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Senators Introduce Bi-Partisan Bill To Increase SEC Penalties

Congressional Record

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.

Announcement on Senator Reed's Web page
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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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.

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