Senators Jack Reed, D-Rhode Island, and Chuck Grassley, R-Iowa, have introduced new legislation that would put more teeth in the SEC's efforts to crack down on Wall Street misdoers—particularly for repeat offenders.
The Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2015 increases statutory limits on civil monetary penalties, and directly ties penalty size to the scope of harm and associated investor losses. It also substantially raises the financial stakes for repeat securities law violators.
Existing law limits the SEC's ability to penalize violators in some cases, with individuals subject to 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 ends up in federal court. If the SEC handles a case administratively, it can't impose such large penalties.
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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. It would also triple the penalty cap for repeat offenders 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.
Reed, a senior member of the Senate Banking Committee, said in a statement, "More than half of all U.S. households own securities. They depend on the market to help secure their retirement and send their kids to college. They shouldn't have to suffer undue risk or incur losses while securities law violators get away with a slap on the wrist. Investors deserve real protection, and the law needs to change to ensure the punishment fits the crime."
Grassley, who is also a member of the committee, said he expected the SEC to use the higher penalties if the bill passes.
"The SEC doesn't always use all of the penalties at its disposal, and it should," he said, adding, "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. A penalty should mean something, and it should get the recidivists' attention." The increased penalties for repeat offenders, he pointed out, "should help change the dynamic of business as usual."
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