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Public Statements

Statements on Introduced Bills and Joint Resolutions

Floor Speech

Location: Washington, DC


Mr. REED. Today I am introducing bipartisan legislation to address a matter that I explored as chairman of the Banking Subcommittee on Securities, Insurance, and Investment. During a series of hearings, it became increasingly clear to me that in order to protect taxpayers and investors, we need tougher anti-fraud laws and better oversight of Wall Street. Some of these institutions that are ``too big to fail'' have also become ``too big to care.'' We need to end the cycle of misconduct where such institutions can look at the bottom line and see they can break the law, get caught, pay a nominal fine, and still profit.

At a Securities and Exchange Commission, SEC, oversight hearing I held in November 2011, I asked Robert Khuzami, director of the Division of Enforcement at the SEC, why a recently proposed settlement with Citigroup had been thrown out by a Federal judge in the Southern District of New York, who believed it to be egregiously low. Mr. Khuzami replied that the SEC's ability to assess penalties was actually limited by the statute. In follow-up questions, I directly asked if Congress should consider raising these limits, especially in cases involving repeated offenders. I subsequently received a letter from SEC Chairman Schapiro, and written answers from Mr. Khuzami, supporting the need to raise the limits and make other improvements to the SEC civil enforcement statute.

As a result, I am introducing today with my colleague, Senator Chuck Grassley, the Stronger Enforcement of Civil Penalties Act of 2012 or the SEC Penalties Act. This bill will strengthen the ability of the SEC to crack down on violations of securities laws by updating its civil penalties statute. This legislation will ensure that the punishment better fits the crime 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.

Our bill will 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 will also toughen penalties by allowing penalties equal to three times the economic gain of the violator. It also 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.

In the recent case involving Citigroup, existing law did not even entitle the SEC to recover the amount actually lost by investors. Estimated investors losses were about $700 million, but the SEC proposed to settle the case with Citigroup for only $285 million. This amount was what was estimated to be close to the total monetary recovery that the SEC itself could have obtained if it had gone to trial. Under our bill, this amount could have been much larger, and would have taken into account the economic gain to Citigroup, in addition to investor losses.

Recent reports have highlighted the level of repeat offenses that have occurred on Wall Street and gone unchecked. The SEC Penalties Act includes two statutory changes that would substantially improve the ability of the SEC's enforcement program to ratchet up penalties as recidivism occurs.

One 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 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 will be the same as it is in district court. In essence, the SEC will be able to assess these types of penalties in-house, and not just obtain them in federal court.

Given the JP Morgan trading scandal, issues arising from the Facebook IPO, and the manipulation of LIBOR, it is clear much still needs to be done to improve transparency and restore confidence in our financial system. 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. Our economy's success depends in no small part on restoring confidence in our capital markets.

The SEC Penalties Act will help by giving the SEC more tools to demand meaningful accountability from Wall Street. It will enhance the SEC's ability to protect investors and crack down on fraud and I urge my colleagues to cosponsor and join us in supporting this important legislation.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.


Mr. REED. Mr. President, today I am introducing, along with my colleagues from Rhode Island and Connecticut, Senators WHITEHOUSE and LIEBERMAN, legislation to authorize the National Park Service to study specific sections of the Beaver, Chipuxet, Queen, Wood, and Pawcatuck Rivers in Rhode Island and Connecticut for potential addition to the National Wild and Scenic Rivers System. Our legislation seeks to bring greater attention to and resources for efforts to protect and restore the health of these rivers through the evaluation of their recreational, natural, and historical qualities and whether they are suitable for designation as Wild and Scenic Rivers.

The recreational and scenic wealth of the Wood-Pawcatuck watershed is a natural treasure. The National Park Service's Rivers and Trails Conservation Assistance program conducted a planning and conservation study in the 1980s which concluded, in part, that the waters of the Wood and Pawcatuck Rivers corridor in Rhode Island ``are the cleanest and purest and its recreational opportunities are unparalleled by any other river system in the state.''

These rivers also provide opportunities for outdoor recreation and tourism that contribute to the local economy. Not only do its rivers provide easy access to the wilderness for family outings and school field trips, but they also offer ways to explore our heritage throughout the watershed, from Native American fishing grounds to Colonial and early industrial mill ruins. The rivers also provide opportunities for trout fishing, canoeing, bird watching, and hiking.

I have long supported the protection and restoration of Southern New England's watersheds and estuaries, including the Narragansett Bay, and this study is an important first step in determining future opportunities for protection and recreational enjoyment of the rivers in the Wood-Pawcatuck watershed. Our states have been excellent stewards of these rivers, and this study would enhance existing local and State efforts to preserve and manage this open space and its wildlife habitat.

Indeed, partnerships are key to broad restoration and management of our resources, and it is expected that this study would be conducted in close cooperation with the affected communities, state agencies, local governments, and other interested organizations. The partnership-based approach also allows for development of a proposed river management plan as part of the study, which could address issues ranging from fish passage to the restoration of wetlands to assist with flood mitigation, as well as balance the recreational opportunities that contribute to the local economies with preservation of the natural resources.

This is a two State initiative that will encompass both Rhode Island and Connecticut, and will help protect these resources for future generations to enjoy.

I commend Representatives LANGEVIN and COURTNEY for spearheading this effort in the other body, and I look forward to working with all of my colleagues to initiate the process to study the rivers of the Wood-Pawcatuck Watershed for inclusion in the National Wild and Scenic Rivers System.

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