A bipartisan group of senators have introduced a bill designed to increase the penalties for violations of securities laws and deter acts of fraud.
The Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2017 would increase the statutory limits on civil monetary penalties, linking the size of these penalties to the scope of harm and associated investor losses. The goal of this legislation is to create meaningful penalties to serve as an effective deterrent to crack down on fraud.
The bill was sponsored by Sens. Jack Reed (D-RI), Chuck Grassley (R-IA), Patrick Leahy (D-VT), and Heidi Heitkamp (D-ND).
The Securities and Exchange Commission (SEC) is currently constrained, in some cases, to penalizing individual violators 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.
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,” Reed said. “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.”
Grassley said the SEC needs strong penalties to protect the securities markets from bad actors.
“If a fine is just decimal dust for a Wall Street firm, that’s not a deterrent,” 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.”
Heitkamp said the law would help shield mom and pop investors from those who commit 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 first be considered by the Banking, Housing, and Urban Affairs Committee before going to the full U.S. Senate floor.