Senate bill to increase penalties for securities scofflaws

A bipartisan group of U.S. Senators wants to increase the penalties on securities scofflaws through a new bill entitled "The SEC Penalties Act."

U.S. Capitol Building, Senate Side. (Public domain image via Wikipedia entry on U.S. Senate)

WASHINGTON, April 8, 2017 — A bipartisan group of U.S. Senators wants to increase the penalties on securities scofflaws. A bill entitled “The SEC Penalties Act” was released at the end of March and was co-sponsored by Iowa Republican Chuck Grassley, Rhode Island Democrat Jack Reed, North Dakota Democrat Heidi Heitkamp, and Vermont Democrat Pat Leahy. The legislation seeks to increase exponentially the maximum fine for securities violations.

According to a press release from Senator Reed’s office,

“The Stronger Enforcement of Civil Penalties Act (SEC Penalties Act) of 2017 would update and strengthen the SEC’s civil penalties statute by increasing the statutory limits on civil monetary penalties, 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 goal of this legislation is to create meaningful penalties to serve as an effective deterrent to crack down on fraud.

“Under existing law, the SEC is constrained to penalizing violators in some cases 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.

“This bipartisan bill will enhance the ability of securities regulators to protect investors, deter Wall Street fraud, and punish repeat offenders. Slightly more than half of all U.S. households are invested in the stock market. 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 laws violators get away with a slap on the wrist.”

“If a fine is just decimal dust for a Wall Street firm, that’s not a deterrent,” Senator 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. The SEC should have strong penalties in place to protect the securities markets from bad actors.”

The bill now heads to the Senate Banking Committee, where Heitkamp and Reed are members. If the bill passes out of that committee, it will proceed to a vote by the full Senate before heading to the US House of Representatives on a similar path.

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