Bill Would Add Bigger Teeth To SEC Bite

Bipartisan legislation aimed at prodding the Securities and Exchange Commission into coming down harder on companies and individuals who violate securities laws was introduced Thursday in the Senate.

The bill focuses on the SEC’s civil penalties authority by increasing the statutory limits on civil monetary penalties

It does so by 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.

The bill, introduced by Sens. Charles Grassley, R-Iowa, and Jack Reed, D-R.I., is the Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2015.

Reed is a senior member of the Senate Banking Committee, and through seniority could have become the ranking minority member of the banking panel. It gave that up in order to assume a senior position on the Senate Foreign Relations Committee. Grassley is former chairman of the Senate Finance Committee and a senior Senate Republican.

Grassley and Reed explained that under existing law, the SEC in some cases can only 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.

They explained that the proposed law 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 gives the SEC the firepower it needs to crack down on Wall Street fraud and punish repeat offenders,” Reed explained.

This bill gives the SEC more tools to demand meaningful accountability from Wall Street,” Reed said.  “I am pleased to be joined by Senator Grassley in this bipartisan effort to enhance the SEC’s ability to protect investors and crack down on fraud.”
Grassley added that, “If a fine is just decimal dust for a Wall Street firm, that’s not a deterrent.”

No hearings on the issue have been scheduled, but the SEC’s policy toward wrong-doers in the aftermath of the recent economic crisis has generated strong criticism.

The provision could be added to legislation proposed by Sen. Richard Shelby, R-Ala., chairman of the banking panel, and pushed through the committee last month along partisan lines. The bill would have the effect of rolling back the authority of federal regulators to oversee insurers, but is in limbo because it has no Democratic support and the White House has threatened a veto. This provision therefore could serve as a potential sweetener to Democrats.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].