A Fair Fund is a fund established by the

U.S. Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

(SEC) to distribute disgorgements (returns of wrongful profits) and penalties (fines) to defrauded investors. Fair Funds were established by the

Sarbanes–Oxley Act The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations. The act, (), also known as the "Public Company Accounting Reform and Investor Protecti ...

of 2002.

Purpose

Fair Funds hold money recovered from an SEC case, then choose how to distribute the money to defrauded investors, and does so, then terminates. Note that under ''Kokesh v. Securities and Exchange Commission'', 137 S. Ct. 1635 (2017),

disgorgement Disgorgement is defined by ''Black's Law Dictionary'' as "the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion." Overview Disgorgement is a remedy or penalty used in US securities law. For exampl ...

is considered a penalty, and therefore a

punishment Punishment, commonly, is the imposition of an undesirable or unpleasant outcome upon a group or individual, meted out by an authority—in contexts ranging from child discipline to criminal law—as a response and deterrent to a particular acti ...

History

Fair Funds were established by the

of 2002 (SOX), specifically 15 U.S.C. �
7246(a)
(the "Fair Fund Provision"). Prior to Sarbanes–Oxley, civil penalties obtained by the SEC based on actions under the securities laws were paid to the

United States Treasury The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and t ...

, and were not distributed by the SEC to investors who were injured by the securities fraud. SOX gave the SEC the right to distribute civil penalties to defrauded investors, at its discretion. Important caselaw in this regard was ''Official Committee of Unsecured Creditors of WorldCom, Inc. v. Securities and Exchange Commission,'' 467 F.3d 73 (2nd Cir. 2006) ("''Committee v. SEC''" or "''WorldCom''"), which found in favor of the SEC, affirming its right to discriminate between classes of investors, here discriminating in favor of investors who recovered less in bankruptcy court, and against those who received more.

References

* * * {{refend U.S. Securities and Exchange Commission Corporate crime Sarbanes–Oxley Act