3/30/2017 — 

WASHINGTON, DC – In an effort to protect investors and strengthen oversight and accountability of Wall Street, U.S. Senators Jack Reed (D-RI), Chuck Grassley (R-IA), Patrick Leahy (D-VT), and Heidi Heitkamp (D-ND) today introduced 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 2017 would update and strengthen 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.  The goal of this legislation is to create meaningful penalties to serve as an effective deterrent to crack down on fraud.

Under existing law, the SEC is constrained to penalizing violators in some cases to a maximum of $181,071  per offense and institutions to $905,353.  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. 

This bill strives to make potential and current offenders think twice before engaging in misconduct by increasing the maximum civil monetary penalties permitted by statute, directly linking the size of the maximum penalties to the amount of losses suffered by victims of a violation, and substantially raising the financial stakes for repeat offenders of our nation's securities laws.

Specifically, 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 will enhance the ability of securities regulators to protect investors, deter Wall Street fraud, and punish repeat offenders.  Slightly more than half of all U.S. households are invested in the stock market.  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 laws 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 Senator Reed, a senior member of the Senate Banking Committee.  “I am pleased to be joined by Senators Grassley, Leahy, and Heitkamp 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,” Senator Grassley said.  “It’s just the cost of doing business.  A penalty should mean something, and it should get the recidivists’ attention.  I welcome the increased penalties for repeat offenders in this bill.   That step should help change the dynamic of business as usual.  The SEC should have strong penalties in place to protect the securities markets from bad actors.”

Senator Leahy said: “Congress has worked in recent years to rein in Wall Street abuses and recklessness.  But it is past time for the penalties for violating our laws to actually deter bad behavior, not just reflect the damage that results.  Americans on Main Street have suffered, while Wall Street has flourished.   With the SEC Penalties Act, we are telling Wall Street that it will be held accountable.  Getting caught breaking the law should never be a mere cost of doing business.”

“We can do more to shield North Dakota mom and pop investors from those who commit fraud, and we can do it by making sure those who are looking to circumvent the law know they won’t get away with it so easily,” said Senator Heitkamp. “Flouting the law at the expense of North Dakota families should never be acceptable – and our bipartisan legislation would help deter future cases of fraud. By implementing stricter penalties for financial institutions and individuals alike who violate securities laws, we’re drawing a firm line to stand behind every day investors – from small businesses to parents looking to save for their children’s college education, helping instill more confidence going forward for North Dakota families who will know their investments are protected.”

The bill must be considered by the Banking, Housing, and Urban Affairs Committee before it may be voted on by the full U.S. Senate.

SUMMARY: The SEC Penalties Act of 2017

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:

  • 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.
  • 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.