Sen. Reed Issues Statement on Stronger Enforcement of Civil Penalties Act

WASHINGTON, June 22 -- Sen. Jack Reed, D-Rhode Island, issued the following floor statement, which was published in the Congressional Record on June 21, 2021:

Mr. President, today I am reintroducing the Stronger Enforcement of Civil Penalties Act along with Senator Grassley and Senator Leahy. This bill will help securities regulators better protect investors and demand greater accountability from market players. Even in the midst of an unprecedented public health and economic emergency, we continue to see calculated wrongdoing by some on Wall Street, and without the consequence of meaningful penalties to serve as an effective deterrent, I worry this disturbing culture of misconduct will persist.

The amount of penalties the Securities and Exchange Commission (SEC) can fine an institution or individual is restricted by statute. During hearings I held in 2011 as Chairman of the Banking Committee's Securities, Insurance, and Investment Subcommittee, I learned how this limitation significantly interferes with the SEC's ability to execute its enforcement duties. At that time, a Federal judge had criticized the SEC for not obtaining a larger settlement against Citigroup, a major actor in the financial crisis that settled with the agency in an amount that was far below the cost the bank had inflicted on investors.

The SEC indicated that a statutory prohibition against levying a larger penalty led to the low settlement amount. Indeed, then SEC Chairman Mary L. Schapiro in 2011 also explained that "the Commission's statutory authority to obtain civil monetary penalties with appropriate deterrent effect is limited in many circumstances."

The bipartisan bill we are reintroducing aims to update the SEC's outdated civil penalties statutes. This bill strives to make potential and current offenders think twice before engaging in misconduct by raising the maximum statutory civil monetary penalties, directly linking the size of the penalties to the amount of losses suffered by victims of a violation, and substantially increasing the financial stakes for serial offenders of our nation's securities laws.

Specifically, our bill would broaden the SEC's options to tailor penalties to the particular circumstances of a given violation. In addition to raising the per violation caps for severe, or "third tier," violations to $1 million per offense for individuals and $10 million per offense for entities, the legislation would also give the SEC more options to collect greater penalties based on the ill-gotten gains of the violator or on the financial harm to investors.

Our bill also seeks to deter repeat offenders on Wall Street through two provisions. The first would authorize the SEC to triple the penalty cap applicable to recidivists who have been held either criminally or civilly liable for securities fraud within the previous five years. The second would allow the SEC to seek a civil penalty against those who violate existing federal court or SEC orders, an approach that would be more efficient, effective, and flexible than the current civil contempt remedy. These updates would greatly enhance the SEC's ability to levy robust penalties against repeat offenders.

According to the SEC's FY 2022 Congressional Budget Justification, "the SEC is responsible for reviewing the disclosures and financial statements of more than 7,400 reporting companies." The SEC further notes that a "record 67 million U.S. families held direct and indirect stock holdings in 2019, up 13 percent from 2010," and the agency is "charged with overseeing approximately $100 trillion in annual securities trading on U.S. equity markets and the activities of more than 28,000 registered entities." All of our constituents deserve a strong regulator that has the necessary tools to go after fraudsters and pursue the difficult cases arising from our increasingly complex financial markets. The Stronger Enforcement of Civil Penalties Act will enhance the SEC's ability to demand meaningful accountability from Wall Street, which in turn will increase transparency and confidence in our financial system. I urge our colleagues to support this important bipartisan legislation.

TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact MYRON STRUCK, editor, editor@targetednews.com, Springfield, Virginia; 703/304-1897; https://targetednews.com