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Proposed Act to Impose the "toughest penalties in history for financial fraud..."

In a speech yesterday, U.S. Representative Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, explained some details of his proposed Financial CHOICE Act.

As one might expect in an election year, Chairman Hensarling’s announcement has been met with both immediate support and criticism.  One aspect of his proposal is worth mentioning for potential SEC whistleblowers and SEC whistleblower law firms.

On page 9 of his prepared remarks for the speech, Chairman Hensarling states:

...the Financial CHOICE Act will impose the toughest penalties in history for financial fraud, self-dealing and deception.
We will double the cap for the most serious securities law violations and will allow for triple monetary fines when penalties are tied to illegal profits.  We will give the SEC new authority to impose sanctions more closely linked to investor losses – and increase punishments even more for repeat offenders.  We will increase the maximum criminal fines for both individuals and firms that engage in insider trading.
excerpt from hensarling 2016 speech
Excerpt from Chairman Hensarling's speech

Section Five of the Executive Summary of the proposed Act states that the legislation will “demand accountability from Wall Street through enhanced penalties for fraud and deception”.  According to the Executive Summary, among other things the legislation aims to:

  • Impose enhanced penalties for financial fraud and self-dealing and promote greater transparency and accountability in the civil enforcement process.
  • Allow the SEC to triple the monetary fines sought in both administrative and civil actions in certain cases where the penalties are tied to the defendant’s illegal profits.  Give the SEC new authority to impose sanctions equal to investor losses in cases involving “fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement” where the loss or risk of loss is significant, and increase the stakes for repeat offenders.
Excerpt from the Executive Summary

Potential SEC whistleblowers and SEC whistleblower law firms might want to consider the proposed Financial CHOICE Act in conjunction with the report released by U.S. Senator Elizabeth Warren (D-Mass) earlier this year titled “Rigged Justice: 2016, How Weak Enforcement Lets Corporate Offenders Off Easy”.

At this time there is no way to know what will ultimately become of the Financial CHOICE Act or the Rigged Justice report, or what impact they may have on SEC whistleblowers.  But they are enlightening in that, taken together, they demonstrate bipartisan support in favor of increased SEC penalties and increased accountability for corporate wrongdoers.  They also demonstrate that these issues have been taken up by prominent leaders in not one but both houses of Congress.

Increased accountability is a significant issue for potential SEC whistleblowers who want the SEC to be able to stop the wrongdoing and to save people from being victimized by the frauds that they have uncovered.

Increased SEC penalties can be significant, because under the SEC Whistleblower Award Program, if one or more whistleblowers provide information to the SEC that it uses to bring a successful action in which it collects more than $1 million from the wrongdoers, the SEC is required to give the whistleblower(s) a monetary award of between 10% - 30% of the amount of money it collects, assuming all other requirements are met.

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The Pickholz Law Offices represents U.S. and international clients in securities and white collar cases. The Firm has helped whistleblowers report frauds to the SEC, CFTC, and IRS, and has defended clients in investigations by the SEC, CFTC, DOJ, FINRA, and other financial and securities enforcement regulators.

The Firm’s founder, Jason Pickholz, is the author of the two-volume book Securities Crimes, has appeared on tv and radio, and has taught continuing legal education courses. A former BigLaw partner, he has been representing clients in financial and securities fraud cases since 1995. In recognition of his many achievements, Mr. Pickholz was elected by his legal peers to be a Fellow of The New York Bar Foundation, an honor limited to just 1% of all attorneys in the New York State Bar Association.

Mr. Pickholz has been counsel in many high-profile cases. He was the first attorney ever to win an SEC whistleblower award on appeal to the Commission, which Inside Counsel magazine called one of the five key events in the history of the SEC whistleblower program. On the defense side, Mr. Pickholz has defended clients in the SEC’s COVID-19 investigations, the CFTC’s cryptocurrency cases, and a former US Senator, among others.

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