113 S286 IS: Stronger Enforcement of Civil Penalties Act of 2013 U.S. Senate 2013-02-12 text/xml EN Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.

II 113th CONGRESS 1st Session S. 286 IN THE SENATE OF THE UNITED STATES February 12, 2013 Mr. Reed (for himself, Mr. Grassley, and Mr. Leahy) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To enhance civil penalties under the Federal securities laws, and for other purposes.

1.

Short title

This Act may be cited as the Stronger Enforcement of Civil Penalties Act of 2013.

2.

Updated civil money penalties for securities laws violations

(a)

Securities Act of 1933

(1)

Money penalties in administrative actions

Section 8A(g)(2) of the Securities Act of 1933 (15 U.S.C. 77h–1(g)(2)) is amended— (A)in subparagraph (A)— (i)by striking $7,500 and inserting $10,000; and (ii)by striking $75,000 and inserting $100,000; (B)in subparagraph (B)— (i)by striking $75,000 and inserting $100,000; and (ii)by striking $375,000 and inserting $500,000; and (C)by amending subparagraph (C) to read as follows: (C)

Third tier

Notwithstanding subparagraphs (A) and (B), the amount of penalty for each such act or omission shall not exceed the greater of— (i)$1,000,000 for a natural person or $10,000,000 for any other person; (ii)3 times the gross amount of pecuniary gain to the person who committed the act or omission; or (iii)the amount of losses incurred by victims as a result of the act or omission, if— (I)the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and (II)such act or omission directly or indirectly resulted in— (aa)substantial losses or created a significant risk of substantial losses to other persons; or (bb)substantial pecuniary gain to the person who committed the act or omission. . (2)

Money penalties in civil actions

Section 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended— (A)in subparagraph (A)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in subparagraph (B)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)in subparagraph (C), by striking greater of (i) $100,000 for a natural person or $500,000 for any other person, or (ii) the gross amount of pecuniary gain to such defendant as a result of the violation and inserting the following: greater of—(i)$1,000,000 for a natural person or $10,000,000 for any other person; (ii)3 times the gross amount of pecuniary gain to such defendant as a result of the violation; or (iii)the amount of losses incurred by victims as a result of the violation . (b)

Securities Exchange Act of 1934

(1)

Money penalties in civil actions

Section 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended— (A)in clause (i)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in clause (ii)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)in clause (iii), by striking greater of (I) $100,000 for a natural person or $500,000 for any other person, or (II) the gross amount of pecuniary gain to such defendant as a result of the violation and inserting the following: greater of—(I)$1,000,000 for a natural person or $10,000,000 for any other person; (II)3 times the gross amount of pecuniary gain to such defendant as a result of the violation; or (III)the amount of losses incurred by victims as a result of the violation . (2)

Money penalties in administrative actions

Section 21B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78u–2(b)) is amended— (A)in paragraph (1)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in paragraph (2)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)by amending paragraph (3) to read as follows: (3)

Third tier

Notwithstanding paragraphs (1) and (2), the amount of penalty for each such act or omission shall not exceed the greater of— (A)$1,000,000 for a natural person or $10,000,000 for any other person; (B)3 times the gross amount of pecuniary gain to the person who committed the act or omission; or (C)the amount of losses incurred by victims as a result of the act or omission, if— (i)the act or omission described in subsection (a) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and (ii)such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission. . (c)

Investment Company Act of 1940

(1)

Money penalties in administrative actions

Section 9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–9(d)(2)) is amended— (A)in subparagraph (A)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in subparagraph (B)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)by amending subparagraph (C) to read as follows: (C)

Third tier

Notwithstanding subparagraphs (A) and (B), the amount of penalty for each such act or omission shall not exceed the greater of— (i)$1,000,000 for a natural person or $10,000,000 for any other person; (ii)3 times the gross amount of pecuniary gain to the person who committed the act or omission; or (iii)the amount of losses incurred by victims as a result of the act or omission, if— (I)the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and (II)such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission. . (2)

Money penalties in civil actions

Section 42(e)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–41(e)(2)) is amended— (A)in subparagraph (A)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in subparagraph (B)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)in subparagraph (C), by striking greater of (i) $100,000 for a natural person or $500,000 for any other person, or (ii) the gross amount of pecuniary gain to such defendant as a result of the violation and inserting the following: greater of—(i)$1,000,000 for a natural person or $10,000,000 for any other person; (ii)3 times the gross amount of pecuniary gain to such defendant as a result of the violation; or (iii)the amount of losses incurred by victims as a result of the violation . (d)

Investment Advisers Act of 1940

(1)

Money penalties in administrative actions

Section 203(i)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3(i)(2)) is amended— (A)in subparagraph (A)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in subparagraph (B)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)by amending subparagraph (C) to read as follows: (C)

Third tier

Notwithstanding subparagraphs (A) and (B), the amount of penalty for each such act or omission shall not exceed the greater of— (i)$1,000,000 for a natural person or $10,000,000 for any other person; (ii)3 times the gross amount of pecuniary gain to the person who committed the act or omission; or (iii)the amount of losses incurred by victims as a result of the act or omission, if— (I)the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and (II)such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission. . (2)

Money penalties in civil actions

Section 209(e)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–9(e)(2)) is amended— (A)in subparagraph (A)— (i)by striking $5,000 and inserting $10,000; and (ii)by striking $50,000 and inserting $100,000; (B)in subparagraph (B)— (i)by striking $50,000 and inserting $100,000; and (ii)by striking $250,000 and inserting $500,000; and (C)in subparagraph (C), by striking greater of (i) $100,000 for a natural person or $500,000 for any other person, or (ii) the gross amount of pecuniary gain to such defendant as a result of the violation and inserting the following: greater of—(i)$1,000,000 for a natural person or $10,000,000 for any other person; (ii)3 times the gross amount of pecuniary gain to such defendant as a result of the violation; or (iii)the amount of losses incurred by victims as a result of the violation .

3.

Penalties for recidivists

(a)

Securities Act of 1933

(1)

Cease-and-desist proceedings

Section 8A(g)(2) of the Securities Act of 1933 (15 U.S.C. 77h–1(g)(2)) is amended by adding at the end the following: (D)

Fourth tier

Notwithstanding subparagraphs (A), (B), and (C), the maximum amount of penalty for each such act or omission shall be 3 times the otherwise applicable amount in such subparagraphs if, within the 5-year period preceding such act or omission, the person who committed the act or omission was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that person. . (2)

Injunctions and prosecution of offenses

Section 20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended by adding at the end the following: (D)

Fourth tier

Notwithstanding subparagraphs (A), (B), and (C), the maximum amount of penalty for each such violation shall be 3 times the otherwise applicable amount in such subparagraphs if, within the 5-year period preceding such violation, the defendant was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that defendant. . (b)

Securities exchange Act of 1934

(1)

Civil actions

Section 21(d)(3)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by adding at the end the following: (iv)

Fourth tier

Notwithstanding clauses (i), (ii), and (iii), the maximum amount of penalty for each such violation shall be 3 times the otherwise applicable amount in such clauses if, within the 5-year period preceding such violation, the defendant was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that defendant. . (2)

Administrative proceedings

Section 21B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78u–2(b)) is amended by adding at the end the following: (4)

Fourth tier

Notwithstanding paragraphs (1), (2), and (3), the maximum amount of penalty for each such act or omission shall be 3 times the otherwise applicable amount in such paragraphs if, within the 5-year period preceding such act or omission, the person who committed the act or omission was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that person. . (c)

Investment company Act of 1940

(1)

Ineligibility of certain underwriters and affiliates

Section 9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–9(d)(2)) is amended by adding at the end the following: (D)

Fourth tier

Notwithstanding subparagraphs (A), (B), and (C), the maximum amount of penalty for each such act or omission shall be 3 times the otherwise applicable amount in such subparagraphs if, within the 5-year period preceding such act or omission, the person who committed the act or omission was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that person. . (2)

Enforcement

Section 42(e)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–41(e)(2)) is amended by adding at the end the following: (D)

Fourth tier

Notwithstanding subparagraphs (A), (B), and (C), the maximum amount of penalty for each such violation shall be 3 times the otherwise applicable amount in such subparagraphs if, within the 5-year period preceding such violation, the defendant was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that defendant. . (d)

Investment advisers Act of 1940

The Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) is amended— (1)in section 203(i)(2) (15 U.S.C. 80b–3(i)(2)), by adding at the end the following: (D)

Fourth tier

Notwithstanding subparagraphs (A), (B), and (C), the maximum amount of penalty for each such act or omission shall be 3 times the otherwise applicable amount in such subparagraphs if, within the 5-year period preceding such act or omission, the person who committed the act or omission was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that person. ; and (2)in section 209(e)(2) (15 U.S.C. 80b–9(e)(2)) by adding at the end the following: (D)

Fourth tier

Notwithstanding subparagraphs (A), (B), and (C), the maximum amount of penalty for each such violation shall be 3 times the otherwise applicable amount in such subparagraphs if, within the 5-year period preceding such violation, the defendant was criminally convicted for securities fraud or became subject to a judgment or order imposing monetary, equitable, or administrative relief in any Commission action alleging fraud by that defendant. .

4.

Violations of injunctions and bars

(a)

Securities Act of 1933

Section 20(d) of the Securities Act of 1933 (15 U.S.C. 77t(d)) is amended— (1)in paragraph (1), by inserting after the rules or regulations thereunder, the following: a Federal court injunction or a bar obtained or entered by the Commission under this title,; and (2)by amending paragraph (4) to read as follows: (4)

Special provisions relating to a violation of an injunction or certain orders

(A)

In general

Each separate violation of an injunction or order described in subparagraph (B) shall be a separate offense, except that in the case of a violation through a continuing failure to comply with such injunction or order, each day of the failure to comply with the injunction or order shall be deemed a separate offense. (B)

Injunctions and orders

Subparagraph (A) shall apply with respect to any action to enforce— (i)a Federal court injunction obtained pursuant to this title; (ii)an order entered or obtained by the Commission pursuant to this title that bars, suspends, places limitations on the activities or functions of, or prohibits the activities of, a person; or (iii)a cease-and-desist order entered by the Commission pursuant to section 8A. . (b)

Securities exchange Act of 1934

Section 21(d)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)) is amended— (1)in subparagraph (A), by inserting after the rules or regulations thereunder, the following: a Federal court injunction or a bar obtained or entered by the Commission under this title,; and (2)by amending subparagraph (D) to read as follows: (D)

Special provisions relating to a violation of an injunction or certain orders

(i)

In general

Each separate violation of an injunction or order described in clause (ii) shall be a separate offense, except that in the case of a violation through a continuing failure to comply with such injunction or order, each day of the failure to comply with the injunction or order shall be deemed a separate offense. (ii)

Injunctions and orders

Clause (i) shall apply with respect to an action to enforce— (I)a Federal court injunction obtained pursuant to this title; (II)an order entered or obtained by the Commission pursuant to this title that bars, suspends, places limitations on the activities or functions of, or prohibits the activities of, a person; or (III)a cease-and-desist order entered by the Commission pursuant to section 21C. . (c)

Investment company Act of 1940

Section 42(e) of the Investment Company Act of 1940 (15 U.S.C. 80a–41(e)) is amended— (1)in paragraph (1), by inserting after the rules or regulations thereunder, the following: a Federal court injunction or a bar obtained or entered by the Commission under this title,; and (2)by amending paragraph (4) to read as follows: (4)

Special provisions relating to a violation of an injunction or certain orders

(A)

In general

Each separate violation of an injunction or order described in subparagraph (B) shall be a separate offense, except that in the case of a violation through a continuing failure to comply with such injunction or order, each day of the failure to comply with the injunction or order shall be deemed a separate offense. (B)

Injunctions and orders

Subparagraph (A) shall apply with respect to any action to enforce— (i)a Federal court injunction obtained pursuant to this title; (ii)an order entered or obtained by the Commission pursuant to this title that bars, suspends, places limitations on the activities or functions of, or prohibits the activities of, a person; or (iii)a cease-and-desist order entered by the Commission pursuant to section 9(f). . (d)

Investment advisers Act of 1940

Section 209(e) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–9(e)) is amended— (1)in paragraph (1), by inserting after the rules or regulations thereunder, the following: a Federal court injunction or a bar obtained or entered by the Commission under this title,; and (2)by amending paragraph (4) to read as follows: (4)

Special provisions relating to a violation of an injunction or certain orders

(A)

In general

Each separate violation of an injunction or order described in subparagraph (B) shall be a separate offense, except that in the case of a violation through a continuing failure to comply with such injunction or order, each day of the failure to comply with the injunction or order shall be deemed a separate offense. (B)

Injunctions and orders

Subparagraph (A) shall apply with respect to any action to enforce— (i)a Federal court injunction obtained pursuant to this title; (ii)an order entered or obtained by the Commission pursuant to this title that bars, suspends, places limitations on the activities or functions of, or prohibits the activities of, a person; or (iii)a cease-and-desist order entered by the Commission pursuant to section 203(k). .