Risk & Compliance

Bipartisan Legislation to Strengthen SEC Penalties

The bill raises maximum penalties for securities law violations and increases fines for repeat offenders.
Katie Kuehner-HebertJuly 10, 2015
Bipartisan Legislation to Strengthen SEC Penalties

U.S. senators on both sides of the aisle on Thursday introduced legislation to strengthen the Securities and Exchange Commission’s ability to crack down on violations of securities laws.

Senate Banking Committee members Senators Jack Reed, Rhode Island Democrat, and Chuck Grassley, Iowa Republican, jointly announced 
The Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2015. The bill seeks to increase 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 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.

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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.

The legislation also seeks to 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, 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,” Reed said in the joint press release. “Investors deserve real protection, and the law needs to change to ensure the punishment fits the crime.”

Grassley said that if a fine is “just decimal dust for a Wall Street firm, that’s not a deterrent.”

“It’s just the cost of doing business,” he said.  “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.”

Grassley also said that if the bill is enacted, he expects the SEC to actually use the new penalties.

“The SEC doesn’t always use all of the penalties at its disposal, and it should,” he said.

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