Fair Funds for Investors – Definition

Cite this article as:"Fair Funds for Investors – Definition," in The Business Professor, updated July 30, 2019, last accessed October 19, 2020, https://thebusinessprofessor.com/lesson/fair-funds-for-investors-definition/.


Fair Funds for Investors Definition

The Fair Funds for Investors is a provision clearly stated in Section 308(a) of the Sarbanes-Oxley Act of 2002. This provision gives protection to investors that have lost their investment capital due to unethical practices of the companies they invest in. The Securities and Exchange Commission (SEC) created the Fair Funds for Investors. It is designed to provide disgorgements for investors that have fallen victim of illegal activities of companies and have lost their money in the process. Penalties collected from this type of companies are also distributed to the investors.

A Little More on What is  Fair Funds for Investors

The securities and Exchange Commission has the responsibility of recovering penalties from companies who violated securities laws and regulations. Before the Sarbanes-Oxley Act of 2002 made provision for Fair Funds for Investors, the penalties collected from erring and unethical companies were not distributed to investors who lost their money. Rather, they were disbursed to the United States Treasury.

The Fair Funds Provision enabled the SEC to distribute penalties and disgorgement as a way of relieving investors that have suffered losses as a result of illegal activities of a company or an individual in terms of investment funds.

Research on the Fair Funds Provision

Despite that there were many criticisms against the Fair Funds Provision when it first started, this provision has recorded huge successes since its inception. Between 2002 and 2014, a sum of $14.33 billion has been distributed as compensation for defrauded investors. This was released by a 2014 study published in the Stanford Law Review. The research was carried out by Urska Velikonja.

The findings of the research also included that fair funds performs better than private securities litigation when it comes to getting compensation for securities law violations. Also, fair funds had a wide coverage than the litigation that only gives compensation for accounting fraud.

References for “Fair Funds for Investors”


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