS participating employees. 
The SEC does not report CSRS, FERS, Federal Employees Health Benefits 
Program, Federal Employees Group Life Insurance Program assets, or 
accumulated plan benefits; the U.S. Office of Personnel Management 
(OPM) reports this information. 

O. Injury and Post-employment Compensation: 

The Federal Employees’ Compensation Act (FECA), administered by the 
U.S. Department of Labor (DOL), provides income and medical cost 
protection to covered Federal civilian employees harmed on the job or 
who have contracted an occupational disease, and dependents of 
employees whose death is attributable to a job-related injury or 
occupational disease. The DOL bills the SEC annually as claims are 
paid, and the SEC in turn accrues a liability to recognize the future 
payments. Payment on these bills is deferred for two years to allow 
for funding through the budget process. Similarly, employees that the 
SEC terminates without cause may receive unemployment compensation 
benefits under the unemployment insurance program also administered by 
the DOL, which bills each agency quarterly for paid claims. 

In addition, the SEC records an estimate for the FECA actuarial 
liability using the DOL’s FECA model. The model considers the average 
amount of benefit payments incurred by the SEC for the past three 
fiscal years, multiplied by the medical and compensation liability to 
benefits paid ratio for the whole FECA program. 

P. Annual, Sick, and Other Leave: 

The SEC accrues annual leave and compensatory time as earned and 
reduces the accrual when leave is taken. The balances in the accrued 
leave accounts reflect current leave balances and pay rates. No 
portion of this liability has been obligated because budget execution 
rules do not permit current or prior year funding to be used to pay 
for leave earned but not yet either taken or paid as a lump sum upon 
termination during the reporting period. Accordingly, such accrued 
leave is reported as “not covered by budgetary resources.” Refer to 
Note 8, Liabilities Covered and Not Covered by Budgetary Resources. 
The SEC expenses sick leave and other types of non-vested leave as 
used. 

Q. Revenue and Other Financing Sources: 

The SEC’s revenue and financing sources include exchange revenues, 
which are generated from transactions in which both parties give and 
receive value, and non-exchange revenues, which arise from the Federal 
Government’s ability to demand payment. 

Exchange Revenue: 

The SEC’s exchange revenue consists primarily of collections of 
securities transaction fees from SROs and of securities registration, 
tender offer, merger, and other fees from registrants (filing fees). 
The fee rates are calculated by the SEC’s Division of Economic and 
Risk Analysis and established by the SEC in accordance with Federal 
law and are applied to volumes of activity reported by SROs or to 
filings submitted by registrants. Fees are recognized as exchange 
revenue on the effective date of transaction or filing. These fee 
collections are the primary source of the SEC’s funding and may be 
used up to limits established by Congress. See Note 1.E, Fund 
Accounting Structure. 

The SEC recognizes amounts remitted by registrants in advance of the 
transaction or filing date as a liability until earned by the SEC or 
returned to the registrant. Federal regulation requires the return of 
registrant advance deposits when an account is dormant for three 
years, except in certain cases where refunds are not permitted. The 
Securities Act of 1933 and the Exchange Act do not permit refunds to 
registrants for securities that remain unsold after the completion, 
termination, or withdrawal of an offering. However, Code of Federal 
Regulations (CFR) Title 17 Chapter II, Part 230, Section 457(p) 
permits filers to offset a fee paid (filing fee offset) for a 
subsequent registration statement (offering) filed within five years 
of the initial filing date of the earlier registration statement. The 
total aggregate dollar amount of the filing fee associated with the 
unsold securities may be offset against the total filing fee due on 
the subsequent offering. Unused filing fee offsets are not a liability 
to the SEC because registrants cannot obtain refunds of fees or 
additional services in relation to securities that remain unsold. 
However, filing fee offsets may reduce revenue earned in future 
accounting periods. 

These exchange revenues are a means to recover all or most of the cost 
of the total cost of all SEC programs and to deposit excess filing fee 
collections to the Treasury General Fund. As a result, they are shown 
as offsetting the total costs of the organization in the Statement of 
Net Cost, rather than individual SEC programs. This presentation is 
consistent with the financial accounting concepts described in 
Statement of Federal Financial Accounting Concepts 2, Entity and 
Display. 

Non-exchange Revenue: 

The SEC’s non-exchange revenue mainly consists of amounts collected 
from violators of securities laws as a result of enforcement 
proceedings. These amounts may take the form of disgorgement of 
illegal gains, civil penalties, and related interest. Amounts 
collected may be paid to injured investors, transferred to the 
Investor Protection Fund, or transferred to the U.S. Treasury General 
Fund, based on established policy and regulation. 

All non-exchange revenue expected to be forwarded to either the U.S. 
Treasury General Fund or Investor Protection Fund is recognized on the 
Statement of Custodial Activity. The Investor Protection Fund 
recognizes non-exchange revenue on the Statement of Changes in Net 
Position when funds are transferred into the Investor Protection Fund. 
The result is that, in accordance with Federal accounting standards, 
the entire amount of custodial activity is presented on the Statement 
of Custodial Activity to document the movement of funds, and the 
portion retained by the SEC is recognized as SEC activity. 

The SEC does not recognize amounts collected and held by another 
government entity, such as a court registry, or a non-government 
entity, such as a receiver. 

R. Budgets and Budgetary Accounting: 

Salaries and Expenses: 

The SEC deposits securities transaction fee revenue in the SEC’s 
Salaries and Expenses account. However, the SEC may use funds from 
this account only as authorized by Congress and made available by OMB 
apportionment, upon issuance of a Treasury warrant. Revenue collected 
in excess of appropriated amounts is restricted from use by the SEC. 
Collections in excess of Congressional spending limits are unavailable 
by law and reported as Non-Budgetary Fund Balance with Treasury (See 
Note 3, Fund Balance with Treasury). Each fiscal year, OMB provides 
the SEC’s Salaries and Expenses account with Category A 
apportionments, which are quarterly distributions of budgetary 
resources for the fiscal year. These apportionments include both new 
budget authority appropriated by Congress and unused no-year funds 
(unobligated balances) from prior years. The Salaries and Expenses 
account also receives a small amount of Category B funds related to 
reimbursable activity, which are exempt from quarterly apportionment. 
Refer to Note 1.E, Fund Accounting Structure. 

Investor Protection Fund: 

The Investor Protection Fund is a special fund that has the authority 
to retain revenues and other financing sources not used in the current 
period for future use. The Dodd-Frank Act provides that the Fund is 
available to the SEC without further appropriation or fiscal year 
limitation for the purpose of funding the activities of the Office of 
the Whistleblower and the Office of Inspector General’s Employee 
Suggestion Program. However, the SEC is required to request and obtain 
an annual apportionment from OMB to use these funds. All of the funds 
are Category B, exempt from quarterly apportionment. Refer to Note 
1.E, Fund Accounting Structure. 

Reserve Fund: 

The Reserve Fund is a special fund that has the authority to retain 
certain revenues not used in the current period for future use. The 
Dodd-Frank Act provides that the Fund is available to the SEC without 
further appropriation or fiscal year limitation “to carry out the 
functions of the Commission.” Amounts in the Reserve Fund are exempt 
from apportionment. Collection of fees arising from securities 
registration, tender offer, merger, and other fees from registrants, 
other than those that are deposited in the Reserve Fund, are not 
available to be used in the operations of the SEC. Refer to Note 1.E, 
Fund Accounting Structure. 

S. Disgorgement and Penalties: 

The SEC maintains non-entity assets related to disgorgements and 
penalties ordered pursuant to civil injunctive and administrative 
proceedings. The SEC also recognizes an equal and offsetting liability 
for these assets as discussed in Note 1.M, Liabilities. These non-
entity assets consist of disgorgement, penalties, and interest 
assessed against securities law violators where the Commission or a 
Federal court has determined that the SEC should return such funds to 
harmed investors or transfer such funds to the Investor Protection 
Fund or the U.S. Treasury General Fund. The SEC does not record on its 
financial statements any asset amounts that another government entity 
such as a court, or a non-governmental entity, such as a receiver, has 
collected or will collect. Additional details regarding disgorgement 
and penalties are presented in Note 11, Funds from Dedicated 
Collections and Note 16, Disgorgement and Penalties. 

T. Investor Protection Fund: 

The Investor Protection Fund was established through a permanent 
indefinite appropriation to provide financing for payments to 
whistleblowers and can be used for the expenses of the Office of the 
Whistleblower and the SEC Office of Inspector General’s Employee 
Suggestion Program. The Investor Protection Fund is financed by 
transferring a portion of monetary sanctions collected by the SEC in 
judicial or administrative actions brought by the SEC under the 
securities laws that are not added to a disgorgement fund or other 
funds intended for harmed investors under Section 308 of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7246). Sanctions collected by the 
Commission payable either to the SEC or the U.S. Treasury General Fund 
will be transferred to the Investor Protection Fund if the balance in 
that fund is less than $300 million on the day of collection. 

The SEC may request the Secretary of the Treasury to invest Investor 
Protection Fund amounts in Treasury securities. Refer to Note 1.I, 
Investments, for additional details. 

NOTE 2. Entity and Non-Entity Assets: 

Entity assets are assets that the SEC may use in its operations. 

Non-entity assets are assets that the SEC holds on behalf of another 
Federal agency or a third party and are not available for the SEC’s 
use. The SEC’s non-entity assets include the following: (a) 
disgorgement, penalties, and interest collected and held or invested 
by the SEC; (b) disgorgement, penalties, and interest receivable that 
will be collected by the SEC; (c) securities registration, tender 
offer, merger, and other fees collected and receivable from 
registrants, in excess of amounts deposited in the SEC’s Reserve Fund; 
and (d) other miscellaneous receivables and collections such as 
registrant deposit accounts that have not been returned to 
registrants. Additional details are provided in Note 16, Disgorgement 
and Penalties. 

At September 30, 2014, SEC entity and non-entity assets consisted of 
the following: 
(Dollars In Thousands): 

Intragovernmental: 

Fund Balance with Treasury: 

SEC Funds: 
Entity: $7,242,397; 
Non-Entity: 0; 
Total: $7,242,397. 

Registrant Deposits: 
Entity: 0; 
Non-Entity: $34,766; 
Total: $34,766. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $933,447; 
Total: $933,447. 

Investments, Net: 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $1,360,520; 
Total: $1,360,520. 

Investor Protection Fund: 
Entity: $395,169; 
Non-Entity: 0; 
Total: $395,169. 

Accounts Receivable: 
Entity: $19; 
Non-Entity: 0; 
Total: $19. 

Advances and Prepayments: 
Entity: $3,488; 
Non-Entity: 0; 
Total: $3,488.  

Total Intragovernmental Assets: 
Entity: $7,641,073; 
Non-Entity: $2,328,733; 
Total: $9,969,806. 

Cash and Other Monetary Assets: 

SEC Funds: 
Entity: $21; 
Non-Entity: 0; 
Total: $21. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $710; 
Total: $710. 

Accounts Receivable, Net: 

SEC Funds: 
Entity: $122,137; 
Non-Entity: 0; 
Total: $122,137. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $380,583; 
Total: $380,583. 

Custodial and Other Non-Entity Assets: 
Entity: 0; 
Non-Entity: $3,885; 
Total: $3,885. 

Property and Equipment, Net (Note 7): 
Entity: $113,292; 
Non-Entity: 0; 
Total: $113,292. 

Total Assets: 
Entity: $7,876,523; 
Non-Entity: $2,713,911; 
Total: $10,590,434. 

At September 30, 2013, SEC entity and non-entity assets consisted of 
the following: 
(Dollars In Thousands): 

Intragovernmental: 

Fund Balance with Treasury: 

SEC Funds: 
Entity: $7,133,643; 
Non-Entity: 0; 
Total: $7,133,643. 

Registrant Deposits: 
Entity: $
Non-Entity: $32,857; 
Total: $32,857. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $988,237; 
Total: $988,237. 

Investments, Net: 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $848,441; 
Total: $848,441. 

Investor Protection Fund: 
Entity: $434,201; 
Non-Entity: 0; 
Total: $434,201. 

Advances and Prepayments: 
Entity: $1,623; 
Non-Entity: 0; 
Total: $1,623 

Total Intragovernmental Assets: 
Entity: $7,569,467; 
Non-Entity: $1,869,535; 
Total: $9,439,002. 

Cash and Other Monetary Assets: 

SEC Funds: 
Entity: $2; 
Non-Entity: 0; 
Total: $2. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $387; 
Total: $387. 

Accounts Receivable, Net: 

SEC Funds: 
Entity: $86,628; 
Non-Entity: 0; 
Total: $86,628. 

Disgorgement and Penalties (Note 16): 
Entity: 0; 
Non-Entity: $297,098; 
Total: $297,098. 

Custodial and Other Non-Entity Assets: 
Entity: 0; 
Non-Entity: $3,301; 
Total: $3,301. 

Property and Equipment, Net (Note 7): 
Entity: $126,871; 
Non-Entity: $
Total: $126,871. 

Advances and Prepayments: 
Entity: 0; 
Non-Entity: 0; 
Total: 0. 

Total Assets: 
Entity: $7,782,968; 
Non-Entity: $2,170,321; 
Total: $9,953,289. 

[End of table] 

NOTE 3. Fund Balance with Treasury: 

The Fund Balance with Treasury by type of fund and Status of Fund 
Balance with Treasury as of September 30, 2014 and 2013 consists of 
the following: 

(Dollars In Thousands) 

Fund Balances: 

General Funds; 
FY 2014: $7,109,249; 
FY 2013: $7,053,301. 

Special Funds; 
FY 2014: $133,148; 
FY 2013: $80,342. 

Other Funds; 
FY 2014: $968,213; 
FY 2013: $1,021,094. 

Total Fund Balance with Treasury; 
FY 2014: $8,210,610; 
FY 2013: $8,154,737.  

Status of Fund Balance with Treasury: 

Unobligated Balance: 

Available; 
FY 2014: $60,875; 
FY 2013: $128,327. 

Unavailable; 
FY 2014: $128,869; 
FY 2013: $96,422. 

Obligated Balance not Yet Disbursed; 
FY 2014: $557,376; 
FY 2013: $413,616. 

Non-Budgetary Fund Balance with Treasury; 
FY 2014: $7,463,490; 
FY 2013: $7,516,372. 

Total Fund Balance with Treasury; 
FY 2014: $8,210,610l 
FY 2013: $8,154,737.  

[End of table] 

Special Funds consist of the Investor Protection Fund and the Reserve 
Fund. Refer to Note 1.E, Fund Accounting Structure, for additional 
information. 

Other Funds consist of Fund Balance with Treasury held in deposit 
funds. 

Obligated and unobligated balances reported for the status of Fund 
Balance with Treasury differ from the amounts reported in the 
Statement of Budgetary Resources due to the fact that budgetary 
balances are supported by amounts other than Fund Balance with 
Treasury. These amounts include Investor Protection Fund investments, 
uncollected payments from Federal sources, and the impact of the 
change in legal interpretation for leases. Refer to Note 14.C, Other 
Budgetary Disclosures, Change in Legal Interpretation for Lease 
Obligations. 

Non-Budgetary Fund Balance with Treasury is comprised of amounts in 
deposit funds and offsetting collections temporarily precluded from 
obligation in the SEC’s General Salaries and Expenses Fund (X0100). 
Amounts temporarily precluded from obligation represent offsetting 
collections in excess of appropriated amounts related to securities 
transactions fees, as well as securities registration, tender offer, 
merger, and other fees from registrants (filing fees) collected in 
fiscal years 2011 and prior. 

There were no significant differences between the Fund Balance 
reflected in the SEC’s financial statements and the balance in the 
Treasury accounts. 

Note 4. Cash and Other Monetary Assets: 

The SEC had a cash balance of $731 thousand as of September 30, 2014. 
The SEC receives disgorgement and penalties collections throughout the 
year. Any collections received after the U.S. Treasury Department cut-
off for deposit of checks are treated as deposits in transit and 
recognized as Cash on the Balance Sheet. The SEC had a cash balance of 
$389 thousand as of September 30, 2013. 

Note 5. Investments: 

The SEC invests funds in overnight and short-term non-marketable 
market-based Treasury securities. The SEC records the value of its 
investments in Treasury securities at cost and amortizes any premium 
or discount on a straight-line basis (S/L) through the maturity date 
of these securities. Non-marketable market-based Treasury securities 
are issued by the Bureau of the Fiscal Service to Federal agencies. 
They are not traded on any securities exchange but mirror the prices 
of similar Treasury securities trading in the Government securities 
market. 

At September 30, 2014, investments consisted of the following: 

(Dollars In Thousands): 

Non-Marketable Market-Based Securities Disgorgement and Penalties;
Cost: $1,365,0908;
Amortization Method: S/L;
Amortized (Premium) Discount: ($5,331);
Interest Receivable: $761;
Investment, Net: $1,360,520;
Market Value Disclosure: $1,360,071. 

Investor Protection Fund – Entity;
Cost: $395,124;
Amortization Method: S/L;
Amortized (Premium) Discount: ($196);
Interest Receivable: $241;
Investment, Net: $395,169;
Market Value Disclosure: $394,978. 

Total;
Cost: $1,760,215;
Amortized (Premium) Discount: ($5,527);
Interest Receivable: $1,002;
Investment, Net: $1,755,689;
Market Value Disclosure: $1,755,049. 

At September 30, 2013, investments consisted of the following:
(Dollars In Thousands): 

Non-Marketable Market-Based Securities Disgorgement and Penalties;
Cost: $849,368;
Amortization Method: S/L;
Amortized (Premium) Discount: ($3,932);
Interest Receivable: $3,005;
Investment, Net: $848,441;
Market Value Disclosure: $845,551. 

Investor Protection Fund – Entity;
Cost: $434,009;
Amortization Method: S/L;
Amortized (Premium) Discount: $56;
Interest Receivable: $136;
Investment, Net: $434,201;
Market Value Disclosure: $434,211. 

Total;
Cost: $1,283,377;
Amortized (Premium) Discount: ($3,876);
Interest Receivable: $3,141; 
Investment, Net: $1,282,642; 
Market Value Disclosure: $1,279,762. 

[End of table] 

Intragovernmental Investments in Treasury Securities: 

The Federal Government does not set aside assets to pay future 
benefits or other expenditures associated with the investment by 
Federal agencies in non-marketable Federal securities. The balances 
underlying these investments are deposited in the U.S. Treasury, which 
uses the cash for general Government purposes. Treasury securities are 
issued to the SEC as evidence of these balances. Treasury securities 
are an asset of the SEC and a liability of the U.S. Treasury. Because 
the SEC and the U.S. Treasury are both components of the Government, 
these assets and liabilities offset each other from the standpoint of 
the Government as a whole. For this reason, the investments presented 
by the SEC do not represent an asset or a liability in the U.S. 
Government-wide financial statements. 

Treasury securities provide the SEC with authority to draw upon the 
U.S. Treasury to make future payments from these accounts. When the 
SEC requires redemption of these securities to make expenditures, the 
Government finances those expenditures out of accumulated cash 
balances, by raising taxes or other receipts, by borrowing from the 
public or repaying less debt, or by curtailing other expenditures. 
This is the same manner in which the Government finances all 
expenditures. 

Note 6. Accounts Receivable, Net 

At September 30, 2014, accounts receivable consisted of the following: 
(Dollars In Thousands): 

Intragovernmental Entity Accounts Receivable: 

Reimbursable Activity: 
Gross Receivables: $19;
Allowance: 0; 
Net Receivables: $19. 

Entity Accounts Receivable: 

Securities Transaction Fees;
Gross Receivables: $121,731;
Allowance: 0; 
Net Receivables: $121,731. 

Other: 
Gross Receivables: $406;
Allowance: 0; 
Net Receivables: $406. 

Non-Entity Accounts Receivable: 

Disgorgement and Penalties (Note 16);
Gross Receivables: $2,327,142;
Allowance: $1,946,559;
Net Receivables: $380,583. 

Filing Fees;
Gross Receivables: $6,031;
Allowance: $2,261;
Net Receivables: $3,752. 

Other;
Gross Receivables: $2,181;
Allowance: $2,048;
Net Receivables: $133. 

Subtotal Non-Intragovernmental Accounts Receivable: 
Gross Receivables: $2,457,473; 
Allowance: $1,950,868; 
Net Receivables: $506,605. 

Total Accounts Receivable: 
Gross Receivables: $2,457,492; 
Allowance: $1,950,868; 
Net Receivables: $506,624. 

At September 30, 2013, accounts receivable consisted of the following: 
(Dollars In Thousands): 

Intragovernmental Entity Accounts Receivable: 

Reimbursable Activity: 
Gross Receivables: 0;
Allowance: 0; 
Net Receivables: 0. 

Entity Accounts Receivable: 

Securities Transaction Fees;
Gross Receivables: $86,295;
Allowance: 0; 
Net Receivables: $86,295. 

Other;
Gross Receivables: $333;
Allowance: 0; 
Net Receivables: $333. 

Non-Entity Accounts Receivable: 

Disgorgement and Penalties (Note 16);
Gross Receivables: $1,660,940;
Allowance: $1,363,842;
Net Receivables: $297,098. 

Filing Fees;
Gross Receivables: $4,477;
Allowance: $1,411;
Net Receivables: $3,066. 

Other;
Gross Receivables: $1,222;
Allowance: $987;
Net Receivables: $235. 

Subtotal Non-Intragovernmental Accounts Receivable: 
Gross Receivables: $1,753,267; 
Allowance: $1,366,240; 
Net Receivables: $387,027. 

Total Accounts Receivable: 
Gross Receivables: $1,753,267; 
Allowance: $1,366,240; 
Net Receivables: $387,027. 

Refer to Note 1.J, Accounts Receivable and Allowance for Uncollectible 
Accounts for methods used to estimate allowances. The SEC estimates 
that accumulated interest on accounts receivable considered to be 
uncollectible is $2.0 million and $985 thousand, respectively, as of 
September 30, 2014 and 2013. This estimate does not include interest 
accumulated on debts written off or officially waived. 

[End of table] 

As of September 30, 2014 and 2013, the balances include disgorgement 
and penalty accounts receivable, net of allowance, of $223.2 million 
and $68.6 million, respectively, designated as payable to the U.S. 
Treasury General Fund per court order. As discussed in Note 1.M, 
Liabilities, these receivables, their offsetting liabilities, and the 
associated revenues, are classified as custodial. 

As discussed in Note 1.J, Accounts Receivable and Allowance for 
Uncollectible Accounts, pursuant to Section 991(e) of the Dodd-Frank 
Act, accounts receivable for securities registration, tender offer, 
merger, and other fees from registrants in excess of the amounts 
deposited into the Reserve Fund are held on behalf of the U.S. 
Treasury and are transferred to the U.S. Treasury General Fund upon 
collection. 

Note 7. Property and Equipment, Net: 

At September 30 2014, property and equipment consisted of the following:
(Dollars In Thousands): 

Class of Property: Furniture and Equipment;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $50;
Capitalization Threshold for Bulk Purchases: $50;
Service Life (Years): 3-5;
Acquisition Cost: $135,035;
Accumulated Depreciation/Amortization: $92,965;
Book Value: $42,070. 

Class of Property: Software;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: $300;
Service Life (Years): 3-5;
Acquisition Cost: $157,583;
Accumulated Depreciation/Amortization: $113,155;
Book Value: $44,428. 

Class of Property: Leasehold Improvements;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: N/A;
Service Life (Years): 10;
Acquisition Cost: $100,362;
Accumulated Depreciation/Amortization: $73,568;
Book Value: $26,794. 

Total: 
Acquisition Cost: $392,980;
Accumulated Depreciation/Amortization: $279,688;
Book Value: $113,292. 

At September 30, 2013, property and equipment consisted of the 
following:
(Dollars In Thousands): 

Class of Property: Furniture and Equipment;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $50;
Capitalization Threshold for Bulk Purchases: $50;
Service Life (Years): 3-5;
Acquisition Cost: $134,392;
Accumulated Depreciation/Amortization: $71,120;
Book Value: $63,272. 

Class of Property: Software;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: $300;
Service Life (Years): 3-5;
Acquisition Cost: $132,845;
Accumulated Depreciation/Amortization: $98,202;
Book Value: $34,643. 

Class of Property: Leasehold Improvements;
Depreciation/Amortization Method: S/L;
Capitalization Threshold for Individual Purchases: $300;
Capitalization Threshold for Bulk Purchases: N/A;
Service Life (Years): 10;
Acquisition Cost: $95,634;
Accumulated Depreciation/Amortization: $66,678;
Book Value: $28,956. 

Total: 
Acquisition Cost: $362,871;
Accumulated Depreciation/Amortization: $236,000;
Book Value: $126,871. 

[End of table] 

Note 8. Liabilities Covered and Not Covered by Budgetary Resources: 

The SEC recognizes liabilities that are covered by budgetary 
resources, liabilities that are not covered by budgetary resources, 
and liabilities that do not require the use of budgetary resources. 

Liabilities that are covered by budgetary resources are liabilities 
incurred for which budgetary resources are available to the SEC during 
the reporting period without further Congressional action. 

The SEC also recognizes liabilities not covered by budgetary 
resources. Budgetary and financial statement reporting requirements 
sometimes differ on the timing for the required recognition of an 
expense. For example, in the financial statements, annual leave 
expense must be accrued in the reporting period when the annual leave 
is earned. However, in the budget, annual leave is required to be 
recognized and funded in the fiscal year when the annual leave is 
either used or paid out to a separating employee, not when it is 
earned. As a result of this timing difference, accrued annual leave 
liability is classified as a liability “not covered by budgetary 
resources” as of the financial statement date. 

Liabilities that do not require the use of budgetary resources include 
registrant deposit accounts that have not been returned to registrants 
and offsetting liabilities that correspond to non-entity assets that 
the SEC holds, such as collections and receivables from disgorgements 
and penalties, as discussed in Note 1.M, Liabilities. Liabilities that 
do not require the use of budgetary resources are covered by assets 
that do not represent budgetary resources to the SEC. 

At September 30, 2014, liabilities consisted of the following:
(Dollars In Thousands): 

Intragovernmental: 

Accounts Payable; 
Liabilities Covered by Budgetary Resources: $7,249; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $7,249. 

Other Intragovernmental Liabilities: 

Accrued Employee Benefits; 
Liabilities Covered by Budgetary Resources: $4,017; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $4,017. 

Unfunded FECA and Unemployment Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $1,286; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $1,286. 

Custodial Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $223,363; 
Total: $223,363. 

Liability for Non-Entity Assets; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $3,752; 
Total: $3,752. 

Subtotal – Other Intragovernmental Liabilities; 
Liabilities Covered by Budgetary Resources: $4,017; 
Liabilities Not Covered by Budgetary Resources: $1,286; 
Liabilities Not Requiring Budgetary Resources: $227,115; 
Total: $232,667. 

Total Intragovernmental; 
Liabilities Covered by Budgetary Resources: $11,266; 
Liabilities Not Covered by Budgetary Resources: $1,286; 
Liabilities Not Requiring Budgetary Resources: $227,115; 
Total: $239,667. 

Accounts Payable; 
Liabilities Covered by Budgetary Resources: $64,830; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $64,830. 

Actuarial FECA Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $6,821; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $6,821. 

Other Liabilities: 

Accrued Payroll and Benefits; 
Liabilities Covered by Budgetary Resources: $37,931; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $37,931. 

Accrued Leave; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $58,498; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $58,498. 

Registrant Deposits; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $34,766; 
Total: $34,766. 

Liability for Disgorgement and Penalties (Note 16); 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $2,451,397; 
Total: $2,451,397. 

Other Accrued Liabilities: 

Recognition of Lease Liability (Note 9); 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $5,176; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,176. 

Other; 
Liabilities Covered by Budgetary Resources: $21; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $633;
Total: $654. 

Subtotal – Other Liabilities; 
Liabilities Covered by Budgetary Resources: $37,952; 
Liabilities Not Covered by Budgetary Resources: $63,674; 
Liabilities Not Requiring Budgetary Resources: $2,486,796; 
Total: $2,588,422. 

Total Liabilities; 
Liabilities Covered by Budgetary Resources: $114,048; 
Liabilities Not Covered by Budgetary Resources: $71,781; 
Liabilities Not Requiring Budgetary Resources: $2,713,911; 
Total: $2,899,740. 

Other Liabilities (Intragovernmental and Governmental) totaled $2,821 
million as of September 30, 2014, of which all but $64 million is 
current. The non-current portion of Other Liabilities includes the 
appropriate portions of Accrued Employee Benefits, Unfunded FECA and 
Unemployment Liability, Accrued Leave, Contingent Liabilities, and 
Lease Liability. Current liabilities not covered by budgetary 
resources totaled $652 thousand as of September 30, 2014. 

At September 30, 2013, liabilities consisted of the following:
(Dollars In Thousands): 

Intragovernmental: 

Accounts Payable; 
Liabilities Covered by Budgetary Resources: $5,675; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,675. 

Other Intragovernmental Liabilities: 

Accrued Employee Benefits; 
Liabilities Covered by Budgetary Resources: $3,086; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $3,086. 

Unfunded FECA and Unemployment Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $1,308; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $1,308. 

Custodial Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $68,831; 
Total: $68,831. 

Liability for Non-Entity Assets; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $3,069; 
Total: $3,069. 

Subtotal – Other Intragovernmental Liabilities; 
Liabilities Covered by Budgetary Resources: $3,086; 
Liabilities Not Covered by Budgetary Resources: $1,308; 
Liabilities Not Requiring Budgetary Resources: $71,900; 
Total: $76,294. 

Total Intragovernmental; 
Liabilities Covered by Budgetary Resources: $8,761; 
Liabilities Not Covered by Budgetary Resources: $1,308; 
Liabilities Not Requiring Budgetary Resources: $71,900; 
Total: $81,969. 

Accounts Payable; 
Liabilities Covered by Budgetary Resources: $38,313; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $38,313. 

Actuarial FECA Liability; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $7,155; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $7,155. 

Other Liabilities: 

Accrued Payroll and Benefits; 
Liabilities Covered by Budgetary Resources: $15,405; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $15,405. 

Accrued Leave; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $51,706; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $51,706. 

Registrant Deposits; 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $32,857; 
Total: $32,857. 

Liability for Disgorgement and Penalties (Note 16); 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $2,065,202; 
Total: $2,065,202. 

Other Accrued Liabilities: 

Recognition of Lease Liability (Note 9); 
Liabilities Covered by Budgetary Resources: 0; 
Liabilities Not Covered by Budgetary Resources: $5,145; 
Liabilities Not Requiring Budgetary Resources: 0; 
Total: $5,145. 

Other; 
Liabilities Covered by Budgetary Resources: $2; 
Liabilities Not Covered by Budgetary Resources: 0; 
Liabilities Not Requiring Budgetary Resources: $362
Total: $364. 

Subtotal – Other Liabilities; 
Liabilities Covered by Budgetary Resources: $15,407; 
Liabilities Not Covered by Budgetary Resources: $56,851; 
Liabilities Not Requiring Budgetary Resources: $2,098,421; 
Total: $2,170,679. 

Total Liabilities; 
Liabilities Covered by Budgetary Resources: $62,481; 
Liabilities Not Covered by Budgetary Resources: $65,314; 
Liabilities Not Requiring Budgetary Resources: $2,170,321; 
Total: $2,298,116. 

[End of table] 

Other Liabilities (Intragovernmental and Governmental) totaled $2,247 
million as of September 30, 2013, of which all but $57 million was 
current. The non-current portion of Other Liabilities includes the 
appropriate portions of the Unfunded FECA and Unemployment Liability, 
Accrued Leave, and Lease Liability. Current liabilities not covered by 
budgetary resources totaled $1.3 million as of September 30, 2013. 

Note 9. Leases: 

Operating Leases: 

At September 30, 2014, the SEC leased office space at 15 locations 
under operating lease agreements that expire between FY 2015 and FY 
2029. The SEC paid $95.3 million and $103 million for rent for the 
years ended September 30, 2014 and 2013, respectively. 

The following table details expected future lease payments for (a) the 
full term of all non-cancelable leases with terms of more than one 
year and (b) the non-cancelable portion of all cancelable commercial 
leases with terms of more than one year. This listing excludes leases 
with the General Services Administration (GSA). “Non-cancelable” 
leases are leases for which the lease agreements do not provide an 
option for the lessee to cancel the lease prior to the end of the 
lease term. The total expected future lease payments reflect an 
estimate of base rent and contractually required costs. 

Under existing commitments, expected future lease payments through FY 
2020 and thereafter are as follows: 

Dollars In Thousands: 

Fiscal Year: 2015; 
Minimum Lease Payments: $81,763. 

Fiscal Year: 2016; 
Minimum Lease Payments: $77,597. 

Fiscal Year: 2017; 
Minimum Lease Payments: $78,692. 

Fiscal Year: 2018; 
Minimum Lease Payments: $78,976. 

Fiscal Year: 2019; 
Minimum Lease Payments: $65,301. 

Fiscal Year: 2020 and thereafter; 
Minimum Lease Payments: $53,292. 

Total Future Minimum Lease Payments: 
Minimum Lease Payments: $435,621. 

As discussed in Note 14.C, Other Budgetary Disclosures, $358 million 
of the above $435.6 million are unfunded obligations. 

[End of table] 

Expense Recognition of “Rent Holiday:” 

In FY 2005, the SEC moved into temporary office space in New York due 
to renovations in the new leased office space. This temporary space 
was provided to the SEC for only the lessor’s operating costs. As a 
result, the SEC accrued $8 million of rent expense discount, which is 
being amortized on a straight-line basis over the 15 year life of the 
new lease. Amortization of the discount recognized for the year ended 
September 30, 2014 and 2013 totaled $533 thousand in each period, 
respectively. The unamortized balance of this location’s discount 
totaled $3.5 million and $4.0 million at September 30, 2014 and 2013 
respectively. 

In November 2011, the SEC occupied leased office space in Atlanta, 
Georgia. The lease term is 15 years and includes a one year rent 
payment holiday. The SEC expects to amortize $1.4 million of rent 
expense discount over the non-cancelable term of the lease which is 10 
years. Amortization of the discount as an adjustment of rent payments 
began in November 2012. The unamortized balance of this location’s 
discount totaled $1.0 million and $1.1 million at September 30, 2014 
and 2013 respectively 

In December 2013, the SEC executed an occupancy agreement with GSA to 
renew leased office space in Miami, Florida. The occupancy agreement 
includes a five month rent payment holiday. The SEC expects to 
amortize $835 thousand of rent expense discount over the full term of 
the lease which is 5 years and 5 months. The unamortized balance of 
this location’s discount totaled $706 thousand at September 30, 2014. 

The accrual and amortization of rent holiday discounts allow the rent 
expense to be allocated equally to each period of the lease term. When 
a rent holiday occurs at the beginning of the lease term, a rent 
expense is accrued, even though no payment is due. This accrued 
expense is recognized as an unfunded liability because funding will 
not be provided until the future period in which payment is due. Refer 
to Note 8, Liabilities Covered and Not Covered by Budgetary Resources, 
for more information. 

Recognition of Rent Holiday Discounts as of September 30, 2014: 
(amounts in thousands):  

Location: New York, New York; 
Total discount: $7,995; 
Amortized discount: $4,530; 
Accrued lease liability: $3,465. 

Location: Atlanta, Georgia; 
Total discount: $1,420; 
Amortized discount: $415; 
Accrued lease liability: $1,005. 

Location: Miami, Florida; 
Total discount: $835; 
Amortized discount: $129; 
Accrued lease liability: $706. 

Location: Total (See Note 8); 
Total discount: $10,250; 
Amortized discount: $5,074; 
Accrued lease liability: $5,176. 

Recognition of Rent Holiday Discounts as of September 30, 2013: 
(amounts in thousands): 

Location: New York, New York; 
Total discount: $7,995; 
Amortized discount: $3,997; 
Accrued lease liability: $3,998. 

Location: Atlanta, Georgia; 
Total discount: $1,420; 
Amortized discount: $273; 
Accrued lease liability: $1,147. 

Location: Miami, Florida; 
Total discount: 0; 
Amortized discount: 0; 
Accrued lease liability: 0. 

Location: Total (See Note 8); 
Total discount: $9,415; 
Amortized discount: $4,270; 
Accrued lease liability: $5,145. 

[End of table] 

Note 10. Commitments and Contingencies: 

A. Commitments: Securities Investor Protection Act: 

The Securities Investor Protection Act of 1970 (SIPA), as amended, 
created the Securities Investor Protection Corporation (SIPC) to 
restore funds and securities to investors and to protect the 
securities markets from disruption following the failure of broker-
dealers. Generally, if a brokerage firm is not able to meet its 
obligations to customers, then customers’ cash and securities held by 
the brokerage firm are returned to customers on a pro rata basis. If 
sufficient funds are not available at the firm to satisfy customer 
claims, the reserve funds of SIPC are used to supplement the 
distribution, up to a ceiling of $500,000 per customer, including a 
maximum of $250,000 for cash claims. 

SIPA authorizes SIPC to create a fund to maintain all monies received 
and disbursed by SIPC. SIPA gives SIPC the authority to borrow up to 
$2.5 billion from the SEC in the event that the SIPC Fund is or may 
appear insufficient for purposes of SIPA. To borrow the funds, SIPC 
must file with the SEC a statement of the uses of such a loan and a 
repayment plan, and then the SEC must certify to the Secretary of the 
Treasury that the loan is necessary to protect broker-dealer customers 
and maintain confidence in the securities markets and that the 
repayment plan provides as reasonable assurance of prompt repayment as 
may be feasible under the circumstances. The Treasury would make these 
funds available to the SEC through the purchase of notes or other 
obligating instruments issued by the SEC. Such notes or other 
obligating instruments would bear interest at a rate determined by the 
Secretary of the Treasury. As of September 30, 2014, the SEC had not 
loaned any funds to the SIPC, and there are no outstanding notes or 
other obligating instruments issued by the SEC. 

Based on the estimated costs to complete ongoing customer protection 
proceedings, the current size of the SIPC Fund supplemented by SIPC’s 
ongoing assessments on brokers is expected to provide sufficient funds 
to cover acknowledged customer claims. There are several broker-
dealers that are being liquidated under SIPA or that have been 
referred to SIPC for liquidation that may result in additional 
customer claims. In the event that the SIPC Fund is or may reasonably 
appear to be insufficient for the purposes of SIPA, SIPC may seek a 
loan from the SEC. 

B. Commitments and Contingencies: Investor Protection Fund: 

As mentioned in Note 1.E, Fund Accounting Structure, the Investor 
Protection Fund is used to pay awards to whistleblowers if they 
voluntarily provide original information to the SEC and meet other 
conditions. The legislation allows whistleblowers to receive between 
10 and 30 percent of the monetary sanctions collected in the covered 
action or in a related action, with the actual percentage being 
determined at the discretion of the SEC using criteria provided in the 
legislation and the related rules to implement the legislation adopted 
by the SEC. A Preliminary Determination is a first assessment, made by 
the Claims Review Staff appointed by the Director of the Division of 
Enforcement, as to whether the claim should be allowed or denied and, 
if allowed, what the proposed award percentage amount should be. A 
contingent liability is recognized when (a) a positive Preliminary 
Determination has been made by the Claims Review Staff, (b) collection 
has been made, and (c) the percentage to be paid can be reasonably 
estimated. A potential liability is disclosed but not recognized when 
a positive Preliminary Determination is expected and a collection has 
been received. A liability is recognized when a positive Proposed 
Final Determination has been issued by the Claims Review Staff and 
collection has been received. In all cases, the whistleblower award is 
not paid until amounts have been collected, a final order is issued by 
the Commission and the appeal rights of all claimants on the matter 
have been exhausted. The SEC did not recognize a contingent liability 
for potential whistleblower awards for the period ended September 30, 
2014 and September 30, 2013. As of September 30, 2014, potential 
whistleblower payments for cases where positive Preliminary 
Determinations have not been made, but are reasonably possible, are 
estimated to range from $25.7 million to $77.1 million given the 
amount of current collections on those cases. Such claims do not meet 
the criteria for recognition as contingent liabilities in FY 2014. In 
FY 2013, an estimated $500,000 in potential additional whistleblower 
claims did not meet the criteria for recognition as contingent 
liabilities. 

C. Other Commitments: 

In addition to future lease commitments discussed in Note 9, Leases, 
the SEC is obligated for the purchase of goods and services that have 
been ordered, but not received. As of September 30, 2014 net 
obligations for all of the SEC’s activities were $915.4 million, of 
which $114.0 million was delivered and unpaid. As of September 30, 
2013, net obligations for all of SEC’s activities were $854.4 million, 
of which $62.5 million was delivered and unpaid. 

D. Other Contingencies: 

The SEC is party to various routine administrative proceedings, legal 
actions, and claims brought against it, including threatened or 
pending litigation involving labor relations claims, some of which may 
ultimately result in settlements or decisions against the Federal 
Government. The SEC recognizes contingent liabilities when a past 
event or exchange transaction has occurred, a future outflow or other 
sacrifice of resources is probable, and the future outflow or 
sacrifice of resources is measurable. As of September 30, 2014 and 
September 30, 2013, no contingent liabilities were recognized. 

Note 11. Funds from Dedicated Collections: 

The SEC’s funds from dedicated collections consist of transactions and 
balances recorded in its Salaries and Expenses Fund, Investor 
Protection Fund, and Reserve Fund. See Note 1.F, Funds from Dedicated 
Collections. Also see Note 5, Investments, for additional information 
about intragovernmental investments in Treasury securities. 

For FY 2014, the assets, liabilities, net position, and net income 
from operations relating to funds from dedicated collections consisted 
of the following: 
(Dollars In Thousands) 

Balance Sheet as of September 30, 2014: 

Assets: 

Fund Balance with Treasury; 
Salaries & Expenses: $7,108,486; 
Investor Protection Fund: $42,627; 
Reserve Fund: $90,521; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,241,634. 

Cash and Other Monetary Assets; 
Salaries & Expenses: $21; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $21. 

Investments, Net; 
Salaries & Expenses: 0; 
Investor Protection Fund: $395,169; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $395,169. 

Accounts Receivable, Net; 
Salaries & Expenses: $122,156; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $122,156. 

Property and Equipment, Net; 
Salaries & Expenses: $82,635; 
Investor Protection Fund: 0; 
Reserve Fund: $29,465; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $112,100. 

Advances and Prepayments; 
Salaries & Expenses: $3,488; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $3,488. 

Total Assets; 
Salaries & Expenses: $7,316,786; 
Investor Protection Fund: $437,796; 
Reserve Fund: $119,986; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,874,568. 

Liabilities: 

Accounts Payable; 
Salaries & Expenses: $41,801; 
Investor Protection Fund: $23,136; 
Reserve Fund: $7,142; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $72,079. 

FECA and Unemployment Liability; 
Salaries & Expenses: $8,107; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $8,107. 

Accrued Payroll and Benefits; 
Salaries & Expenses: $41,948; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $41,948. 

Accrued Leave; 
Salaries & Expenses: $58,498; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $58,498. 

Other Accrued Liabilities; 
Salaries & Expenses: $5,198; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $5,198. 

Total Liabilities; 
Salaries & Expenses: $155,552; 
Investor Protection Fund: $23,136; 
Reserve Fund: $7,142; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $185,830. 

Net Position: 

Cumulative Results of Operations; 
Salaries & Expenses: $7,161,234; 
Investor Protection Fund: $414,660; 
Reserve Fund: $112,844; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,6688,738. 

Total Net Position; 
Salaries & Expenses: $7,161,234; 
Investor Protection Fund: $414,660; 
Reserve Fund: $112,844; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,6688,738. 

Total Liabilities and Net Position; 
Salaries & Expenses: $7,316,786; 
Investor Protection Fund: $437,796; 
Reserve Fund: $119,986; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,784,568. 

Statement of Net Cost for the year ended September 30, 2014: 

Gross Program Costs; 
Salaries & Expenses: $1,391,435; 
Investor Protection Fund: $25,116; 
Reserve Fund: $23,642; 
Eliminations: ($47); 
Total Funds From Dedicated Collections: $1,440,146. 

Less Earned Revenues Not Attributable to Program Costs; 
Salaries & Expenses: $1,326,566; 
Investor Protection Fund: 0; 
Reserve Fund: $50,000; 
Eliminations: ($47); 
Total Funds From Dedicated Collections: $1,376,519. 

Net (Income) Cost from Operations; 
Salaries & Expenses: $64,869; 
Investor Protection Fund: $25,116; 
Reserve Fund: ($26,358); 
Eliminations: 0; 
Total Funds From Dedicated Collections: $63,627. 

Statement of Changes in Net Position for the year ended September 30, 
2014: 

Cumulative Results of Operations: 

Net Position, Beginning of Period; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Budgetary Financing Sources: 

Appropriations Used; 
Salaries & Expenses: $59,013; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $59,013. 

Non-Exchange Revenue; 
Salaries & Expenses: 0; 
Investor Protection Fund: $579; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $579. 

Transfers In/Out Without Reimbursement; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Other Financing Sources: 

Imputed Financing; 
Salaries & Expenses: $39,556; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $39,556. 

Other; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Net Income (Cost) from Operations; 
Salaries & Expenses: ($64,869); 
Investor Protection Fund: ($25,116); 
Reserve Fund: $26,358; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($63,627). 

Net Change; 
Salaries & Expenses: $33,700; 
Investor Protection Fund: ($24,537); 
Reserve Fund: $26,358; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $35,521. 

Cumulative Results of Operations; 
Salaries & Expenses: $7,161,234; 
Investor Protection Fund: $414,660; 
Reserve Fund: $112,844; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,688,738. 

Unexpended Appropriations: 

Budgetary Financing Sources: 

Appropriations Received; 
Salaries & Expenses: $59,013; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $59,013. 

Other Adjustments (Recissions, etc.); 
Salaries & Expenses: ($95); 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Appropriations Used; 
Salaries & Expenses: ($59,013); 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($59,013). 

Total Unexpended Appropriations; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Net Position, End of Period; 
Salaries & Expenses: $7,161,234; 
Investor Protection Fund: $414,660; 
Reserve Fund: $112,844; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,688,738. 

For FY 2013, the assets, liabilities, net position, and net income 
from operations relating to funds from dedicated collections consisted 
of the following: 
(Dollars In Thousands) 

Balance Sheet as of September 30, 2013: 

Assets: 

Fund Balance with Treasury; 
Salaries & Expenses: $7,052,538; 
Investor Protection Fund: $4,996; 
Reserve Fund: $75,346; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,132,880. 

Cash and Other Monetary Assets; 
Salaries & Expenses: $2; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $2. 

Investments, Net; 
Salaries & Expenses: 0; 
Investor Protection Fund: $434,201; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $434,201. 

Accounts Receivable, Net; 
Salaries & Expenses: $86,628; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $86,628. 

Property and Equipment, Net; 
Salaries & Expenses: $109,957; 
Investor Protection Fund: 0; 
Reserve Fund: $15,721; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $125,678. 

Advances and Prepayments; 
Salaries & Expenses: $1,623; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $1,623. 

Total Assets; 
Salaries & Expenses: $7,250,748; 
Investor Protection Fund: $439,197; 
Reserve Fund: $91,067; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,781,012. 

Liabilities: 

Accounts Payable; 
Salaries & Expenses: $39,407; 
Investor Protection Fund: 0; 
Reserve Fund: $4,581; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $43,988. 

FECA and Unemployment Liability; 
Salaries & Expenses: $8,463; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $8,463. 

Accrued Payroll and Benefits; 
Salaries & Expenses: $18,491; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $18,491. 

Accrued Leave
Salaries & Expenses: $51,706; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $51,706. 

Other Accrued Liabilities; 
Salaries & Expenses: $5,147; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $5,147. 

Total Liabilities; 
Salaries & Expenses: $123,214; 
Investor Protection Fund: 0; 
Reserve Fund: $4,581; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $127,795. 

Net Position: 

Cumulative Results of Operations; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Total Net Position; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Total Liabilities and Net Position; 
Salaries & Expenses: $7,250,748; 
Investor Protection Fund: $439,197; 
Reserve Fund: $91,067; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,781,012. 

Statement of Net Cost for the year ended September 30, 2013: 

Gross Program Costs; 
Salaries & Expenses: $1,302,673; 
Investor Protection Fund: $14,883; 
Reserve Fund: $13,504; 
Eliminations: ($51); 
Total Funds From Dedicated Collections: $1,331,009. 

Less Earned Revenues Not Attributable to Program Costs; 
Salaries & Expenses: $1,256,792; 
Investor Protection Fund: 0; 
Reserve Fund: $50,000; 
Eliminations: ($51); 
Total Funds From Dedicated Collections: $1,306,741. 

Net (Income) Cost from Operations; 
Salaries & Expenses: $45,881; 
Investor Protection Fund: $14,883; 
Reserve Fund: ($36,496); 
Eliminations: 0; 
Total Funds From Dedicated Collections: $24,268. 

Statement of Changes in Net Position for the year ended September 30, 
2013: 

Cumulative Results of Operations: 

Net Position, Beginning of Period; 
Salaries & Expenses: $7,092,911; 
Investor Protection Fund: $453,429; 
Reserve Fund: $49,990; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,596,330. 

Budgetary Financing Sources: 

Appropriations Used; 
Salaries & Expenses: $47,546; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $47,546. 

Non-Exchange Revenue; 
Salaries & Expenses: 0; 
Investor Protection Fund: $655; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $655. 

Transfers In/Out Without Reimbursement; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Other; 
Salaries & Expenses: 0; 
Investor Protection Fund: $6; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $6. 

Other Financing Sources: 

Imputed Financing; 
Salaries & Expenses: $32,958; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $32,958. 

Other; 
Salaries & Expenses: 0; 
Investor Protection Fund: ($10); 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($10). 

Net Income (Cost) from Operations; 
Salaries & Expenses: ($45,881); 
Investor Protection Fund: ($14,883); 
Reserve Fund: $36,496; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($24,268). 

Net Change; 
Salaries & Expenses: $34,623; 
Investor Protection Fund: ($14,232); 
Reserve Fund: $36,496; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $56,887. 

Cumulative Results of Operations; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

Unexpended Appropriations: 

Budgetary Financing Sources: 

Appropriations Received; 
Salaries & Expenses: $47,641; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $47,641. 

Other Adjustments (Recissions, etc.); 
Salaries & Expenses: ($95); 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($95). 

Appropriations Used; 
Salaries & Expenses: ($47,546); 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: ($47,546). 

Total Unexpended Appropriations; 
Salaries & Expenses: 0; 
Investor Protection Fund: 0; 
Reserve Fund: 0; 
Eliminations: 0; 
Total Funds From Dedicated Collections: 0. 

Net Position, End of Period; 
Salaries & Expenses: $7,127,534; 
Investor Protection Fund: $439,197; 
Reserve Fund: $86,486; 
Eliminations: 0; 
Total Funds From Dedicated Collections: $7,653,217. 

[End of table] 

Note 12. Intragovernmental Costs and Exchange Revenue: 

The Statement of Net Cost presents the SEC’s results of operations for 
its major programs. The SEC assigns all costs incurred to ten 
programs, consistent with its budget submissions. The full cost of the 
SEC’s programs is the sum of (1) the costs of resources directly or 
indirectly consumed by those programs, and (2) the costs of 
identifiable supporting services provided by other responsibility 
segments within the agency. Typical examples of indirect costs include 
costs of general administrative services, technical support, security, 
rent, and operating and maintenance costs for buildings, equipment, 
and utilities. The SEC allocates support costs to its programs using 
activity-based cost accounting. 

Intragovernmental costs arise from purchases of goods and services 
from other components of the Federal Government. In contrast, public 
costs are those which arise from the purchase of goods and services 
from non-Federal entities. 

These exchange revenues are a means to recover all or most of the 
total cost of all SEC programs and to deposit excess collections from 
registrants to the Treasury General Fund. As a result, they offset the 
total costs of the organization in the Statement of Net Cost, rather 
than individual SEC programs. This presentation is consistent with the 
financial accounting concepts described in Statement of Federal 
Financial Accounting Concepts 2, Entity and Display. 

The Statements of Net Cost, for the years ended September 30, 2014 and 
2013, with a breakout of intragovernmental and public costs is 
presented below. 

FY 2014: 
(Dollars In Thousands): 

SEC Programs: 

Enforcement; 
Intragovernmental Gross Cost: $81,429; 
Gross Cost with the Public: $405,618; 
Total: $487,047. 

Compliance Inspections and Examinations; 
Intragovernmental Gross Cost: $47,103; 
Gross Cost with the Public: $234,635; 
Total: $281,738. 

Corporation Finance; 
Intragovernmental Gross Cost: $24,456; 
Gross Cost with the Public: $121,820; 
Total: $146,276. 

Trading and Markets; 
Intragovernmental Gross Cost: $13,249; 
Gross Cost with the Public: $65,997; 
Total: $79,246. 

Investment Management; 
Intragovernmental Gross Cost: $9,585; 
Gross Cost with the Public: $47,743; 
Total: $57,328. 

Economic and Risk Analysis; 
Intragovernmental Gross Cost: $7,250; 
Gross Cost with the Public: $36,116; 
Total: $43,366. 

General Counsel; 
Intragovernmental Gross Cost: $7,160; 
Gross Cost with the Public: $35,666; 
Total: $42,826. 

Other Program Offices; 
Intragovernmental Gross Cost: $10,337; 
Gross Cost with the Public: $51,493; 
Total: $61,830. 

Agency Direction and Administrative Support; 
Intragovernmental Gross Cost: $38.884; 
Gross Cost with the Public: $193,691; 
Total: $232,575. 

Inspector General; 
Intragovernmental Gross Cost: $1,466; 
Gross Cost with the Public: $7,299; 
Total: $8,764. 

Total Program Costs; 
Intragovernmental Gross Cost: $240,918; 
Gross Cost with the Public: $1,200,078; 
Total: $1,440,996. 

Less: Exchange Revenues 

Securities Transaction Fees; 
Total: $1,326,423. 

Securities Registration, Tender Offer, and Merger Fees; 
Total: $579,708. 

Other; 
Total: $127. 

Total Exchange Revenues; 
Total: $1,906,258. 

Net (Income) Cost from Operations; 
Total: ($465,262). 

FY 2013: 
(Dollars In Thousands) 

SEC Programs: 

Enforcement; 
Intragovernmental Gross Cost: $75,436; 
Gross Cost with the Public: $375,636; 
Total: $451,072. 

Compliance Inspections and Examinations; 
Intragovernmental Gross Cost: $44,376; 
Gross Cost with the Public: $220,972; 
Total: $265,348. 

Corporation Finance; 
Intragovernmental Gross Cost: $23,711; 
Gross Cost with the Public: $118,066; 
Total: $141,777. 

Trading and Markets; 
Intragovernmental Gross Cost: $12,745; 
Gross Cost with the Public: $63,468; 
Total: $76,213. 

Investment Management; 
Intragovernmental Gross Cost: $8,423; 
Gross Cost with the Public: $41,943; 
Total: $50,366. 

Economic and Risk Analysis; 
Intragovernmental Gross Cost: $4,934; 
Gross Cost with the Public: $24,570; 
Total: $29,504. 

General Counsel; 
Intragovernmental Gross Cost: $6,926; 
Gross Cost with the Public: $34,491; 
Total: $41,417. 

Other Program Offices; 
Intragovernmental Gross Cost: $8,658; 
Gross Cost with the Public: $43,110; 
Total: $51,768. 

Agency Direction and Administrative Support; 
Intragovernmental Gross Cost: $36,136; 
Gross Cost with the Public: $179,941; 
Total: $216,077. 

Inspector General; 
Intragovernmental Gross Cost: $1,176; 
Gross Cost with the Public: $5,856; 
Total: $7,032. 

Total Program Costs; 
Intragovernmental Gross Cost: $222,521; 
Gross Cost with the Public: $1,108,053; 
Total: $1,330,574. 

Less: Exchange Revenues 

Securities Transaction Fees; 
Total: $1,256,644. 

Securities Registration, Tender Offer, and Merger Fees; 
Total: $507,473. 

Other; 
Total: $150. 

Total Exchange Revenues; 
Total: $1,764,267. 

Net (Income) Cost from Operations; 
Total: ($433,693). 

Intragovernmental exchange revenue was $96 thousand for the year ended 
September 30, 2014. Intragovernmental exchange revenue was $97 
thousand for the year ended September 30, 2013. 

[End of table] 

Note 13. Imputed Financing: 

A portion of the retirement, health, and life insurance benefits 
provided to SEC employees is funded by OPM. In accordance with Federal 
accounting standards, the SEC recognizes identified costs paid by OPM 
on behalf of the SEC as an expense. The funding for this expense is 
reflected as imputed financing on the Statement of Changes in Net 
Position. Costs paid by OPM on behalf of the SEC were $39.6 million 
and $33 million in FY 2014 and FY 2013, respectively. 

Note 14. Status of Budgetary Resources:  

A. Apportionment Categories of Obligations Incurred: 

Category A funds are those amounts that are subject to quarterly 
apportionment by OMB, meaning that a portion of the annual 
appropriation is not available to the agency until apportioned each 
quarter. Category B funds represent budgetary resources distributed by 
a specified time period, activity, project, object, or a combination 
of these categories. The SEC’s Category B funds represent amounts 
apportioned at the beginning of the fiscal year for the SEC’s 
reimbursable and Investor Protection Fund activities. The SEC’s 
Reserve Fund is exempt from apportionment. For additional information, 
see Note 1.E, Fund Accounting Structure, and Note 1.R, Budgets and 
Budgetary Accounting. For the years ended September 30, 2014 and 2013, 
the SEC incurred obligations against Category A, Category B, and 
Exempt funds as follows: 

Obligations Incurred
(Dollars In Thousands): 

Direct Obligations: 

Category A; 
FY 2014: $1,335,969; 
FY 2013: $1,201,369. 

Category B — Investor Protection Fund; 
FY 2014: $25,116; 
FY 2013: $14,883. 

Exempt From Apportionment — Reserve Fund; 
FY 2014: $65,605; 
FY 2013: $41,343. 

Total Direct Obligations; 
FY 2014: $1,426,690; 
FY 2013: $1,257,595. 

Reimbursable Obligations: 

Category B; 
FY 2014: $179; 
FY 2013: $116. 

Total Obligations Incurred; 
FY 2014: $1,426,869; 
FY 2013: $1,257,711. 

In addition, the amounts of budgetary resources obligated for 
undelivered orders include $801.8 million and $792.2 million at 
September 30, 2014 and 2013, respectively. 

[End of table] 

B. Explanation of Differences between the Statement of Budgetary 
Resources and the Budget of the U.S. Government: 

A comparison between the FY 2014 Statement of Budgetary Resources 
(SBR) and the actual FY 2014 data in the Budget of the U.S. Government 
(Budget) cannot be presented, as the FY 2016 Budget, which will 
contain FY 2014 actual data is not yet available. The comparison will 
be presented in next year’s financial statements. The comparison as of 
September 30, 2013 is presented below: 

(Dollars In Millions): 

Combined Statement of Budgetary Resources; 
Budgetary Resources: $1,402; 
Obligations Incurred: $1,258; 
Distributed Offsetting Receipts: ($3); 
Outlays, Net: ($51). 

FY 2012 Ending Balance: Comptroller General Decision B 322160, 
Recording of Obligation for Multiple Year Contract; 
Budgetary Resources: $441; 
Obligations Incurred: 0; 
Distributed Offsetting Receipts: 0; 
Outlays, Net: 0. 

OMB’s application of cumulative unobligated balances used to liquidate 
deficiency; 
Budgetary Resources: ($108); 
Obligations Incurred: 0; 
Distributed Offsetting Receipts: 0; 
Outlays, Net: 0. 

Rounding; 
Budgetary Resources: ($1); 
Obligations Incurred: ($1); 
Distributed Offsetting Receipts: $1; 
Outlays, Net: 0. 

Budget of the U.S. Government for FY 2014; 
Budgetary Resources: $1,734; 
Obligations Incurred: $1,257; 
Distributed Offsetting Receipts: ($2); 
Outlays, Net: ($51). 

[End of table] 

The differences between the FY 2013 SBR and the prior year column of 
the FY 2015 Budget exist because certain data elements are reported on 
the SBR differently than those same data elements are reported in the 
Budget. 

The data elements reported differently are those used to report the 
SEC’s recording of obligations in FY 2011 to reflect the impact of 
Comptroller General Decision B 322160, Securities and Exchange 
Commission--Recording of Obligation for Multiple-Year Contract and the 
subsequent adjustment and liquidation of those obligations. In 
consultation with OMB, in FY 2011 the SEC recognized obligations for 
leases entered into in FY 2010 and prior. The recognition of these 
lease obligations resulted in an unfunded obligation (deficiency) of 
$778 million. 

In the Budget, the unfunded obligation is not included in the 
beginning of the year unobligated balance brought forward, but instead 
is reported in a separate schedule of the Budget titled “Unfunded 
Deficiencies.” 

A detailed reconciliation of the data elements follows: 

* Based on an agreement with OMB, the SEC is funding the deficiency 
over time as the prior year unfunded lease obligation amounts are 
recovered, and as new budget authority becomes available for current 
year lease operations. At the end of FY 2013, the SEC’s SBR included 
$441 million in remaining unfunded obligations after the SEC funded 
$80 million for the current year lease operations and recorded a 
downward adjustment of $2 million to previously unfunded obligations. 
The SEC’s SBR presents the unfunded obligations as part of the 
beginning of the year unobligated balance brought forward. 

* At the end of FY 2013, the “Unfunded Deficiencies” schedule in the 
SEC’s section of the Budget reported $333 million in remaining 
unfunded obligations. The $108 million difference in remaining 
unfunded obligations reflects the difference in presentation between 
the SEC’s SBR and the Budget: OMB applies year-end unobligated 
balances in Fund X0100, Salaries and Expenses, against the unfunded 
deficiency reported in the Budget. As a result, the “Unfunded 
Deficiencies” schedule in the Budget reflects the application of the 
FY 2011 year-end unobligated balance ($47 million) and the FY 2012 
increase in the unobligated balance ($55 million) in Fund X0100, 
Salaries and Expenses, as a reduction in the beginning of the year 
unfunded deficiency. The FY 2013 increase of the year-end unobligated 
balance ($6 million) was also applied to the unfunded deficiency as 
part of new budget authority used to liquidate deficiencies. 

* A portion of the activity in the “Unfunded Deficiencies” schedule is 
also reflected in the Budgetary Resources section of the SEC’s 
Salaries and Expense Account in the Budget. The $88 million in “New 
budget authority used to liquidate deficiencies” in the “Unfunded 
Deficiencies” schedule is broken out in the SEC’s Salaries and Expense 
Account as follows: $86 million in “Adjustments for new budget 
authority used to liquidate deficiencies” and $2 million in “
Adjustment for unfunded deficiencies” (downward adjustments). The $86 
million is the sum of the $80 million that the SEC used to liquidate 
the lease obligations in FY 2013 plus the $6 million unobligated 
balance at the end of FY 2013 considered to be applied to the unfunded 
obligations in the “Unfunded Deficiencies” schedule. 

C. Other Budgetary Disclosures: 

General Provisions of Appropriation: 

The SEC’s annual Appropriations Act contains general provisions that 
limit the amount that can be obligated for international conferences, 
International Organization of Securities Commission (IOSCO) dues, and 
representation expenses. The act also requires the SEC to fund its 
Office of Inspector General with a minimum of $7,092,000 and the 
Division of Economic and Risk Analysis with a minimum of $44,353,000. 

The SEC’s annual Appropriations Act for FY 2012 temporarily rescinded 
$25 million in appropriations recognized in the SEC’s Reserve Fund in 
FY 2012. This rescission ended on September 30, 2012, leaving that $25 
million available starting in FY 2013. The SEC’s FY 2014 appropriation 
bill included a provision that rescinds $25 million in appropriations 
recognized in the SEC’s Reserve Fund. Refer to Note 1.E, Fund 
Accounting Structure, “Reserve Fund,” for more information. 

Change in Legal Interpretation for Lease Obligations: 

The SEC was granted independent leasing authority in 1990. Based on a 
legal review of its statutory authority at the time, the SEC adopted a 
policy of obligating only the annual portion of lease payments due 
each year. On October 3, 2011, the Government Accountability Office 
(GAO) issued a decision that this longstanding practice of recording 
lease obligations only on an annual basis violated the recording 
statute, 31 U.S.C. sect. 1501(a)(1). Specifically, the GAO’s decision 
was that the SEC lacks statutory authority to obligate an amount less 
than the Government’s total obligation. If the SEC lacks sufficient 
budget authority to cover this obligation, the SEC should report a 
violation of the Antideficiency Act (ADA). 

The SEC recorded obligations in the same manner for all its leasing 
actions between the time the agency was granted independent leasing 
authority in 1990 and 2010. Further, the agency did not have 
sufficient remaining unobligated funds in the years in which the 
various leases were entered to cover the full obligations associated 
with those leases. As a result, the agency recorded unfunded 
obligations totaling $778 million for leases executed between 1990 and 
2010 in FY 2011. The SEC appropriately obligated the Government’s 
total financial responsibility for lease actions that were executed in 
FY 2011 and FY 2012. 

Unfunded lease obligations totaled $358 million and $441 million as of 
September 30, 2014 and 2013, respectively. The change in unfunded 
obligations is due to the SEC funding previously unfunded obligations 
totaling $83 million. Accrual accounting requires expenses to be 
recognized in the period in which the expenses are incurred. Because 
future lease expenses are not an expense of the current fiscal year, 
they are not reported as expenses or liabilities in the current fiscal 
year. See Note 9, Leases, for additional information. 

See Note 10.A, Commitments: Securities Investor Protection Act, for 
information on the SEC’s borrowing authority. 

Note 15. Reconciliation of Net Cost of Operations to Budget: 
For the years ended September 30, 2014 and 2013:
(Dollars In Thousands): 

Resources Used To Finance Activities: 

Budgetary Resources Obligated: 

Obligations Incurred (Note 14); 
FY 2014: $1,426,869; 
FY 2013: $1,257,711. 

Less: Spending Authority from Offsetting Collections, Recoveries, and 
Downward Adjustments to Prior Year Unfunded Lease Obligations; 
FY 2014: ($1,325,984); 
FY 2013: ($1,307,044). 

Less: Reserve Fund Appropriations; 
FY 2014: ($50,000); 
FY 2013: ($50,000). 

Net Obligations; 
FY 2014: $50,885; 
FY 2013: ($99,333). 

Other Resources: 

Imputed Financing from Cost Absorbed by Others (Note 13); 
FY 2014: $39,556; 
FY 2013: $32,958. 

Total Resources Used to Finance Activities; 
FY 2014: $90,441; 
FY 2013: ($66,375). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 

Change in Budgetary Resources Obligated for Goods, Services, and 
Benefits Ordered But Not Yet Provided; 
FY 2014: ($11,352); 
FY 2013: $104,435. 

Resources that Finance the Acquisition of Assets Capitalized on the 
Balance Sheet; 
FY 2014: ($47,553); 
FY 2013: ($83,218). 

Total Resources Used to Finance Items Not Part of the Net Cost of 
Operations; 
FY 2014: ($58,905); 
FY 2013: $21,217. 

Total Resources Used to Finance the Net Cost of Operations; 
FY 2014: $31,536; 
FY 2013: ($45,158). 

Components Of Net Cost Of Operations That Will Not Require Or Generate 
Resources In The Current Period: 

Components Requiring or Generating Resources in Future Periods: 

Change in Accrued Leave Liability; 
FY 2014: $6,792; 
FY 2013: $3,175. 

Change in Revenue Receivables Not Generating Resources Until Collected; 
FY 2014: ($45,509); 
FY 2013: $16,684. 

Change in Lease Liability; 
FY 2014: $31; 
FY 2013: ($563). 

Change in Unfunded Liability; 
FY 2014: ($356); 
FY 2013: ($3,786). 

Total Components of Net Cost of Operations that will Require or 
Generate Resources in Future Periods; 
FY 2014: $
FY 2013: $15,510. 

Components not Requiring or Generating Resources: 

Depreciation and Amortization; 
FY 2014: $60,596; 
FY 2013: $53,801. 

Revaluation of Assets or Liabilities; 
FY 2014: $537; 
FY 2013: $117. 

Non-Entity Filing Fee Revenue, Net; 
FY 2014: ($528,858); 
FY 2013: ($457,915). 

Other Costs that will not Require or Generate Resources; 
FY 2014: ($31); 
FY 2013: ($48). 

Total Components of Net Cost of Operations that will not Require or 
Generate Resources in Future Periods; 
FY 2014: ($467,756); 
FY 2013: ($404,045). 

Total Components of Net Cost of Operations that will not Require or 
Generate Resources in the Current Period; 
FY 2014: ($496,798); 
FY 2013: ($388,535). 

Net (Income) Cost from Operations; 
FY 2014: ($465,262); 
FY 2013: ($433,693). 

[End of table] 

Components of net cost of operations that will not require or generate 
budgetary resources represent required timing differences in the 
Statement of Net Cost and the Statement of Budgetary Resources. 

For example, as noted in Note 1.M, Liabilities, annual leave that is 
earned but not either taken or paid out to separating employees by the 
end of the fiscal year is required to be reported as an expense in the 
financial statements in the year when it is earned, but it is required 
to be funded by budgetary resources in the future fiscal year when it 
is either used or paid out to separating employees. In the 
reconciliation above, it is reported as a component of net cost that 
will not require resources in the current period. Another example is 
depreciation expense. In budgetary reporting, the entire cost of a 
depreciable asset is recognized in the period when the asset is 
purchased. However, in financial statement reporting, accrual 
accounting requires the cost of such assets to be allocated among the 
reporting periods that represent the estimated useful life of the 
asset. In the reconciliation above, depreciation is recognized as a “
component not requiring or generating resources.” Another example is 
Non-Entity Filing Fee Revenue, Net. “Non-entity” filing fee revenue is 
not available to the SEC for use in its operations; accordingly, this 
revenue does not generate budgetary resources for the SEC. 

Note 16. Disgorgement and Penalties: 

The SEC’s non-entity assets include disgorgement, penalties, and 
interest assessed against securities law violators by the Commission 
or a Federal court. The SEC also recognizes an equal and offsetting 
liability for these non-entity assets, as discussed in Note 1.M, 
Liabilities. 

When the Commission or court issues an order for the SEC to collect 
disgorgement, penalties, and interest from securities law violators, 
the SEC establishes an account receivable due to the SEC. Upon 
collection, the SEC may (a) hold receipts in the Disgorgement and 
Penalty Deposit Fund as FBWT or Treasury investments pending 
distribution to harmed investors, (b) deposit receipts in the U.S. 
Treasury General Fund or, (c) transfer amounts to the Investor 
Protection Fund. The situations where funds would not be held for 
distribution to harmed investors arise when the SEC either determines 
it is not practical to return funds to investors or when court orders 
expressly state that funds are to be remitted to the U.S. Treasury. 
The determination as to whether funds not held for distribution to 
harmed investors will be deposited in the U.S. Treasury or transferred 
to the Investor Protection Fund is made in accordance with the 
provisions of the Dodd-Frank Act, and is dependent on the balance in 
the Investor Protection Fund on the day the amounts are collected. 
(See Note 1.T, Investor Protection Fund). 

Disbursements related to disgorgements and penalties include 
distributions to harmed investors, payments to tax authorities, and 
fees paid to plan administrators and the Bureau of the Fiscal Service. 
The SEC does not record accounts receivable on its financial 
statements for any amounts ordered to another Government entity such 
as a court, or a non-governmental entity such as a receiver. 
Additional details regarding disgorgement and penalties are presented 
in Note 1.S, Disgorgement and Penalties, and Note 2, Entity and Non-
Entity Assets. 

At September 30, the net inflows and outflows for FBWT, Investments, 
and Accounts Receivable related to disgorgement and penalties 
consisted of the following:
(Dollars In Thousands): 

Fund Balance with Treasury: 

Beginning Balance; 
FY 2014: $988,237; 
FY 2013: $341,886. 

Collections; 
FY 2014: $1,478,207; 
FY 2013: $1,545,037. 

Purchases and Redemptions of Treasury Securities; 
FY 2014: ($510,901); 
FY 2013: ($326,159). 

Disbursements; 
FY 2014: ($197,069); 
FY 2013: ($53,935). 

Transfers and Deposits to the U.S. Treasury General Fund; 
FY 2014: ($825,027); 
FY 2013: ($518,592). 

Total Fund Balance with Treasury (Note 2); 
FY 2014: $933,447; 
FY 2013: $988,237. 

Cash and Other Monetary Assets: 

Beginning Balance; 
FY 2014: $387; 
FY 2013: $1,058. 

Net Activity; 
FY 2014: $323; 
FY 2013: ($671). 

Total Cash and Other Monetary Assets (Notes 2 and 4); 
FY 2014: $710; 
FY 2013: $387. 

Investments, Net: 

Beginning Balance; 
FY 2014: $848,441; 
FY 2013: $521,444. 

Net Activity; 
FY 2014: $512,079
FY 2013: $326,997. 

Total Investments, Net (Notes 2 and 5); 
FY 2014: $1,360,520; 
FY 2013: $848,441. 

Accounts Receivable, Net: 

Beginning Balance; 
FY 2014: $297,098; 
FY 2013: $130,616. 

Net Activity; 
FY 2014: $83,485; 
FY 2013: $166,482. 

Total Accounts Receivable, Net (Notes 2 and 6); 
FY 2014: $380,583; 
FY 2013: $297,098. 

Total Disgorgement and Penalties; 
FY 2014: $2,675,260; 
FY 2013: $2,134,163. 

[End of table] 

Note 17. Statement of Changes in Net Position: 

In FY 2014, the negative $528,889 thousand in “Other” Financing 
Sources reported in the Statement of Changes in Net Position consists 
of $528,858 thousand in securities registration, tender offer, merger, 
and other fees from registrants (“filing fees”) and $31 thousand in 
Freedom of Information Act (FOIA) fees collected, or to be collected, 
for deposit into the U.S. Treasury General Fund. 

In FY 2013, the negative $457,974 thousand consists of $457,915 
thousand in filing fees and $49 thousand in FOIA revenues collected, 
or to be collected, for deposit into the U.S. Treasury General Fund, 
and $10 thousand in losses on the sale of investments in U.S. Treasury 
securities. 

[End of section] 

Required Supplementary Information (Unaudited): 

This section provides the Required Supplementary Information as 
prescribed by OMB Circular A-136, Financial Reporting Requirements. 

The accompanying notes are an integral part of these financial 
statements. 

U.S. Securities And Exchange Commission: 
Statements of Budgetary Resources by Fund For the year ended September 
30, 2014:
(Dollars In Thousands) 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($333,375); 
Investor Protection Fund, 5567: $434,392; 
Reserve Fund, 5566: $43,749; 
Total: $144,766. 

Recoveries of Prior Year Unpaid Obligations; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$33,521; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: $33; 
Total: $33,554. 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
0; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: 0. 

Unobligated Balance from Prior Year Budget Authority, Net; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($299,854); 
Investor Protection Fund, 5567: $434,392; 
Reserve Fund, 5566: $43,782; 
Total: $178,320. 

Appropriations (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$59,012; 
Investor Protection Fund, 5567: ($1,399); 
Reserve Fund, 5566: $22,150; 
Total: $79,763. 

Spending Authority from Offsetting Collections (Discretionary and 
Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,292,430; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $1,292,430. 

Total Budgetary Resources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,051,588; 
Investor Protection Fund, 5567: $432,993; 
Reserve Fund, 5566: $65,932; 
Total: $1,550,513. 

Status Of Budgetary Resources: 

Obligations Incurred (Note 14); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,336,148; 
Investor Protection Fund, 5567: $25,116; 
Reserve Fund, 5566: $65,605; 
Total: $1,426,869. 

Unobligated Balance, End of Year: 

Apportioned; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$47,972; 
Investor Protection Fund, 5567: $407,877; 
Reserve Fund, 5566: 0; 
Total: $455,849. 

Exempt from Apportionment; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
0; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: $327; 
Total: $327. 

Unapportioned; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($332,532); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($332,532). 

Total Unobligated Balance, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($284,560); 
Investor Protection Fund, 5567: $407,877; 
Reserve Fund, 5566: $327; 
Total: $123,644. 

Total Budgetary Resources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,051,588; 
Investor Protection Fund, 5567: $432,993; 
Reserve Fund, 5566: $65,932; 
Total: $1,550,513. 

Change In Obligated Balance: 

Unpaid Obligations: 

Unpaid Obligations, Brought Forward, October 1 (Gross); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$825,600; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $29,047; 
Total: $854,647.  

Obligations Incurred; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,,336,148; 
Investor Protection Fund, 5567: $25,116; 
Reserve Fund, 5566: $65,605; 
Total: $1,426,869. 

Outlays (Gross); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,295,311); 
Investor Protection Fund, 5567: ($1,980); 
Reserve Fund, 5566: ($34,825); 
Total: ($1,332,116). 

Recoveries of Prior Year Unpaid Obligations; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($33,521); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: ($33); 
Total: ($3,554). 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
0; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: 0. 

Unpaid Obligations, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$832,916; 
Investor Protection Fund, 5567: $23,136; 
Reserve Fund, 5566: $59,794; 
Total: $915,846. 

Uncollected Payments: 

Uncollected Payments, Federal Sources, Brought Forward, October 1; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($252); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($252). 

Change in Uncollected Payments, Federal Sources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($183); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($183). 

Uncollected Payments, Federal Sources, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($435); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($435). 

Memorandum (non-add) entries: 

Obligated Balance, Start of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$825,348; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $29,047; 
Total: $854,395. 

Obligated Balance, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$832,481; 
Investor Protection Fund, 5567: $23,136; 
Reserve Fund, 5566: $59,794; 
Total: $915,411. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,351,4442; 
Investor Protection Fund, 5567: ($1,399); 
Reserve Fund, 5566: $22,150; 
Total: $1,372,193. 

Actual Offsetting Collections (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,292,247); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($1,292,247). 

Change in Uncollected Customer Payments from Federal Sources 
(Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($183); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($183). 

Budget Authority, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($59,012); 
Investor Protection Fund, 5567: ($1,399); 
Reserve Fund, 5566: $22,150; 
Total: $79,763. 

Outlays, Gross (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,295,311; 
Investor Protection Fund, 5567: $1,980; 
Reserve Fund, 5566: $34,825; 
Total: $1,332,116. 

Actual Offsetting Collections (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,292,247); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($1,292,247). 

Outlays, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$3.064; 
Investor Protection Fund, 5567: $1,980; 
Reserve Fund, 5566: $34,825; 
Total: $39,869. 

Distributed Offsetting Receipts; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,439); 
Investor Protection Fund, 5567: ($490); 
Reserve Fund, 5566: 0; 
Total: ($1,929). 

Agency Outlays, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,625; 
Investor Protection Fund, 5567: $1,490; 
Reserve Fund, 5566: $34,825; 
Total: $37,940. 

U.S. Securities And Exchange Commission: 
Statements of Budgetary Resources by Fund For the year ended September 
30, 2013:
(Dollars In Thousands) 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($420,430); 
Investor Protection Fund, 5567: $451,460; 
Reserve Fund, 5566: $12,642; 
Total: $43,672. 

Recoveries of Prior Year Unpaid Obligations; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$30,777; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $30,777. 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$2,009; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $2,009. 

Unobligated Balance from Prior Year Budget Authority, Net; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($387,644); 
Investor Protection Fund, 5567: $451,460; 
Reserve Fund, 5566: $12,642; 
Total: $76,458. 

Appropriations (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$47,546; 
Investor Protection Fund, 5567: ($2,185); 
Reserve Fund, 5566: $72,450; 
Total: $117,811. 

Spending Authority from Offsetting Collections (Discretionary and 
Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,208,208; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: $1,208,208. 

Total Budgetary Resources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$868,110; 
Investor Protection Fund, 5567: $449,275; 
Reserve Fund, 5566: $85,092; 
Total: $1,402,477. 

Status Of Budgetary Resources: 

Obligations Incurred (Note 14); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,201,485; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $41,343; 
Total: $1,257,711. 

Unobligated Balance, End of Year: 

Apportioned; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$84,424; 
Investor Protection Fund, 5567: $434,392; 
Reserve Fund, 5566: 0; 
Total: $518,816. 

Exempt from Apportionment; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
0; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: $43,749; 
Total: $43,749. 

Unapportioned; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($417,799); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($417,799). 

Total Unobligated Balance, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($333,375); 
Investor Protection Fund, 5567: $434,392; 
Reserve Fund, 5566: $43,749; 
Total: $144,766. 

Total Budgetary Resources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$868,110; 
Investor Protection Fund, 5567: $449,275; 
Reserve Fund, 5566: $85,092; 
Total: $1,402,477. 

Change In Obligated Balance: 

Unpaid Obligations: 

Unpaid Obligations, Brought Forward, October 1 (Gross); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$942,240; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $12,358; 
Total: $954,598 

Obligations Incurred; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,201,485; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $41,343; 
Total: $1,257,711. 

Outlays (Gross); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,285,339); 
Investor Protection Fund, 5567: ($14,883); 
Reserve Fund, 5566: ($24,654); 
Total: ($1,324,876). 

Recoveries of Prior Year Unpaid Obligations; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($30,777); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($30,777). 

Downward Adjustments of Prior Year Unfunded Lease Obligations (Note 
14.C); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($2,009); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($2,009). 

Unpaid Obligations, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$825,600; 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: $29,047; 
Total: $854,647. 

Uncollected Payments: 

Uncollected Payments, Federal Sources, Brought Forward, October 1; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($189); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($189). 

Change in Uncollected Payments, Federal Sources; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($63); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($63). 

Uncollected Payments, Federal Sources, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($252); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($252). 

Memorandum (non-add) entries: 

Obligated Balance, Start of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$942,051; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $12,358; 
Total: $954,409. 

Obligated Balance, End of Year; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$825,348; 
Investor Protection Fund, 5567: $0; 
Reserve Fund, 5566: $29,047; 
Total: $854,395. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,255,754; 
Investor Protection Fund, 5567: ($2,185); 
Reserve Fund, 5566: $72,450; 
Total: $1,326,019. 

Actual Offsetting Collections (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$(1,274,195); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($1,274,195). 

Change in Uncollected Customer Payments from Federal Sources 
(Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($63); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($63). 

Budget Authority, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($18,504); 
Investor Protection Fund, 5567: ($2,185); 
Reserve Fund, 5566: $72,450; 
Total: $51,761. 

Outlays, Gross (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$1,285,339; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $24,654; 
Total: $1,324,876. 

Actual Offsetting Collections (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($1,274,195); 
Investor Protection Fund, 5567: 0; 
Reserve Fund, 5566: 0; 
Total: ($1,274,195). 

Outlays, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$11,144; 
Investor Protection Fund, 5567: $14,883; 
Reserve Fund, 5566: $24,654; 
Total: $50,681. 

Distributed Offsetting Receipts; 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
($745); 
Investor Protection Fund, 5567: ($2,405); 
Reserve Fund, 5566: 0; 
Total: ($3,150). 

Agency Outlays, Net (Discretionary and Mandatory); 
Salaries and Expenses and Other Funds, X0100, 09/10 0100, 1435, 3220: 
$10,399; 
Investor Protection Fund, 5567: $12,478; 
Reserve Fund, 5566: $24,654; 
Total: $47,531. 

The accompanying notes are an integral part of these financial 
statements. 

[End of section] 

Investor Protection Fund Financial Statements: 

* Investor Protection Fund Financial Statements: 

* Notes to the Investor Protection Fund Financial Statements: 

Investor Protection Fund Financial Statements: 

The accompanying notes are an integral part of these financial 
statements. 

Investor Protection Fund Financial Statements: 

U.S. Securities And Exchange Commission: 
Investor Protection Fund: 
Balance Sheets: 
As of September 30, 2014 and 2013: 
(Dollars In Thousands): 

Assets: 

Intragovernmental: 

Fund Balance with Treasury (Note 2); 
FY 2014: $42,627; 
FY 2013: $4,996. 

Investments, Net (Note 3); 
FY 2014: $395,169; 
FY 2013: $434,201. 

Total Assets; 
FY 2014: $437,796; 
FY 2013: $439,197. 

Liabilities: 

Accounts Payable: 
FY 2014: $23,136; 
FY 2013: 0. 

Total Liabilities: 
FY 2014: $23,136; 
FY 2013: 0. 

Commitments and Contingencies (Note 4); 

Net Position: 

Cumulative Results of Operations - Funds from Dedicated Collections; 
FY 2014: $414,660; 
FY 2013: $439,197. 

Total Net Position - Funds from Dedicated Collections; 
FY 2014: $414,660; 
FY 2013: $439,197. 

Total Net Position; 
FY 2014: $414,660; 
FY 2013: $439,197. 

Total Liabilities and Net Position; 
FY 2014: $437,796; 
FY 2013: $439,197.  

[End of table] 

U.S. Securities And Exchange Commission: 
Investor Protection Fund: 
Statements of Net Cost: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

Program Costs (Note 5): 

Payments to Whistleblowers; 
FY 2014: $25,069; 
FY 2013: $14,832. 

Employee Suggestion Program; 
FY 2014: $47; 
FY 2013: $51.  

Total Program Costs; 
FY 2014: $25,116; 
FY 2013: $14,883. 

Net (Income) Cost from Operations; 
FY 2014: $25,116; 
FY 2013: $14,883. 

[End of table] 

U.S. Securities And Exchange Commission: 
Investor Protection FUND: 
Statements of Changes in Net Position: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

Cumulative Results Of Operations – Funds From Dedicated Collections: 

Beginning Balances; 
FY 2014: $439,197; 
FY 2013: $453,429. 

Budgetary Financing Sources: 

Non-Exchange Revenue; 
FY 2014: $579; 
FY 2013: $655. 

Other; 
FY 2014: 0; 
FY 2013: $6. 

Other Financing Sources: 

Other; 
FY 2014: 0; 
FY 2013: ($10). 

Total Financing Sources; 
FY 2014: $579; 
FY 2013: $651. 

Net Income (Cost) from Operations; 
FY 2014: ($25,116); 
FY 2013: ($14,883). 

Net Change; 
FY 2014: ($24,537); 
FY 2013: ($14,232). 

Cumulative Results of Operations; 
FY 2014: $414,660; 
FY 2013: $439,197. 

Net Position, End of Period; 
FY 2014: $414,660; 
FY 2013: $439,197. 

[End of table] 

U.S. Securities And Exchange Commission: 
Investor Protection Fund: 
Statements of Budgetary Resources: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

Budgetary Resources: 

Unobligated Balance, Brought Forward, October 1; 
FY 2014: $434,392; 
FY 2013: $451,460. 

Appropriations (Discretionary and Mandatory); 
FY 2014: ($1,399); 
FY 2013: ($2,185). 

Total Budgetary Resources; 
FY 2014: $432,993; 
FY 2013: $449,275. 

Status Of Budgetary Resources: 

Obligations Incurred - Category B (Note 6); 
FY 2014: $
FY 2013: $14,883. 

Unobligated Balance, End of Year: 

Apportioned; 
FY 2014: $25,116; 
FY 2013: $434,392. 

Total Unobligated Balance, End of Year; 
FY 2014: $407,877; 
FY 2013: $434,392. 

Total Budgetary Resources; 
FY 2014: $407,877; 
FY 2013: $449,275. 

Change In Obligated Balance: 

Unpaid Obligations: 

Obligations Incurred; 
FY 2014: $25,116; 
FY 2013: $14,883. 

Outlays (Gross); 
FY 2014: ($1,980); 
FY 2013: ($14,883). 

Unpaid Obligations, End of Year (Note 6); 
FY 2014: $23,136; 
FY 2013: $0. 

Budget Authority And Outlays, Net: 

Budget Authority, Gross (Discretionary and Mandatory); 
FY 2014: ($1,399); 
FY 2013: ($2,185). 

Budget Authority, Net (Discretionary and Mandatory); 
FY 2014: ($1,399)
FY 2013: ($2,185). 

Outlays, Gross (Discretionary and Mandatory); 
FY 2014: $1,980; 
FY 2013: $14,883. 

Outlays, Net (Discretionary and Mandatory); 
FY 2014: $1,980; 
FY 2013: $14,883. 

Distributed Offsetting Receipts; 
FY 2014: ($490); 
FY 2013: ($2,405). 

Agency Outlays, Net (Discretionary and Mandatory); 
FY 2014: $1,490; 
FY 2013: $12,478. 

[End of table] 

Notes to the Investor Protection Fund Financial Statements: 
U.S. Securities And Exchange Commission: 
As of September 30, 2014 and 2013: 

Note 1. Significant Accounting Policies: 

A. Reporting Structure: 

The U.S. Securities and Exchange Commission (SEC) is an independent 
agency of the U.S. Government established pursuant to the Securities 
Exchange Act of 1934 (Exchange Act), charged with regulating this 
country’s capital markets. The Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (Dodd-Frank Act) established the 
Securities and Exchange Commission Investor Protection Fund. The 
Investor Protection Fund provides funding for a Whistleblower Award 
Program and finances the operations of the SEC Office of Inspector 
General’s (OIG) Employee Suggestion Program. The Investor Protection 
Fund is a fund within the SEC, and these financial statements present 
a segment of the SEC’s financial activity. 

B. Basis of Presentation and Accounting: 

The accompanying financial statements present the financial position, 
net cost of operations, changes in net position, and budgetary 
resources of the Investor Protection Fund as required by Exchange Act 
Section 21F(g)(5). The Act requires a complete set of financial 
statements that includes a balance sheet, income statement, and cash 
flow analysis. The Investor Protection Fund is a Federal reporting 
entity. As such, its financial statements are prepared in conformity 
with generally accepted accounting principles (GAAP) for the Federal 
Government, and are presented in conformity with OMB Circular A-136, 
Financial Reporting Requirements. The legislative requirements to 
prepare an income statement and cash flow analysis are addressed by 
the Statement of Net Cost and Note 2, Fund Balance with Treasury, 
respectively. 

The SEC’s books and records serve as the source of the information 
presented in the accompanying financial statements. 

The agency classifies assets, liabilities, revenues, and costs in 
these financial statements according to the type of entity associated 
with the transactions. Intragovernmental assets and liabilities are 
those due from or to other Federal entities, including other funds 
within the SEC. Intragovernmental revenues and costs result from 
transactions with other Federal entities, including other funds within 
the SEC. 

The Balance Sheet, Statement of Net Cost and Statement of Changes in 
Net Position are prepared using the accrual basis of accounting. 
Accordingly, revenues are recognized when earned and expenses are 
recognized when incurred without regard to the receipt or payment of 
cash. These principles differ from budgetary accounting and reporting 
principles on which the Statement of Budgetary Resources is prepared. 
A reconciliation of differences, if any, between the accrual-based 
Statement of Net Cost and the budgetary-based Statement of Budgetary 
Resources is presented in Note 7, Reconciliation of Net Cost of 
Operations to Budget. 

C. Use of Estimates: 

The preparation of financial statements in conformity with GAAP 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities. These estimates and 
assumptions include the disclosure of contingent assets and 
liabilities at the date of the financial statements, and the reported 
amounts of revenues and expenses during the reporting period. Actual 
results may differ from these estimates. 

D. Intra- and Inter-Agency Relationships: 

Transactions with Other SEC Funds: 

The Investor Protection Fund is comprised of a single Federal Treasury 
Fund Symbol. The Investor Protection Fund is the recipient of non-
exchange revenues collected by the SEC. Amounts transferred to the 
Investor Protection Fund are classified as “retained by the SEC” 
because the Investor Protection Fund is a fund within the SEC. The 
Investor Protection Fund can finance the Office of the Whistleblower 
and the operations of the SEC Office of Inspector General’s Employee 
Suggestion Program. 

Transactions with Other Federal Agencies: 

Whistleblower payments may be made from the Investor Protection Fund 
as a result of monetary sanctions paid to other Federal agencies in 
related actions, but only if there has been a Commission enforcement 
action resulting in sanctions of a million dollars or greater and the 
Commission has determined that the whistleblower is eligible for an 
award and recommended the percentage. In those instances, the SEC 
remains liable for paying the whistleblower. However, in instances 
where a whistleblower has already received an award from the Commodity 
Futures Trading Commission (CFTC), the whistleblower is not entitled 
to an award from the SEC. 

E. Funds from Dedicated Collections: 

A fund from dedicated collections is financed by specifically 
identified revenues, provided to the government by non-Federal 
sources, often supplemented by other financing sources, which remain 
available over time. These specifically identified revenues and other 
financing sources are required by statute to be used for designated 
activities, benefits or purposes, and must be accounted for separately 
from the Government’s general revenues. Investor Protection Fund 
resources are funds from dedicated collections and may only be used 
for the purposes specified by the Dodd-Frank Act. 

F. Entity Assets: 

Assets that an agency is authorized to use in its operations are 
entity assets. The SEC is authorized to use all funds in the Investor 
Protection Fund for the purposes specified by the Dodd-Frank Act. 
Accordingly, all assets are recognized as entity assets. 

G. Fund Balance with Treasury: 

Fund Balance with Treasury reflects amounts the Investor Protection 
Fund holds in the U.S. Treasury that have not been invested in Federal 
securities. The SEC conducts all of its banking activity in accordance 
with directives issued by the U.S. Department of the Treasury’s Bureau 
of the Fiscal Service. 

H. Investments: 

The SEC has authority to invest amounts in the Investor Protection 
Fund in overnight and short-term, market-based Treasury securities. 
The interest earned on the investments is a component of the Fund and 
is available to be used for expenses of the Investor Protection Fund. 
Additional details regarding Investor Protection Fund investments are 
provided in Note 3, Investments. 

I. Liabilities: 

The SEC records liabilities for probable future outflows or other 
sacrifices of resources as a result of events that have occurred as of 
the Balance Sheet date. The Investor Protection Fund’s liabilities 
consist of amounts payable to whistleblowers and reimbursable expenses 
that the Office of Inspector General incurs to operate the Employee 
Suggestion Program. 

The Dodd-Frank Act and the SEC implementing regulations establish the 
eligibility criteria for whistleblower awards. Refer to Note 4, 
Commitments and Contingencies for additional information regarding the 
disclosure and recognition of actual and contingent liabilities for 
whistleblower awards. 

J. Program Costs: 

The Investor Protection Fund reimburses the SEC’s Salaries and 
Expenses account (X0100) for expenses incurred by the Office of 
Inspector General to administer the Employee Suggestion Program. The 
Investor Protection Fund also finances payments to whistleblowers 
under Section 21F of the Exchange Act. 

K. Non-Exchange Revenue: 

Disgorgement and Penalty Transfers: 

Non-exchange revenue arises from the Government’s ability to demand 
payment. The Investor Protection Fund is financed through the receipt 
of monetary sanctions collected by the SEC in judicial or 
administrative actions brought by the SEC under the securities laws 
that are not either: (1) added to the disgorgement fund or other fund 
under Section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) 
or (2) otherwise distributed to victims of a violation of the 
securities laws. The Investor Protection Fund recognizes non-exchange 
revenue for disgorgement and penalty amounts transferred into the fund 
from the SEC’s Disgorgement and Penalties Fund (X6563). No sanction 
collected by the SEC can be deposited into the Investor Protection 
Fund if the balance in the fund exceeds $300 million on the day of 
collection. 

Interest Earnings on Investments with Treasury: 

Interest earned from investments in U.S. Treasury securities is 
classified in the same way as the predominant source of revenue to the 
fund. The Investor Protection Fund is financed through the receipt of 
non-exchange revenues and thus interest earnings are also recognized 
as non-exchange revenues. 

L. Budgets and Budgetary Accounting: 

The Investor Protection Fund (Fund X5567) is a special fund 
established through a permanent indefinite appropriation that has the 
authority to retain revenues and other financing sources not used in 
the current period for future use. The Dodd-Frank Act provides that 
the Fund is available to the SEC without further appropriation or 
fiscal year limitation for the purpose of paying awards to 
whistleblowers and funding the activities of the OIG’s employee 
suggestion program. However, the SEC is required to request and obtain 
an annual apportionment from OMB to use these funds. 

The resources of the Investor Protection Fund are apportioned under 
Category B authority, which means that the funds represent budgetary 
resources distributed by a specified project and are not subject to 
quarterly apportionment. Thus, all obligations incurred as presented 
on the Statement of Budgetary Resources are derived from Category B 
funds. 

Note 2. Fund Balance with Treasury: 

The Fund Balance with Treasury by type of fund and Status of Fund 
Balance with Treasury as of September 30, 2014 and 2013 consisted of 
the following: 

(Dollars In Thousands) 

Fund Balances: 

Special Fund; 
FY 2014: $42,627; 
FY 2013: $4,996. 

Total Fund Balance with Treasury; 
FY 2014: $42,627; 
FY 2013: $4,996. 

Status of Fund Balance with Treasury: 

Unobligated Balance: 

Available; 
FY 2014: $13,011; 
FY 2013: $406. 

Unavailable; 
FY 2014: $6,480; 
FY 2013: $4,590. 

Obligated Balance not Yet Disbursed: 
FY 2014: $23,136; 
FY 2013: 0. 

Subtotal; 
FY 2014: $42,627; 
FY 2013: $4,996. 

Total Fund Balance with Treasury; 
FY 2014: $42,627; 
FY 2013: $4,996. 

[End of table] 

Unobligated balances reported for the status of Fund Balance with 
Treasury do not agree with the amounts reported in the Statement of 
Budgetary Resources due to the fact that funds for unobligated 
balances are held in investments as well as in Fund Balance with 
Treasury. 

There were no differences between the Fund Balance reflected in the 
Investor Protection Fund financial statements and the balance in the 
Treasury accounts. 

Cash flow: 

The Investor Protection Fund cash flows are reflected in investments 
and in the Statement of Budgetary Resources. Such cash flows during FY 
2014 consisted of net investment redemptions of $39.2 million, net 
interest received of $412 thousand (which includes $648 thousand of 
interest collections, less $258 thousand of premiums paid, and $22 
thousand in discounts received), expenses incurred for whistleblower 
awards totaling $25 million of which $2 million was paid during FY 
2014, and the cost of operating the OIG Employee Suggestion Program of 
$47 thousand. 

Cash flows during FY 2013 consisted of net investment redemptions of 
$16.4 million, net interest received of $2.5 million (which includes $ 
3.2 million of interest collections and $765 thousand of premiums 
paid, and $89 thousand in discounts received), payments to 
whistleblowers totaling $14.8 million, and the cost of operating the 
OIG Employee Suggestion Program of $51 thousand. 

Note 3. Investments: 

The SEC invests funds in overnight and short-term non-marketable 
market-based Treasury bills. The SEC records the value of its 
investments in Treasury bills at cost and amortizes any premium or 
discount on a straight-line basis (S/L) through the maturity date of 
these securities. Non-marketable market-based Treasury securities are 
issued by the Bureau of the Fiscal Service to Federal agencies. They 
are not traded on any securities exchange but mirror the prices of 
similar Treasury securities trading in the Government securities 
market. 

At September 30, 2014, investments consisted of the following:
(Dollars In Thousands): 

Non-Marketable Market-Based Securities: 

Investor Protection Fund – Entity; 

Cost: $395,124; 
Amortization Method: S/L; 
Amortized (Premium) Discount: ($196); 
Interest Receivable: $241; 
Investment, Net: $395,169; 
Market Value Disclosure: $394,978. 

At September 30, 2012, investments consisted of the following:
(Dollars In Thousands) 

Non-Marketable Market-Based Securities: 

Investor Protection Fund – Entity; 

Cost: $454,119; 
Amortization Method: S/L; 
Amortized (Premium) Discount: (2,875); 
Interest Receivable: $1,228; 
Investment, Net: $452,472; 
Market Value Disclosure: $451,319. 

At September 30, 2013, investments consisted of the following:
(Dollars In Thousands): 

Non-Marketable Market-Based Securities: 

Investor Protection Fund – Entity; 

Cost: $434,009; 
Amortization Method: S/L; 
Amortized (Premium) Discount: $56; 
Interest Receivable: $136; 
Investment, Net: $434,201; 
Market Value Disclosure: $434,211. 

[End of table] 

Intragovernmental Investments in Treasury Securities: 

Market-based Treasury securities are debt securities that the U.S. 
Treasury issues to Federal entities without statutorily determined 
interest rates. Although the securities are not marketable, the terms 
(prices and interest rates) mirror the terms of marketable Treasury 
securities. 

The Federal Government does not set aside assets to pay future 
benefits or other expenditures associated with the investment by 
Federal agencies in non-marketable Federal securities. The balances 
underlying these investments are deposited in the U.S. Treasury, which 
uses the cash for general Government purposes. Treasury securities are 
issued to the SEC as evidence of these balances. Treasury securities 
are an asset of the SEC and a liability of the U.S. Treasury. Because 
the SEC and the U.S. Treasury are both components of the Government, 
these assets and liabilities offset each other from the standpoint of 
the Government as a whole. For this reason, the investments presented 
by the SEC do not represent an asset or a liability in the U.S. 
Government-wide financial statements. 

Treasury securities provide the SEC with authority to draw upon the 
U.S. Treasury to make future payments from these accounts. When the 
SEC requires redemption of these securities to make expenditures, the 
Government finances those expenditures out of accumulated cash 
balances, by raising taxes or other receipts, by borrowing from the 
public or repaying less debt, or by curtailing other expenditures. 
This is the same manner in which the Government finances all 
expenditures. 

Note 4. Commitments and Contingencies: 

Commitments and Contingencies: Whistleblower Program: 

As mentioned in Note 1.I, Liabilities, the Investor Protection Fund is 
used to pay awards to whistleblowers if they voluntarily provide 
original information to the SEC and meet other conditions. The 
legislation allows whistleblowers to receive between 10 and 30 percent 
of the monetary sanctions collected in the covered action or in a 
related action, with the actual percentage being determined at the 
discretion of the SEC using criteria provided in the legislation and 
the related rules to implement the legislation adopted by the SEC. 

A Preliminary Determination is a first assessment, made by the Claims 
Review Staff appointed by the Director of the Division of Enforcement, 
as to whether the claim should be allowed or denied, and if allowed, 
what the proposed award percentage amount should be. A contingent 
liability is recognized when (a) a positive Preliminary Determination 
has been made by the Claims Review Staff, (b) collection has been 
made, and (c) the percentage to be paid can be reasonably estimated. A 
potential liability is disclosed but not recognized when a positive 
Preliminary Determination is expected and a collection has been 
received. A liability is recognized when a positive Proposed Final 
Determination has been issued by the Claims Review Staff and 
collection has been received. In all cases the whistleblower award is 
not paid until amounts have been collected, a final order is issued by 
the Commission and the appeal rights of all claimants on the matter 
have been exhausted. 

The SEC did not recognize a contingent liability for potential 
whistleblower awards for the period ended September 30, 2014 and 
September 30, 2013. As of September 30, 2014, potential whistleblower 
payments for cases where positive Preliminary Determinations have not 
been made, but are reasonably possible, are estimated to range from 
$25.7 million to $77.1 million given the amount of current collections 
on those cases. Such claims do not meet the criteria for recognition 
as contingent liabilities in FY 2014. In FY 2013, the SEC disclosed an 
estimated $500,000 in additional whistleblower claims that did not 
meet the criteria for recognition as contingent liabilities. 

Note 5. Intragovernmental Costs: 

The Statement of Net Cost presents the Investor Protection Fund’s 
results of operations for its two activities: the Employee Suggestion 
Program and awards to whistleblowers under the Dodd-Frank 
whistleblower program. Intragovernmental costs arise from purchases of 
goods and services from other components of the Federal Government 
(including other SEC funds). In contrast, public costs are those which 
arise from the purchase of goods and services from non-Federal 
entities. Awards to whistleblowers are categorized as “costs with the 
public.” 

In FY 2014, the Employee Suggestion Program incurred $47 thousand of 
intragovernmental costs. The Dodd-Frank whistleblower program incurred 
$25.1 million of costs with the public (awards to whistleblowers) in 
FY 2014. 

In FY 2013, the Employee Suggestion Program incurred $51 thousand of 
intragovernmental costs. The Dodd-Frank whistleblower program incurred 
$14.8 million of costs with the public (awards to whistleblowers) in 
FY 2013. 

Note 6. Status of Budgetary Resources: 

A. Explanation of Differences between the Statement of Budgetary 
Resources and the Budget of the U.S. Government: 

A comparison between the FY 2014 Statement of Budgetary Resources 
(SBR) and the actual FY 2014 data in the President’s budget cannot be 
presented, as the FY 2016 President’s budget which will contain FY 
2014 actual data is not yet available; the comparison will be 
presented in next year’s financial statements. There are no 
differences between the FY 2013 SBR and the FY 2013 data in the 
President’s budget. 

B. Other Budgetary Disclosures: 

There were no budgetary resources obligated for undelivered orders as 
of September 30, 2014 and 2013. 

There are no legal arrangements affecting the use of unobligated 
balances of budget authority, such as time limits, purpose, and 
obligation limitations. 

Note 7. Reconciliation of Net Cost of Operations to Budget: 

For the years ended September 30, 2014 and 2013, Obligations Incurred 
equaled the Net Cost of Operations and there were no reconciling items. 

[End of section] 

Other Information: 

This section provides additional information regarding the U.S. 
Securities and Exchange Commission’s (SEC) financial and performance 
management: 

* Schedule of Spending (Unaudited): Provides an overview of how the 
SEC spent its resources based on the amount available to the SEC and 
to whom the money was spent. 

* Inspector General’s Statement on Management and Performance 
Challenges: Provides a summary of the most serious management and 
performance challenges facing the SEC as identified by management and 
the Office of Inspector General (OIG) in accordance with the Reports 
Consolidation Act of 2000. Also included is a response from the SEC 
Chair outlining the agency’s progress in addressing the challenges. 

* Summary of Financial Statement Audit and Management Assurances: 
Summary tables are provided for each material weakness and non-
conformance found and/or resolved during the U.S. Government 
Accountability Office’s (GAO) audit as well as found by management 
during the evaluation of internal control and financial systems 
required by the Federal Managers’ Financial Integrity Act (FMFIA). 

* Improper Payments Elimination and Recovery Act Reporting Details: 
Provides information on the SEC’s commitment and progress in reducing 
improper payments, including efforts to recapture payments made 
improperly. 

Schedule of Spending (Unaudited): 

The Schedule of Spending presents a more detailed summary of the “
Obligations Incurred” line presented on the Statement of Budgetary 
Resources, and how these amounts agreed to be spent compare to the SEC’
s total resources after factoring out amounts available but not agreed 
to be spent, as well as amounts not available to be spent. The SEC’s 
obligations are categorized by major program and object class. 

In an additional effort to improve the quality of data reported on 
USASpending.gov for public transparency, the SEC has also begun 
reconciliation efforts between obligations reported on the financial 
statements and spending reported on the website. The majority of 
obligations included on the financial statements that are not included 
on USASpending.gov include the following: personnel compensation and 
benefits, leases, interagency agreements, travel, and training. 
Differences may also exist due to timing differences between 
obligations reported in SEC’s financial reporting system and data 
transmitted to USASpending.gov through the central Federal Procurement 
Data System. 

U.S. Securities And Exchange Commission: 
Schedule of Spending: 
For the years ended September 30, 2014 and 2013: 
(Dollars In Thousands): 

What Money is Available to Spend? 

Total Resources: 
2014: $1,550,513; 
2013: $1,402,477; 

Less Amount Available but Not Agreed to be Spent: 
2014: $456,176; 
2013: $562,565; 

Less Amount Not Available to be Spent: 
2014: ($332,532); 
2013: ($417,799); 

Total Amounts Agreed to be Spent: 
2014: $1,426,869; 
2013: $1,257,711. 

How was the Money Spent/Issued? 

Enforcement; 

Personnel Compensation and Benefits: 
2014: $286,868; 
2013: $271,202; 

Contractual Services: 
2014: $124,255; 
2013: $138,883; 

Acquisition of Assets: 
2014: $8,809; 
2013: $19,376; 

Other: 
2014: $25,072; 
2013: $4,679; 

Enforcement Total: 
2014: $445,004; 
2013: $434,140. 

Compliance Inspections and Examinations; 

Personnel Compensation and Benefits: 
2014: $193,531; 
2013: $178,607; 

Contractual Services: 
2014: $43,055; 
2013: $52,047; 

Acquisition of Assets: 
2014: $6,039; 
2013: $4,803; 

Other: 
2014: $4; 
2013: $3,271; 

Compliance Inspections and Examinations Total: 
2014: $242,629; 
2013: $238,728. 

Corporation Finance; 

Personnel Compensation and Benefits: 
2014: $100,661; 
2013: $95,607; 

Contractual Services: 
2014: $18,262; 
2013: $26,398; 

Acquisition of Assets: 
2014: $3,368; 
2013: $6,850; 

Other: 
2014: 0; 
2013: $1,712; 

Corporation Finance Total: 
2014: $122,291; 
2013: $130,567. 

Trading and Markets; 

Personnel Compensation and Benefits: 
2014: $54,514; 
2013: $51,755; 

Contractual Services: 
2014: $9,832; 
2013: $13,968; 

Acquisition of Assets: 
2014: $1,758; 
2013: $3,536; 

Other: 
2014: 0; 
2013: $929; 

Trading and Markets Total: 
2014: $66,104; 
2013: $70,188. 

Investment Management; 

Personnel Compensation and Benefits: 
2014: $40,206; 
2013: $35,029; 

Contractual Services: 
2014: $6,580; 
2013: $8,828; 

Acquisition of Assets: 
2014: $1,260; 
2013: $2,101; 

Other: 
2014: 0; 
2013: $596; 

Investment Management Total: 
2014: $48,046; 
2013: $46,554. 

Economic and Risk Analysis; 

Personnel Compensation and Benefits: 
2014: $29,865; 
2013: $17,414; 

Contractual Services: 
2014: $19,487; 
2013: $16,152; 

Acquisition of Assets: 
2014: $1,281; 
2013: $7,104; 

Other: 
2014: 0; 
2013: $317; 

Economic and Risk Analysis Total: 
2014: $42,796; 
2013: $40,987. 

General Counsel; 

Personnel Compensation and Benefits: 
2014: $29,865; 
2013: $28,428; 

Contractual Services: 
2014: $5,578; 
2013: $7,554; 

Acquisition of Assets: 
2014: $898; 
2013: $1,730; 

Other: 
2014: $216; 
2013: $587; 

General Counsel Total: 
2014: $36,557; 
2013: $38,299. 

Other Program Offices; 

Personnel Compensation and Benefits: 
2014: $42,556; 
2013: $35,209; 

Contractual Services: 
2014: $8,803; 
2013: $10,222; 

Acquisition of Assets: 
2014: $1,369; 
2013: $2,164; 

Other: 
2014: 0; 
2013: $646; 

Other Program Offices Total: 
2014: $52,728; 
2013: $48,241. 

Agency Direction and Administrative Support; 

Personnel Compensation and Benefits: 
2014: $127,648; 
2013: $109,668; 

Contractual Services: 
2014: $179,530; 
2013: $81,829; 

Acquisition of Assets: 
2014: $56,418; 
2013: $9,371; 

Other: 
2014: $49; 
2013: $2,765; 

Agency Direction and Administrative Support Total: 
2014: $363,635; 
2013: $203,633. 

Inspector General; 

Personnel Compensation and Benefits: 
2014: $5,507; 
2013: $3,877; 

Contractual Services: 
2014: $1,374; 
2013: $2,166; 

Acquisition of Assets: 
2014: $198; 
2013: $257; 

Other: 
2014: 0; 
2013: $74; 

Inspector General Total: 
2014: $7,079; 
2013: $6,374; 

Total Amounts Agreed to be Spent: 
2014: $1,426,869; 
2013: $1,257,711. 

Who did the Money go to? 

Non-Federal: 
2014: $1,372,177; 
2013: $1,199,233; 

Federal Agencies[A]: 
2014: $54,692; 
2013: $58,478. 

Total Amounts Agreed to be Spent: 
2014: $1,426,869; 
2013: $1,257,711. 

[A] “Federal Agencies” include Federal agencies, offices, and all 
other organizations that are components of the U.S. government. 

[End of table] 

[End of section] 

Inspector General’s Statement on Management and Performance Challenges: 

United States Securities and Exchange Commission: 
Office of Inspector General: 
Washington, D.C. 20549 

Memorandum: 

September 30, 2014: 

To: Mary Jo White, Chair: 

From: [Signed by] Carl W. Hoecker, Inspector General, Office of 
Inspector General: 

Subject: The Inspector General’s Statement on the SEC’s Management and 
Performance Challenges: 

The Reports Consolidation Act of 2000 requires the U.S. Securities and 
Exchange Commission (SEC) Office of Inspector General (OIG) to 
identify and report annually on the most serious management challenges 
that the SEC faces. To identify management challenges, we review past 
and ongoing audit, investigation, and evaluation work. In deciding 
whether to identify an issue as a challenge, we consider its 
significance in relation to the SEC’s mission; its susceptibility to 
fraud, waste, and abuse; and the SEC’s progress in addressing the 
challenge. We compiled this statement on the basis of the work we 
completed over the past year; our knowledge of the SEC’s programs and 
operations; and feedback from SEC staff and the U.S. Government 
Accountability Office (GAO) auditors who conduct the SEC’s annual 
financial statement audit. 

Management And Performance Challenges: 

Regulatory Oversight: 
Over the past decade, the markets, products, and participants that the 
SEC oversees and regulates—-including investment advisers, mutual and 
exchange-traded funds, and broker-dealers-—have grown in size and 
complexity, creating several challenges for the SEC as it carries out 
its mission to protect investors, maintain fair, orderly, and 
efficient markets, and facilitate capital formation. For example, 
following the 2007 – 2009 financial crisis and enactment of the Dodd-
Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act, the 
SEC’s responsibilities for providing regulatory oversight expanded 
significantly. The Dodd-Frank Act mandated that the agency undertake 
the largest and most complex rulemaking agenda in its history. 
Specifically, the Dodd-Frank Act includes some 90 provisions that 
require SEC rulemaking and more than 20 other provisions that require 
studies or reports. In addition, the Jumpstart Our Business Startups 
(JOBS) Act requires the SEC to write new rules and issue studies on 
capital formation, disclosure, and registration requirements. In her 
September 9, 2014, testimony before the United States Senate Committee 
on Banking, Housing, and Urban Affairs, the SEC Chair stated that the 
Commission has proposed or adopted rules with respect to approximately 
90 percent of the provisions of the Dodd-Frank Act that mandate 
Commission rulemaking. However, more remains to be done on both the 
Dodd-Frank and JOBS Act rulemakings, and the agency’s ability to 
effectively prioritize and manage its resources will be key to the 
successful and timely completion of this work. 

In addition to the resources needed for rulemaking, the SEC has 
identified an immediate and pressing need for ensuring sufficient 
examination coverage of registered investment advisers. According to 
the Chair’s recent Congressional testimony, during fiscal year (FY) 
2013, due to significant resource constraints, the SEC examined only 
about 9 percent of these advisers, although the total amount of assets 
managed by SEC-registered advisers increased from $43.8 trillion in 
April 2011 to $62.3 trillion in August 2014. The Chair further 
testified that the number of examiners per trillion dollars in 
investment adviser assets under management dropped from 19 in 2004 to 
8 in 2014. In its first Report on Objectives, the SEC’s Office of 
Investor Advocate, which was established by the Dodd-Frank Act, 
described the agency’s ability to properly oversee registered 
investment advisers as a “substantial and continuing risk to investors.”
To ensure the SEC can adequately protect investors, the Office of 
Investor Advocate recommended that Congress immediately appropriate 
funds to increase the number of SEC staff who examine registered 
investment advisers, and authorize the SEC to collect fees from 
investment advisers to create a more stable and scalable source of 
revenue for investment adviser examinations in future years. 

Finally, to keep pace with increasingly complex markets, the SEC is 
investing in its information technology infrastructure, developing new 
analytic capabilities, and deploying tools and platforms to store and 
process increasing volumes of data. Such improvements include: 

* standardizing enterprise-wide platforms; 

* modernizing the agency’s SEC.gov website and the Electronic Data 
Gathering, Analysis and Retrieval (EDGAR) filer systems; 

* integrating structured and unstructured data sources; 

* improving internal search and electronic discovery capabilities and 
providing complex, predictive analytical capabilities; and; 

* assisting with automated triage and early detection of fraud or 
abuse at the earliest possible stage. 

We are planning audit work in these areas to assess the SEC’s 
approaches for addressing newly expanded responsibilities, effectively 
targeting and monitoring market participants based on risk and 
available resources, and establishing an effective approach to 
modernizing its information technology infrastructure. 

Information Security: 

The SEC generates and collects commercially valuable, market-
sensitive, proprietary, and other nonpublic information. To accomplish 
the SEC’s mission, the agency shares sensitive information internally 
among its divisions and offices and externally with the regulated 
community and financial regulators. During FY 2014, we completed 
several evaluations and investigations of weaknesses in the agency’s 
controls over information security. 

For example, we completed our FY 2013 evaluation of the effectiveness 
of the SEC’s information security programs and practices and whether 
the SEC’s Office of Information Technology (OIT) has policies, 
procedures, and practices consistent with Federal Information Security 
Management Act (FISMA) requirements (Federal Information Security 
Management Act: Fiscal Year 2013 Evaluation, Report No. 522, issued 
March 31, 2014). Overall, we found several areas in which the SEC has 
improved controls over its information security. Specifically, OIT has 
made significant progress establishing (1) a risk management program; 
(2) an incident response and reporting program; and (3) an enterprise-
wide business continuity and disaster recovery program, consistent 
with FISMA requirements and Office of Management and Budget and 
National Institute of Standards and Technology guidelines. However, as 
we previously reported in 2013, we found that OIT had not taken 
corrective action on some issues identified during the prior FISMA 
evaluations. We also found that the agency needs to enhance its 
efforts regarding contractor systems, multi-factor authentication, 
user accounts, and configuration management. The agency is taking 
steps to address our concerns. 

In addition, in our Review of the SEC’s Practices for Sanitizing 
Digital Information System Media, Report No. 521, issued May 30, 2014, 
we identified deficiencies in the agency’s digital media sanitization 
and disposal practices, which increased the risk of unauthorized 
release of information that is potentially damaging to the agency, its 
employees and contractors, and entities that the SEC regulates. We 
recommended improvements in the SEC’s storage of media awaiting 
sanitization; processes for ensuring all laptop computer hard drives 
are encrypted; controls over inventorying and tracking hard drives 
during the sanitization process; sanitizing failed disks that were 
part of the agency’s data center redundant storage arrays; and 
controls over the third-party destruction of media. The agency 
concurred with the recommendations and has developed a corrective 
action plan. During the course of the review, we also found on the SEC’
s enterprisewide network drives a large amount of sensitive, nonpublic 
information that was available to all employees and contractors with 
access to the network – a situation the agency took immediate action 
to correct. 

In FY 2014, the OIG also investigated allegations that a departing SEC 
employee may have stolen sensitive documents. Specifically, the OIG 
learned that the SEC’s Office of Records Management Services had 
identified sensitive information in materials that were being shipped 
from the SEC to the employee’s new employer, a private firm, and SEC 
management was concerned about the potential release of nonpublic 
information. The OIG reviewed the employee’s documents, identified 
nonpublic information, prevented information from leaving the SEC, and 
recovered other nonpublic information from the employee’s residence. 
As a result, the OIG recommended improvements to the agency’s exit 
procedures and policies. In response, the SEC instituted a revised 
records clearance form, offered additional training, and has regularly 
reminded employees via email about proper care of nonpublic 
information. 

We opened another investigation into concerns about the unauthorized 
disclosure of nonpublic information from an Executive Session of a “
closed” (nonpublic) Commission meeting. The OIG was notified that 
information about the Commission’s deliberations and voting during the 
closed Commission meeting had been disclosed, without authorization, 
to a news reporter. Subsequently, nonpublic information was included 
in a news article by several reporters that was published before 
information about the closed Commission meeting was made public. The 
OIG was unable to determine which specific individual or individuals 
had improperly disclosed information from the closed Commission 
meeting. However, we determined that an SEC employee may have 
confirmed to one of the news reporters certain nonpublic information. 
The OIG also learned during its investigation that certain Commission-
related information was transmitted using personal, nonsecure email. 
The OIG provided the results of its investigation to the agency for 
appropriate action. The SEC has taken a number of positive steps to 
address control weaknesses we identified. 

Further, the OIG investigated allegations that a former SEC employee, 
who was a candidate for a position with an SEC regional office, 
possessed documents containing SEC nonpublic information that the 
former employee had obtained through his prior employment with the 
SEC. During the course of its investigation, the OIG interviewed the 
former employee, who admitted possessing copies of SEC examination 
reports that he had worked on while employed with the SEC. The former 
employee agreed to cooperate with the investigation, and we recovered 
SEC documents containing nonpublic information from that former 
employee. We determined that one of the documents that the former 
employee had copied and taken with him when he left the SEC was marked 
“Privileged & Confidential.” The OIG provided a report of its findings 
to SEC management for informational purposes. 

Finally, as part of its audit of SEC’s FY 2013 and FY 2012 financial 
statements, GAO assessed the effectiveness of the SEC’s information 
security controls for protecting the confidentiality, integrity, and 
availability of the SEC’s key financial systems and information. 
Although GAO reported[Footnote 1] that the SEC had implemented and 
made progress in strengthening information security controls, GAO 
found weaknesses in several controls over a key financial system’s 
network, servers, applications, and databases. GAO reported that “
[t]he information security weaknesses existed, in part, because SEC 
did not effectively oversee and manage the implementation of 
information security controls during the migration of this key 
financial system to a new location.” GAO concluded that until the SEC 
mitigates control deficiencies and strengthens the implementation of 
its security program, “its financial information and systems may be 
exposed to unauthorized disclosure, modification, use, and disruption.” 

We will continue to review the SEC’s controls over sensitive, 
nonpublic information, including OIT’s security controls for the SEC’s 
information systems. 

Acquisition Management: 

Although the SEC has made progress in improving its acquisitions 
policies and procedures, the OIG continues to find the SEC’s 
monitoring of its contracts to be a challenge. For example, during our 
Review of the SEC’s Practices for Sanitizing Digital Information 
System Media, we observed that SEC policy and the contract with the 
agency’s media disposal vendor required the vendor to provide 
certificates of destruction that included the name of the 
individual(s) who witnessed the destruction and indicated the type and 
quantity of media destroyed and the destruction method used. However, 
SEC employees did not always witness the vendor’s destruction of the 
agency’s digital media (including computer hard drives, compact discs, 
digital video discs, and data tapes used to process and store often 
sensitive information), or ensure that the vendor provided accurate or 
complete certificates of destruction. According to the Contracting 
Officer’s Representative for the media disposal contract, the vendor 
provided certificates that included only an inventory of the media by 
weight. Without recording hard drive serial numbers or other 
identifying information for destroyed devices, there is no proof of 
which devices were destroyed. For example, one certificate of 
destruction from a regional office indicated that 15 hard drives were 
destroyed when, in fact, 15 boxes of hard drives were destroyed. In 
response to our draft report, SEC management stated that the contract 
with the media disposal vendor is being transferred from the 
Facilities Branch to OIT, and it will be the Contracting Officer’s 
Representative’s responsibility to ensure the correctness of 
certificates of destruction. 

In addition, we completed the Audit of the SEC’s Physical Security 
Program, Report No. 523, issued on August 1, 2014, and reported that 
the SEC’s Office of Security Services outsourced security systems 
responsibilities to a contractor but did not provide sufficient 
oversight to monitor the contractor’s performance. Also, the 
competencies of contractor security specialists did not always match 
their assigned roles and responsibilities. 

We will perform additional work in FY 2015 to assess the SEC’s 
progress in improving its acquisitions management and contract 
oversight. 

Financial Management: 

GAO’s audit of the SEC’s FY 2013 financial statements[Footnote 2] 
found that the SEC’s financial statements were fairly presented, in 
all material respects, in conformity with U.S. generally accepted 
accounting principles.[Footnote 3] In addition, GAO reported that, 
during FY 2013, the SEC made notable progress in addressing internal 
control deficiencies that GAO had reported in FY 2012. Specifically, 
in December 2013, GAO reported that the SEC “sufficiently addressed 
the deficiencies in its financial reporting for budgetary resources 
and property and equipment such that [GAO] no longer consider[s] the 
remaining control deficiencies in these areas, individually or 
collectively, to represent significant deficiencies as of September 
30, 2013.” However, as previously discussed, GAO’s FY 2013 audit 
identified new deficiencies in the SEC’s internal control over 
information security. GAO also reported that the SEC was not able to 
adequately address certain control deficiencies in information 
security reported in FY 2012. GAO considered the aggregate of these 
deficiencies in information security to represent a significant 
deficiency in SEC’s internal control over financial reporting. 
[Footnote 4] 

In addition, in May 2014, GAO reported identifying several new 
deficiencies in the SEC’s internal control over financial reporting 
that GAO did not consider to be material weaknesses or significant 
deficiencies, either individually or collectively, but nonetheless 
warranted SEC management’s attention.[Footnote 5] These deficiencies 
were related to: 

* procedures for transferring disgorgement and penalty-related funds 
to the Department of the Treasury; 

* monitoring of disgorgement and penalty related cases filed in courts; 

* segregation of duties for recording disgorgement and penalty-related 
financial data; 

* safeguarding of SEC cash receipts received at its service provider; 
* recording of property and equipment transactions; and; 

* management’s review of legal contingencies and significant events. 

GAO made 9 new recommendations to address these deficiencies in the 
SEC’s controls over financial reporting and noted that, with these new 
recommendations, the SEC has 25 recommendations that need to be 
addressed. Corrective action is in progress for all outstanding 
recommendations. We will continue to monitor the SEC’s financial 
management and reporting controls and actions to address open 
recommendations. 

Human Capital Management: 

In 2013, we reported that GAO had assessed the SEC’s organizational 
culture and its personnel management challenges and efforts to address 
those challenges. In its July 2013 report,[Footnote 6] GAO concluded 
that the SEC “has not consistently or fully implemented effective 
personnel management” and, although the agency had taken some steps, 
most of its efforts were in the early stages and could be enhanced. 
GAO identified four key areas where continued improvement was needed: 
(1) workforce planning; (2) performance management; (3) communication 
and collaboration; and (4) personnel management assessment. GAO made 
seven recommendations to improve the SEC’s personnel management, 
including developing comprehensive workforce plans,[Footnote 7] 
implementing mechanisms to monitor how supervisors use the performance 
management system, conducting periodic validations of the system, 
exploring collaboration practices of leading organizations, and 
regularly assessing these efforts. SEC management agreed with GAO’s 
recommendations and, on May 5, 2014, the Office of Human Resources 
submitted a proposal to GAO to close the recommendations. 

In June 2014, the Office of Personnel Management (OPM) issued a report 
on its evaluation of the SEC. OPM reported “commendable [human 
resources] process improvement initiatives and a system of 
transparency and accountability which resulted in continuous 
improvement of human resources programs.” OPM also reported 
improvements to the agency’s delegated examining operations since a 
previous evaluation in 2010. However, OPM found issues that were 
repeat findings from the 2010 review, including the “lack of evidence 
of an effective quality review process, incorrect [job opportunity 
announcement] content, insufficient applicant notifications, 
insufficient documentation of minimum qualifications, and problems 
with auditing of certificates.” OPM also reported that the SEC still 
did not have a comprehensive workforce plan, although the agency had a 
workforce planning process conducted by the senior executive within 
each office. Finally, OPM identified a violation of merit promotion 
procedures under 5 CFR 335.103(c)(1)(iv). In February 2013, the SEC 
discontinued the promotion practice that caused the violation; 
however, OPM required the SEC to take corrective action and 
recommended other actions to improve the SEC’s human capital 
management. 

Lastly, as an employer, the SEC seeks to hire and retain a skilled and 
diverse workforce, and to ensure that all decisions affecting 
employees and applicants are fair and ethical. Attracting, engaging, 
and retaining a technically proficient and diverse workforce is one of 
the agency’s stated strategic objectives.[Footnote 8] Section 342 of 
the Dodd-Frank Act required specific federal financial agencies, 
including the SEC, to establish, by January 21, 2011, an Office of 
Minority and Women Inclusion, responsible for matters relating to 
diversity in management, employment, and business activities. In 
fiscal year 2014, we initiated an audit of the representation of 
minorities and women in the SEC’s workforce to help identify factors 
that may impact the SEC’s ability to increase the representation of 
minorities and women at the SEC, in general, and in senior management 
positions, in particular. We anticipate completing this work and 
issuing a report in FY 2015. 

We will continue to monitor the SEC’s implementation of corrective 
actions from GAO’s and OPM’s reviews and the steps taken to improve 
the agency’s human capital management, including its efforts to hire 
and retain a skilled and diverse workforce. 

cc: Lona Nallengara, Chief of Staff, Office of the Chair: 
Erica Y. Williams, Deputy Chief of Staff, Office of the Chair: 
Luis A. Aguilar, Commissioner: 
Paul Gumagay, Counsel, Office of Commissioner Aguilar: 
Daniel M. Gallagher, Commissioner: 
Benjamin Brown, Counsel, Office of Commissioner Gallagher: 
Michael S. Piwowar, Commissioner: 
Jaime Klima, Counsel, Office of Commissioner Piwowar: 
Kara M. Stein, Commissioner: 
Robert Peak, Advisor to the Commissioner, Office of Commissioner Stein: 
Jeffery Heslop, Chief Operating Officer, Office of the Chief Operating 
Officer: 
Darlene L. Pryor, Management and Program Analyst, Office of the Chief 
Operating Officer: 

Inspector General’s Statement on Management and Performance Challenges 
Footnotes: 

[1] GAO, Information Security: SEC Needs to Improve Controls over 
Financial Systems and Data, GAO-14-419 (April 17, 2014). 

[2] GAO’s FY 2013 financial statement audit included the SEC’s general 
purpose and Investor Protection Fund (IPF) financial statements. 

[3] GAO, Financial Audit: Securities and Exchange Commission’s 
Financial Statements for Fiscal Years 2013 and 2012, GAO-14-213R 
(December 16, 2013). 

[4] This significant deficiency pertained to SEC’s overall financial 
reporting, but not that of IPF because of the nature of IPF’s 
financial transactions during FY 2013. 

[5] GAO, Management Report: Improvements Needed in SEC’s Internal 
Controls and Accounting Procedures, GAO-14-416R (May 12, 2014). 

[6] GAO, Securities and Exchange Commission Improving Personnel 
Management Is Critical for Agency’s Effectiveness, GAO-13-621 (July 
2013). 

[7] GAO first recommended that SEC develop such a plan in 2001. See 
GAO-01-947. 

[8] U.S. Securities and Exchange Commission Strategic Plan, Fiscal 
Years 2014–2018. 

[End of section] 

Management’s Response to Inspector General’s Statement: 

U.S. Securities and Exchange Commission: 
The Chair: 
Washington, D.C. 20549: 

November 10, 2014: 

Mr. Carl W. Hoecker: 
Inspector General: 
U.S. Securities and Exchange Commission: 
Washington, D.C. 20549: 

Dear Mr. Hoecker: 

Thank you for your “Statement on the SEC’s Management and Performance 
Challenges,” issued on September 30, 2014. We remain committed to 
enhancing the financial and operational effectiveness of the SEC and 
appreciate the Office of Inspector General’s role in the effort. Below 
is an overview of the actions—taken and planned to be taken-—to 
address each of the challenges identified in your statement. 

Regulatory Oversight: 

During the past decade the SEC’s regulatory responsibilities have 
increased in size and complexity. The Dodd-Frank Wall Street Reform 
and Consumer Protection (Dodd-Frank) and the Jumpstart Our Business 
Startups (JOBS) Acts gave the SEC significant new duties and required 
the agency to undertake the largest rulemaking agenda of its history. 
While the SEC has made significant progress, more remains to be done 
on both our Dodd-Frank Act and JOBS Act rulemakings, and we continue 
to work with intensity focused on creating fundamental and lasting 
reforms supported by robust economic analysis. 

As I have indicated previously, our overall responsibilities cannot be 
handled appropriately with the agency’s existing resource levels, 
particularly as we turn from rule writing to implementation and 
enforcement of the Dodd-Frank and JOBS Act rules. While the SEC will 
continue to do its utmost to maximize the use of its resources, 
current funding levels make it increasingly difficult for the SEC to 
detect, pursue, and prosecute violations of our securities laws; 
continue to improve transparency through our disclosure program; and 
enhance market structure as the size, speed, and complexity of the 
markets grow around us. 

The President’s Budget Request for the SEC in FY 2015 seeks additional 
staff and technology investments to allow the SEC to accomplish 
several key and pressing priorities, including bolstering examination 
coverage for investment advisers and other key areas; continuing the 
agency’s investments in the technologies needed to keep pace with 
today’s high-tech, high-speed markets; strengthening our enforcement 
program’s efforts to detect, investigate, and prosecute wrongdoing; 
and enhancing the agency’s oversight of the rapidly changing markets 
and ability to carry out its increased regulatory responsibilities. 

Information Security: 

Our Office of Information Technology (OIT) continues to take 
corrective actions on issues identified during prior Federal 
Information Security Management Act evaluations. This year, OIT 
Security initiated a targeted review on select contractor systems to 
ensure they are compliant with the government-mandated control 
baseline for cloud computing systems, and began assisting OIT 
Operations in a manual account validation of all Unix system accounts 
to ensure all accounts are necessary for the proper operation of our 
Unix environment. OIT Operations undertook a project to centralize 
account validation to ensure timely response in the future. In 
addition, OIT Operations is in the final stages of a project to enable 
the use of our Personal Identity Verification cards for authentication 
to our network. 

To address the proper sanitizing of digital information system media, 
OIT Security assumed responsibility for the main media destruction 
contract. The staff coordinated a SEC-wide inventory of digital media 
awaiting disposal, updated formal policies and procedures, and 
initiated backlog disposal pickups at both Headquarters and all 
Regional Offices. OIT Security also began working with OIT Operations 
and Asset Management to ensure and verify all laptop computer hard 
drives are encrypted. 

In response to the Government Accountability Office’s (GAO) audits of 
the financial statements in FY 2012 and FY 2013, OIT completed 
numerous corrective actions to address all but a small number of 
identified weaknesses. Those that remain are actively being addressed 
and should be remediated in the coming months. 

To strengthen controls over non-public information, the Office of 
Records Management Services implemented procedures that require all 
departing SEC personnel, regardless of the type or duration of their 
appointment, to provide formal acknowledgment on SEC Form 2888, Record 
Clearance Form, that they have not removed documentary materials upon 
separation unless they have obtained the proper approvals. This 
records clearance form includes a signature from the departing employee’
s supervisor or other approving official attesting that they have 
conducted a review of documents that the employee plans to remove from 
the SEC. 

Acquisition Management: 

We remain focused on implementing effective contract management. As 
noted above, OIT Security assumed responsibility for the main media 
destruction contract to address the proper sanitizing of digital 
information system media. With respect to the agency’s physical 
security program, the Office of Security Services (OSS) is working to 
increase oversight and performance monitoring of the agency’s security 
systems contractor by having the access control notifications and 
intrusion detections replicated in the SEC’s Command Center. 

In addition, we are planning to provide training opportunities for 
Physical Security Specialists to ensure they meet or exceed the 
baseline knowledge and core competency skills developed by OSS in 
accordance with Interagency Security Committee standards. 

Financial Management: 

Fiscal year 2014 marks our second full year of operations with the 
Delphi financial system and contracted services provided by a Federal 
Shared Service Provider (FSSP), the Department of Transportation’s 
(DOT) Enterprise Services Center (ESC). This year, we continued our 
progress in achieving more efficient and effective financial 
operations under the FSSP model. 

For 2013, GAO identified one significant deficiency in internal 
controls over financial reporting, in the area of information 
security. During 2014 the SEC focused on improving the internal 
controls related to risk management and project oversight in its 
information systems operations. The 2014 GAO audit report found that 
this significant deficiency has been remediated. 

GAO’s 2013 report also identified several control deficiencies in the 
SEC’s internal controls over financial reporting that are not 
considered to be material weaknesses or significant deficiencies. The 
SEC made significant improvements to remediate these control 
deficiencies, as specified below. 

* Procedures for transferring disgorgement and penalty-related funds 
to the Department of the Treasury. The SEC developed and implemented 
specific procedures for validating funds availability prior to 
transferring disgorgement and penalty-related funds to Treasury. 

* Monitoring of disgorgement and penalty related cases filed in 
courts. The SEC enhanced the process for monitoring the daily 
automated feed of court case information, so we can properly capture 
and record the accounting events that result from such cases. 

* Segregation of duties for recording disgorgement and penalty-related 
financial data. We enhanced the access controls for ImageNow, a 
workflow system used to warehouse all of our judgments and orders and 
to transmit all disgorgement and penalty-related information to ESC, 
our shared-service provider. We increased the segregation of duties 
for recording disgorgement and penalty data and instituted recurring 
monitoring of user accounts. 

* Safeguarding SEC cash receipts received at its service provider. The 
SEC tested the controls over cash receipts at its service provider for 
FY 2014. The service provider will include an assessment of these 
controls in its SSAE-16 report for FY 2015. 

* Recording of property and equipment transactions. The agency worked 
to improve processes for capturing and recording property and 
capitalized assets on a timely basis. 

* Management’s review of legal contingencies and significant events. 
The SEC implemented control procedures for timely assessment and 
recording of significant events with financial consequences. 

In FY 2014, the SEC also continued its efforts to strengthen the 
agency’s internal controls program. We streamlined the key controls 
for all process cycles, and fully implemented a quarterly internal 
controls self-assessment. In FY 2015, the SEC will continue to build 
on this progress, by further strengthening its internal controls 
program and remediating deficiencies identified by GAO. 

Human Capital Management: 

The SEC made substantial progress with implementing GAO’s 
recommendation to improve personnel management. Below are updates on 
the key areas referenced in your Statement on Management and 
Performance Challenges. 

Workforce planning. SEC is currently developing a comprehensive 
workforce plan, including a plan to assist the agency in identifying 
future leaders. Although we have established a robust succession plan, 
which has been approved by the Office of Personnel Management (OPM), 
the succession plan is just the initial building block for the 
workforce plan. Additional steps are being taken in FY 2015 to 
finalize SEC-wide strategic initiatives and we will work to 
incorporate all elements of effective workforce planning into the 
overall plan, to be completed by the end of FY 2015. 

Performance management. The SEC recently agreed with its union, 
National Treasury Employee Union (NTEU), to work collaboratively to 
create a new four-tier bargaining unit performance management system 
that will differentiate pay based upon merit. Once the new four-tier 
system is in place, the SEC and NTEU have agreed to implement a new 
performance-based raise and bonus program, which will further allow 
the SEC to reward outstanding performance. 

SEC non-bargaining unit employees are currently under a five-tier 
Evidence Based Performance management system that assesses employees’ 
overall performance each year. Once the bargaining unit system has 
been completed, the SEC will work to bring both systems into alignment 
with GAO’s recommendations, which is anticipated to occur in FY 2016. 

Communication and collaboration. Based on GAO’s recommendations, SEC 
made significant efforts to improve communication and collaboration. 
In an effort to optimize communications and collaboration, the SEC 
benchmarked and implemented a variety of best practices used both 
within the public and private sector, including cross-agency working 
groups, an agency-wide culture change initiative and a more robust 
internal communication strategy. Work continues in this area to ensure 
that employees across the SEC are sharing critical information. 

OPM review. The purpose of OPM’s audit was to determine SEC's 
adherence to merit system principles, laws, and regulations, and to 
assess the efficiency and effectiveness in administering human 
resources programs under the Talent Management System of the Human 
Capital Framework. OHR is currently in the process of addressing all 
of the required and recommended actions identified in the OPM audit 
and anticipates that all recommendations will be resolved by the end 
of FY 2015. 

I hope that the actions outlined in this letter demonstrate our 
commitment to strengthening internal control and improving the agency’
s performance. We look forward to working with you to further address 
these challenges. 

Sincerely, 

Signed by: 

Mary Jo White: 
Chair: 

[End of section] 

Summary of Financial Statement Audit and Management Assurances 

Table 3.1: Summary Of Financial Statement Audit: 

Audit Opinion: Unqualified: 
Restatement: No: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

[End of table] 

Table 3.2: Summary Of Management Assurances: 

Effectiveness of Internal Control over Financial Reporting (FMFIA § 2): 
Statement of Assurance: Unqualified: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

Effectiveness of Internal Control over Operations (FMFIA § 2): 
Statement of Assurance: Unqualified: 

Material Weaknesses: Total Material Weaknesses; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

Conformance with Financial Management System Requirements (FMFIA § 4): 
Statement of Assurance: Conformance: 

Material Weaknesses: Federal Financial Management System Requirements; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

Material Weaknesses: Total Non-Conformances; 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0. 
Ending Balance: 0. 

[End of table] 

Improper Payments Elimination and Recovery Act Reporting Details: 

The Improper Payments Information Act (IPIA) of 2002, as amended by 
the Improper Payments Elimination and Recovery Act (IPERA) of 2010 and 
Improper Payments Elimination and Recovery Improvement Act (IPERIA) of 
2012, requires agencies to review all programs and activities they 
administer and identify those which may be susceptible to significant 
erroneous payments. For all programs and activities in which the risk 
of erroneous payments is significant, agencies are to estimate the 
annual amount of erroneous payments made in those programs. The Office 
of Management and Budget (OMB) guidance provided in Circular A-136 and 
Appendix C of Circular A-123 require agencies to report detailed 
information related to SEC’s Improper Payments Elimination Program, 
which is outlined below. Risk Assessment 

In Fiscal Year (FY) 2014, the U.S. Securities and Exchange Commission 
(SEC) reviewed the programs and activities it administers to identify 
those which may be susceptible to significant erroneous payments. The 
risk assessment included 1) consideration of certain risk factors that 
are likely to contribute to a susceptibility to significant improper 
payments, and 2) transaction testing on a sample basis of payments 
made during the first six months of FY 2014. The risk assessment was 
performed for the following programs: 

* Vendor payments (includes travel and credit card payments); 

* Disgorgement and penalty distributions (made by SEC to fund and tax 
administrators and directly to harmed investors); 

* Returned deposits of registration filing fees under Section 6b of 
the Securities Act of 1933 and Sections 13 and 14 of the Securities 
Exchange Act of 1934; and; 

* Payroll and benefit payments (includes base pay, overtime pay, and 
agency contributions to retirement plans, health plans, and thrift 
savings plans). 

Based on the results of transaction testing applied to a sample of 
payments, consideration of risk factors, and reliance on the internal 
controls in place over the payment, refund, and distribution process, 
the SEC determined that none of its programs and activities are 
susceptible to significant improper payments at or above the threshold 
levels set by OMB. Significant erroneous payments are defined as 
annual erroneous payments in the program exceeding both $10 million 
and 1.5 percent of total program outlays, or $100 million of improper 
payments if less than 1.5 percent of total annual program outlays. In 
accordance with Appendix C of Circular A-123, the SEC is not required 
to determine a statistically valid estimate of erroneous payments or 
develop a corrective action plan if the program is not susceptible to 
significant improper payments. 

In FYs 2007 and 2008, SEC’s testing of its largest programs resulted 
in improper payment percentages that were well below one-half percent 
and less than $30,000 for each program. In FYs 2009 through 2013, the 
SEC performed a risk assessment for all programs and determined that 
its programs are not susceptible to significant erroneous payments. 

If the level of risk in each program is determined to be low and 
baseline estimates have been established, the SEC is only required to 
conduct a formal risk assessment every three years unless the program 
experiences a significant change in legislation and/or a significant 
increase in funding level. The SEC will conduct a follow on review in 
FY 2015 of its programs and activities to determine whether the 
programs have experienced any significant changes in legislation or 
funding levels. If so, the SEC will re-assess the programs’ risk 
susceptibility and make a statistically valid estimate of erroneous 
payments for any programs determined to be susceptible to significant 
erroneous payments. 

Recapture of Improper Payments: 

In FY 2014, the SEC did not administer any grant, benefit or loan 
programs. Implementation of recapture auditing, if determined to be 
cost-effective, would apply to vendor payments, disgorgement and 
penalty distributions, refunds of registration filing fee deposits, 
and payroll payments. Because the definition of payment in the IPERA 
legislation means any payment or transfer of Federal funds to any non-
Federal person or entity, the SEC is not required to review, and has 
not reviewed, intra-governmental transactions. 

The SEC has determined that implementing a payment recapture audit 
program for vendor payments, disgorgement and penalty distributions, 
refunds of registration filing fee deposits, and payroll payments is 
not cost-effective. That is, the benefits or recaptured amounts 
associated with implementing and overseeing the program do not exceed 
the costs, including staff time and resources, or payments to a 
contractor for implementation, of a payment recapture audit program. 
In making this determination, the SEC considered its low improper 
payment rate based on testing conducted over the past seven years. The 
SEC also considered whether sophisticated software and other cost-
efficient matching techniques could be used to identify significant 
overpayments at a low cost per overpayment, or if labor intensive 
manual reviews of paper documentation would be required. In addition, 
the SEC considered the availability of tools to efficiently perform 
the payment recapture audit and minimize payment recapture audit costs. 

The SEC will continue to monitor its improper payments across all 
programs and activities it administers and assess whether implementing 
payment recapture audits for each program is cost-effective. If the 
SEC determines, through future risk assessments, that a program is 
susceptible to significant improper payments and implementing a 
payment recapture program may be cost-beneficial, the SEC will 
implement a pilot payment recapture audit to measure the likelihood of 
cost-effective payment recapture audits on a larger scale. 

Even though the SEC has determined that implementing a payment 
recapture audit program for its programs is not cost-effective, the 
agency strives to recover any overpayments identified through other 
sources, such as payments identified through statistical samples 
conducted under the IPIA. The amounts identified and recovered, by 
program, are shown in Table 3.3 below. 

Table 3.3: Overpayments Recaptured Outside Of Payment Recapture Audits 
(In Dollars): 

Source: Vendor Payments: Improper Payments Sampling; 
Amount Identified (CY): $449;
Amount Recovered (CY): 0;
Amount Identified (PYs): $59,8953;
Amount Recovered (PYs): $13,085;
Cumulative Amount Identified (CY+PYs): $60,344;
Cumulative Amount Recovered (CY+PYs): $13,085. 

Source: Disgorgement and Penalty Distributions: Improper Payments 
Sampling; 
Amount Identified (CY): 0; 
Amount Recovered (CY): 0; 
Amount Identified (PYs): 0; 
Amount Recovered (PYs): 0; 
Cumulative Amount Identified (CY+PYs): 0; 
Cumulative Amount Recovered (CY+PYs): 0. 

Source: Refunds of Registration Filing Fee Deposits: Improper Payments 
Sampling; 
Amount Identified (CY): 0;
Amount Recovered (CY): 0;
Amount Identified (PYs): $321; 
Amount Recovered (PYs): $321; 
Cumulative Amount Identified (CY+PYs): $321;
Cumulative Amount Recovered (CY+PYs): $321. 

[End of table] 

[End of section] 

Do Not Pay: 

IPERIA mandates a review, as appropriate and before issuance, of all 
payments and awards for all programs through the Do Not Pay system. 
The SEC, in coordination with its Federal Shared Service Provider and 
the Do Not Pay Business Center, has incorporated the performance of 
pre-award, pre-payment, and post-payment reviews into its existing 
business processes and programs. During FY 2014, such processes 
identified approximately 163 matches against these data sources which 
the agency scrutinized in its efforts to help prevent improper 
payments. Through further analysis, the SEC identified that each 
matched recipient was eligible for the payment under a Federal benefit 
program. The dollar amounts and the number of payments reviewed for 
improper payments utilizing the Do Not Pay system between October 1, 
2013, and September 30, 2014, are shown in Table 3.4 below. 

Table 3.4: Implementation Of The Do Not Pay Initiative To Prevent 
Improper Payments (In Dollars): 

Reviews with the Death Master File Only (Required for FY 2014): 
Number (#) of Payments Reviewed for Improper Payments: 15,341; 
Dollars ($) of Payments Reviewed for Improper Payments: $494,657,871.79 
Number (#) of Payments Stopped: 0; 
Dollars ($) of Payments Stopped: 0; 
Number (#) of Improper Payments Reviewed and Not Stopped: 0; 
Dollars ($) of Improper Payments Reviewed and Not Stopped: 0. 

Reviews with Other Databases (Optional for FY 2014): 
Number (#) of Payments Reviewed for Improper Payments: 15,350; 
Dollars ($) of Payments Reviewed for Improper Payments: 
$316,728,312.94; 
Number (#) of Payments Stopped: 0; 
Dollars ($) of Payments Stopped: 0; 
Number (#) of Improper Payments Reviewed and Not Stopped: 0; 
Dollars ($) of Improper Payments Reviewed and Not Stopped: 0. 

[End of table] 

[End of section] 

Appendices: 

Appendix A: Chair and Commissioners: 

Mary Jo White: 
Chair: 

Mary Jo White was sworn in as the 31st Chair of the SEC on April 10, 
2013. She was nominated to be SEC Chair by President Barack Obama on 
February 7, 2013, and confirmed by the U.S. Senate on April 8, 2013. 

Chair White arrived at the SEC with decades of experience as a federal 
prosecutor and securities lawyer. As the U.S. Attorney for the 
Southern District of New York from 1993 to 2002, she specialized in 
prosecuting complex securities and financial institution frauds and 
international terrorism cases. Under her leadership, the office earned 
convictions against the terrorists responsible for the 1993 bombing of 
the World Trade Center and the bombings of American embassies in 
Africa. She is the only woman to hold the top position in the 200-year-
plus history of that office. 

Prior to becoming the U.S. Attorney for the Southern District of New 
York, Chair White served as the First Assistant U.S. Attorney and 
later Acting U.S. Attorney for the Eastern District of New York from 
1990 to 1993. She previously served as an Assistant U.S. Attorney for 
the Southern District of New York from 1978 to 1981 and became Chief 
Appellate Attorney of the Criminal Division. 

After leaving her U.S. Attorney post, Chair White became chair of the 
litigation department at Debevoise & Plimpton in New York, where she 
led a team of more than 200 lawyers. Chair White previously was a 
litigation partner at the firm from 1983 to 1990 and worked as an 
associate from 1976 to 1978. 

Chair White earned her undergraduate degree, Phi Beta Kappa, from 
William & Mary in 1970, and her master’s degree in psychology from The 
New School for Social Research in 1971. She earned her law degree in 
1974 at Columbia Law School, where she was an officer of the Law 
Review. She served as a law clerk to the Honorable Marvin E. Frankel 
of the U.S. District Court for the Southern District of New York. 

Chair White has won numerous awards in recognition of her outstanding 
work both as a prosecutor and a securities lawyer. The 2012 Chambers 
USA Women in Law Awards named her Regulatory Lawyer of the Year. Among 
other honors she has received are the Margaret Brent Women Lawyers of 
Achievement Award, the George W. Bush Award for Excellence in 
Counterterrorism, the Sandra Day O’Connor Award for Distinction in 
Public Service, and the “Women of Power and Influence Award” given by 
the National Organization for Women. 

Chair White is a fellow in the American College of Trial Lawyers and 
the International College of Trial Lawyers. She also has served as a 
director of The NASDAQ Stock Exchange and on its executive, audit, and 
policy committees. Chair White is a member of the Council on Foreign 
Relations. 

Luis A. Aguilar: 
Commissioner: 

Luis A. Aguilar has been a Commissioner at the U.S. Securities and 
Exchange Commission since July 31, 2008. He was appointed by President 
George W. Bush and was reappointed by President Barack Obama. 

Prior to his appointment, his practice included matters pertaining to 
general corporate and business law, international transactions, 
investment companies and investment advisers, securities law, and 
corporate finance. 

Commissioner Aguilar represents the Commission as its liaison to both 
the North American Securities Administrators Association and to the 
Council of Securities Regulators of the Americas. 

Commissioner Aguilar has received various honors and awards, 
including: recipient of Honorary Doctor of Public Service, awarded by 
Georgia Southern University (2013); recipient of the Atlanta Falcons “
2012 NFL Hispanic Heritage Leadership Award” (2012); named by 
Poder.Hispanic Magazine as one of the “100 Most Influential Hispanics 
in the Nation” (2011); named by Latino Leaders Magazine as one of the “
Top 101 Most Influential Latinos in the United States” (2009 through 
2012); named to the NACD Directorship 100, the Who’s Who of the 
Boardroom (2009 through 2014); recipient of The Center for Accounting 
Ethics, Governance, and the Public Interest “Accounting in the Public 
Interest Award” (2010); and listed in Best Lawyers in America (2005 
through 2008). 

He is a graduate of the University of Georgia School of Law, and also 
received a master of laws degree in taxation from Emory University. 

Commissioner Aguilar serves as sponsor of the SEC’s Hispanic and 
Latino Opportunity, Leadership, and Advocacy Committee, the African 
American Council, and the Caribbean American Heritage Committee. 

Daniel M. Gallagher: 
Commissioner: 

Commissioner Gallagher was confirmed by the Senate on October 21, 
2011, and returned to the Securities and Exchange Commission, where he 
had previously served, on November 7, 2011. 

Commissioner Gallagher was on the staff of the SEC beginning in 
January 2006, when he served as a counsel to SEC Commissioner Paul S. 
Atkins and later as a counsel to SEC Chairman Christopher Cox. He 
worked primarily on major matters before the Commission involving the 
Division of Trading and Markets and the Division of Enforcement. 

He joined the Division of Trading and Markets as a Deputy Director in 
2008, where he played a key role in the SEC’s response to the 
financial crisis and other significant issues before the Commission, 
including those involving credit rating agencies and credit default 
swaps. He served as an Acting Director of the Trading and Markets 
Division from April 2009 to January 2010, after which he left the 
agency to become a partner in the Washington, DC office of WilmerHale. 

Prior to his initial SEC service, Commissioner Gallagher was the 
General Counsel and Senior Vice President of Fiserv Securities, Inc., 
where he was responsible for managing all of the firm’s legal and 
regulatory matters. Commissioner Gallagher began his career in private 
practice, advising clients on broker-dealer regulatory issues and 
representing clients in SEC and SRO enforcement proceedings. 

Commissioner Gallagher earned his J.D. degree, magna cum laude, from 
the Catholic University of America, where he was a member of the law 
review. He graduated from Georgetown University with a B.A. degree in 
English. 

Michael S. Piwowar: 
Commissioner: 

Michael S. Piwowar was appointed by President Barack Obama to the U.S. 
Securities and Exchange Commission and was sworn in on August 15, 2013. 

Most recently, Dr. Piwowar was the Republican chief economist for the 
U.S. Senate Committee on Banking, Housing, and Urban Affairs under 
Senators Mike Crapo and Richard Shelby. He was the lead Republican 
economist on the four SEC-related titles of the Dodd-Frank Act and the 
JOBS Act. Dr. Piwowar also worked on a number of important SEC-related 
oversight issues under the jurisdiction of the Committee. 

During the financial crisis and its immediate aftermath, Dr. Piwowar 
served in a one-year fixed-term position at the White House as a 
senior economist at the President’s Council of Economic Advisers (CEA) 
in both the George W. Bush and Barack Obama Administrations. While at 
the CEA, he also served as a staff economist for the Financial 
Regulatory Reform Working Group of the President’s Economic Recovery 
Advisory Board (PERAB). Before joining the White House, Dr. Piwowar 
worked as a Principal at the Securities Litigation and Consulting 
Group (SLCG). 

Dr. Piwowar’s first tenure at the SEC was in the Office of Economic 
Analysis (now called the Division of Economic and Risk Analysis) as a 
visiting academic scholar on leave from Iowa State University and as a 
senior financial economist. Dr. Piwowar was an assistant professor of 
finance at Iowa State University where he focused his research on 
market microstructure and taught undergraduate and graduate courses in 
corporate finance and investments. He published a number of articles 
in leading academic publications and received several teaching and 
research awards. 

Dr. Piwowar received a B.A. in Foreign Service and International 
Politics from the Pennsylvania State University, an M.B.A. from 
Georgetown University, and a Ph.D. in Finance from the Pennsylvania 
State University. 

Kara M. Stein: 
Commissioner: 

Kara M. Stein was appointed by President Barack Obama to the U.S. 
Securities and Exchange Commission and was sworn in on August 9, 2013. 

Ms. Stein joined the Commission after serving as Legal Counsel and 
Senior Policy Advisor for securities and banking matters to Senator 
Jack Reed. From 2009 to 2013, she was Staff Director of the 
Securities, Insurance, and Investment Subcommittee of the Senate 
Committee on Banking, Housing, and Urban Affairs. During that time, 
Ms. Stein played an integral role in drafting and negotiating 
significant provisions of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act. 

As Staff Director for the Senate Banking Subcommittee of primary 
jurisdiction over the SEC, Ms. Stein also organized and participated 
in over twenty hearings on such issues as the: 

* evolution of market microstructure, 
* regulation of exchange traded products, 
* state of the securitization markets, 
* risks to investors in capital raising processes, including through 
public offerings, 
* role of the accounting profession in preventing another financial 
crisis, 
* establishment of swap execution facilities, and, 
* role of the tri-party repurchase markets in the financial 
marketplace. 

Ms. Stein was Legal Counsel and Senior Policy Advisor to Senator Reed 
from 2007 to 2009 and served as both the Majority and Minority Staff 
Director on the Banking Committee’s Subcommittee on Housing and 
Transportation from 2001 to 2006. She served as Legal Counsel to 
Senator Reed from 1999 to 2000, following two years as a Legislative 
Assistant to Senator Chris Dodd. 

Before working on Capitol Hill, Ms. Stein was an associate at the law 
firm of Wilmer, Cutler & Pickering, a Skadden Public Interest Fellow, 
an Advocacy Fellow with the Georgetown University Law Center, and an 
assistant professor with the University of Dayton School of Law. 

Ms. Stein received her B.A. from Yale College and J.D. from Yale Law 
School. 

[End of section] 

Appendix B: Major Enforcement Cases: 

Introduction: 

Vigorous enforcement of the securities laws is central to the U.S. 
Securities and Exchange Commission’s (SEC) mission to protect 
investors and maintain fair, orderly, and efficient markets. The 
Division of Enforcement (Enforcement), the SEC’s largest division, 
investigates potential violations of the Federal securities laws and 
files civil charges in Federal district court and administrative 
proceedings. Each year, the SEC brings hundreds of civil enforcement 
actions against individuals and entities that violate the Federal 
securities laws. Through these enforcement efforts, the SEC stops 
fraud; obtains sanctions such as penalties, disgorgement of ill-gotten 
gains, and industry bars; and returns funds to harmed investors. In 
fiscal year (FY) 2014, Enforcement continued to leverage its 
increasing specialization and expertise while also amplifying its 
focus on key areas of growing concern such as financial reporting and 
accounting fraud, microcap fraud, and issues and practices in the 
broker-dealer community. The actions Enforcement filed in FY 2014 
spanned the full spectrum of the securities industry and included a 
number of first-of-their-kind cases and actions involving record-
setting penalties that sent important messages to the market and would-
be violators. At the same time, Enforcement also maintained its focus 
on smaller, compliance-related violations and demonstrated its 
commitment to using technology to efficiently target and streamline 
cases to maximize the deterrent effect of its actions. This section 
highlights some of the significant enforcement cases filed in FY 2014. 
For further information on selected enforcement cases, please see “
Litigation Releases” at [hyperlink, 
http://www.sec.gov/litigation/litreleases.shtml]. 

Actions Related to Market Structure, Exchanges, and Broker-Dealers: 

In FY 2014, the SEC continued its commitment to bringing actions for 
compliance failures and other violations involving alternative trading 
platforms, stock exchanges, and other market participants. These 
actions helped to ensure that our markets continue to operate openly, 
fairly, and efficiently to benefit investors and promote capital 
formation. FY 2014 was marked by a number of significant actions in 
the market structure area that included the first actions brought 
under the market access rule, the largest penalty imposed to date 
against an alternative trading system, and the largest penalty ever 
imposed for net capital rule violations. 

In October 2013 and June 2014, the SEC filed its first series of 
enforcement actions charging violations of the market access rule. The 
rule, adopted in 2010 as Rule 15c3-5, requires firms to have adequate 
risk controls in place before providing customers with access to the 
market. In the first action, Knight Capital Americas LLC agreed to pay 
$12 million and retain an independent compliance consultant to settle 
charges that it violated the market access rule in connection with an 
August 1, 2012 trading incident that disrupted the markets.[Footnote 
1] As a result of a computer coding error, Knight Capital sent more 
than 4 million orders into the market when attempting to fill just 212 
customer orders resulting in Knight Capital acquiring several billion 
dollars in unwanted positions. The SEC’s investigation found that 
Knight Capital violated the market access rule because it did not have 
adequate safeguards in place to limit the risks posed by its access to 
the markets, and as a result failed to prevent the entry of millions 
of erroneous orders. The SEC also charged Knight Capital with 
violations of provisions of Regulation SHO, which require the proper 
marking of short sale orders and locating of shares to borrow for 
short sales. 

In the second action, the SEC charged Wedbush Securities, one of the 
largest volume market access providers in the United States, and two 
individuals, with violating the market access rule and other 
regulatory requirements as a result of trading by its market access 
customers.[Footnote 2] According to the SEC’s order, Wedbush allowed 
thousands of essentially anonymous foreign traders to send orders 
directly to U.S. trading venues to trade billions of shares every 
month, but failed to establish, document, and maintain a system of 
risk management controls and procedures reasonably designed to manage 
the risks associated with its business. The SEC’s action in this 
matter is continuing. 

In December 2013, the SEC charged three brokerage subsidiaries of 
ConvergEx Group, a global trading services provider, and two former 
employees of certain subsidiaries with fraud for deceiving customers 
about hidden fees to buy and sell securities.[Footnote 3] In a 
separate action, the SEC also charged Anthony G. Blumberg, the former 
Chief Executive Officer (CEO) of a broker-dealer subsidiary of 
ConvergEx, for deceiving customers in connection with the same scheme. 
[Footnote 4] The SEC alleged that Blumberg concealed the fees and 
encouraged traders under his management to do the same. The ConvergEx 
subsidiaries agreed to pay more than $107 million and admit wrongdoing 
to settle the SEC’s charges. The two former employees, who are 
cooperating in the SEC’s investigation, settled the SEC’s charges by 
agreeing to pay a combined total of more than $1 million. The SEC 
seeks to return the money collected in these settlements to harmed 
customers through a Fair Fund distribution. The SEC’s action against 
Blumberg is ongoing. 

The following month, the SEC filed charges against another brokerage 
firm for providing flawed “blue sheet” trading data.[Footnote 5] Blue 
sheets contain the details of each equity or options trade that is 
routed through clearing broker-dealers. The SEC’s order found that 
Scottrade violated the recordkeeping provisions of the Federal 
securities laws by failing to provide accurate and complete blue sheet 
submissions on 1,231 occasions over a six-year period. To settle the 
charges, Scottrade agreed to admit wrongdoing, pay a $2.5 million 
penalty, and retain an independent consultant to review its policies 
and procedures related to blue sheet submissions. 

The SEC also charged Credit Suisse Group AG for providing cross-border 
brokerage and investment advisory services to thousands of U.S. 
clients without first registering with the SEC.[Footnote 6] According 
to the SEC’s order, Credit Suisse began providing these services as 
early as 2002, amassing more than 8,000 client accounts that contained 
more than $5 billion in securities assets. The SEC’s order found that 
although Credit Suisse was aware of the registration requirements, it 
failed to effectively implement or monitor initiatives designed to 
prevent such violations. Credit Suisse settled the SEC’s charges by 
agreeing to pay more than $196 million, admitting wrongdoing, and 
retaining an independent consultant. 

In April, the SEC charged Joseph Dondero, the owner of a brokerage 
firm, with a manipulative trading practice known as “layering.”
[Footnote 7] The alleged scheme involved Dondero tricking others into 
buying or selling stocks at artificial prices driven by orders that he 
later canceled. The SEC also charged Dondero and others for 
registration violations. The two firms and five individuals charged by 
the SEC agreed to, among other things, pay a combined total of nearly 
$3 million to settle the charges and Dondero agreed to a bar from the 
securities industry. 

The following month, the SEC charged the New York Stock Exchange LLC, 
NYSE Arca, Inc., and NYSE MKT LLC for failing to comply with exchange 
rules.[Footnote 8] The NYSE exchanges’ affiliated routing broker was 
also charged for failures associated with an error trading account and 
net capital violations. The SEC’s order found that, among other 
things, the exchanges repeatedly engaged in business practices that 
either violated exchange rules or required a rule when the exchanges 
had none in effect. The exchanges agreed to settle the charges by 
retaining an independent consultant and together with the routing 
broker paying a $4.5 million penalty. 

In June, the SEC charged Liquidnet Inc., a brokerage firm that 
operates an alternative trading system (ATS) known as a “dark pool,” 
with improperly using subscribers’ confidential trading information in 
marketing its services.[Footnote 9] SEC rules require ATS’s to have 
safeguards to protect such information. The SEC’s order found that 
Liquidnet violated its regulatory obligations and its own promises to 
its ATS subscribers during a nearly three-year period when it 
improperly allowed a business unit outside the dark pool operation to 
access the confidential trading data and use that information in 
marketing services. The SEC’s order also found that Liquidnet used the 
information in two sales tools. Liquidnet agreed to pay a $2 million 
penalty to settle the charges. 

The following month, the SEC charged LavaFlow Inc., a type of ATS 
known as an electronic communications network (ECN), with violating 
Regulation ATS for failing to protect its subscribers’ confidential 
trading data.[Footnote 10] According to the SEC’s order, LavaFlow 
allowed an affiliate operating a technology application known as a 
smart order router to access and use confidential information related 
to non-displayed orders of the ECN’s subscribers. The SEC’s order 
found that LavaFlow failed to disclose that it was allowing such 
access and because the order router was located outside of the ECN’s 
operations, LavaFlow did not have adequate safeguards and procedures 
to protect the confidential customer information the order router 
accessed. The SEC’s order also found that LavaFlow aided and abetted 
violations of the broker-dealer registration provisions by the same 
entity that operated the smart order router. LavaFlow agreed to pay $5 
million to settle the SEC’s charges, including a $2.85 million 
penalty—-the largest to date against an ATS. 

In another action involving a record-setting penalty, the SEC charged 
Latour Trading LLC, a high frequency trading firm that at times 
accounted for as much as 9 percent of the trading volume in equity 
securities for the entire U.S. market, and its former Chief Operating 
Officer (COO) for the firm’s repeated violations of the net capital 
rule and related recordkeeping provisions and filing requirements. 
[Footnote 11] The SEC’s order found that Latour routinely failed to 
maintain its required minimum net capital by millions of dollars. To 
settle the charges, Latour agreed to pay a $16 million penalty – the 
largest penalty ever for net capital rule violations – and the former 
COO agreed to pay a $150,000 penalty. 

In September, the SEC charged Wells Fargo Advisors LLC with failing to 
maintain and enforce procedures reasonably designed to prevent 
employees from misusing material nonpublic information obtained from 
retail customers and clients, unreasonably delaying its production of 
documents during an SEC investigation, and providing an altered 
internal document related to a compliance review of a broker’s 
trading.[Footnote 12] The SEC’s action against Wells Fargo arose out 
of a prior insider trading case against a Wells Fargo broker who 
learned confidentially from his customer that Burger King was being 
acquired. The broker then traded on that information ahead of the 
public announcement and tipped others who also traded. Wells Fargo 
agreed to settle the SEC’s charges by admitting wrongdoing, paying a 
$5 million penalty, and agreeing to retain an independent consultant. 

Actions Related to Financial Fraud, Issuer Disclosure, and Gatekeepers: 

In FY 2014, the SEC continued to combat accounting and financial 
fraud, issuer disclosure problems, and reporting violations at public 
companies. The SEC also maintained its focus on holding “gatekeepers,” 
including attorneys, accountants, and compliance professionals, 
accountable for the important roles they play in the securities 
industry. Building upon the momentum created by initiatives like 
“Operation Broken Gate,” which seeks to identify auditors who fail to 
carry out their duties and responsibilities consistent with 
professional standards, the SEC brought a number of actions against 
gatekeepers. 

In November, the SEC charged Sherb & Co., LLP, an audit firm, and four 
auditors for their roles in the failed audits of three China-based 
companies.[Footnote 13] An SEC investigation found that Sherb & Co. 
and its auditors falsely represented in audit reports that their 
audits were done in accordance with U.S. auditing standards. In 
reality, the audits were replete with failures and improper 
professional conduct, and one of the companies they audited was 
charged by the SEC with financial fraud. To settle the charges, Sherb 
& Co. and the four individual auditors agreed to be barred from 
practicing as accountants on behalf of any publicly traded company or 
other entity regulated by the SEC, and the firm also agreed to pay a 
$75,000 penalty. 

A month later, the SEC charged Fifth Third Bancorp and its former 
Chief Financial Officer (CFO) with improper accounting of commercial 
real estate loans during the financial crisis. According to the SEC’s 
order, Fifth Third experienced a substantial increase in non-
performing assets as the real estate market declined and borrowers 
failed to repay their loans as required.[Footnote 14] The order found 
that Fifth Third decided to sell large pools of these troubled loans, 
but failed to classify or value them correctly. The SEC’s order also 
found that the CFO was familiar with the sale efforts, but failed to 
direct the bank to classify and value the loans as required. Fifth 
Third agreed to settle the SEC’s charges by paying $6.5 million, and 
its former CFO agreed to pay a $100,000 penalty and be suspended from 
practicing as an accountant for any publicly traded company or other 
entity regulated by the SEC. 

In January, the SEC charged Diamond Foods, Inc., a snack foods 
company, and its former CFO in an accounting scheme to falsify walnut 
costs in order to boost earnings and meet analyst estimates.[Footnote 
15] The former CEO was also charged for his role in the company’s 
false financial statements filed with the SEC, which included omitting 
facts from representations to Diamond’s outside auditors. Diamond 
agreed to pay $5 million to settle the SEC’s charges. The former CEO, 
who returned or forfeited more than $4 million in bonuses and other 
benefits, also agreed to pay a $125,000 penalty to settle the SEC’s 
charges. The SEC’s litigation continues against the former CFO. 

The SEC also charged five executives and finance professionals in 
connection with a $150 million fraudulent bond offering by Dewey & 
LeBoeuf LLP, the international law firm where they worked.[Footnote 
16] The SEC alleged that the senior financial officers inflated the 
firm’s profitability by millions of dollars to conceal breaches of 
debt covenants in its loan agreements and that this information was 
then incorporated into bond offering documents. In addition, the SEC 
alleged that the firm continued to conceal its improper accounting by 
making fraudulent quarterly certifications in connection with the 
offering. The SEC’s action in this matter is ongoing. 

Later the same month, the SEC charged AgFeed Industries, Inc., an 
animal feed company, and eight of its executives with conducting a 
massive accounting fraud in which they repeatedly reported fake 
revenues from their China operations to meet financial targets and 
prop up the company’s stock price.[Footnote 17] Among those charged 
was the company’s U.S.-based audit committee chair who learned of the 
misconduct in 2011. The SEC alleged that instead of taking meaningful 
action after learning of the fraud, the audit committee chair, along 
with the company’s CFO at the time, engaged in efforts to raise 
capital for expansion and acquisitions. The SEC settled its charges 
against the former interim CEO, who consented to an officer and 
director bar and paid a $100,000 penalty. One of the company’s former 
CFOs, who cooperated with the SEC’s investigation, also settled the SEC’
s charges by agreeing to an order suspending him from practicing as an 
accountant for at least five years. In September, AgFeed also agreed 
to pay $18 million to settle the SEC’s charges.[Footnote 18] Under the 
proposed settlement, which is subject to court approval, the $18 
million will be distributed to victims of the company’s fraud. 

Also in March, the SEC charged Lions Gate Entertainment Corp. with 
failing to fully and accurately disclose to investors a set of 
extraordinary corporate transactions that put millions of newly issued 
company shares in the hands of a management-friendly director in order 
to thwart a hostile takeover bid.[Footnote 19] Lions Gate agreed to 
pay $7.5 million and admit wrongdoing to settle the SEC’s charges. 

The following month, CVS Caremark Corp. paid $20 million to settle SEC 
charges that it misled investors about significant financial setbacks 
and using improper accounting that artificially boosted its financial 
performance.[Footnote 20] The SEC alleged that in offering documents 
for a $1.5 billion bond offering, CVS fraudulently omitted that it had 
recently lost significant Medicare Part D and contract revenues in the 
pharmacy benefits segment. In addition, the SEC alleged that CVS 
further misled investors by manipulating how it calculated its 
retention rate, a key metric for pharmacy benefits managers. CVS also 
allegedly made improper accounting adjustments that overstated the 
financial results for its retail pharmacy line of business. The retail 
controller who was charged with orchestrating these improper 
adjustments agreed to settle the SEC’s charges by paying a $75,000 
penalty and being barred for at least one year from practicing as an 
accountant on behalf of any publicly traded company or entity 
regulated by the SEC. 

In July, the SEC charged Ernst & Young LLP with violating key auditor 
independence rules as a result of its subsidiary lobbying 
congressional staff on behalf of two audit clients – the first action 
charging violations of the independence rules in this context. 
[Footnote 21] Such lobbying activities were impermissible under the 
SEC’s auditor independence rules because they put the firm in the 
position of being an advocate for those audit clients. According to 
the SEC’s order, Ernst & Young repeatedly represented that it was “
independent” in audit reports issued on the clients’ financial 
statements despite being involved in these lobbying activities. Ernst 
& Young agreed to pay $4 million to settle the SEC’s charges. 

The SEC also filed several actions involving deficiencies in internal 
accounting controls. In July, the SEC charged the CEO and former CFO 
of QSGI Inc., a computer equipment company, for misrepresenting to 
external auditors and the investing public the state of its internal 
controls over financial reporting.[Footnote 22] Enforcement alleged 
that Marc Sherman, the CEO, and Edward L. Cummings, the former CFO, 
each certified that they had disclosed all significant deficiencies in 
internal controls to the outside auditors when, in reality, they 
misled the auditors. According to the SEC’s order, Sherman and 
Cummings misled the company’s auditors by withholding information 
about inadequate inventory controls and a series of maneuvers to 
accelerate the recognition of certain inventory and accounts 
receivables in QSGI’s books and records. To settle the SEC’s charges, 
Cummings agreed to pay a $23,000 penalty, to be barred from serving as 
an officer or director of a publicly traded company for five years, 
and agreed to be suspended for at least five years from practicing as 
an accountant on behalf of any publicly traded company or other entity 
regulated by the SEC. The SEC’s action in this matter against Sherman 
is ongoing. 

In September, the SEC charged JDA Software Group Inc. for having 
inadequate internal accounting controls over its financial reporting, 
which resulted in misstated revenues in public filings. An SEC 
investigation found that JDA failed to properly recognize and report 
revenue from certain software license agreements it sold to customers 
because its internal accounting controls failed to consider 
information needed for determining a critical component of revenue 
recognition for software companies.[Footnote 23] As a result of these 
internal control failures, some of JDA’s financial statements for the 
period from 2008 through 2011 were materially misstated. JDA restated 
those financial statements in August 2012, reporting that it had 
overstated its revenue for fiscal year 2010 by 4 percent and 
overstated earnings before interest, taxes, depreciation and 
amortization (EBITDA) by approximately 18 percent. JDA agreed to 
settle the SEC’s charges by paying a $750,000 penalty. 

That same month, the SEC charged Bank of America Corporation with 
violating internal controls and recordkeeping provisions of the 
Federal securities laws after it assumed a large portfolio of 
structured notes and other financial instruments as part of its 
acquisition of Merrill Lynch & Co., Inc.[Footnote 24] According to the 
SEC’s order, Bank of America overstated its regulatory capital in its 
regulatory filings, eventually by billions of dollars, because it 
failed to deduct realized losses on the notes as they occurred. Bank 
of America internally discovered the overstatements in mid-April 2014, 
disclosed them in a Form 8-K filing, cooperated with SEC staff during 
the investigation, and voluntarily took steps to remediate the 
insufficiencies that led to the regulatory capital overstatements. 
Bank of America agreed to pay a $7.65 million penalty to settle the 
charges stemming from the overstatements that it made due to its 
internal accounting control deficiencies and books and records 
failures. 

In another action filed in September, the SEC used its authority under 
the “clawback” provision of the Sarbanes-Oxley Act of 2002, to require 
the former CEO of Saba Software, Inc., Babak “Bobby” Yazdani, to 
reimburse the company $2.5 million in bonuses and stock profits he 
received while an accounting fraud occurred at the company.[Footnote 
25] At the same time, the SEC charged Saba Software and two former 
executives, Patrick Farrell and Sajeev Menon, for the accounting fraud 
scheme in which U.S.-based managers directed consultants in India to 
falsify timesheets so that the company could achieve quarterly revenue 
and margin targets. Saba Software agreed to pay $1.75 million to 
settle the SEC’s charges and the two former executives agreed to 
settle the case as well. The clawback provision does not require a 
finding that a CEO personally engaged in misconduct to trigger a 
reimbursement obligation. 

Actions Related to Insider Trading: 

The SEC built on its impressive record of pursuing insider trading by 
filing a number of significant insider trading cases in FY 2014. In 
November 2013, the SEC charged Mark Megalli, a former hedge fund 
trader at Level Global Investors, L.P., with insider trading in the 
securities of Carter’s Inc., an Atlanta-based clothing marketer. 
[Footnote 26] The SEC alleged that Megalli used nonpublic information 
about Carter’s to give Level Global a $3.2 million trading edge. 
According to the SEC’s complaint, Megalli obtained inside information 
in advance of market-moving announcements through a consulting 
agreement with a former Carter’s vice president of investor relations, 
who the SEC previously charged. Megalli’s trades enabled Level Global 
to avoid losses of approximately $2.4 million and make over $850,000 
in illicit profits. The SEC’s action in this matter is ongoing. 

The following month, the SEC charged Brian D. Jorgenson, a senior 
portfolio manager at Microsoft Corporation and his friend, Sean T. 
Stokke, with insider trading in advance of upcoming Microsoft 
announcements that Jorgenson learned about through his work.[Footnote 
27] The friends reaped over $390,000 in illicit profits through their 
scheme, which was intended to generate enough profits to allow them to 
create their own hedge fund. The SEC’s action in this matter is 
ongoing. 

In February, the SEC charged Frank “Perk” Hixon Jr., a Wall Street 
investment banker, with an insider trading scheme that reaped nearly 
$1 million in illicit profits.[Footnote 28] The SEC alleged that Hixon 
Jr. made the trades in accounts held by his former girlfriend and his 
father, but when his firm confronted him about the trading in these 
accounts he pretended not to recognize the names of his father or 
former girlfriend. Text messages revealed that Hixon Jr. was 
generating the illegal proceeds to pay child support to his former 
girlfriend. The SEC’s action in this matter is ongoing. 

In March, the SEC charged Vladimir Eydelman, a stockbroker, and Steven 
Metro, a managing clerk at a major law firm, with insider trading 
around more than a dozen mergers or other corporate transactions for 
illicit profits of $5.6 million during a four-year period.[Footnote 
29] The SEC alleged that Metro obtained information about corporate 
clients involved in pending deals and tipped a middleman, who met 
Eydelman in Grand Central Terminal. According to the SEC’s complaint, 
the middleman would show Eydelman a piece of paper with the relevant 
ticker symbol and then eat it to destroy the evidence. In September, 
the SEC also charged Frank Tamayo, the middleman who helped facilitate 
the scheme.[Footnote 30] The SEC’s action in this matter is ongoing. 

In April, the SEC charged Keith A. Seilhan, a former employee of BP 
p.l.c. and experienced crisis manager, with insider trading in BP 
securities during the 2010 Deepwater Horizon oil spill based on 
confidential information about the magnitude of the disaster.[Footnote 
31] The SEC alleged that Seilhan sold his family’s securities after he 
received confidential information about the severity of the spill that 
the public did not know. Seilhan agreed to settle the charges by 
paying over $200,000 disgorgement, interest, and penalties. 

In May, the SEC charged three founders of Lawson Software with insider 
trading ahead of the company’s sale by misusing nonpublic information 
to take unfair advantage of incorrect media speculation and analyst 
reports about the company’s acquisition.[Footnote 32] The SEC alleged 
that Richard Lawson, the co-chairman of the board, conveyed 
information about the true state of merger talks to two former board 
members who were able to profit by selling their shares at prices 
higher than the eventual acquisition price. They agreed to pay nearly 
$5.8 million to settle the charges. 

The SEC also charged four individuals in a $12 million serial insider 
trading scheme that lasted more than three years in which they traded 
in Ross Stores stock options based on nonpublic information about 
monthly sales results leaked by a former Ross Stores’ employee. 
[Footnote 33] The SEC alleged that Saleem Khan was routinely tipped by 
his friend Roshanlal Chaganlal, who was a director in the finance 
department at Ross Stores. According to the complaint, Khan used the 
confidential information to trade on more than 40 occasions and tipped 
two of his work colleagues who also traded. The SEC’s action in this 
matter is continuing. 

Actions Related to Foreign Corrupt Practices Act (FCPA): 

FCPA enforcement continues to be a high priority area for the SEC’s 
enforcement program and FY 2014 included a number of significant 
actions. In November, the SEC charged Weatherford International LTD. 
with violating the FCPA by authorizing bribes and improper travel and 
entertainment for foreign officials in the Middle East and Africa to 
win business, including kickbacks in Iraq to obtain United Nations Oil-
for-Food contracts.[Footnote 34] Weatherford agreed to pay the SEC 
more than $65 million as part of a global settlement of more than $250 
million to resolve the SEC’s charges and parallel actions by the U.S. 
Department of Justice (DOJ) and three other agencies. 

In December, the SEC charged global food processor Archer-Daniels-
Midland (ADM) with violating the FCPA by failing to prevent its 
foreign subsidiaries from paying bribes to Ukrainian government 
officials.35 An SEC investigation found that ADM’s subsidiaries in 
Germany and Ukraine paid $21 million in bribes to secure the release 
of value-added tax refunds, and disguised the illicit payments by 
falsifying the books and records and improperly recording the 
transactions as insurance premiums and other business expenses. To 
settle the SEC’s charges, ADM agreed to pay more than $36 million. 

In January, the SEC charged global aluminum producer Alcoa, Inc. with 
FCPA violations related to illicit payments by subsidiaries to 
government officials in Bahrain to maintain a key source of business 
with a government-operated aluminum plant.[Footnote 36] The SEC’s 
investigation found that more than $110 million in corrupt payments 
were made to Bahraini officials with influence over contract 
negotiations between Alcoa and a major government-operated aluminum 
plant. Alcoa agreed to pay $175 million to settle the SEC’s charges as 
part of a $384 million settlement that also resolved a parallel 
criminal case announced by the DOJ. 

The following month, the SEC concluded its case against former Siemens 
executives who were charged in 2011 with bribery in Argentina. 
[Footnote 37] The SEC obtained final judgments of over $1.8 million 
against Uriel Sharef, a former officer and Siemens board member, 
Andres Truppel, a former CFO of Siemens Argentina, and Ulrich Bock and 
Stephan Signer, both former senior Siemens managers based in Germany. 
The final judgment against Bock and Signer, among other things, 
ordered them to each pay a civil penalty of $524,000 – the highest 
penalties assessed against individuals in an FCPA case. 

The SEC also charged Hewlett-Packard Company with violating the FCPA 
when its subsidiaries in Russia, Poland, and Mexico made improper 
payments in excess of $3.5 million to government officials to obtain 
or retain lucrative public contracts.[Footnote 38] Hewlett-Packard 
agreed to pay more than $31 million to settle the SEC’s charges as 
part of a $108 million settlement with the SEC and DOJ. 

Actions Related to Market Manipulation and Microcap Fraud: 

In FY 2014, Enforcement continued its crackdown on market manipulation 
and microcap fraud and took proactive steps to suspend trading in the 
securities of microcap issuers in addition to targeting the 
gatekeepers and repeat players who facilitate fraud and other 
misconduct in this area. In February, the SEC suspended trading in 255 
dormant shell companies ripe for abuse in the over-the-counter 
market.[Footnote 39] This was the latest action in the initiative 
known as “Operation Shell-Expel” through which Enforcement’s Office of 
Market Intelligence has been cleaning up the microcap marketplace by 
scrutinizing penny stocks nationwide and identifying clearly inactive 
companies. This initiative has allowed the SEC to proactively suspend 
trading in dormant shell companies before fraudsters have the 
opportunity to manipulate them. 

The following month, the SEC charged Worldwide Capital, Inc. and its 
owner, Jeffrey W. Lynn, with violating Rule 105 in connection with 60 
public stock offerings from October 2007 to February 2012.[Footnote 
40] Rule 105 is an anti-manipulative rule that prohibits traders from 
improperly participating in public offerings soon after short-selling 
securities that are the subject of the offerings. Worldwide Capital 
and Lynn settled the SEC’s charges by agreeing to pay $7.2 million, 
the largest-ever monetary sanction for Rule 105 short selling 
violations. 

Enforcement also continued its successful initiative to target 
violations of Rule 105 through a second sweep that resulted in the SEC 
charging 19 firms and one individual trader with Rule 105 violations. 
[Footnote 41] Each firm and the individual trader agreed to settle the 
charges by paying a combined total of more than $9 million in 
disgorgement, interest, and penalties. 

In March, the SEC charged penny stock promoter John Babikian, who ran 
a pair of well-known websites that disseminated emails promoting penny 
stocks, with committing a type of securities fraud known as “scalping.”
[Footnote 42] The SEC alleged that Babikian disseminated emails to 
approximately 700,000 people recommending a penny stock, but the 
emails failed to disclose that Babikian held more than 1.4 million 
shares of the stock that he intended to sell immediately. The SEC 
obtained an emergency asset freeze to prevent Babikian from 
liquidating $1.9 million in trading profits he made from exploiting 
the run up in the price of the stock he touted in his emails. Babikian 
settled the charges by consenting to a judgment that required him to 
pay $3.73 million in sanctions, barred him from participating in any 
penny stock offering, and enjoined him from recommending stocks 
without making certain disclosures.[Footnote 43] 

In May, the SEC charged six penny stock promoters and the CEO of a 
microcap company in the latest charges arising out of a joint law 
enforcement effort focused on penny stock fraud.[Footnote 44] The SEC 
alleged that five of the penny stock promoters engaged in various 
manipulation schemes involving undisclosed payments to induce 
purchases of microcap stock to generate the false appearance of market 
interest. The same day, the SEC announced charges against a microcap 
company and its CEO for orchestrating a pair of illicit kickback 
schemes and an insider trading scheme involving the company’s stock. 
The SEC also charged a sixth penny stock promoter for his role in the 
insider trading scheme. This joint effort in which the SEC has worked 
closely with the U.S. Attorney’s Office for the Southern District of 
Florida and the Federal Bureau of Investigation has resulted in 
charges against 48 individuals and 25 companies involved in the 
microcap world. 

A few months later, the SEC charged four penny stock promoters for 
manipulating the securities of six different thinly traded penny stock 
companies in a $2.5 million scheme involving pre-arranged, 
manipulative matched orders and wash trades that created the illusion 
of an active trading market.[Footnote 45] The SEC alleged that despite 
the appearance of an active trading market, the companies had little 
to no business operations at the time. These schemes were unearthed 
through the work of Enforcement’s recently created Microcap Fraud Task 
Force, which is focused on rooting out serial violators in the 
microcap markets like the four promoters involved in this action. 

In September, the SEC charged Heathrow Natural Food & Beverage Inc., a 
penny stock company, and Heathrow’s CEO with defrauding investors by 
issuing false and misleading press releases touting large sales and 
revenue projections while the company was actually failing.[Footnote 
46] The SEC alleged that Michael S. Pagnano, the company’s CEO, 
prompted the illegal, unregistered distribution of billions of 
Heathrow shares to several individuals and entities, including 
himself. According to the SEC’s complaint, Pagnano reaped profits of 
more than $150,000 by selling millions of his shares into the market 
as the false press releases circulated. The SEC also charged Registrar 
and Transfer Company (R&T), Heathrow’s transfer agent, and R&T’s CEO, 
Thomas L. Montrone, with registration violations and failing to 
supervise firm employees who enabled Heathrow’s unregistered 
distribution of stock. An SEC examination of R&T revealed that it 
repeatedly failed to detect and address red flags in connection with 
more than 54 share issuance requests from Pagnano. R&T and Montrone 
agreed to settle the charges by paying a combined total of more than 
$150,000 and Montrone also agreed to be suspended for 12 months from 
serving in a supervisory capacity with a transfer agent. 

Actions Related to Municipal Securities: 

In FY 2014, the SEC remained focused on the municipal securities 
markets, bringing a number of important, first-of-their kind 
enforcement actions. In November, the SEC charged a municipal issuer 
in the state of Washington’s Wenatchee Valley region with misleading 
investors in a bond offering that financed the construction of a 
regional events center and ice hockey arena.[Footnote 47] An SEC 
investigation found inaccuracies in the primary disclosure document 
accompanying the bond offering, which contained misleading statements 
about whether there had been an independent review of the financial 
projections for the event center. The SEC’s order found that an 
independent consultant had examined the projections and raised 
questions about the center’s economic viability, which was not 
disclosed to investors. The issuer agreed to settle the SEC’s charges 
by paying a $20,000 penalty – the first-ever against a municipal 
issuer – and undertaking remedial efforts. The SEC also settled 
charges against the underwriter and outside developer of the project 
and three individuals involved in the offering. 

The SEC also charged a charter school operator with defrauding 
investors in a $37.5 million bond offering for school construction by 
making materially misleading statements about transactions that 
presented a conflict of interest.[Footnote 48] The SEC alleged that 
UNO Charter School Network Inc. and United Neighborhood Organization 
of Chicago not only failed to disclose a multi-million-dollar related-
party contract, but also failed to inform investors about the 
potential financial impact the conflicted transaction had on the 
ability to repay the bonds. UNO settled the SEC’s charges by agreeing 
to undertakings to improve its internal procedures and training, 
including the appointment of an independent monitor. 

In June, the SEC obtained an emergency court order against the City of 
Harvey, Illinois and its comptroller to halt a fraudulent municipal 
bond offering. This marked the first time that the SEC has taken 
emergency action to stop such an offering.[Footnote 49] The SEC 
alleged that the city was marketing new bonds without disclosing that 
it had previously diverted at least $1.7 million of bond proceeds from 
a prior bond offering to pay the city’s operational costs. The SEC’s 
action in this case is ongoing. 

In another novel action, the SEC announced its first action under the 
Municipalities Continuing Disclosure Cooperation (MCDC) initiative, a 
new cooperation initiative to encourage issuers and underwriters of 
municipal securities to self-report certain violations of the Federal 
securities laws relating to the continuing disclosure obligations 
specified in Rule 15c2-12 under the Securities Exchange Act of 1934. 
[Footnote 50] Under the initiative, Enforcement agreed to recommend 
standardized, favorable settlement terms to settle actions with 
municipal issuers and underwriters who self-report violations. In its 
first settlement under the initiative, the SEC charged Kings Canyon 
Joint Unified School District with misleading bond investors about its 
failure to provide contractually required financial information and 
notices in the course of a 2010 bond offering. Kings Canyon consented 
to an order to cease and desist from committing or causing any future 
violations of Section 17(a) of the Securities Act of 1933 and agreed 
to, among other things, adopt written policies for its continuing 
disclosure obligations. 

In an enforcement action arising out of a nationwide review of 
municipal bond disclosures, the SEC charged the state of Kansas with 
fraud for failing to disclose its multi-billion-dollar pension 
liability in bond offering documents, which created a repayment risk 
for investors in those bonds.[Footnote 51] The SEC previously brought 
actions against the states of New Jersey and Illinois as a result of 
the same nationwide review. Kansas settled the SEC’s charges by 
consenting to an order requiring it to cease and desist from 
committing future violations and adopted new policies and procedures 
to improve disclosures about its pension liabilities. 

Actions Related to Investment Advisers and Investment Companies: 

The SEC brought a wide range of actions against investment advisers 
and investment companies in FY 2014, including cases involving fraud, 
actions stemming from the use of proactive risk identification 
initiatives, actions to ensure the safety of client assets, and 
groundbreaking cases enforcing the investment adviser pay-to-play 
rules and the SEC’s new whistleblower anti-retaliation authority. In 
October, the SEC charged three investment advisory firms for violating 
the “custody rule,” which requires firms to meet certain standards 
when maintaining custody of their clients’ funds or securities.52 This 
rule is central to investor protection and goes to the foundation of 
the relationship between investment advisers and their clients. The 
investigation of these firms followed referrals by SEC examiners. The 
SEC orders found that Further Lane Asset Management, GW & Wade, and 
Knelman Asset Management Group failed to maintain client assets with a 
qualified custodian or engage an independent public accountant to 
conduct surprise exams as required by the custody rule. The SEC also 
charged the CEO of Further Lane and the CEO and chief compliance 
officer of Knelman for custody rule and other violations. All agreed 
to settle the charges and pay monetary sanctions in addition to other 
relief. 

In November, the SEC announced a deferred prosecution agreement with a 
hedge fund administrator – the first-ever with an individual – who 
helped the SEC take quick action against a hedge fund manager who 
stole investors assets.[Footnote 53] As a result of voluntary and 
significant cooperation from Scott Herckis, the hedge fund 
administrator, the SEC filed an emergency action against Berton M. 
Hochfeld and Hochfeld Capital Management, L.L.C. for misappropriating 
more than $1.5 million from a hedge fund Hochfeld managed and 
overstating its performance to investors.[Footnote 54] The SEC’s 
action halted the fraud and froze the assets of the hedge fund and 
Hochfeld, which are now being used to compensate defrauded investors. 

That same month, the SEC charged Ambassador Capital Management, an 
investment advisory firm, and Derek Oglesby, its portfolio manager, 
for deceiving the trustees of a money market fund and failing to 
comply with rules that limit risk in a money market fund’s portfolio. 
[Footnote 55] The enforcement action stemmed from an ongoing analysis 
of money market fund data by the SEC’s Division of Investment 
Management, which recognized that the performance of the money market 
fund was consistently different from the rest of the market. In 
September, Enforcement received a favorable initial decision in this 
matter, which, among other things, permanently barred Ambassador 
Capital from association with any investment company, censured 
Oglesby, and ordered Ambassador Capital and Oglesby to pay combined 
civil penalties of more than $800,000.[Footnote 56] 

In another case arising out of a proactive risk monitoring effort 
known as the Aberrational Performance Inquiry that uses proprietary 
analytics to identify hedge funds with suspicious returns, the SEC 
charged GLG Partners L.P., a hedge fund adviser and its former holding 
company, with internal controls failures that led to the overvaluation 
of the fund’s assets.[Footnote 57] The SEC’s order found that as a 
result of the overvaluation, the firms charged inflated fees and 
overstated assets under management in SEC filings. GLG and its former 
holding company agreed to pay nearly $9 million and hire an 
independent consultant to settle the SEC’s charges. The SEC also 
established a Fair Fund to distribute money to harmed fund investors. 

In January, the SEC charged Western Asset Management Company for 
concealing investor losses that resulted from a coding error and 
engaging in cross trading that favored some clients over others. 
[Footnote 58] The SEC’s order found that Western Asset failed to 
disclose and promptly correct a coding error that caused the improper 
allocation of a restricted private investment that was impermissible 
for Employee Retirement Income Security Act (ERISA) plans to the 
accounts of nearly 100 ERISA clients. The SEC order also found that 
after the investment plummeted in value, Western Asset failed to 
reimburse clients for the losses, and failed to notify its ERISA 
clients until nearly two years later. In a second order, the SEC found 
that Western Asset engaged in cross trading – the practice of moving a 
security from one client account to another without exposing the 
transaction to the market – which can pose substantial risks to 
clients. Western Asset settled the SEC’s charges by agreeing to 
distribute more than $17 million to harmed clients, to pay a $2 
million penalty, and to retain an independent compliance consultant. 

The following month, the SEC charged Scott A. Brittenham, a private 
equity fund manager and his investment advisory firm, Clean Energy 
Capital, LLC, for fraud in the allocation of certain expenses to funds 
Clean Energy sold and managed without adequate disclosure to 
investors.[Footnote 59] This marked the first action arising from a 
focus on fees and expenses charged by private equity firms. According 
to the SEC’s order, the misallocated expenses included the majority of 
Brittenham’s own compensation. The order also alleged a number of 
other violations by Brittenham and Clean Energy, including, among 
other things, unauthorized loans to the funds collateralized by the 
funds’ own assets, changes to distribution calculations to investors 
without adequate disclosure, and misstatements to an investor about 
how much Brittenham and a co-founder had invested in one of the funds. 

In March, the SEC charged two brokers, an investment advisory firm, 
and several others involved in a variable annuities scheme designed to 
profit from the deaths of terminally ill individuals.[Footnote 60] 
According to the SEC’s order, Michael A. Horowitz and Moshe Marc 
Cohen, the brokers charged, obtained the names of the terminally ill 
patients and then sold variable annuities contracts with death benefit 
and bonus credit features to wealthy investors. The order also alleged 
that Horowitz and Cohen successfully deceived their respective 
brokerage firms to obtain approvals needed to sell the annuities, 
generating more than $1 million in sales commissions. Four brokers, an 
investment advisory firm, and two other brokers also charged for their 
roles in the scheme settled the SEC’s charges by paying a combined 
total of more than $4.5 million. Horowitz, the architect of the 
scheme, also subsequently agreed to settle the SEC’s charges by paying 
more than $850,000, admitting wrongdoing, and being barred from the 
securities industry. [Footnote 61] 

In the first case under the SEC’s new authority to bring anti-relation 
enforcement actions, the SEC charged Paradigm Capital Management, 
Inc., a hedge fund adviser, with engaging in prohibited principal 
transactions and then retaliating against the employee who reported 
the trading activity to the SEC.[Footnote 62] According to the SEC’s 
order, the firm’s former head trader made a whistleblower submission 
to the SEC that revealed the improper transactions and after learning 
of the report, Paradigm immediately engaged in a series of retaliatory 
actions against him. The firm’s owner was also charged with causing 
the improper principal transactions. The firm and its owner agreed to 
pay $2.2 million to settle the charges with $1.7 million of that 
amount for distribution to investors. 

In another first, the SEC charged TL Ventures Inc., a private equity 
firm, with violating the investment adviser pay-to-play rules, which 
prohibit investment advisers from providing compensatory services for 
two years following a campaign contribution to certain political 
candidates or officials.[Footnote 63] The SEC’s order found that TL 
Ventures violated the rules by providing such services within two 
years after an associate made contributions to two political 
candidates. The SEC also charged TL Ventures and an affiliated adviser 
with improperly acting as unregistered investment advisers. TL 
Ventures agreed to settle the SEC’s charges by paying nearly $300,000. 

In September, the SEC charged Barclays Capital Inc. with failing to 
maintain an adequate internal compliance system to ensure the firm did 
not violate any Federal securities laws after its wealth management 
business in the U.S. acquired the advisory business of Lehman Brothers 
in September 2008.[Footnote 64] Investment advisers are required to 
adopt and implement written compliance policies and procedures 
reasonably designed to prevent violations of the Investment Advisers 
Act of 1940 and its rules. An SEC examination and subsequent 
investigation found that Barclays failed to enhance its compliance 
infrastructure to integrate and support the acquisition and rapid 
growth of the advisory business from Lehman. According to the SEC’s 
order, the deficiencies in its compliance systems contributed to other 
securities law violations by Barclays. For instance, Barclays executed 
more than 1,500 principal transactions with its advisory client 
accounts without making the required written disclosures or obtaining 
client consent. To settle the SEC’s charges, Barclays agreed to pay a 
$15 million penalty and undertake remedial measures, including 
engaging an independent compliance consultant. 

Actions Related to Complex Financial Instruments: 

FY 2014 also included a number of actions involving complex financial 
instruments, which built on the SEC’s already strong record of 
pursuing financial crisis related cases. The SEC charged RBS 
Securities Inc., a subsidiary of the Royal Bank of Scotland plc, with 
misleading investors in a 2007 subprime mortgage-backed security 
offering.[Footnote 65] The SEC alleged that RBS represented that the 
loans backing the offering generally met the lender’s underwriting 
guidelines even though nearly 30 percent of the loans fell short and 
should have been excluded from the offering. According to the SEC’s 
complaint, this gave investors a misleading impression of the quality 
of the loans backing the offering and the likelihood of their 
repayment. RBS agreed to pay more than $150 million to settle the 
matter, which will be used to compensate harmed investors. 

The SEC also charged Merrill Lynch, Pierce, Fenner & Smith 
Incorporated for making faulty disclosures about collateral selection 
for two collateralized debt obligations (CDO) that it structured and 
marketed to investors, and maintaining inaccurate books and records 
for a third CDO.[Footnote 66] The SEC’s order found that Merrill Lynch 
failed to inform investors that hedge fund firm Magnetar Capital LLC 
exercised significant influence over the selection of collateral for 
the CDOs. Magnetar then bought the equity in the CDOs, but its 
interests were not necessarily aligned with those of other investors 
because it hedged its equity positions by shorting against the CDOs. 
Merrill Lynch agreed to pay more than $131 million to settle the SEC’s 
charges. 

In an action relating to mortgage-backed securities, the SEC charged 
Jefferies LLC, a global investment bank and brokerage firm, with 
failing to supervise employees on its mortgage-backed securities desk. 
[Footnote 67] According to the SEC’s order, Jefferies 
representatives – including Jesse Litvak, who the SEC charged with 
securities fraud last year – lied to customers about the prices that 
the firm paid for certain mortgage-backed securities. Although 
Jefferies’ policy required supervisors to review the electronic 
communications of its representatives to detect any misleading 
information provided to customers, Jefferies failed to implement the 
policy effectively. Jefferies agreed to return more than $11 million 
to customers and pay a $4.2 million penalty to the SEC as part of a 
settlement with the SEC and the U.S. Attorney’s Office for the 
District of Connecticut. 

The SEC also charged three Morgan Stanley entities with misleading 
investors in two residential mortgage-backed securities (RMBS) 
securitizations that the firms underwrote, sponsored, and issued. 
[Footnote 68] The SEC’s order found that Morgan Stanley misrepresented 
the current or historical delinquency status of mortgage loans 
underlying the two securitizations. Morgan Stanley agreed to settle 
the charges by paying $275 million, which will be distributed to 
harmed investors. 

In August, the SEC charged Bank of America Corporation with failing to 
disclose known uncertainties about potential increased costs related 
to mortgage loan repurchase claims stemming from more than $2 trillion 
in residential mortgage sales.[Footnote 69] Bank of America admitted 
this failure and agreed to settle these charges in addition to 
securities fraud charges that the SEC filed in 2013 relating to a RMBS 
offering. The bank agreed to pay $245 million to resolve the SEC’s 
charges as part of a major global settlement with the DOJ and other 
government agencies. 

Actions Related to Offering Frauds and Ponzi and Pyramid Schemes: 

Offering frauds are always an important area of focus for Enforcement 
and FY 2014 involved a host of significant actions targeting 
misconduct in this area, including several actions that halted global 
pyramid schemes that preyed on vulnerable investors. In October, the 
SEC brought an action to halt a worldwide pyramid scheme known as CKB 
and CKB168 that targeted members of the Asian-American community. 
[Footnote 70] The SEC alleged that the operators and promoters of the 
scheme promised exponential, risk-free returns to investors in a 
venture that purported to sell Internet-based children’s educational 
courses. In reality, CKB had no apparent source of revenue other than 
money received from new investors. The SEC’s complaint alleged that 
the perpetrators of the scheme raised more than $20 million from U.S. 
investors and millions more from investors in other countries. The 
court granted the SEC’s request for an asset freeze against the CKB 
entities and operators and promoters charged. The SEC’s action in this 
matter is ongoing. 

In March, the SEC shut down an international pyramid scheme targeting 
the Asian and Latino communities when it charged World Capital Market 
Inc., WCM777 Inc., and their founder “Phil” Ming Xu for directing the 
scheme.[Footnote 71] The SEC alleged that Xu enlisted tens of 
thousands of investors to finance his company, which purportedly sold 
third-party cloud computing services and assisted high-tech companies 
with initial public offerings. Xu’s promise of 100 percent returns in 
100 days or less allowed him to attract more than $65 million in 
investments. According to the SEC’s complaint, Xu’s company was a sham 
that was merely engaged in the process of paying earlier investors 
with money obtained from new investors. The SEC alleged that instead 
of making high-tech investments, Xu used investor money to purchase 
golf courses, a warehouse, vacant land, and single family homes. In 
its ongoing litigation, the SEC obtained an asset freeze and court-
appointed receiver over the entity defendants’ assets and other 
related entities named as relief defendants for the purpose of 
recovering money from the scheme held in their possession. 

The following month, the SEC shut down another large pyramid scheme 
when it filed charges against the scheme’s operators and promoters who 
primarily targeted Dominican and Brazilian immigrants in the U.S. 
[Footnote 72] The scheme involved a purported multilevel marketing 
company known as TelexFree that claimed to sell a telephone service 
based on “voice over Internet protocol” (VoIP) technology and promised 
annual returns of over 200 percent for those who promoted the business 
and recruited new members. The SEC alleged that the revenues from the 
VoIP sales accounted for barely one percent of the more than $1.1 
billion needed to cover TelexFree’s promises to investors. As a 
result, the SEC alleged that TelexFree was paying earlier investors 
with money received from newer investors rather than revenue from 
selling its VoIP product. In its ongoing litigation, the SEC obtained 
an asset freeze that secured millions of dollars of funds and 
prevented the potential dissipation of investor assets. 

Also in April, the SEC charged Robert J. Vitale, a former stock 
promoter, with defrauding investors in a real estate venture, selling 
unregistered securities, and acting as an unregistered broker-dealer. 
[Footnote 73] Vitale and his firm raised more than $8.7 million from 
investors, including many senior citizens. The SEC alleged that, among 
other things, Vitale claimed that the funds were 100 percent protected 
when they were not and touted his honesty and integrity while failing 
to disclose that he had been previously charged by the SEC and barred 
from the brokerage industry. Vitale currently is serving a two-year 
prison sentence after being convicted of obstruction of justice and 
providing false testimony in the SEC’s investigation that led to these 
charges. 

In June, the SEC charged the Erik T. Voorhees, the co-owner of two 
Bitcoin-related websites, for publicly offering shares in the two 
ventures without registering them.[Footnote 74] An SEC investigation 
found that Voorhees published prospectuses on the Internet and 
actively solicited investors to buy shares in the two ventures, but 
failed to register the offerings as required under the Federal 
securities laws. Voorhees agreed to settle the SEC’s charges by paying 
full disgorgement of his profits plus a $35,000 penalty and also 
agreed to not participate in any issuance of any security in an 
unregistered transaction in exchange for any virtual currency for a 
period of five years. 

In another Bitcoin-related action, the SEC obtained a final judgment 
against Trendon T. Shavers and Bitcoin Savings and Trust (BTCST), an 
online entity Shavers created and used to operate a Ponzi scheme in 
which he defrauded investors out of more than 700,000 Bitcoins. 
[Footnote 75] The SEC charged Shavers and BTCST for this fraudulent 
conduct in July 2013, which was the first-ever enforcement action 
involving virtual currencies. The final judgment requires Shavers and 
BTCST to pay more than $40 million in disgorgement and prejudgment 
interest, and orders each of them to also pay a civil penalty of 
$150,000. 

Other Significant Matters: 

In September, the SEC charged 34 individuals and entities in a novel 
Enforcement initiative designed to root out those who repeatedly fail 
to comply with Federal securities laws requiring them to promptly 
report information about their holdings and transactions in company 
stock.[Footnote 76] Enforcement staff used quantitative data analytics 
to identify individuals and companies with especially high rates of 
filing deficiencies. This resulted in charges against 28 officers, 
directors, or major shareholders for violating reporting requirements 
and six publicly-traded companies for contributing to filing failures 
by insiders or failing to report their insiders’ filing delinquencies. 
Thirty three of the 34 individuals and companies named in the SEC’s 
orders agreed to settle the charges and pay financial penalties 
totaling $2.6 million. 

FY 2014 also included a number of trial victories for Enforcement. 
After a five-week trial that concluded in October 2013, a jury 
returned a verdict in favor of the SEC on fraud claims against 
attorney Todd A. Duckson; a real estate lending fund; and a company 
owned by Duckson that became the real estate fund’s investor 
adviser.[Footnote 77] The SEC alleged that the defendants engaged in 
securities fraud in connection with their offer and sale of interests 
in the real estate fund. Duckson and the other defendants raised over 
$21 million from investors while making materially false and 
misleading statements that effectively hid the real estate fund’s 
deteriorating financial condition. In June 2014, the court issued an 
order imposing permanent injunctions against all three defendants, 
barring Duckson from serving as an officer or director of a publicly 
traded company for a period of ten years, and imposing financial 
sanctions exceeding $14.5 million against the real estate fund, $3.3 
million against Duckson and the 
fund’s advisor, jointly and severally, and $1.8 million against 
Duckson individually. 

Also in October, the SEC obtained a jury verdict in its favor on all 
counts against AIC, Inc., Community Bankers Securities, LLC, and 
Nicholas D. Skaltsounis.[Footnote 78] The SEC alleged that Skaltsounis 
devised and orchestrated an offering fraud in which he sold millions 
of dollars of AIC promissory notes and stock. The SEC further alleged 
that the defendants misrepresented and omitted material information to 
investors, many of whom were elderly, about a variety of things, 
including the safety and risk, associated with the investments. In 
August 2014, the court issued an opinion and final judgments against 
the defendants imposing permanent injunctive relief, disgorgement and 
prejudgment interest, and civil penalties. Altogether, the court 
imposed nearly $70 million in disgorgement, prejudgment interest, and 
civil penalties against the defendants and relief defendants. 

In February, the SEC won its jury trial against hedge fund manager 
Marlon M. Quan and his firms, which he used to facilitate a multi-
billion dollar Ponzi scheme operated by Minnesota businessman Thomas 
Petters.[Footnote 79] The SEC alleged that Quan funneled several 
hundred million dollars of investor money into the scheme and falsely 
assured investors that their money would be protected. In September 
2014, the court issued an opinion and order imposing permanent 
injunctions and monetary sanctions of over $80 million against Quan 
and his firms. 

In May, a jury also returned a verdict in favor of the SEC on all 
claims in its action against Samuel and Charles Wyly.[Footnote 80] The 
SEC alleged that the Wylys engaged in a 13-year fraudulent scheme 
involving off-shore trusts to hold and trade tens of millions of 
securities of public companies while they were members of the boards 
of directors of those companies, without disclosing their ownership 
and their trading of those securities. The SEC further alleged that as 
a result of the scheme, the Wylys realized gains in excess of $550 
million. Prior to trial, Michael C. French, the Wylys’ former 
attorney, who was also charged by the SEC, agreed to settle the SEC’s 
charges by admitting certain facts, paying almost $795,000, and 
consenting to an order suspending him from appearing or practicing as 
an attorney before the SEC.[Footnote 81] In September, the court 
issued an opinion and order requiring the Wylys to pay disgorgement 
totaling more than $187 million in addition to prejudgment interest 
for the entire period of the fraud. 

A few months later, a jury returned a verdict against Sage Advisory 
Group, LLC and its principal, Benjamin Lee Grant, in a fraud case 
filed by the SEC.[Footnote 82] The SEC alleged that Grant engaged in a 
scheme to induce his former brokerage customers to transfer their 
assets to Sage, his new advisory firm. The SEC contended that Grant 
made a number of materially false and misleading statements to his 
customers about moving their accounts to his new firm and that Grant 
failed to disclose that the switch would result in significant savings 
that would flow to Grant and Sage rather than the advisory clients. 
The court will later determine whether and what relief to impose 
against the defendants. 

Appendix B: Footnotes: 

[1] In the Matter of Knight Capital Americas LLC, Press Rel. 2013-222 
(October 16, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539879795].
 
[2] In the Matter of Wedbush Securities Inc., et al., Press Rel. 2014-
115 (June 6, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542011614].
 

[3] In the Matter of G-Trade Services LLC, et al.; In the Matter of 
Jonathan Samuel Daspin; and In the Matter of Thomas Lekargeren, Press 
Rel. 2013-266 (December 18, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540521484].
 

[4] SEC v. Anthony G. Blumberg, Press Rel. 2014-160 (August 7, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542601370].
 

[5 In the Matter of Scottrade, Inc., Press Rel. 2014-17 (January 29, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540696906].
 

[6] In the Matter of Credit Suisse Group AG, Press Rel. 2014-39 
(February 21, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540816517].
 

[7] In the Matter of Visionary Trading LLC, et al., Press Rel. 2014-67 
(April 4, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541406190].
 

[8] In the Matter of New York Stock Exchange LLC, et al., Press Rel. 
2014-87 (May 1, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541706507].
 

[9] In the Matter of Liquidnet, Inc., Press Rel. 2014-114 (June 6, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542011574].
 

10] In the Matter of LavaFlow, Inc., Press Rel. 2014-147 (July 25, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542371114].
 

[11] In the Matter of Latour Trading LLC, et al., Press Rel. 2014-199 
(September 17, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542972403].
 

[12] In the Matter of Wells Fargo Advisors, LLC, Press Rel. 2014-207 
(September 22, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543012047].
 

[13] In the Matter of Sherb & Co., LLP, et al., Press Rel. 2013-238 
(November 7, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540289271].
 

[14] In the Matter of Fifth Third Bancorp, et al., Press Rel. 2013-255 
(December 4, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540445508].
 

[15] SEC v. Diamond Foods, Inc.; SEC v. Steven Neil; and In the Matter 
of Michael Mendes, Press Rel. 2014-4 (January 9, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540598296].
 

[16] SEC v. Steven H. Davis, et al., Press Rel. 2014-45 (March 6, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540889964].
 

[17] SEC v. AgFeed Industries, Inc., et al.; In the Matter of John A. 
Stadler; In the Matter of Clayton T. Marshall, Press Rel. 2014-47 
(March 11, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541102314].
 

[18] SEC v. AgFeed Industries, Inc., et al., Press Rel. 2014-194 
(September 15, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542938017].
 

[19] In the Matter of Lions Gate Entertainment Corp., Press Rel. 2014-
51 (March 13, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541123111].
 

[20] SEC v. CVS Caremark Corp. and In the Matter of Laird Daniels, 
CPA, Press Rel. 2014-69 (April 8, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541437806].
 

[21] In the Matter of Ernst & Young LLP, Press Rel. 2014-136 (July 14, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542298984].
 

[22] In the Matter of Marc Sherman and In the Matter of Edward L. 
Cummings, CPA, Press Rel. 2014-152 (July 30, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542561150].
 

[23] In the Matter of JDA Software Group, Inc., Press Rel. 2014-216 
(September 25, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543042731].
 

[24] In the Matter of Bank of America Corporation, Press Rel. 2014-220 
(September 29, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543065483].
 

[25] In the Matter of Saba Software, Inc., et al. and In the Matter of 
Babak (“Bobby”) Yazdani, Press Rel. 2014-214 (September 24, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543035992].
 

[26] SEC v. Mark Megalli, Press Rel. 2013-244 (November 14, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540374789].
 

[27] SEC v. Brian D. Jorgenson, et al., 2013-268 (December 19, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540525813].
 

[28] SEC v. Frank P. Hixon Jr., Press Rel. 2014-40 (February 21, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540831992].
 

[29] SEC v. Vladimir Eydelman, et al., Press Rel. 2014-55 (March 19, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541172895].
 

[30] SEC v. Frank Tamayo, Press Rel. 2014-204 (September 19, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542993471].
 

[31] SEC v. Keith A. Seilhan, Press Rel. 2014-77 (April 17, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541517274].
 

[32] SEC v. Herbert Richard Lawson, et al., Press Rel. 2014-93 (May 
12, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541795596].
 

[33] SEC v. Saleem Khan, et al., Press Rel. 2014-117 (June 13, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542082577].
 

[34] SEC v. Weatherford International LTD., Press Rel. 2013-252 
(November 26, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540415694].
 

[35] SEC v. Archer-Daniels-Midland Company, Press Rel. 2013-271 
(December 20, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540535139].
 

[36] In the Matter of Alcoa Inc., Press Rel. 2014-3 (January 9, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540596936].
 

[37] SEC v. Uriel Sharef, et al., Litigation Rel. 22923 (February 10, 
2014) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2014/lr22923.htm]. 

[38] In the Matter of Hewlett-Packard Company, Press Rel. 2014-73 
(April 9, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541453075].
 

[39] SEC Continues Microcap Fraud Crackdown, Proactively Suspends 
Trading in 255 Dormant Shell Companies, Press Rel. 2014-21 (February 
3, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540714936].
 

[40] In the Matter of Worldwide Capital, Inc., et al., Press Rel. 2014-
43 (March 5, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540883326].
 

[41] SEC Sanctions 19 Firms and Individual Trader for Short Selling 
Violations in Advance of Stock Offerings, Press Rel. 2014-195 
(September 16, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542963767].
 

[42] SEC v. John Babikian, Press Rel. 2014-52 (March 13, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541128311].
 

[43] SEC v. John Babikian, Litigation Rel. 23039 (July 8, 2014) 
[hyperlink, 
http://www.sec.gov/litigation/litreleases/2014/lr23039.htm]. 

[44] SEC v. Richard A. Altomare; SEC v. Jeffrey M. Berkowitz; SEC v. 
Eric S. Brown; and SEC v. Kevin McKnight, et al., SEC v. Billy V. Ray, 
Jr., et al., Press Rel. 2014-105 (May 22, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541881247].
 

[45] SEC v. Mikhail Galas, et al., Press Rel. 2014-159 (August 5, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542594818].
 

[46 SEC v. Michael S. Pagnano, et al. and In the Matter of Registrar 
and Transfer Company, et al., Press Rel. 2014 212 (September 23, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543021551].
 

[47] In the Matter of the Greater Wenatchee Regional Events Center 
Public Facilities District, et al., Press Rel. 2013-235 (November 5, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540262235].
 

[48] SEC v. United Neighborhood Organization of Chicago, et al. Press 
Rel. 2014-110 (June 2, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541965772].
 

[49] SEC v. City of Harvey, Illinois, et al., Press Rel. 2014-122 
(June 25, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542163027].
 

[50] In the Matter of Kings Canyon Joint Unified School District, 
Press Rel. 2014-133 (July 8, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542256676].
 

[51] In the Matter of the State of Kansas, Press Rel. 2014-164 (August 
11, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542629913].
 

[52] In the Matter of Further Lane Asset Management, LLC, et al.; In 
the Matter of GW & Wade, LLC; and In the Matter of Knelman Asset 
Management Group, LLC, et al., Press Rel. 2013-230 (October 28, 2013) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540098359].
 

[53] SEC Announces First Deferred Prosecution Agreement with 
Individual, Press Rel. No. 2013-241 (November 12, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540345373].
 

[54] SEC v. Berton M. Hochfeld et al., Litigation Rel. 22545 (November 
26, 2012) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2012/lr22545.htm]. 

[55] In the Matter of Ambassador Capital Management, LLC, et al., 
Press Rel. 2013-251 (November 26, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540414950].
 

[56] In the Matter of Ambassador Capital Management, LLC, et al., 
Initial Decision (September 19, 2014) [hyperlink, 
http://www.sec.gov/alj/aljdec/2014/id672ce.pdf]. 

[57] In the Matter of GLG Partners, Inc., et al., Press Rel. 2013-259 
(December 12, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540491613].
 

[58] In the Matter of Western Asset Management Company, et al., Press 
Rel. 2014-13 (January 27, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540675955].
 

[59] In the Matter of Clean Energy Capital, LLC, et al., Press Rel. 
2014-41 (February 25, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548].
 

[60] In the Matter of Michael A. Horowitz, et al.; In the Matter of 
Harold Ten, et al.; In the Matter of Howard Feder, et al.; and In the 
Matter of Marc Steven Firestone, et al., Press Rel. 2014-50 (March 13, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541121951].
 

[61] In the Matter of Michael A. Horowitz, et al., Press Rel. 2014-153 
(July 31, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542573818].
 

[62] In the Matter of Paradigm Capital Management, Inc., et al., Press 
Rel. 2014-118 (June 16, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542096307].
 

[63] In the Matter of TL Ventures Inc. and In the Matter of Penn 
Mezzanine Partners Management, L.P., Press Rel. 2014-120 (June 20, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542119853].
 

[64] In the Matter of Barclays Capital Inc., Press Rel. 2014-211 
(September 23, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543020599].
 

[65] SEC v. RBS Securities Inc., Press Rel. 2013-239 (November 7, 
2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540300002].
 

[66] In the Matter of Merrill Lynch, Pierce, Fenner & Smith 
Incorporated, Press Rel. 2013-261 (December 12, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540492377 

[67] In the Matter of Jefferies LLC, Press Rel. 2014-48 (March 12, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541108233 

[68] In the Matter of Morgan Stanley and Co. LLC, Press Rel. 2014-144 
(July 24, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542355594].
 

[69] In the Matter of Bank of America Corporation, Press Rel. 2014-172 
(August 21, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542719632].
 

[70] SEC v. CKB168 Holdings LTD., et al., Press Rel. 2013-223 (October 
17, 2013) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539880547].
 

[71] SEC v. World Capital Market Inc., et al., Press Rel. 2014-60 
(March 28, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541324305].
  

[72] SEC v. TelexFree, Inc., et al., Press Rel. 2014-79 (April 17, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541520559].
 

[73] SEC v. Robert J. Vitale, et al., Press Rel. 2014-83 (April 23, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541624638].
 

[74] In the Matter of Erik T. Voorhees, Press Rel. 2014-111 (June 3, 
2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541972520].
 

[75] SEC v. Trendon T. Shavers, et al., Litigation Rel. 23090 
(September 22, 2014) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2014/lr23090.htm]. 

[76] SEC Announces Charges Against Corporate Insiders for Violating 
Laws Requiring Prompt Reporting of Transactions and Holdings, Press 
Rel. 2014-190 (September 10, 2014) [hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542904678].
 

[77] SEC v. Todd A. Duckson, et al, Litigation Rel. 23036 (July 2, 
2014) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2014/lr23036.htm]. 

[78] SEC v. AIC, Inc., et al., Press Rel. 2014-157 (August 1, 2014) 
[hyperlink, 
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542590856].
 

[79] SEC v. Marlon Quan, et al., Litigation Rel. 23093 (September 25, 
2014) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2014/lr23093.htm]. 

[80] Statement on Jury’s Verdict in Case Against the Wylys (May 12, 
2014) [hyperlink, 
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370541799330]. 

[81 In the Matter of Michael C. French, Esq., Administrative 
Proceeding File No. 3-15933 (June 17, 2014) [hyperlink, 
http://www.sec.gov/litigation/admin/2014/33-9601.pdf]. 

[82] SEC v. Sage Advisory Group, LLC, et al., Litigation Rel. 23066 
(August 13, 2014) [hyperlink, 
http://www.sec.gov/litigation/litreleases/2014/lr23066.htm]. 

[End of section] 

Appendix C: SEC Divisions and Offices: 

Headquarters Offices: 

Division Of Corporation Finance: 
Keith F. Higgins, Director: 
(202) 551-3110: 

Division Of Enforcement: 
Andrew Ceresney, Director: 
(202) 551-4500: 

Division Of Investment Management: 
Norm Champ, Director: 
(202) 551-6720: 

Division Of Economic And Risk Analysis: 
Mark Flannery, Director: 
(202) 551-6600: 

Division Of Trading And Markets: 
Stephen Luparello, Director: 
(202) 551-5500: 

Office Of Acquisitions: 
Vance Cathell, Director: 
(202) 551-7300: 

Office Of Administrative Law Judges: 
Brenda P. Murray: 
Chief Administrative Law Judge: 
(202) 551-6030: 

Office Of The Chief Accountant: 
Paul A. Beswick, Chief Accountant: 
(202) 551-5300: 

Office Of The Chief Operating Officer: 
Jeffery Heslop, Chief Operating Officer: 
(202) 551-2200: 

Office Of Compliance: 
Inspections And Examinations: 
Andrew Bowden, Director: 
(202) 551-6200: 

Office Of Credit Ratings: 
Thomas J. Butler, Director: 
(212) 336-9080: 

Office Of Equal Employment Opportunity: 
Alta G. Rodriguez, Director: 
(202) 551-6040: 

Office Of Ethics Counsel: 
Shira Pavis Minton, Director: 
(202) 551-5170: 

Office Of Financial Management: 
Kenneth A. Johnson: 
Chief Financial Officer: 
(202) 551-7840: 

Office Of The General Counsel: 
Anne K. Small, General Counsel: 
(202) 551-5100: 

Office Of Human Resources: 
Lacey Dingman, Director: 
(202) 551-7500: 

Office Of Information Technology: 
Thomas A. Bayer, Chief Information Officer: 
(202) 551-8800: 

Office Of Inspector General: 
Carl W. Hoecker, Inspector General: 
(202) 551-6061: 

Office Of International Affairs: 
Paul A. Leder, Director: 
(202) 551-6690: 

Office Of The Investor Advocate: 
Rick Fleming, Investor Advocate: 
(202) 551-3302: 

Office Of Investor Education And Advocacy: 
Lori Schock, Director: 
(202) 551-6500: 

Office Of Legislative And Intergovernmental Affairs: 
Tim Henseler, Director: 
(202) 551-2010: 

Office Of Minority And Women Inclusion: 
Pamela A. Gibbs, Director: 
(202) 551-6046: 

Office Of Municipal Securities: 
John Cross, Director: 
(202) 551-5680: 

Office Of Public Affairs: 
John Nester, Director: 
(202) 551-4120: 

Office Of The Secretary: 
Brent Fields, Secretary: 
(202) 551-5400: 

Office Of Support Operations: 
Barry Walters, Director/Chief FOIA Officer: 
(202) 551-8400: 

Regional Offices: 

Atlanta Regional Office: 
Rhea Kemble Dignam, Regional Director: 
950 East Paces Ferry Road NE, Suite 900: 
Atlanta, GA 30326: 
(404) 842-7600: 
e-mail: atlanta@sec.gov: 

Boston Regional Office: 
Paul Levenson, Regional Director: 
33 Arch Street, Floor 23: 
Boston, MA 02110: 
(617) 573-8900: 
e-mail: boston@sec.gov: 

Chicago Regional Office: 
David Glockner, Regional Director: 
175 W. Jackson Boulevard, Suite 900: 
Chicago, IL 60604: 
(312) 353-7390: 
e-mail: chicago@sec.gov: 

Denver Regional Office: 
Julie K. Lutz, Regional Director: 
1961 Stout Street, Suite 1700: 
Denver, CO 80294: 
(303) 844-1000: 
e-mail: denver@sec.gov: 

Fort Worth Regional Office: 
David R. Woodcock, Jr., Regional Director: 
Burnett Plaza: 
801 Cherry Street: 
Suite 1900, Unit 18: 
Fort Worth, TX 76102: 
(817) 978-3821: 
e-mail: dfw@sec.gov: 

Los Angeles Regional Office: 
Michele Wein Layne, Regional Director: 
444 South Flower Street, Suite 900: 
Los Angeles, CA 90071: 
(323) 965-3850: 
e-mail: losangeles@sec.gov: 

Miami Regional Office: 
Eric I. Bustillo, Regional Director: 
801 Brickell Avenue, Suite 1800: 
Miami, FL 33131: 
(305) 982-6300: 
e-mail: miami@sec.gov: 

New York Regional Office: 
Andrew M. Calamari, Regional Director: 
Brookfield Place: 
200 Vesey Street, Suite 400: 
New York, NY 10281: 
(212) 336-1100: 
e-mail: newyork@sec.gov: 

Philadelphia Regional Office: 
Sharon Binger, Regional Director: 
One Penn Center: 
1617 John F. Kennedy Boulevard: 
Suite 520: 
Philadelphia, PA 19103: 
(215) 597-3100: 
e-mail: philadelphia@sec.gov: 

Salt Lake Regional Office: 
Karen L. Martinez, Regional Director: 
351 S. West Temple: 
Suite 6.100: 
Salt Lake City, UT 84101: 
(801) 524-5796: 
e-mail: saltlake@sec.gov: 

San Francisco Regional Office: 
Jina L. Choi, Regional Director: 
44 Montgomery Street, Suite 2800: 
San Francisco, CA 94104: 
(415) 705-2500: 
e-mail: sanfrancisco@sec.gov: 

[End of section] 

Appendix D: Glossary of Selected Terms: 

Advisers Act: 

The Investment Advisers Act of 1940 is a U.S. Federal law that was 
created to regulate the actions of investment advisers. 

Agency Financial Report (AFR): 

An annual requirement that provides financial and high-level 
performance results that enable the President, Congress, and the 
public to assess an agency’s accomplishments each fiscal year (October 
1 through September 30). This report includes audited financial 
statements and provides an overview of an agency’s programs, 
accomplishments, challenges, and management’s accountability for 
entrusted resources. The report is prepared in accordance with the 
requirements of Office of Management and Budget (OMB) Circular A-136, 
Financial Reporting Requirements. Under Circular A-136, agencies may 
prepare an Agency Financial Report (AFR) and Annual Performance Report 
(APR), or may combine these two reports into the Performance and 
Accountability Report (PAR). 

Alternative Trading System (ATS): 

A privately operated platform to trade securities outside of 
traditional exchanges. 

Annual Performance Report (APR): 

A report that outlines goals and intended outcomes of an agency’s 
programs and initiatives. This report provides program performance and 
financial information that enables the President, Congress, and the 
public to assess an agency’s performance and accountability over 
entrusted resources. 

Asset: 

An asset is a resource that embodies economic benefits or services 
that the reporting entity controls. 

Statement of Cash Flows: 

Reports a company’s inflows and outflows of cash over time by 
classification. 

Clawback Policies: 

Under the Dodd-Frank Act, all listed companies will eventually be 
required to institute a mechanism for reclaiming executive pay that 
had been granted under misstated earnings. 

Collateralized Debt Obligation (CDO): 

A type of structured asset-backed security (ABS) with multiple “tranches
” that are issued by special purpose entities and collateralized by 
debt obligations including bonds and loans. Each tranche offers a 
varying degree of risk and return so as to meet investor demand. 

Custodial Activity: 

Revenue that is collected, and its disposition, by a Federal agency on 
behalf of other entities is accounted for as a custodial activity of 
the collecting entity. SEC custodial collections include amounts 
collected from violators of securities laws as a result of enforcement 
proceedings. 

Crowdfunding: 

In the JOBS Act, a new means of raising capital enabling the raising 
of small amounts of equity capital without having to register with the 
SEC. 

Dark Pool: 

Alternative trading systems that display little or no information 
about customer orders are known as dark pools. 

Deposit Fund: 

Consists of funds that do not belong to the Federal Government, such 
as disgorgement, penalties, and interest collected and held on behalf 
of harmed investors, registrant monies held temporarily until earned 
by the SEC, and collections awaiting disposition or reclassification. 

Derivative: 

A contract between two parties that specifies conditions (dates, 
resulting values of the underlying variables, and notional amounts) 
under which payments are to be made between the parties. 

Disgorgement: 

A repayment of funds received or losses forgone, with interest, as a 
result of illegal or unethical business transactions. Disgorged funds 
are normally distributed to those affected by the action, but in 
certain cases may be deposited in the U.S. Treasury General. 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act): 

A Federal law that regulates the U.S. financial industry. The 
legislation, enacted in July 2010, created new financial regulatory 
processes that enforce transparency and accountability while 
implementing rules for consumer protection. 

Entity Assets: 

Assets that an agency is authorized to use in its operations. For 
example, the SEC is authorized to use all funds in the Investor 
Protection Fund (IPF) for its operations. 

Entity Accounts Receivable: 

Monies owed to the SEC generated from securities transaction fees and 
filing fees paid by registrants. 

Exchange Revenue: 

Exchange revenues are inflows of earned resources to an entity. 
Exchange revenues arise from exchange transactions, which occur when 
each party to the transaction sacrifices value and receives value in 
return. Examples include the sale of goods and services, entrance fees 
and most interest revenue. 

Fair Fund: 

A fund created by the SEC to return money to harmed investors. 

Federal Accounting Standards Advisory Board (FASAB): 

A U.S. Federal advisory committee sponsored by the Secretary of the 
Treasury, the Director of the Office of Management and Budget (OMB), 
and the Comptroller General of the United States, whose mission is to 
develop generally accepted accounting principles (GAAP) for the 
Federal Government. 

Federal Information Security Management Act (FISMA): 

A law that requires Federal agencies to conduct annual assessments of 
their information security and privacy programs, develop and implement 
remediation efforts for identified weaknesses and vulnerabilities, and 
report on compliance to the Office of Management and Budget (OMB). 

Financial Industry Regulatory Authority, Inc. (FINRA): 

A private corporation that acts as a self-regulatory organization 
(SRO). FINRA is the successor to the National Association of 
Securities Dealers, Inc. (NASD) and is a non-governmental organization 
that performs financial regulation of member brokerage firms and 
exchange markets. The Government organization which acts as the 
ultimate regulator of the securities industry, including FINRA, is the 
SEC. 

Fund Balance with Treasury (FBWT): 

A Federal entity’s fund balance with the U.S. Treasury (FBWT) is the 
amount of funds in the entity’s accounts with the U.S. Treasury for 
which the entity is authorized to make expenditures and pay 
liabilities and that have not been invested in Federal securities. 

Funds from Dedicated Collections: 

Accounts containing specifically identified revenues, often 
supplemented by other financing sources, that are required by statute 
to be used for designated activities, benefits or purposes, and must 
be accounted for separately from the Government’s general revenues. 
For example, Investor Protection Fund (IPF) resources are funds from 
dedicated collections and may only be used for the purposes specified 
by the Dodd-Frank Act. 

General Funds – Salaries and Expenses: 

Appropriations by Congress that are used to carry out the agency’s 
mission and day to day operations that may be used in accordance with 
spending limits established by Congress. 

Generally Accepted Accounting Principles (GAAP): 

Framework of accounting standards, rules, and procedures defined by 
the professional accounting industry. The Federal Accounting Standards 
Advisory Board (FASAB) is the body designated by the American 
Institute of Certified Public Accounting (AICPA) as the source of GAAP 
for Federal reporting entities. 

Imputed Financing: 

Financing provided to the reporting entity by another Federal entity 
covering certain costs incurred by the reporting entity. For example, 
some Federal employee retirement benefits are paid by the Federal 
Government’s central personnel office, the Office of Personnel 
Management (OPM). The SEC recognizes a financing source and 
corresponding expense to represent its share of the cost of providing 
pension and post-retirement health and life insurance benefits to all 
eligible SEC employees. 

Insider Trading: 

The buying or selling of a security by someone who has access to 
material, nonpublic information about the security. 

Intragovernmental Costs: 

Costs that arise from the purchase of goods and services from other 
components of the Federal Government. 

Investor Protection Fund (IPF): 

A fund established by the Dodd-Frank Act to pay awards to whistle-
blowers. The program requires the Commission to pay an award, under 
regulations prescribed by the Commission and subject to certain 
limitations, to eligible whistleblowers who voluntarily provide the 
Commission with original information about a violation of Federal 
securities laws that leads to the successful enforcement of a covered 
judicial or administrative action, or a related action. 

Jumpstart Our Business Startups (JOBS) Act: 

A Federal law enacted on April 5, 2012 intended to encourage small 
businesses within the U.S. by easing securities regulations for those 
businesses. 

Liability: 

A liability is a present obligation of the reporting entity to provide 
assets or services to another entity at a determinable date, when a 
specified event occurs, or on demand. 

Market Based Treasury Securities: 

Debt securities that the U.S Treasury issues to Federal entities 
without statutorily determined interest rates. 

Microcap Securities: 

Low priced stocks issued by the smallest of companies. 

Miscellaneous Receipt Account: 

A fund used to collect non-entity receipts from custodial activities 
that the SEC cannot deposit into funds under its control or use in its 
operations. These amounts are forwarded to the U.S. Treasury General 
Fund and are considered to be non-entity assets of the SEC. 

NASDAQ: 

The NASDAQ Stock Market, also known as simply NASDAQ, is an American 
stock exchange. NASDAQ originally stood for National Association of 
Securities Dealers Automated Quotations. It is the second-largest 
stock exchange by market capitalization in the world, after the New 
York Stock Exchange. 

Net Capital Rule Violations: 

Exchange Act Rule 15c3-1, known as the net capital rule, generally 
requires that every broker-dealer maintain a specified minimum level 
of liquid assets, or net capital. 

Non-Entity Assets: 

Those assets that are held by an entity but are not available to the 
entity. Examples of non-entity assets are disgorgement, penalties, and 
interest collected and held on behalf of harmed investors. 

Office of Management and Budget (OMB) Circular A-123: 

Defines management’s responsibilities for internal financial controls 
in Federal agencies. 

Office of Management and Budget (OMB) Circular A-136: 

Establishes a central point of reference for all Federal financial 
reporting guidance for Executive Branch departments, agencies, and 
entities required to submit audited financial statements, interim 
financial statements, and Performance and Accountability Reports 
(PAR), and Agency Financial Reports (AFR) under the Chief Financial 
Officers Act of 1990 (CFO Act), the Accountability of Tax Dollars Act 
of 2002, and Annual Management Reports under the Government 
Corporations Control Act. 

Performance and Accountability Reports (PAR): 

An annual report that provides program performance and financial 
information that enables Congress, the President, and the public to 
assess an agency’s performance and accountability over entrusted 
resources. 

Performance Indicators Results Summary: 

A summary of performance by outcome within each strategic goal. 

Pay to Play Schemes: 

Payments or gifts made to influence awarding of lucrative contracts 
for securities underwriting business. 

Public Company Accounting Oversight Board (PCAOB): 

A nonprofit corporation established by Congress to oversee the audits 
of public companies in order to protect the interests of investors and 
further the public interest in the preparation of informative, 
accurate, and independent audit reports. The PCAOB also oversees the 
audits of broker-dealers, including compliance reports filed pursuant 
to Federal securities laws, to promote investor protection. 

Pump and Dump Schemes: 

A form of micro stock fraud involving artificially inflating the price 
of an owned stock through false and misleading positive statements. 

Reserve Fund: 

A fund established by the Dodd-Frank Act that may be used by the SEC 
to obligate amounts up to a total of $100 million in one fiscal year 
as the SEC determines it necessary to carry out its functions. 

Scalping: 

The illegal practice of recommending that others purchase a security 
and secretly sell the same security contrary to the recommendation. 

Section 31 Fees: 

Transaction fees paid to the SEC based on the volume of securities 
that are sold on various markets. Under Section 31 of the Securities 
Exchange Act of 1934 (Exchange Act), self-regulatory organizations 
(SROs) – such as the Financial Industry Regulatory Authority (FINRA) 
and all of the national securities exchanges (including the New York 
Stock Exchange) – must pay transaction fees to the SEC based on the 
volume of securities that are sold on their markets. These fees 
recover the costs incurred by the Government, including the SEC, for 
supervising and regulating the securities markets and securities 
professionals. 

Securities Exchange Act of 1934 (Exchange Act): 

A law governing the secondary trading of securities (stocks, bonds, 
and debentures) in the United States. It was this piece of legislation 
that established the Securities and Exchange Commission. The Exchange 
Act and related statutes form the basis of regulation of the financial 
markets and their participants in the United States. 

Self-Regulatory Organization (SRO): 

An organization that exercises some degree of regulatory authority 
over an industry or profession. The regulatory authority could be 
applied in addition to some form of Government regulation, or it could 
fill the vacuum of an absence of Government oversight and regulation. 
The ability of an SRO to exercise regulatory authority does not 
necessarily derive from a grant of authority from the Government. 

Strategic Plan: 

A report initially required by the Government Performance and Results 
Act (GPRA) that defines the agency mission, long-term goals, 
strategies planned, and the approaches it will use to monitor its 
progress in addressing specific national problems, needs, challenges, 
and opportunities related to its mission. The Plan also presents 
general and long term goals the agency aims to achieve, what actions 
the agency will take to realize those goals, and how the agency will 
deal with challenges and risks that may hinder achieving result. 
Requirements for the Strategic Plan are presented in OMB Circular A-
11, Preparation, Submission and Execution of the Budget. 

U.S. Commodity Futures Trading Commission (CFTC): 

An independent agency of the U.S. Government that regulates futures 
and option markets. 

U.S. Exchanges: 

A place (physical or virtual) where stock traders come together to 
decide on the price of securities. 

U.S. Securities and Exchange Commission (SEC): 

The SEC is an independent agency of the U.S. Government established 
pursuant to the Securities Exchange Act of 1934 (Exchange Act), 
charged with regulating the country’s capital markets. It is charged 
with protecting investors, maintaining fair, orderly and efficient 
markets; and facilitating capital formation. 

[End of section] 

Appendix E: Acronyms: 

ADA: Antideficiency Act: 

AFR: Agency Financial Report: 

AICPA: American Institute of Certified Public Accountants: 

APR: Annual Performance Report: 

ATS: Alternative Trading Systems: 

CBOE: Chicago Board Options Exchange: 

CDO: Collateralized Debt Obligation: 

CDS: Credit Default Swap: 

CEO: Chief Executive Officer: 

CFO: Chief Financial Officer: 

CFR: Code of Federal Regulations: 

CFTC: Commodities Futures Trading Commission: 

CRQA: Center for Risk and Quantitative Analysis: 

CSRS: Civil Service Retirement System: 

DERA: Division of Economic and Risk Analysis: 

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection 
Act: 

DOL: U.S. Department of Labor: 

DOJ: U.S. Department of Justice: 

ECN: Electronic Communications Network: 

EDGAR: Electronic Data Gathering, Analysis and Retrieval: 

ERISA: Employee Retirement Income Security Act: 

ESC: Enterprise Service Center: 

ETF: Exchange-Traded Funds: 

Exchange Act: Securities Exchange Act of 1934: 

FASAB: Federal Accounting Standards Advisory Board: 

FBWT: Fund Balance with Treasury: 

FCPA: Foreign Corrupt Practices Act: 

FECA: Federal Employees’ Compensation Act: 

FedRAMP: Federal Risk and Authorization Management Program: 

FERS: Federal Employees Retirement System: 

FFMIA: Federal Financial Management Improvement Act: 

FINRA: Financial Industry Regulatory Authority: 

FISMA: Federal Information Security Management Act: 

FMFIA: Federal Managers’ Financial Integrity Act of 1982: 

FMOC: Financial Management Oversight Committee: 

FOIA: Freedom of Information Act: 

FSB: Financial Stability Board: 

FSIO: Financial Systems Integration Office: 

FSSP: Federal Shared Services Provider: 

FTC: Federal Trade Commission: 

FTE: Full-Time Equivalents: 

FY: Fiscal Year: 

GAAP: Generally Accepted Accounting Principles: 

GAO: Government Accountability Office: 

GPRA: Government Performance and Results Act: 

GSA: U.S. General Services Administration: 

GSS: General Support System: 

IAC: Investor Advisory Committee: 

ICFR: Internal Control over Financial Reporting: 

IOSCO :International Organization of Securities Commissions: 

IPERA: Improper Payments Elimination and Recovery Act of 2010: 

IPERIA: Improper Payments Elimination and Recovery Improvement Act of 
2012: 

IPIA: Improper Payments Information Act of 2002: 

IPO: Initial Public Offering: 

IT: Information Technology: 

JAB: Joint Authorization Board: 

JOBS Act: Jumpstart Our Business Startups Act: 

MCDC: Municipalities Continuing Disclosure Cooperation (Enforcement 
Initiative): 

MD&A: Management’s Discussion and Analysis: 

MIDAS: Market Information Data and Analytics System: 

MMoU: Multilateral memorandum of Understanding: 

MSRB: Municipal Securities Rulemaking Board:  

NASDAQ: National Association of Securities Dealers Automated 
Quotations: 

NEAT: National Exam Analytics Tool:  

NEP: National Examination Program: 

NIST: National Institute of Standards and Technology: 

NMS: National Market System: 

NPA: Non-Prosecution Agreement: 

NRSRO: Nationally Recognized Statistical Rating Organization: 

OA: Office of Acquisitions: 

OAR: Office of Analytics and Research: 

OCIE: Office of Compliance Inspections and Examinations: 

OCOO: Office of the Chief Operating Officer: 

OFAC: Office of Foreign Assets Control:  

OFM: Office of Financial Management:  

OGC: Office of the General Counsel: 

OHR: Office of Human Resources: 

OIA: Office of International Affairs: 

OIEA: Office of Investor Education and Advocacy: 

OIG: Office of Inspector General: 

OIP: Order Instituting Cease-and-Desist Proceedings: 

OIT: Office of Information Technology: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

ORA: Office of Risk Assessment: 

OTC: Over-the-Counter (trading): 

PCAOB: Public Company Accounting Oversight Board: 

PIA: Privacy Impact Assessment: 

QAU: Quantitative Analysis Unit: 

QRADS: Quantitative Research Analytical Data Support (program): 

RAE: Risk Analysis Examination Group: 

RAS: Office of Risk Analysis and Surveillance: 

REITS: Real Estate Investment Trusts: 

Reserve Fund: Securities and Exchange Commission Reserve Fund: 

RMBS: Residential Mortgage-Backed Securities: 

SA&A: Security Assessment and Authorization: 

S/L: Straight-Line: 

SBR: Statement of Budgetary Resources: 

SEC: U.S. Securities and Exchange Commission: 

SFFAS: Statement of Federal Financial Accounting Standards:  

SIP: Securities Information Processor:  

SIPA: Securities Investor Protection Act of 1970: 

SIPC: Securities Investor Protection Corporation: 

SPFI: Summary of Performance and Financial Information: 

SRO: Self-Regulatory Organization: 

SWG: Specialized Working Groups: 

TCP: Technology Controls Program: 

TCR: Tips, Complaints and Referrals: 

TSP: Thrift Savings Plan: 

UDO: Undelivered Order: 

VOIP: Voice Over internet Protocol: 

XBRL: eXtensible Business Reporting Language:  

[End of section] 

[End of section] 

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