BREAK IN TRANSCRIPT
Mr. REED. Mr. President, today I am reintroducing the Strengthening Enforcement of Civil Penalties Act or the SEC Penalties Act with my colleague, Senator GRASSLEY. I am pleased that Senator LEAHY has joined us in introducing the bill this year.
The SEC Penalties Act will enhance the ability of securities regulators to protect investors and demand greater accountability from market players. Unfortunately, even after the financial crisis that crippled the economy, some on Wall Street continue to pursue profits at all costs, making the calculated decision to do wrong and move on. Without the consequence of meaningful penalties to impact decision-making, I fear we will continue to witness a disturbing culture of misconduct by some on Wall Street.
The current regime for securities law violations limits by statute the amount of penalties the Securities and Exchange Commission, SEC, can fine an institution or individual. During hearings I held in 2011 in the Securities, Insurance, and Investment Banking Subcommittee, I found out how this limitation significantly ties the hands of the SEC in performing its enforcement duties. At that time, the agency had been criticized by a Federal judge for not obtaining a larger settlement against Citigroup, a major player in the financial crisis that ended up settling with the SEC in an amount that was a fraction of the cost the bank had inflicted on investors and the profits the bank had ultimately pocketed. The SEC explained that the low settlement amount was because it was statutorily prohibited from levying a larger penalty.
The bill we are introducing seeks to substantially update and strengthen the SEC's civil penalties statute. This legislation should cause potential and current offenders to think twice before engaging in misconduct 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 offenders of our nation's securities laws.
Specifically, our bill would increase the per violation cap for the most egregious securities laws violations to $1 million per offense for individuals and $10 million per offense for entities. This will help ensure that the SEC's most severe, or ``tier three,'' penalties will help deter people from engaging in the most serious offenses, rather than have such wrongdoing be viewed as just the cost of doing business. Under existing law, the SEC can only penalize individual securities law violators a maximum of $150,000 per offense and institutions $725,000 per offense.
Our bill also would allow penalties equal to three times the economic gain of the violator. It provides a new calculation method that includes the amount of associated investor losses as part of the penalty determination. This should allow the SEC to address situations where the actual economic gain to the violator is relatively small compared to the extent of the wrongdoing or the harm caused to investors.
The SEC Penalties Act also addresses the disconcerting trend of repeat offenders on Wall Street. Our bill includes two statutory changes to substantially improve the ability of the SEC's enforcement program to ratchet up penalties for recidivists.
One provision would allow the SEC to triple the applicable penalty cap for recidivists who, within the preceding five years, have been criminally convicted of securities fraud or been the subject of a judgment or order imposing monetary, equitable, or administrative relief in any action alleging SEC fraud.
The other provision would allow the SEC to seek a civil penalty if an individual or entity has violated an existing federal court injunction or bar imposed by the SEC. Many believe this approach would be more efficient, effective, and flexible than the current civil contempt remedy.
Finally, under the SEC Penalties Act, the penalty relief available in administrative proceedings would be the same as it is in district court.
The nearly one-half of all U.S. households that own securities deserve a strong cop on the beat that has the tools it needs to go after fraudsters and the difficult cases arising from our increasingly complex financial markets. The SEC Penalties Act will help by giving the SEC more tools to demand meaningful accountability from Wall Street and protect investors, which in turn will improve transparency and increase confidence in our financial system. I urge my colleagues to support this important bipartisan legislation.
BREAK IN TRANSCRIPT