Bipartisan bill would raise SEC's limits on securities fines, tie penalties to scope of harm, and crackdown on repeat offenders
WASHINGTON, DC - In an effort to protect investors and strengthen oversight and accountability of Wall Street, U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) are introducing bipartisan legislation to strengthen the Securities and Exchange Commission's (SEC) ability to crack down on violations of securities laws.
The Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2015 updates and strengthens the SEC's civil penalties statute by increasing the statutory limits on civil monetary penalties, directly linking the size of these penalties to the scope of harm and associated investor losses, and substantially raising the financial stakes for repeat securities law violators.
Under existing law, the SEC in some cases can only penalize individual violators a maximum of $160,000 per offense and institutions $775,000. In other cases, the SEC may calculate penalties to equal the gross amount of ill-gotten gain, but only if the matter goes to federal court, not when the SEC handles a case administratively. The SEC Penalties Act increases the per-violation cap applicable to the most serious securities laws violations to $1 million per violation for individuals, and $10 million per violation for entities. It would also triple the penalty cap for recidivists who have been held criminally or civilly liable for securities fraud within the preceding five years. The agency would be able to assess these types of penalties in-house, and not just in federal court.
"This bipartisan bill gives the SEC the firepower it needs to crack down on Wall Street fraud and punish repeat offenders. More than half of all U.S. households own securities. They depend on the market to help secure their retirement and send their kids to college. They shouldn't have to suffer undue risk or incur losses while securities law violators get away with a slap on the wrist. Investors deserve real protection, and the law needs to change to ensure the punishment fits the crime. This bill gives the SEC more tools to demand meaningful accountability from Wall Street," said Reed, a senior member of the Senate Banking Committee. "I am pleased to be joined by Senator Grassley in this bipartisan effort to enhance the SEC's ability to protect investors and crack down on fraud."
"If a fine is just decimal dust for a Wall Street firm, that's not a deterrent," Grassley said. "It's just the cost of doing business. A penalty should mean something, and it should get the recidivists' attention. I especially like the increased penalties for repeat offenders in this bill. That should help change the dynamic of business as usual. If this legislation is enacted, as I hope it will be, I expect the SEC to use these new penalties. The SEC doesn't always use all of the penalties at its disposal, and it should."
SUMMARY: The SEC Penalties Act of 2015
Update Civil Money Penalties for Securities Law Violations. The bill modernizes and updates the maximum money penalties that may be obtained from individuals and entities charged with securities law violations in administrative and civil actions.
Most Serious Violations. The maximum penalty for an individual charged with the most serious violations (i.e., third tier violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement that resulted in substantial losses to victims or substantial pecuniary gain to the violator) could not exceed, for each violation, the greater of (i) $1 million, (ii) three times the gross pecuniary gain, or (iii) the losses incurred by victims as a result of the violation. The maximum amount that could be obtained from entities charged with the most serious violations could not exceed, for each violation, the greater of (i) $10 million, (ii) three times the gross pecuniary gain, or (iii) the losses incurred by victims as a result of the violation.
Other Violations. The maximum penalties for individuals and entities charged with other violations would be revised as follows:
1. The maximum penalty for an individual charged with less serious violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement (i.e., second tier violations) could not exceed, for each violation, $100,000 or the gross pecuniary gain as a result of the violation in some cases. The maximum penalty that could be obtained from entities charged with these violations could not exceed, for each violation, $500,000 or the gross pecuniary gain as a result of the violation in some cases.
2. The maximum penalty for an individual charged with violations not involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement (i.e., first tier violations) could not exceed, for each violation, $10,000 or the gross pecuniary gain as a result of the violation in some cases. The maximum penalty that could be obtained from entities charged with these violations could not exceed, for each violation, $100,000 or the gross pecuniary gain as a result of the violation in some cases.
Penalties for Recidivists. The maximum amount of the penalty for repeated misconduct shall be three times the applicable cap when the person or entity within the five years preceding the act or omission is held criminally or civilly liable for securities fraud.
Violations of Injunctions or Bars. The bill provides authority to seek civil penalties for violations of previously imposed injunctions or bars obtained or entered under the securities laws. It also provides that each violation of an injunction or order shall be considered a separate offense. However, in the event of an ongoing failure to comply with an injunction or order, each day of the continued failure to comply with the injunction or order shall be considered a separate offense.
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