Senators Introduce Bi-Partisan Bill To Increase SEC Penalties
Yesterday, four U.S. Senators
introduced
a bi-partisan bill to increase civil penalties under the
Federal securities laws.
The name of the bill is the Stronger Enforcement of Civil
Penalties Act, otherwise known as the “SEC Penalties Act”. It
was introduced by Senator Jack Reed (D-RI), Senator Chuck Grassley (R-IA), Senator Patrick Leahy (D-VT), and Senator Heidi Heitkamp (D-ND).
The two primary monetary remedies available to the U.S.
Securities and Exchange Commission (“SEC”) are disgorgement
and penalties. Broadly speaking, “disgorgement” means having
to give back ill-gotten gains. “Penalties” are separate from
and in addition to disgorgement. Presently, the amount of the
penalties that the SEC can seek is limited by statute.
Enhanced Penalties Under The Act
According to the Senators, the SEC Penalties Act would (1)
raise the maximum amounts of civil monetary penalties; (2)
link the size of the maximum penalties to the amount of losses
suffered by victims; and (3) add new monetary penalties for
repeat offenders of the nation’s securities laws.
News Release on Senator Reed’s web page.
As explained in a
news release
posted on Senator Reed’s web page, the SEC Penalties Act would
raise the maximum penalty on entities (companies) to the
greater of: (a) $10 million per violation; (b) three times
the violator’s gross pecuniary gain from the fraud or
violation; or (c) the amount of the victims’ losses due to the
fraud or violation.
Recidivists And Others
The Act would define a recidivist as a person or entity who
was held criminally or civilly liable for securities fraud
within the previous five years.
For recidivists, the Act would raise the maximum penalty to
three times the normal cap.
In addition, the SEC would be allowed to seek civil penalties
against people or entities that violate injunctions or bars
previously entered or obtained against them under the
securities laws. Each violation of an injunction or order
would be considered a separate offense. If the failure to
comply with an injunction or order is ongoing, each day that
the person or entity fails to comply would be considered a
separate offense.
A Sign Of A Potential Trend In Congress?
The SEC Penalties Act may be the latest indication of some
possible bi-partisan trends developing in Congress.
The first potential trend may be increased support for the
enhancement of financial penalties for committing securities
or financial fraud.
Approximately nine months ago, U.S. Representative Jeb
Hensarling (R-Texas),
Chairman of the House Financial Services Committee, announced
his proposed Financial CHOICE Act. At the time, Chairman
Hensarling claimed that the CHOICE Act would impose the “toughest penalties in history
for financial fraud, self-dealing and deception.”
Chairman Hensarling’s announcement followed on the heels of a
report released by U.S. Senator Elizabeth Warren (D-Mass) titled “Rigged Justice: 2016,
How Weak Law Enforcement Lets Corporate Offenders Off
Easy”.
A Sign Of Another Potential Trend?
A second potential trend may be increasing bi-partisan support
for the SEC,
SEC whistleblowers, and their
combined efforts to rein in corporate and securities frauds.
In addition to the bi-partisan SEC Penalties Act, Chairman
Hensarling’s CHOICE Act, and Senator Warren’s Rigged
Justice report, there seems to be developing some
bi-partisan support for recognizing and protecting
whistleblowers.
Last month, two Committee Chairmen in the U.S. Senate, both
ranking Republicans,
sent a letter
to the Acting Chairman of the CFTC urging it to take stronger
steps to protect whistleblowers. Their letter was copied to
the two ranking
Democratic Members of
their respective Committees.
That letter was reminiscent of an earlier
letter to the SEC
pushing for stronger protections for SEC whistleblowers. That
letter was signed by eight
Democratic Members of the
U.S. House of Representatives.
Welcome News For SEC Whistleblowers And SEC Whistleblower Law
Firms
If these trends continue to develop, it could be welcome news
for an SEC whistleblower or
SEC whistleblower lawyer
who has concerns about the recent rhetoric about “dismantling”
Dodd-Frank.
In addition, as I have
written about previously, once enacted, federal whistleblower programs have
historically enjoyed bi-partisan support.
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