Bipartisan Bill Introduced in U.S. Senate to Authorize SEC to Impose Larger Penalties

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[authors: Robert L. Kohl, James. B. Anderson]

On July 23, Senators Charles Grassley (R-IA) and Jack Reed (D-RI) introduced S.3416, the Stronger Enforcement of Civil Penalties Act of 2012 (the Bill), in the U.S. Senate, which seeks to increase the statutory limits that may be obtained by the Securities and Exchange Commission from individuals and entities charged with securities law violations in administrative and civil actions.

Pursuant to existing law, the SEC may only penalize individuals a maximum of $150,000 per violation and entities $725,000 per violation. The SEC has the authority to seek penalties above these caps only if the matter is adjudicated in federal court, but not when the SEC handles a case through its administrative process.

Under the Bill, the per violation cap for the most serious securities law violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement that resulted in substantial losses to victims or substantial pecuniary gain to the violator, would be increased to the greater of (i) $1 million for individuals and $10 million for entities, (ii) three times the gross pecuniary gain, or (iii) the losses incurred by the victims as a result of the violation.

The Bill also proposes to increase the per violation maximum penalties associated with less serious securities law violations to the greater of $100,000 for individuals and $500,000 for entities, or the gross pecuniary gain as a result of the violation. The maximum per violation penalties associated with violations not involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement would be increased to the greater of $10,000 for individuals and $100,000 for entities, or the gross pecuniary gain as a result of the violation.

The maximum penalty for recidivists would be three times the applicable cap where the individual or entity within the five years preceding the act or omission is criminally convicted of securities fraud or is subject to a judgment or order concerning securities fraud.

The SEC may seek these increased maximum penalties in administrative proceedings, without being required to submit the matter to civil litigation.

The Bill has been referred to the Senate Committee on Banking, Housing and Urban Affairs.

To view the Bill, click here.