As most of you know–and as some of you are fond of observing when I say something you disagree with–back in 2003, I was named in a civil fraud complaint the SEC brought against Wall Street after the dotcom research and investment-banking scandals. As you may also know, I paid $4 million (oof) to settle my share of that charge, and I got booted out of the securities industry.
What you may not know is what has happened to the $4 million. And there was some news on that yesterday. So let me explain.
Along with the other “restitution” payments made in the Global Research Settlement (12 firms and about $450 million in all), my $4 million went into a fund designed to compensate investors harmed by the research that was alleged to be deceptive. Investors who lost money were invited to submit claims. The fund administrator then evaluated the claims and doled out cash to the valid ones.
You couldn’t get money from the fund just by saying, “Hey, I lost money in dotcoms” because if that had been the only criteria, there would have been a line of investors from here to China with their hands out (and I would have been at the head of it). To get money, you had to show that you lost money because of the specific research that the SEC deemed corrupted by the influence of banking.
For several years after the fund was established, investors filed claims, and the fund administrator handed out about $285 million. When the claims stopped coming, the administrator launched a proactive effort to find more claimants, and this resulted in restitution payments of about another $100 million. Eventually, however, the claims stopped coming and no more claimants could be found, and a problem arose: What to do with the $79 million that was left?
The restitution process had required investors to file claims based on specific stocks and specific research, so the amount left over differed by firm (see below). Morgan Stanley, for example, paid $25 million into the fund, and $300,000 of this went unclaimed. Citigroup paid $158 million into the fund, and $8 million went unclaimed.
In my case, the total claims were actually smaller than the interest earned on my $4 million restitution payment, so there was $4.2 million left over (yay!).
Once all the claims were paid, the parties to the settlement–and the general public–were invited to make suggestions as to what to do with the remaining cash. Some suggested that it be divvied up among the investors who had already received money. Some suggested it go to investor education clinics. Some suggested it be given to the SEC. Etc.
When the call for suggestions went out, I will confess to wondering momentarily whether, since all the claims had been paid, the rest might be given back. Of course, under the terms of the settlement, this was prohibited. I was also informed that it would be inappropriate to suggest that the money be dropped from helicopters. So, in the end, I suggested that it go where I was told most of these things eventually go: To the Treasury.
And that’s where it’s going!
The honorable Judge William Pauley released his decision yesterday (embedded below). He has decided that the remaining $79 million of the Global Research Settlement restitution fund–including my $4 million contribution and $200,000 of interest–is headed to the Treasury. And Lord knows they need it.
Now, I would like to think that my specific restitution funds will soon be spent on the happy things our government buys, such as higher teacher salaries, or body armour, or high-speed trains.
Others will presumably conclude, however, that they will actually be spent bailing out Bank of America.