Bipartisan Legislation Seeks to Strengthen SEC Enforcement and Increase Penalties for Securities Law Violators

Strategic Insights -

As more than half of all U.S. households own securities, Wall Street investors are increasingly dependent on the market to help secure their retirement and send their kids to college. However, this burden is compounded by the existing cap on civil monetary penalties, which in some cases can only penalize individual violators a maximum of $160,000 per offense and institutions $775,000. A new bipartisan bill, the Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2015, aims to rectify this issue by updating and strengthening the SEC's civil penalties statute. This legislation, introduced by U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA), would increase the statutory limits on civil monetary penalties, directly linking the size of these penalties to the scope of harm and associated investor losses.

Key Takeaways:

  • The SEC Penalties Act of 2015 updates and strengthens the SEC's civil penalties statute by increasing the statutory limits on civil monetary penalties.
  • The bill 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 maximum penalty for recidivists who have been held criminally or civilly liable for securities fraud within the preceding five years would be tripled.
  • The SEC would have the authority to assess these penalties in-house, not just in federal court.
  • The bill provides authority to seek civil penalties for violations of previously imposed injunctions or bars obtained or entered under the securities laws.
  • Each violation of an injunction or order would be considered a separate offense, and each day of continued failure to comply with the injunction or order would also be considered a separate offense.

Statistics:

  • Existing law imposes a maximum penalty of $160,000 per offense for individual violators and $775,000 for institutions in some cases.
  • The proposed legislation would increase the per-violation cap to $1 million per violation for individuals and $10 million per violation for entities.
  • The maximum penalty for recidivists who have been held criminally or civilly liable for securities fraud within the preceding five years would be tripled.
  • Over 50% of U.S. households own securities, making them increasingly dependent on the market.

Sources:

  • 1. Statement by Senator Jack Reed.
  • 2. Statement by Senator Chuck Grassley.
  • 3. Summary of the SEC Penalties Act of 2015.
  • 4. Congressional Bill Details for SEC Penalties Act of 2015.