[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                   PUTTING INVESTORS FIRST: EXAMINING
                  PROPOSALS TO STRENGTHEN ENFORCEMENT
                    AGAINST SECURITIES LAW VIOLATORS

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON INVESTOR PROTECTION,

                 ENTREPRENEURSHIP, AND CAPITAL MARKETS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 19, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-32
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-452 PDF                  WASHINGTON : 2020                     
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
        Subcommittee on Investor Protection, Entrepreneurship, 
                          and Capital Markets

                CAROLYN B. MALONEY, New York, Chairwoman

BRAD SHERMAN, California             BILL HUIZENGA, Michigan, Ranking 
DAVID SCOTT, Georgia                     Member
JIM A. HIMES, Connecticut            PETER T. KING, New York
BILL FOSTER, Illinois                SEAN P. DUFFY, Wisconsin
GREGORY W. MEEKS, New York           STEVE STIVERS, Ohio
JUAN VARGAS, California              ANN WAGNER, Missouri
JOSH GOTTHEIMER. New Jersey          FRENCH HILL, Arkansas
VICENTE GONZALEZ, Texas              TOM EMMER, Minnesota
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
KATIE PORTER, California             WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana, Vice 
SEAN CASTEN, Illinois                    Ranking Member
ALEXANDRIA OCASIO-CORTEZ, New York
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 19, 2019................................................     1
Appendix:
    June 19, 2019................................................    29

                               WITNESSES
                        Wednesday, June 19, 2019

Crimmins, Stephen J., Partner, Murphy & McGonigle PC, and former 
  Deputy Chief Litigation Counsel and Senior Officer, SEC's 
  Enforcement Division...........................................     8
Thomas, Jordan A., Partner, Labaton Sucharow.....................     4
Velikonja, Urska Professor of Law, Georgetown University Law 
  Center.........................................................     6
Vollmer, Andrew N., Professor of Law, University of Virginia 
  School of Law..................................................     9

                                APPENDIX

Prepared statements:
    Crimmins, Stephen J..........................................    30
    Thomas, Jordan A.............................................    40
    Velikonja, Urska.............................................    48
    Vollmer, Andrew N............................................    66

 
                        PUTTING INVESTORS FIRST:
                EXAMINING PROPOSALS TO STRENGTHEN ENFORCEMENT
                 AGAINST SECURITIES LAW VIOLATORS

                              ----------                              


                        Wednesday, June 19, 2019

             U.S. House of Representatives,
               Subcommittee on Investor Protection,
             Entrepreneurship, and Capital Markets,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 3:33 p.m., in 
room 2128, Rayburn House Office Building, Hon. Carolyn Maloney 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Maloney, Sherman, Scott, 
Himes, Foster, Gottheimer, Gonzalez, Porter, Axne, Casten, 
Ocasio-Cortez; Huizenga, Stivers, Wagner, Hill, Mooney, and 
Davidson.
    Also present: Representatives Beatty and McAdams.
    Chairwoman Maloney. The Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets,will come to 
order. Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Also, without 
objection, members of the full Financial Services Committee who 
are not members of the subcommittee are authorized to 
participate in today's hearing.
    Today's hearing is entitled, ``Putting Investors First: 
Examining Proposals to Strengthen Enforcement Against 
Securities Law Violators.'' I now recognize myself for 3 
minutes to give an opening statement.
    This is a legislative hearing on eight different bills that 
would strengthen the enforcement of securities laws. Proper 
enforcement of the securities laws helps maintain investor 
confidence in our markets. Investors need to know that their 
rights will be protected and that bad actors who try to take 
advantage of them will be punished.
    Investors also need to know that if a bad actor is caught 
and the SEC proves that the bad actor committed fraud that 
investors will get their money back. At the very least, 
wrongdoers shouldn't get to keep the money they have earned by 
defrauding investors. This is just, fair, and common sense.
    Unfortunately, the 2017 Supreme Court decision in Kokesh v. 
SEC significantly damaged the SEC's ability to return funds to 
harmed investors by holding that SEC claims for disgorgement of 
ill-gotten profits are subject to a 5-year statute of 
limitations. This means for the long-running frauds, like 
Bernie Madoff's Ponzi scheme, the SEC would not be able to claw 
back all of the bad actor's profits. The Kokesh decision has 
already cost investors about $900 million in disgorgement of 
ill-gotten profits, according to the SEC.
    The Court relied on a narrow technical interpretation of 
the statute and effectively invited Congress to fix this 
technical issue, and SEC Chairman Clayton has asked Congress to 
fix this issue, too, which he calls a ``gap in investor 
protection.''
    Mr. McAdams has a bill that would fix this issue and 
clarify that equitable remedies like disgorgement are not 
subject to a 5-year statute of limitations.
    And, unfortunately, the impact of the Kokesh decision was 
supercharged by another Supreme Court decision in Gabelli v. 
SEC. In that case, the Court held that the 5-year clock on SEC 
penalties starts when the fraud occurs and not when the fraud 
is actually discovered.
    This gives the SEC even less time to bring an enforcement 
action against wrongdoers, because the SEC never discovers a 
fraud as soon as it occurs, there is always a lag between when 
the fraud occurs and when it is discovered.
    Mr. Gonzalez has a bill that would reverse the harmful 
Gabelli decision and would once again give the SEC the tools it 
needs to crack down on securities fraud.
    Finally, Ms. Porter has a bill that would strengthen the 
SEC civil penalty authorities by increasing the size of the 
penalties and by authorizing the SEC to seek different kinds of 
penalties for different kinds of violations. This is a much-
needed update that would modernize the SEC's penalty authority 
and would deter repeat offenders, and I strongly support her 
bill.
    I look forward to hearing from our witnesses on all of the 
bills today. And with that, the Chair recognizes the ranking 
member of the subcommittee, Mr. Huizenga, for 4 minutes for an 
opening statement.
    Mr. Huizenga. Thank you, Madam Chairwoman, and I appreciate 
our panel being here with us here today.
    The Securities and Exchange Commission has a three-part 
mission: protect investors; maintain fair, orderly, and 
efficient markets; and facilitate capital formation. 
Specifically, within the Commission, the Division of 
Enforcement investigates potential violations of Federal 
securities law and prosecutes these cases in Federal court or 
in administrative proceedings before the SEC's own 
administrative law judges.
    Their enforcement priorities are guided by five core 
principles. First, focus on the Main Street investor. Second, 
focus on individual accountability. Third, keep pace with 
technological change. Fourth, impose remedies that most 
effectively further enforcement goals. And finally, 
consistently assess the allocation of SEC resources.
    In Fiscal Year 2018, the SEC brought 821 enforcement 
actions and obtained nearly $3.9 billion in disgorgement and 
civil penalties resulting from those actions. Additionally, 
they returned $794 million to harmed investors, suspended 
trading in the securities of 280 companies, and obtained nearly 
550 suspensions and bars.
    The SEC has always been recognized for its effective yet 
fair enforcement program which encourages capital formation 
while protecting investors and markets. Today's hearing focuses 
on several proposals purported to strengthen enforcement 
against securities law violators for the protection of 
investors and the integrity of the U.S. capital markets.
    I believe in a strong and effective enforcement program 
that protects investors and keeps bad actors out of the 
marketplace. However, these draft proposals that we are 
discussing today will do very little to help put investors 
first. Instead, they create more barriers to capital formation 
and limit investment opportunities for American workers and 
Main Street investors.
    The U.S. IPO market is steadily decreasing at an alarming 
rate while foreign markets, such as in China, are continuing to 
grow. In 2017, China's IPO market produced over one-third of 
the world's initial public offerings, or IPOs, whereas the U.S. 
is only seeing half the number of domestic IPOs that it had 
just 20 years ago.
    Over this same time period, the regulatory compliance cost 
for businesses has doubled here in the United States. In fact, 
20 years ago, American investors could pick from over 7,000 
listed stocks. Today, there is just half that. This radical 
reduction should be of great concern to this committee and all 
the mom-and-pop investors who are out there.
    We, as lawmakers, should be working to create an atmosphere 
that helps promote more capital formation to allow the free 
flow of capital, strengthen job creation, and increase economic 
growth. Congress needs to consciously put to work John and Jane 
401(k) first. We can do this by putting forward proposals that 
promote economic opportunities that give those mom-and-pop 
investors more choices and increase their ability to grow their 
savings and retirements accounts.
    And with that, Madam Chairwoman, I yield back.
    Chairwoman Maloney. Thank you.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 2 minutes.
    Mr. Sherman. Thank you.
    Last year, the SEC and the PCAOB issued a joint statement 
highlighting over 220 U.S. listed companies with a combined 
total of $1.8 trillion in market capitalization for which the 
PCAOB cannot provide effective audit oversight. That means a 
lot of money invested by Americans where we cannot audit the 
audit. I would encourage U.S. Trade Representative Lighthizer 
to focus on this issue in his discussions with China.
    But that is the first part of my opening statement, to 
focus on where we want everything to meet the platinum 
standard, where we want to make sure that there is a footnote 
to a financial statement with an auditor and an oversight of 
the auditor. That is wonderful. But the SEC has been reluctant 
to look at the other side, the unregistered investments. They 
want to live in a rarified world of polishing the platinum.
    But what about such things as cryptocurrencies? These are 
investments where there is no audit. There is no footnote. 
There is no PCAOB. There is no registration statement. But you 
have investors investing in God knows what, and the SEC says, 
``Not our problem.''
    First, these cryptocurrencies take the animal spirits, the 
willingness of Americans to invest, take some of that out of 
our economy where it would help companies employ people and 
instead say, ``No, why don't you bet over here on a company 
that has no employees, Bitcoin?''
    And then second, we are told, ``Well, it is not an 
investment.'' It is only an investment. That is why people are 
buying Bitcoin, that is why it is being advertised, people buy 
it and it will go up in value.
    And then finally, as a medium of exchange, Bitcoin is 
clearly inferior to most of the currencies available. And a 
report indicates that 46 percent of the transactions where it 
is used as a medium of exchange are criminal. So, it is not 
really a medium of exchange for law-abiding Americans. It is an 
investment whose regulation pales in comparison to the worst 
financial statement Madoff ever put out.
    I yield back.
    Chairwoman Maloney. Thank you.
    Today, we welcome the testimony of a distinguished panel of 
witnesses. First, we have Jordan Thomas, who is a partner at 
Labaton Sucharow in New York. Second, we have Urska Velikonja, 
who is a professor of law at Georgetown University Law Center. 
Third, we have Andrew Vollmer, who is a professor of law at the 
University of Virginia Law School. And last but not least, we 
have Stephen Crimmins, who is a partner at Murphy & McGonigle.
    Witnesses are reminded that your oral testimony will be 
limited to 5 minutes, and without objection, your written 
statements will be made a part of the record.
    Mr. Thomas, you are now recognized for 5 minutes to give an 
oral presentation of your testimony. Thank you.

    STATEMENT OF JORDAN A. THOMAS, PARTNER, LABATON SUCHAROW

    Mr. Thomas. Chairwoman Maloney, Ranking Member Huizenga, 
and members of the subcommittee, thank you for inviting me to 
testify today.
    Today, my testimony will be based on my experience as a 
first responder to corporate wrongdoing at the Department of 
Justice, the Securities and Exchange Commission, and at Labaton 
Sucharow, where I head the Whistleblower Representation 
Practice.
    In my work I have seen firsthand the devastation that can 
come from securities violations. I am increasingly concerned 
that the investor protection status quo isn't working and that, 
without your intervention, our financial watchdogs will be 
fighting a losing battle.
    The reality, and you won't hear it admitted often or 
publicly, is that securities violations are extremely difficult 
to detect, investigate, and prosecute. And due to the vast 
scope, rapidly growing and dizzyingly complex markets, 
products, and transactions they are responsible for, our 
financial watchdogs are losing ground. Investors are being 
injured, and too many bad guys are getting away.
    Particularly troubling to me is that even when securities 
violators are caught, they are not being held fully accountable 
because of a series of adverse Supreme Court decisions which 
undermine long-term deterrence.
    Fortunately, the proposals before this committee can 
provide much-needed legal relief to our financial watchdogs. It 
is my hope that these proposals will enjoy some bipartisan 
support that the fix to the Digital Realty decision recently 
received.
    Of the many proposals currently considered by this 
committee, I believe the most critical one is restoring the 
SEC's ability to obtain full disgorgement of ill-gotten gains 
from wrongdoers. Disgorgement has always been an essential 
component of SEC enforcement. Prior to Kokesh, common sense 
prevailed and wrongdoers were required to return every cent of 
their ill-gotten gains. Now, fraudsters engaged in long-running 
schemes will be rewarded for hiding their misconduct.
    And in their 2018 annual report, the SEC Division of 
Enforcement estimates that the Commission will be forced to 
forego approximately $900 million in disgorgement. That is 25 
percent of the monetary sanctions collected annually, moneys 
that could have gone to defrauded investors.
    Another critical element of effective SEC enforcement is 
the ability to obtain civil monetary penalties. Even if the 
Commission is able to obtain full disgorgement from wrongdoers, 
long-term deterrence dictates that the SEC should also receive 
significant monetary penalties against these violators so that 
potential violators will refrain from engaging in wrongdoing 
rather than just writing it off as a low-risk detection and a 
cost of doing business.
    One related proposal is designed to address the Gabelli 
decision that Chairwoman Maloney referenced. That decision 
stated at the beginning of the statute of limitations period 
was when the violation occurred, not on the date the SEC 
discovers it. The proposal suggests that the SEC have an 
expanded statute of limitations period of 10 years.
    Again, since securities violations are incredibly difficult 
to detect, and our securities law shouldn't incentivize 
securities violators to conceal their wrongdoing, I strongly 
believe that a legislation solution to the Gabelli decision is 
important, and my written statement suggests different ways to 
do so.
    Another related proposal would update and strengthen the 
current statutory provisions for SEC civil monetary penalties. 
Among other things, the proposal would increase the statutory 
maximums for civil money penalties, provide that the size of 
penalties could be linked to the amount of victim losses, and 
establish a fourth-tier penalty that could be imposed against 
recidivist violators. This proposal is long overdue.
    In particular, the provision allowing penalties to be 
assessed at the level of victim harm would be an important 
addition for the SEC cases because there are some cases where 
wrongdoers may not have gained significant monetary profits, 
but cause substantial harm.
    Similarly, the provisions for enhanced penalties against 
recidivists, as well as new statutory provisions regarding 
penalties for violations of Federal court injunctions, would 
greatly strengthen the remedies, particularly when those 
standard remedies were not effective with the recidivists.
    The committee is also considering oversight related to the 
PCAOB, and, frankly, the PCAOB has an important mission, first-
rate staff, and in the enforcement space, less than stellar 
results. I believe that the PCAOB, with actual intelligence 
from whistleblowers, could be more effective, and that could 
change the dynamic and increase their effectiveness.
    Due to time limitations, I only briefly addressed a few of 
the legislative proposals, but I stand ready to answer your 
questions about all of the proposals.
    [The prepared statement of Mr. Thomas can be found on page 
40 of the appendix.]
    Chairwoman Maloney. Professor Velikonja, you are now 
recognized for 5 minutes for your testimony.

  STATEMENT OF URSKA VELIKONJA, PROFESSOR OF LAW, GEORGETOWN 
                     UNIVERSITY LAW CENTER

    Ms. Velikonja. Chairwoman Maloney, Ranking Member Huizenga, 
members of the subcommittee, thank you for this opportunity 
today.
    At Georgetown, I teach, research, and write about 
securities enforcement. I am going to limit my prepared remarks 
to making two points.
    First, today's hearing is, ``Examining Proposals to 
Strengthen Enforcement,'' but the eight discussion drafts 
actually include two very different kinds of proposals. The 
first kind increases market oversight and strengthens 
sanctions, increases sanctions, and so forth.
    The second kind, more urgent, codifies existing relief in 
SEC enforcement now decades old. I am talking about 
disgorgement in civil cases. So, failure to adopt the proposed 
amendments doesn't preserve the status quo as is typical for 
legislation. It would significantly hamper SEC enforcement.
    Let me explain. Disgorgement is the second most commonly 
imposed relief in SEC enforcement. It is ordered in 56 percent 
of cases resolved in Fiscal Years 2010 to 2018. Only civil 
fines are imposed more often, in 66 percent of cases. Where 
disgorgement is imposed, it is 80 percent of monetary penalties 
that that defendant is ordered to pay.
    Total disgorgement orders during that period amounted to 
$145 billion compared to $9.8 billion for civil fines during 
the same period. Of that, $140 billion is in court cases.
    Now, these figures include cases where a disgorgement order 
was deemed satisfied with orders in the parallel criminal case. 
So if we exclude all cases where there was a parallel action 
unaffected by the Kokesh decision, we are still talking about a 
lot of money threatened.
    During this period, the SEC imposed $13 billion of the $23 
billion monetary penalties during that period that weren't in a 
second proceeding as well; 57 percent is disgorgement. Of that, 
almost $10 billion is in court cases.
    They include Charles Kokesh. They also include virtually 
all significant FCPA cases. They include cases against 
Citigroup, Morgan Stanley, Bank of America, you name it.
    All of that is now in jeopardy. Why? Disgorgement in court 
cases is not specifically expressly included in securities 
laws, right? It is an equitable remedy the SEC has been seeking 
since the 1960s. In Kokesh, the Supreme Court says disgorgement 
is a penalty. Typically, courts can't impose penalties without 
statutory authorization. And so if disgorgement is a penalty, 
then the SEC has no authority to seek disgorgement in court at 
all.
    Now, the Supreme Court sort of stepped aside, didn't 
actually decide this issue, but now the case is already 
percolating. So this is going to happen in Congress and it is 
imperative for Congress to step in and codify that the SEC can 
sue fraudsters in court and seek disgorgement.
    Second point, I want to offer some statistics relevant to 
the limitations period, the 5-year statute of limitations you 
are discussing.
    Now, since Kokesh and Gabelli, as we have heard, the SEC 
can no longer seek penalties for violations committed more than 
5 years before the SEC filed suit. Five years is less than you 
would think. The average investigation takes about 2 years to 
complete. Of more than 8,000 cases filed during the same period 
that I described earlier, 2010 to 2018, 37 percent included at 
least some violations that took part outside the 5-year 
limitations period, and that share has been increasing. In 
2018, half of the cases included violations that were more than 
5 years before the SEC filed suit.
    Now, the limitations period doesn't affect all cases 
equally. Insider trading, pump-and-dump schemes, and market 
manipulations are much more likely to be detected, 
investigated, and prosecuted within the 5-year period.
    There are broker-dealer cases, investment advisers stealing 
from their clients, Ponzi schemes, accounting frauds. They take 
much longer to detect in the first place, let alone investigate 
and prosecute.
    So the typical case affected most significantly by the 
Kokesh decision is an offering fraud by an individual offender, 
the no-name defendant, someone you have never heard of. So, 
Charles Kokesh in that sense is not atypical. Let me describe 
what he did and what is at stake.
    He owned two small investment funds from 1995 to 2007. When 
the funds were dissolved, he embezzled investors' funds, paid 
himself unearned fees, and reimbursed unauthorized expenses. 
Ultimately, he misappropriated $35 million from 21,000 
investors. He--I am quoting here from the record--specifically 
targeted smaller investors, those investing $5,000 or less, 
because they would be less likely to sue if they discovered his 
schemes. With stolen funds, he then bought a gated mansion, a 
private polo ground, and a personal stable of more than 50 
horses.
    The jury found Kokesh guilty, but because of the 5-year 
limitations period, he was ordered to pay only $7.3 million 
plus interest, far less than the $35 million he stole.
    Now, the SEC did not unnecessarily delay that 
investigation. There are 12,000 investment funds in the United 
States. The SEC isn't currently funded to review all, even 
periodically. So unless you believe bad actors should be 
allowed to keep property stolen more than 5 years ago, you 
should either increase the SEC's budget or put in place 
realistic limitations periods.
    Defendants also should care about this. The SEC is likely 
to expedite investigations, perhaps being less careful.
    With that, I will conclude.
    [The prepared statement of Ms. Velikonja can be found on 
page 48 of the appendix.]
    Chairwoman Maloney. Thank you. Your time has expired.
    Mr. Crimmins, you are now recognized for your 5 minutes for 
your testimony.

 STATEMENT OF STEPHEN J. CRIMMINS, PARTNER, MURPHY & MCGONIGLE 
   PC, AND FORMER DEPUTY CHIEF LITIGATION COUNSEL AND SENIOR 
              OFFICER, SEC'S ENFORCEMENT DIVISION

    Mr. Crimmins. Thank you, Chairwoman Maloney, Ranking Member 
Huizenga, and other members of the subcommittee, and thank you 
for dealing with these extremely important issues for SEC 
enforcement, where I was proud to serve for 14 years, now a 
couple of decades ago. They are critical issues, and they come 
at a tough time for the SEC.
    They have had to drop 400 professionals in recent years 
with a flatlined budget of $1.6 billion, even though they used 
no tax dollars since 1996 thanks to Congress' legislation. 
Hopefully, the proposal to increase their budget at least to 
$1.85 billion will make it. But in any event, these are 
important topics that the subcommittee is dealing with.
    As prior speakers have said, Kokesh has created a real 
problem for the SEC, defining disgorgement as a penalty, 
creating all kinds of problems. The Supreme Court wrote 
unanimously in an opinion by Justice Sotomayor, who is a great 
scholar, in good faith finding that the disgorgement did kind 
of match up with what is a penalty, but they asked a very good 
question. Did Congress, having defined specific penalties under 
the securities laws and those careful tiers we see in the 
proposal, really want to have a separate penalty, two different 
kind of penalties in the same case? How could that be?
    I would urge the subcommittee to answer the question of the 
Supreme Court with a resounding, ``Yes, we do want disgorgement 
as a core remedy of the SEC's enforcement program!'' Since the 
Texas Gulf Sulphur decision in 1971, the SEC needs it. Please 
yell a loud ``yes'' in answer to the Supreme Court.
    The other Kokesh issue, of course, is what should be the 
statute of limitations? Should it be 5 years, which is 
traditionally imposed for a penalty? Should it be not at all, 
which is traditionally imposed for tamer equitable remedies, a 
tame version of disgorgement? Should it be 10 years? What 
should it be?
    My concern with the proposal is that it uses a rule of 
construction to try to interpret what should be. A rule of 
construction is an invitation, frankly, to the defense bar, 
where I presently live, to litigate. It is an opportunity as 
part of our zealous advocacy for the people we represent as 
defendants to find issues to create, to litigate, to take up to 
appellate courts. We are buying the SEC 5 years or 10 years of 
litigation that is really going to be kind of worthless 
litigation to sort all this out.
    Instead, I would urge the subcommittee to bite the bullet, 
adopt a statute of limitations across-the-board for all SEC 
remedies, but make it an appropriate one.
    And what should that be across-the-board, a statute of 
limitations, including for disgorgement and other equitable 
remedies?
    I would suggest that we take a page from Congress itself, 
when Congress back in Sarbanes-Oxley legislated a statute of 
limitations for private securities litigation and said 2 years 
from discovery of the violation, reasonable discovery of the 
violation, but no more than 5 years from the conduct.
    The SEC should get different treatment, better treatment. 
They act in the public interest. They have fewer resources. I 
would suggest use Congress' framework for private-led ``2-and-
5,'' change it to something like ``3-and-5,'' 3 years from 
reasonable investigation of the conduct and no more than 10 
years from the actual event.
    Three years is plenty of time to do an investigation, and 
it serves the interests of our courts and our juries to be able 
to have witnesses who can actually remember things.
    So for that reason, holding the SEC's feet to the fire to 
do their investigation within 3 years from reasonable discovery 
is more than fair and more than enough, and 10 years from the 
event is a very comfortable period.
    As a safety valve, if they are getting close to the end, 
they can ask the defense for a tolling agreement. It is 
virtually always granted.
    Moving on quickly--my time is almost up--to restitution. 
That is a little bit of a concern. Restitution is different 
from disgorgement where you just give up your profits. 
Restitution is you go across the universe, everybody who has 
lost money, and that can add up to immense amounts. And then 
when we talk about some of the proposals having treble 
penalties or dealing with recidivists, we can do the math and 
get up into the trillions of dollars.
    I am a little concerned about adding a restitutionary 
remedy either directly as restitution or as part of a penalty 
calculation. I think that should be thought through.
    Public company oversight--I am almost out of time. Whatever 
Jordan said, I totally agree. They absolutely need all the 
proposed additions.
    And again, thank you to the subcommittee.
    [The prepared statement of Mr. Crimmins can be found on 
page 30 of the appendix.]
    Chairwoman Maloney. Professor Vollmer, you are now 
recognized for 5 minutes for your testimony.

STATEMENT OF ANDREW N. VOLLMER, PROFESSOR OF LAW, UNIVERSITY OF 
                     VIRGINIA SCHOOL OF LAW

    Mr. Vollmer. Chairwoman Maloney, Ranking Member Huizenga, 
and members of the subcommittee, thank you for inviting me here 
today. As I mention in my written statement, my comments today 
are solely my own and are not on behalf of anyone else.
    My written remarks begin with a couple of principles that 
usually guide legislation in the Federal securities area, and 
the first is that securities regulation should reduce 
unnecessary barriers to raising capital for large and small 
businesses. We should be particularly attentive to ways to help 
entrepreneurs find the capital that they need.
    Two other important principles are the need to protect 
investors and the need for vigorous but fair enforcement of the 
securities laws.
    I would like to direct my comments to one of the bills that 
you are considering, and that is the bill that would deny 
exchange trading to companies that have auditors not subject to 
PCAOB inspection. That is a serious problem that deserves your 
attention, but the solution in the bill is much more limited 
than the problem is.
    The potential problem exists for all reporting companies 
and companies filing registration statements in registration, 
but the proposed solution is limited to exchange listed or 
exchange trading in those companies.
    The number of exchange companies, as I think Ranking Member 
Huizenga pointed out, is much smaller than the number of 
reporting companies. So if legislation did no more than just 
stop exchange trading for companies that don't have auditors 
inspected by the PCAOB, many of those companies would continue 
to trade in the United States, maybe do business as usual, in 
the over-the-counter markets. That is probably not a sufficient 
remedy. So in my written statement, I propose two alternatives 
for you to consider.
    Another set of bills that you are looking at would extend 
or eliminate the 5-year statute of limitations for SEC 
enforcement cases that seek penalties or disgorgement, and one 
of them would give the SEC a new power to recover investor 
loss. If enacted, these bills would seriously disrupt the 
current enforcement system and would make it more arbitrary and 
less fair.
    Giving the SEC the power to recover investor loss would be 
unprecedented. It would overshadow many private securities 
cases and class actions. Congress should not take this dramatic 
step without studying the question much more thoroughly.
    The bills would also give the SEC a very long or unlimited 
amount of time to bring enforcement cases. Extending the 
statute of limitations would frustrate compelling social 
interests that legislatures have recognized for centuries by 
enacting statutes of limitations.
    Another concern is that longer statute of limitations for 
the SEC would cause further delay in what are already long and 
damaging SEC investigations. The length of an SEC investigation 
is correlated to the statute of limitations because a 
reasonable statute of limitations acts as an incentive to the 
staff to finish the investigation and make a decision to sue or 
not.
    So one of the main arguments for extending the statute of 
limitations is that some misconduct is well concealed. That is 
not the whole picture. All too often, SEC cases are initiated 
after a violation because the SEC was aware of the potential 
misconduct but failed to investigate it. There is example after 
example which I give in my written statement.
    I am happy to answer questions on those matters, those 
bills, or any of the bills you are considering.
    [The prepared statement of Mr. Vollmer can be found on page 
66 of the appendix.]
    Chairwoman Maloney. Thank you.
    I now recognize myself for 5 minutes for questions.
    Mr. Crimmins, I would like to ask you something about 
Professor Vollmer, what he said in his testimony. He said that 
Mr. McAdams' bill authorizing the SEC to seek disgorgement of 
illegal profits beyond the 5-year statute of limitations would 
be, ``a sharp break from the longstanding system.''
    As a former litigator in the SEC's Enforcement Division, do 
you think that is accurate? Prior to the Supreme Court's Kokesh 
decision in 2017, didn't the SEC already have the authority to 
seek disgorgement beyond the 5-year statute of limitations?
    Mr. Crimmins. Yes, Chairwoman Maloney. Thank you.
    I agree totally that before we had the Kokesh decision, it 
was unlimited. The remedy of disgorgement was considered to be 
a traditional equitable remedy, and it just wasn't 
fundamentally fair to allow a fraudster to hold on to illegal 
gain. And if that happened after 5 years, 10 years, 15 years, 
or 20 years, the courts, acting in fundamental fairness and in 
equity, those considerations, could do it.
    So really, by extending the statute of limitations, my 
proposal of a 3-and-10, bite the bullet, do a statute of 
limitations rule for all claims is a practical matter to get it 
done easily and in streamlined fashion.
    Whatever it is for disgorgement, absolutely yes. The SEC 
should be allowed to get disgorgement. Penalty is a different 
matter, restitution is a different matter, and I think those 
are things where we should have a conversation. But on 
disgorgement, that is core. I totally agree.
    Chairwoman Maloney. Thank you.
    Mr. Thomas, some people have argued that the SEC doesn't 
need disgorgement authority because private parties can already 
sue to recoup private investor losses. But is that true? Aren't 
there cases where the private parties cannot sue for damages?
    For example, investors can't sue for fraud under the 
Investment Advisors Act, and if private parties can't sue for 
damages on their own, doesn't that mean that the SEC should 
have the authority to seek disgorgement?
    Mr. Thomas. That is correct, Chairwoman Maloney. I think it 
is important to know that what makes our legal system great and 
unique is that we have overlapping jurisdiction. So we have 
both Federal and State and private litigants and public 
litigants that are all policing the marketplace to ensure that 
investors are protected.
    Chairwoman Maloney. Thank you.
    Professor Velikonja, you presented really interesting data 
in your testimony showing that different types of violations 
are much more profitable and much less likely to be discovered 
than others.
    I was particularly struck by the fact that violations of 
the Foreign Corrupt Practices Act, or FCPA, are the most 
profitable violations for bad actors and are also the least 
likely to be discovered within the 5-year statute of 
limitations. Only 4 percent of FCPA violations occur entirely 
within the 5-year statute of limitations.
    So in your opinion, would Ms. Porter's bill to strengthen 
the SEC's civil penalties adequately deter FCPA violations?
    Ms. Velikonja. That is a wonderful question.
    So, yes, FCPA cases typically very. They take a long time 
to detect. They also take a longer time to prosecute. FCPA 
defendants typically exercise--sign a tolling agreement.
    So to some extent, I will sort of push back on my own data 
to say, yes, only 4 percent of the violations are entirely 
within the limitations period, but in part, that is the result 
that the defendant has agreed to allow the SEC to investigate 
fully, go abroad, in exchange for perhaps not bringing the case 
in the first place.
    But limiting remedies to 5 years for disgorgement, and 
disgorgement in FCPA cases is absolutely key, it is the bulk of 
the monetary penalties imposed in FCPA cases, limiting that to 
5 years, the defendants presumably are going to push back and 
say, ``I am not going to do a tolling agreement,'' or less 
likely, would reduce the sanctions. And the type of violation, 
it is already detected at very load low rates. We don't have 
great estimates, but the best we have says about 6 percent of 
foreign bribery schemes, long-lasting foreign bribery schemes 
are detected and sanctioned.
    Chairwoman Maloney. Thank you. And my time has expired.
    The Chair now recognizes the distinguished ranking member, 
Mr. Huizenga, for 5 minutes for questioning.
    Mr. Huizenga. Thank you, Madam Chairwoman. I will try and 
move quickly through a number of issues.
    Mr. Vollmer, are you familiar with the CHOICE Act that was 
passed last Congress?
    Mr. Vollmer. No.
    Mr. Huizenga. Okay. Well, one of the things that the CHOICE 
Act that we had come out of here was a--
    Mr. Vollmer. I'm sorry. I misheard you. The CHOICE Act. 
Yes. Sorry.
    Mr. Huizenga. Okay. One of the things that we tried to 
construct within that was making sure that there was a balance 
and enhanced due process protections along with reforms to the 
SEC's enforcement program. And I am curious, as you look at 
this, do you see any provisions from the CHOICE Act with that 
balance?
    Mr. Vollmer. No. I think they are conspicuously absent. And 
there were many provisions in the CHOICE Act both that helped 
form capital, promoted capital formation, but also injected 
notes of fairness in the SEC enforcement process.
    And if I could, may I just correct a statement that was 
made a moment ago? My written statement does not say that 
allowing the SEC to sue for disgorgement would be a sharp break 
from practice, as the other panelists have said. The SEC has 
sued for disgorgement since the 1960s. What my written 
statement said is allowing the SEC to sue for investor loss 
would be a sharp break from precedent. I'm sorry.
    Mr. Huizenga. Okay. No. I appreciate that.
    Do you think it would be a healthier approach to have this 
two-pronged approach on both the investor protection and due 
process, as well as the enforcement?
    Mr. Vollmer. I think that adding some additional fairness 
elements to the SEC enforcement process would be a great gain 
and would provide more certainty and predictability.
    Mr. Huizenga. Okay.
    Mr. Crimmins, the PCAOB whistleblower bill seems to me to 
be redundant. With the SEC having primacy over that, as created 
under Dodd-Frank, the SEC whistleblower office, couldn't 
reporting described in this legislation be reported to the SEC 
as part of this whistleblower?
    Mr. Crimmins. Ranking Member Huizenga, you make a good 
point in terms of the overlap. Anything that the PCAOB does, I 
believe, can be done by the SEC. They have oversight, and they 
do more cases focused on accounting, but the SEC always has 
that power.
    For that reason, in my written testimony, which you may be 
referring to, I agree with you on that, that while a 
whistleblower program at the PCAOB is a great idea because it 
has worked well at the SEC, my concern is the cost of setting 
up a whistleblower office and processing whistleblower claims.
    And I am wondering if there isn't a way to team the two 
agencies such that the whistleblower can go to PCAOB, have 
PCAOB handle the case, and get a whistleblower bounty. With the 
mechanics of processing the claim, the mechanics of evaluating 
it, and so forth, which require an infrastructure, why not let 
the SEC take care of that?
    Mr. Huizenga. It makes sense. I would agree more isn't 
always necessarily better on that.
    But I do want to talk a little bit about the Transparency 
Act, the Enforcement Transparency Act. If these proceedings 
were made public and public companies whose financial 
statements are implicated by a PCAOB enforcement proceeding 
against an auditor be susceptible to negative market reaction, 
and even though the allegations are untested and may not 
actually involve the company themselves, do you have a concern 
with that?
    Mr. Crimmins. It is a concern, but it is a concern with 
just about everything that the SEC does. The SEC acts publicly 
in everything, and sometimes the pendency of an investigation, 
if it becomes public, or the pendency, certainly, of 
litigation, will have that impact. It is inevitable. But we 
have a justice system that acts publicly. And when you are 
dealing with public accounting firms, just, I would 
respectfully suggest, that really we ought to make public, the 
same way we do with the SEC.
    Mr. Huizenga. I am running out of time quickly here, but it 
would seem to me the PCAOB has the ability to refer those cases 
to the SEC, at which point they become public anyway.
    The Holding Foreign Companies Accountable Act, you 
acknowledge, Mr. Vollmer, a serious problem, and you had said 
the OTC markets would still be available. And it seems to me 
that those investors could still invest in those companies, 
just not here, and would therefore forfeit any of the 
protections that our marketplace would have, and they could 
invest those offshore in foreign markets. And I am going to be 
following up with that.
    And then I just need to make a statement about Kokesh. I 
think all of us understand that we need to be going after these 
bad actors, and the SEC needs those resources. And I want to 
make sure that they have the ability to not keep any of those 
ill-gotten gains and to be able to distribute those recovered 
funds from harmed investors. I do believe that the SEC is in 
the process of trying to work through that. But I am supportive 
in concept, and we have seen nearly a billion dollars being 
foregone. So we need to address that.
    With that, you have been very kind and generous. Thank you.
    Chairwoman Maloney. The gentleman yields back.
    The gentleman from Georgia, Mr. Scott, is recognized for 5 
minutes.
    Mr. Scott. Thank you very much, Chairwoman Maloney.
    This is a fantastic hearing, and you all are very informed.
    But what I want to start out with, you all are aware that 
the Securities and Exchange Commission's 2018 annual report 
estimates that the 2017 case of Kokesh v. the SEC Supreme Court 
decision held that disgorgement is a penalty and subject to a 
5-year statute of limitations. But they say that because of 
this, it has caused the Securities and Exchange Commission to 
forego as much as $900 million in disgorgement of ill-gotten 
gains.
    Is that accurate? I would like to make sure everybody 
agrees on that point before I go further.
    Mr. Thomas. I do.
    Mr. Scott. Okay. Now, do you agree that this is because 
certain fraud schemes may run for years prior to the discovery? 
Does everybody agree with that?
    Mr. Vollmer?
    Mr. Vollmer. I agree that is one of the possibilities, but 
my written statement points out that there are other reasons 
for delayed enforcement, not just from the concealment. And, 
no, I do not agree with the $900 million figure. I think it is 
an entirely suspect number.
    Mr. Scott. Well, let me ask you if you agree with Mr. 
Thomas. And in Mr. Thomas' testimony, he points out the paradox 
that is created by this decision, stating that this decision 
rewards violators who are good at hiding their misconduct.
    Do you agree, Mr. Vollmer?
    Mr. Vollmer. I agree that a natural consequence of statutes 
of limitations is that some violations that are concealed for 
very long times can go unremedied. The question is whether that 
is a severe enough and substantial enough problem to alter the 
general rule of a 5-year statute, and I say the evidence has 
not been presented to us.
    Mr. Scott. I have a short period of time, but I want to get 
to these points.
    It brings to light, the reason I am going through this, two 
issues. First, the need to clarify whether the SEC has 
disgorgement authority; and second, the need to ensure that our 
regulators are equipped with the tools they need to effectively 
police our markets and root out bad actors.
    Now, Mr. Thomas, defend your comments.
    And I think Mr. Vollmer will agree with you, won't you, Mr. 
Vollmer?
    Mr. Vollmer. I will agree if I possibly can.
    Mr. Scott. Yes.
    Mr. Thomas. I like Andy very much, but I hope he will 
agree.
    You know, to go to one of the points that you made, 
Congressman Scott, is the SEC's estimate of $900 million as a 
consequence. I actually think that number is low, and I will 
just give you one example.
    In the Merrill Lynch case, I represented three 
whistleblowers. It resulted in the SEC recovering $415 million, 
and that period of misconduct was relatively consistent, and it 
was more than 5 years.
    I believe that the monetary sanctions in that case would 
have been halved if the Kokesh ruling had occurred before that, 
and that is just one case, $200-plus million would have 
disappeared from them.
    Mr. Scott. And, Ms. Velikonja, you spoke very eloquently on 
this. Would you like to add something to this? I saw you 
shaking your head.
    Ms. Velikonja. We haven't been given any explanation where 
the $900 million figure comes from, so I understand both Mr. 
Vollmer and Mr. Thomas. It sounds big. It also sounds sort of 
right.
    I would probably side with Mr. Thomas in why the number is 
kind of low. It is precisely because the SEC has been using 
tolling agreements, agreements extracted from the defendants to 
toll the statute of limitations, allowing the SEC to complete 
the investigation.
    Think of a big case such as a big FCPA case, Petrobras, 
which the SEC settled in September of 2018. The disgorgement 
order in Petrobras alone was $933 million. Much of that was 
outside the 5-year limitations period. Now, if the period is 
applied stringently, that amount would be in jeopardy. It 
wasn't precisely because Petrobras had executed a tolling 
agreement. It might be a lot less willing to do so going 
forward.
    Mr. Scott. Right.
    And finally, Mr. Thomas, you said something in your 
testimony. You said we are fighting a losing battle. What did 
you mean by that?
    Mr. Thomas. I mean that the SEC is underresourced, and they 
are fighting on multiple fronts in an emerging, growing market. 
And if they can't, when they catch people, get all of their 
ill-gotten gains, if they can't have significant penalties that 
lead to real deterrence, then they are going to do what 
economists would expect people to do. They would assess the 
risk of detection and the potential consequence and say: I am 
going to take that risk. Okay.
    Chairwoman Maloney. The gentleman's time has expired.
    Mr. Scott. Thank you for your courtesy, Madam Chairwoman.
    Chairwoman Maloney. Thank you.
    The gentlewoman from Missouri, Mrs. Wagner, is recognized 
for 5 minutes.
    Mrs. Wagner. I thank the Chair and the ranking member and 
our witnesses for being here.
    Mr. Vollmer, I recognize that China is taking advantage of 
our laws and without auditor inspections from the PCAOB might 
be putting audit client company assets at risk, which could 
hurt Main Street investors.
    I am concerned, however, that prohibiting trading in public 
companies is also a drastic measure, perhaps an overcorrection 
that would also adversely affect Main Street investors who 
might own shares of those companies, either directly or through 
mutual funds, in their retirement accounts.
    What are the implications if trading prohibitions on 
hundreds of public companies were implemented?
    Mr. Vollmer. If it were done at once, as the bill seems to 
propose, it would be quite disruptive to the marketplace. 
Current shareholders need some reasonable advance notice so 
they can try and sell out if there were to be a total flat ban. 
That is not the proposal in the bill.
    Mrs. Wagner. Right.
    Mr. Vollmer. The bill would allow trading to continue in 
the United States, Ranking Member Huizenga, not just abroad. 
They certainly might be able to trade abroad. We can't deal 
with that. But they could still be traded in the United States 
in the U.S. over-the-counter markets the way the bill is 
currently written. It would only prohibit exchange trading.
    Mrs. Wagner. So what happens to the exchange traded funds, 
the ETFs, the mutual funds that own shares of those non-U.S. 
companies that would be delisted?
    Mr. Vollmer. They would continue to trade, I think 
reasonably well, if it is a fairly high volume traded security.
    Mrs. Wagner. Are there less drastic or disruptive 
alternatives, Mr. Vollmer, that would not be as harmful to the 
U.S. capital markets?
    Mr. Vollmer. I think there are, and I propose two in my 
written statement.
    One, quickly, would be a case-by-case determination by the 
SEC, quite similar to a process the SEC uses today over 100 
times a year to stop trading when there is inadequate public 
information available, and that is called a Section 12(j) 
proceeding.
    The SEC could do that. Only minor changes are needed for 
current law.
    And then, I proposed a more creative solution, which would 
be a bonding or insurance policy requirement.
    Mrs. Wagner. I saw that.
    Mr. Vollmer, I am also concerned about the decline in 
American IPOs over the last few decades and the growing trend 
of American companies opting for private capital as opposed to 
public markets. Meanwhile, China's IPO market produced over 
one-third of the world's IPOs in 2017, which makes the decline 
in American IPOs, frankly even more troubling.
    Why should we find these trends concerning, sir?
    Mr. Vollmer. I agree that there are some quite concerning 
trends.
    I think we need more study about why the Chinese companies 
have been able to engage in frequent IPOs and we have a 
declining trend in the United States. I don't have an answer to 
that. But I agree with you, we need to do more work.
    Mrs. Wagner. What do you think some of the biggest 
deterrents could be to companies going public?
    Mr. Vollmer. Oh. There are many issues that scholars have 
identified, and I don't think that scholars have come to rest 
on any one. Regulatory burdens through the registration process 
are one. A second is that when you become a reporting company, 
you take on a whole series of very costly obligations.
    Mrs. Wagner. But any of the bills discussed in today's 
hearing create these kind of additional requirements on 
American public companies, adding to their regulatory 
compliance costs.
    Mr. Vollmer. I agree completely. Not every one of the bills 
today being considered, but many of them, increase the cost of 
compliance, increase disclosure cost, and those all add to the 
cost of raising capital.
    Mrs. Wagner. And these increased compliance costs for 
public companies deter private companies from going public, is 
that correct?
    Mr. Vollmer. I agree with that, yes.
    Mrs. Wagner. How does a company going public not only 
benefit the economy in terms of jobs, but also in terms of Main 
Street investors in America?
    Mr. Vollmer. Oh, there are lots of economic studies that 
have been done about the benefits to our society at large from 
IPOs, but mostly from almost all forms of capital raising. It 
leads to economic growth, new products.
    Mrs. Wagner. I just don't want to see the constant decline 
as we have seen now over decades and decades. As China and 
other actors move into this space, it is something that we have 
to really look at, and I think you are right, study in terms of 
the deterrent factors to private companies in the United States 
of America going public.
    I thank you for your testimony.
    I yield back to the Chair.
    Chairwoman Maloney. The gentleman from Florida, Mr. 
Sherman, is recognized for 5 minutes.
    Mr. Sherman. I have moved west on the gentleman from 
California. Yes, indeed, one of those warm weather States.
    I know we can do legal analysis as to whether a 
cryptocurrency is a security. I would like to form a 
corporation and avoid--we have talked about how difficult it is 
to go public and register your company. I will just declare 
that my share certificates are currency. In fact, if you bring 
me a share in the company that I form, I will give you a pack 
of gum. I will give you three packs of gum. Bitcoin is being 
sold as an investment. That is why anybody buys it, you buy it 
because you think it is going to go up.
    Can anybody explain to me any practical reason why we go 
through all these extraordinary efforts to protect investors? 
God forbid they invest in a company where footnote number 72 is 
inconsistent with FASB No. 193. Why do we go through all that 
if we are going to let investors invest in bitcoin?
    Yes, Mr. Crimmins?
    Mr. Crimmins. I would respond to that by saying that we 
can't look at it monolithically as coins or digital assets. We 
are dealing with three separate things. And the SEC recently, I 
think, got it right. They said, if you have shares of a 
company, just what you said, or fractionalized shares of a hard 
asset, maybe it is an office building or an orange grove or 
whatever, and you are depending on other people and what they 
are telling you to give you a return, that is just like stock. 
It is a security; it needs to be regulated that way.
    But they also said, the SEC, in a matter they had before 
them, a no action matter, that when somebody wanted to have 
tokens for a private jet rental service that would combine 
different companies, and they said, you know what, those coins, 
what is it, but it is no different from a New York City subway 
token back when we had tokens.
    Mr. Sherman. That is for somebody who--because the vast 
majority of New York subway tokens are used not as investments. 
Somebody could invest.
    Mr. Crimmins. Precisely.
    Mr. Sherman. But like a yen, yen is a currency. One-
millionth of 1 percent or a hundredth of a percent of the times 
people buy yen is as an investment. The number one reason to 
buy yen is because you want to buy a Toyota or a thousand 
Toyotas for your dealership.
    Bitcoin clearly crosses the line. It is not a medium of 
exchange; it is a medium of investment. The SEC isn't doing its 
job. And it has us analyzing little details of what they want 
to do while ignoring their main job, which is protecting 
investors.
    I want to shift to another issue. My colleague from 
Massachusetts, Ms. Pressley, wants to create transparency at 
the PCAOB. Good. But transparency does not mean that you 
disclose that somebody is under investigation or what the 
investigation is. If so, we wouldn't have grand juries. We 
would just say, well, there is an accusation. Let's put it on 
the front page. Let's punish the defendant. We don't need a 
trial. We don't need a grand jury. Just try them in public. We 
first see whether there--before we punish somebody, because 
there is some reason to investigate, we do the investigation.
    Do any of our witnesses have a reason why, if there is just 
a reason to investigate, that we should destroy the credibility 
of one of the audit firms? Does anybody have a comment?
    Mr. Thomas?
    Mr. Thomas. Congressman Sherman, I think that one way to 
look at it is that the SEC's investigations are confidential 
and nonpublic, and they successfully protect the reputations of 
companies and individuals. And I believe that there is a way to 
provide more transparency to PCAOB investigations and 
enforcement actions than currently exists.
    Right now, very sophisticated people don't know the 
individuals' and audit firms' failings, because of the 
structure of the PCAOB. If you can get a CARFAX and know about 
a bad car or a broker check for a broker, maybe we should know 
more about our auditors.
    Mr. Sherman. On the other hand, just because there is a 
rumor about me and the police officer thinks I might be 
speeding--I am going to go to the other witness sitting--
    Ms. Velikonja. May I supplement this?
    Mr. Sherman. Yes.
    Ms. Velikonja. It is not that an investigation would be 
public. It is once the proceedings are filed, which is after a 
long confidential internal process, several layers of review, 
like the SEC, that is the point when the process becomes 
public, like the SEC. So, for example, an SEC enforcement 
action is filed.
    Mr. Sherman. We don't know that when there is no 
indictment.
    Ms. Velikonja. Excuse me?
    Mr. Sherman. In the criminal justice system.
    Ms. Velikonja. It is like an indictment, right? This is 
what we are doing.
    Mr. Sherman. It is like an indictment.
    Ms. Velikonja. That is what we are talking about.
    Mr. Sherman. If you meet the standard and you are going to 
indict somebody, you make that public. You don't make the 
nonindictment public.
    Ms. Velikonja. And that is what the Pressley bill proposes 
to do.
    Mr. Thomas. And I agree with that, Congressman.
    Chairwoman Maloney. The gentleman from Arkansas, Mr. Hill, 
is recognized for 5 minutes.
    Mr. Hill. Thank you, Chairwoman Maloney.
    I appreciate the panel. It is a very interesting discussion 
on these bills. I spent a big part of my career in the 
securities business, both on the institutional and the retail 
side, and one of the saddest things to witness over the past 
few years was the Stanford Ponzi scheme and the impact on 
retail investors, a lot in the Southwest. I live in Arkansas, 
and Arkansas and Texas and Memphis were sort of 
disproportionately, I think, impacted by Mr. Stanford's 
malfeasance.
    I am interested, Mr. Vollmer, in--that occurred over 10 
years ago, the second largest in history, I think, to the 
Madoff issue. Pretty contemporaneous when those two things were 
happening. But the Madoff recovery has been pretty impressive, 
if you look at both sets of the recovery methods, really 
impressive, I think far exceeding what people thought might be 
reality there. But the Stanford victims in Arkansas haven't 
been as fortunate. It has only returned, I think, something 
like 5 cents on the dollar.
    Could you tell me why this receivership process has taken 
so long and what might be done differently?
    Mr. Vollmer. Representative Hill, let me start by saying 
the Stanford matter is not a statute of limitations problem. 
Let's understand that. The SEC staff was aware of problems at 
Stanford 2 years after he registered as an investment adviser.
    But your question is an important one. I am not familiar 
with the details about the differences between the Madoff 
recovery and the Stanford recoveries, but I do know that a 
major obstacle to enforcement in the Stanford case was his use 
of entities offshore, his bank and other entities that he used. 
And I believe it is pretty clear that that posed lots of 
problems during the investigation getting information. And so I 
suspect, but I do not know, that some of the efforts to recover 
might have been encountering similar international 
difficulties.
    And the one positive note I can sound is that there is an 
office within the SEC that is dedicated to looking into 
international matters and making international enforcement 
matters work better. And so maybe there will be more effective 
efforts available in the future.
    Mr. Hill. I would invite the whole panel to send me a note 
and write me your thoughts on this issue if you have better 
ways, so that other future investors don't have to deal with 
this kind of crisis. And I hope the Commission continues to 
make an effort to pursue recovery in this matter.
    Mr. Vollmer, also, I really appreciate Mr. Sherman's bill 
talking about audit standards offshore, particularly in China. 
He has been a major warrior on accounting standards over the 
years and also in trade fairness and also transparency for 
investors. And there is no doubt that companies that don't get 
audited statements could put mom-and-pop investors here at 
risk.
    But I am concerned that by prohibiting trading in public 
companies, that is also a pretty drastic step and maybe an 
overreaction to what is a tough problem, which could also 
affect companies. For example, we have so much of the market 
now that is in mutual funds or exchange-traded funds that 
include non-U.S. companies.
    What are your thoughts on that? I know you have other 
suggestions. You suggested using Section 12(j) on delinquent 
filing cases and also a bonding method. Do you want to take a 
minute and talk about those?
    Mr. Vollmer. There are a couple of different aspects to 
this. I do think that just cutting off trading is a serious 
remedy, and if you were to do it so there was no trading in the 
United States--
    Mr. Hill. It puts us at a competitive disadvantage, doesn't 
it? Isn't this best handled by listing standards? Why don't the 
companies just change auditors?
    Mr. Vollmer. There have been lots of efforts to try to 
solve this problem. I leave it to those who are better informed 
about it than I am. And I do think there are some alternatives. 
But I don't think you want a two-tier system of disclosure 
quality, and so I do think we have to deal with companies that 
have auditors not subject to inspection. It is not right to 
have deferential treatment, I don't think. And I do think you 
have to worry about whether the absence of the inspection, in 
fact, is concealing problems with the underlying financial 
statement.
    Mr. Hill. I agree.
    Mr. Vollmer. We don't want that.
    Mr. Hill. I would urge all of you, again, to write 
additional thoughts on an alternative to just plain delisting 
or stopping trading.
    And I yield back. Thank you, Chairwoman Maloney.
    Chairwoman Maloney. The gentleman's time has expired.
    The gentleman from Texas, Mr. Gonzalez, is recognized for 5 
minutes.
    Mr. Gonzalez of Texas. Thank you, Madam Chairwoman. And 
thank you to the panel.
    In my law practice, for 20 years before coming to Congress, 
I prosecuted fraud and breach of contract claims on behalf of 
civil clients. My career both before and after being elected to 
Congress has been dedicated to fighting for the rights of the 
American consumer here in this committee. And what I always 
learned was that fraudsters like to hide, and they want 
everything done fast and loose. I believe if you like a shorter 
statute of limitations, you are playing right into the hands of 
the Stanfords and the Madoffs and the Gabellis and the 
Kokeshes.
    The Gabelli and the Kokesh cases were very simple. The 
Supreme Court determined that the 5-year statute of limitations 
runs from the date of offense and not the date of the discovery 
of the fraud. Simple as that. Now, let's be clear. In a day and 
age where people are still waiting for the compensation from 
fraud from Stanford Capital Management, it is hard to believe 
that we have folks who would be advocating for a shorter 
statute of limitations in terms of collecting those proceeds.
    I stand with the American people, who believe that we can 
do much better, and we have a duty to do it here in this 
committee and an opportunity to do it now.
    Instead of a discovery rule which is open to much 
interpretation, I believe a hard-and-fast 10 years from the 
date of the offense is sufficient for the government to engage 
in what the fraudsters do not want, which is careful 
consideration of the evidence.
    It is one thing to say we want to do something about the 
fraud on our seniors and our disabled and many of our veterans 
who come back with disabilities from foreign wars, and another 
thing to just simply do it. Today, we have an opportunity to do 
it. This is a chance to do something about it, because if we 
don't, we are leaving the money in the pockets of the crooks 
who abuse our seniors and our veterans and those who are in 
difficult places in our society.
    I have a few questions, and the first question I would like 
to direct to Professor Velikonja. Can you please explain for my 
constituents back home how under the current law you can use 
12-year-old evidence to convict someone for fraud but then are 
limited to only 5 years of theft to compensate the injured?
    Ms. Velikonja. The enforcement action typically is a two-
step process. One is establishing that there was a violation 
and that at least some portion of that violation took place 
within the 5-year limitations period. And for that you can, in 
fact, use older evidence. It may be relevant to establishing 
all sorts of steps, so long as the violation was completed less 
than 5 years before filing suit.
    At step two, you are trying to figure out what the 
appropriate monetary penalties are. Those, likewise, are 
limited to 5 years. So by their sort of technical application 
of the statute, that is how it works. But as I explain in my 
written and oral remarks, that does mean that Charles Kokesh 
gets to keep his polo ponies and his gated mansion, while his 
21,000 investors that he targeted specifically so that they 
wouldn't sue him because they were too small don't really get 
much compensation.
    But I also want to--this is not primarily about 
compensation. Many of the schemes are like Congressman Hill 
suggested, Ponzi schemes offering fraud. The money is gone; it 
has been spent.
    So it is not so much about compensation and just investor 
compensation. It is about forcing the defendant to pay either 
now or 20 years later, when he finally comes into some money, 
and pay that disgorgement order, even if none of it ultimately 
ends up in the investors' hands.
    Mr. Gonzalez of Texas. So, in essence, the 5-year 
limitation allows a lot of crooks to keep the money in their 
pockets?
    Ms. Velikonja. Yes, it would.
    Mr. Gonzalez of Texas. Assume for me, if you will, that we 
are left with a 5-year statute of limitations. How would that 
affect the SEC's enforcement practices, in your views? Would we 
be rushing to judgment to beat the deadline?
    I know you mentioned earlier that sometimes they agree to 
tote the statute of limitations. Believe it or not, I would 
have some defendants agree to that on type cases on civil 
litigation. But would we be rushing to judgment to file more 
cases because of the 5-year statute? Is that happening now? And 
would we file cases before we do the investigation because of 
the time constraints?
    Ms. Velikonja. That definitely ought to be a concern. There 
is already internal--the Inspector General at the SEC has sort 
of flagged this as an issue. They would expedite investigations 
and chances are the SEC might, in fact, file cases a little bit 
more quickly after a somewhat less thorough investigation to go 
get within the statute, which is not in the defendant's 
interests. It is not in the interest of safe capital markets 
and it is not in the interest of the defendants, because once 
you are under investigation, you are under a dark cloud. Once 
you are being sued, you are under a darker cloud.
    Mr. Gonzalez of Texas. Thank you. I yield back.
    Chairwoman Maloney. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Davidson, is recognized for 5 
minutes.
    Mr. Davidson. Thank you, Madam Chairwoman. I first want to 
say that I appreciate you holding this hearing today on the 
topic, but I do want to focus on an industry that, though it 
isn't necessarily addressed in these legislative proposals, it 
is desperately in need of clarity as it pertains to securities 
laws and how we protect investors, and that is cryptocurrency. 
It has already been addressed by Mr. Sherman. And this is a 
rapidly growing industry. It is poised to disrupt many parts of 
our markets, and could be transformative for many parts of our 
financial lives.
    With yesterday's announcement that Facebook is launching 
their own cryptocurrency, along with partners such as Visa, 
Lyft, Mastercard, Andreessen Horowitz and many other reputable 
global firms, it is a sign that these digital assets aren't 
just going to go away.
    It is important that we maintain core investor protections 
while at the same time figuring out a principled way to enable 
American markets to flourish. And toward that end, I have 
introduced the Token Taxonomy Act. It would define what is and 
what is not a security.
    This is a nonpartisan approach. I have everyone from myself 
and Josh Gottheimer in this committee, on this subcommittee 
even, Tulsi Gabbard, Darren Soto, Eric Swalwell. I think there 
are some folks left of Swalwell and some folks right of me. We 
have the ideological spectrum covered here in Congress, eight 
Members currently, and we are loading it up two by two to try 
to address the regulatory certainty.
    Mr. Crimmins, recently you wrote about the first draft of 
this. And we collected input in December; until April we 
reintroduced this legislation. What questions are facing 
investors in digital assets as it pertains to securities laws, 
and how is regulatory uncertainty hurting investors in this 
market?
    Mr. Crimmins. Right. Thank you. And I appreciate what you 
did in the Token Taxonomy Act with your colleagues on both 
sides of the aisle. This is something that is really different 
from what it was 2 or 3 years ago. Two or 3 years ago, when we 
talked about cryptocurrency, it was this murky, secretive stuff 
that was trying to get transactions, financial activities away 
from government, away from Wall Street, put it under a blanket, 
use it to funnel drug money and terrorist financing, really 
scary stuff. And that still is something that we do have to 
deal with.
    But what we are seeing now is what you are talking about, I 
would suggest, with LIBOR and some of the other initiatives we 
have seen more recently, one recently approved by the SEC, and 
that is a recognition that blockchain technology, the 
distributed ledger which allows for security in financial 
transactions, can be used legitimately. It is not only that the 
people under the blanket tried to hide their activities; it can 
be used legitimately, but how, how to get it right.
    Mr. Davidson. And so when you talk about how to get it 
right, it is interesting. They didn't leave the United States 
to avoid sunlight. Facebook has attracted all the attention 
they can in the whole world, and where do they go? They went to 
Switzerland, where they have regulatory certainty. It is not 
clear that it is truly distributed in the sense that a 
nonprofit controls it. It is not true that--it is not clear 
from all that was published in the White Paper.
    But are there places that are providing the certainty that 
are ahead of us in providing clarity for investors and people 
who would launch the product?
    Mr. Crimmins. That is the problem. When regulation began, 
there were small jurisdictions, I think Malta and--
    Mr. Davidson. Liechtenstein.
    Mr. Crimmins. Liechtenstein. Now we have Switzerland, which 
is not exactly a small player in the financial scene, leading 
the way ahead of America. That shouldn't be. And they have 
Crypto Valley and all this stuff they are doing there. They are 
trying to get it right. But the choices they make shouldn't be 
the ones that dominate the world.
    The choices that dominate the economies generally should be 
the ones made by this country, the largest economy in the 
world. We should be, in a considered fashion by your colleagues 
here on both sides, working in a bipartisan fashion, as you are 
with Token Taxonomy, trying to get it right.
    Mr. Davidson. Thank you for that. And when you look, these 
are American firms broadly launching it. We have the ideas, we 
have the innovation. What we don't have is Congress providing 
the certainty. And I appreciate the challenge the SEC has been 
up against, the CFTC has been up against, and, frankly, we are 
waiting for Congress to act.
    One of the main reasons for having disclosures in 
securities laws is the reduction in information asymmetry 
between the investor and a promoter of an investment. And 
sometimes the promoter of the investment, as has been 
illustrated, isn't an entity. You know, Satoshi Nakamoto, who 
is that? There is no headquarters for bitcoin. It has always 
left a quandary. How do you do it? Some of these others are 
transparent in their launching it. But if it is truly 
decentralized and can no longer be altered, how do we do it? We 
need the certainty.
    Thank you for that, and I look forward to further 
discussions. I think Facebook may have finally tipped the 
balance to where there is momentum and more people at least 
understand some of the nature of blockchain.
    Chairwoman Maloney. Thank you. The gentleman's time has 
expired.
    The gentlewoman from California, Ms. Porter, is recognized 
for 5 minutes.
    Ms. Porter. I am glad to have the opportunity today to 
discuss during this hearing two bills that I have introduced in 
this Congress. The first significantly increases the fines that 
firms must pay when they break the SEC laws, and the second is 
to make sure that executive officers and not shareholders 
either pay those fines or at least that investors are aware of 
whether or not investors will ultimately end up paying those 
fines.
    The SEC's penalty scheme is outdated and it is ineffective 
in disincentivizing bad behavior. According to then-SEC 
Chairwoman Mary Schapiro, the Commission's statutory authority 
to obtain civil monetary penalties with appropriate deterrent 
effect is limited in many circumstances.
    The Stronger Enforcement of Civil Penalties Act of 2019 is, 
as you know, a bipartisan bill that would increase the penalty 
amount in each of the three existing tiers of violations, and 
then would add a fourth tier for particularly egregious rule-
breaking. And the Corporate Management Accountability Act would 
require SEC-regulated firms to disclose the procedures that 
they have developed to claw back and pay fines with executive 
compensation, as opposed to out of the pockets of investors. 
These and other consumer protection measures are really 
important guardrails to make sure that we have a healthy 
marketplace for American families to invest in.
    As you know, over half of American families invest in the 
stock market, and they are very concerned about being cheated 
by bad actors on Wall Street. And so I urge my colleagues on 
both sides of the aisle to support these two bills.
    I wanted to ask Professor Velikonja, some people have 
argued to me that increasing penalties doesn't necessarily 
correlate with an increase in deterrence. And I wondered if you 
could speak to whether or not there are any empirical 
indications about the relationship between increased sanctions 
and decreased violations?
    Ms. Velikonja. Thank you for this question. The question of 
deterrence and does it work has been studied extensively, yet 
there is very limited evidence that deterrence works. Does the 
death penalty increase crime or decrease crime? Who knows?
    What we do know is that sanctions, combined with visible 
and active enforcement, do tend to deter misconduct. Think 
about tax evasion if it is policed more heavily. Think about 
parking tickets. Think about speeding and so forth. So those 
are the types of violations where we have observed that 
deterrence works.
    Charles Kokesh, for example, when he committed his fraud, 
the threatened sanctions would have been a civil fine plus 
double that for disgorgement. That is not what he was thinking 
about. He was trying to not get detected. He thought he was 
never going to get caught.
    It is unclear that deterrence works at all with these sort 
of small-time no-name defendants. Large firms, repeat players, 
on the other hand, do presumably care about deterrence, right? 
They know they are going to stay in the same market.
    Finally, I want to point this out as we are talking about 
deterrence and enforcement. That is not a goal of SEC 
enforcement. If you read the statute, it talks about investor 
protection and public interest, which is further defined as 
capital market formation, competition--I forget the third one. 
But anyway, so those are the goals of enforcement, not 
deterrence.
    Ms. Porter. That is right. I want to emphasize that point, 
because I really agree with you that this focus solely on 
deterrence or these arguments about deterrence really miss the 
larger framework around penalties. So while we want to deter 
wrongdoing in any instance where we can, there is an important 
compensatory and normative purpose of penalties.
    And so increasing these penalties is very important for 
compensation for victims who may be harmed, and that is one of 
the reasons that in this bill we propose to have a greater of 
scheme in terms of disgorgement. It is not just a set fine 
amount, but it is really looking at the harm an investor 
suffered and scaling the compensation to that.
    And I also wanted to ask you about--do you think that 
compensation clawbacks for rule-breaking should be assessed 
only when we can definitively prove that the individual is 
culpable for the infraction and because the level of 
culpability is often difficult to determine in the corporate 
setting?
    Ms. Velikonja. Precisely. In a large firm, the corporation 
is going to be diffuse. In the types of firms where we worry 
about investors paying twice, first when they were harmed and 
then when they are paying the fine, executives delegate 
authority. So it is very hard to actually find you, John Doe, 
you are the one who did it.
    Clawbacks are not about punishing wrongdoers; they are 
about accountability. An executive, the top five people, the 
highest paid executives know that the buck stops with them. And 
that is what the bill does.
    Ms. Porter. Thank you so much.
    Chairwoman Maloney. Thank you. The gentlelady's time has 
expired.
    And the gentleman from Utah, Mr. McAdams, is recognized for 
5 minutes.
    Mr. McAdams. Thank you, Madam Chairwoman, for allowing me 
to be here today. And I thank the panelists for your testimony, 
both written and verbal, today.
    As has been discussed, I am one of the sponsors of the 
discussion draft before us specifically related to the Kokesh 
v. SEC case, which held that disgorgement is a penalty and, 
thus, subject to a 5-year statute of limitations, regardless of 
whether or not the SEC was able to detect the violation within 
that timeframe.
    According to the SEC, that case has cost investors over 
$800 million by limiting the time the SEC has to recover funds. 
Nearly $1 billion since 2017, and that number will only climb 
higher--$1 billion in potentially ill-gotten gains from 
defrauded investors that are unrecoverable. SEC Chairman 
Clayton has expressed an interest in a fix for this, and I 
believe that my discussion draft would do exactly that.
    I think we all share the goals of protecting investors and 
ensuring that the SEC has the appropriate authority to deter 
wrongdoing, to promote market integrity, confidence in the 
market, and to ensure that investors are well taken care of. 
And we may have different ideas how to balance those 
objectives, and that is what I think we are here to explore 
today.
    So, Professor Velikonja, you mentioned your fear that the 
courts will eventually rule that the SEC is not authorized to 
seek disgorgement in civil actions or any equitable remedies in 
civil actions and that the Kokesh decision hints at this 
potential outcome. I am hopeful that you can elaborate on the 
potential results of that if a court rules that way.
    Specifically, would that leave investors protected or more 
vulnerable, and what would that mean for the SEC's enforcement 
capabilities?
    Ms. Velikonja. So cases, as I mentioned, have already been 
filed challenging the disgorgement authority in court. I 
imagine that if you look at a Supreme Court decision and you 
can't square disgorgement as a penalty and it not being--in 
other words, disgorgement, if it is a penalty, a court cannot 
impose it. So you could still see a court order--
    Mr. McAdams. Without statutory authorization.
    Ms. Velikonja. Precisely, without statutory authorization. 
You might see courts ordering, in a case where you can actually 
identify investors and trace their funds to the violator, maybe 
order some sort of restitution remedy, but it could and would 
not order disgorgement, which means that in a typical case like 
an offering fraud, the civil fine would be, what, $175,000?
    Mr. McAdams. Which gets to the point that it is just a cost 
of doing business, right? If you are limited to actual 
restitution, you may actually--
    Ms. Velikonja. Precisely. You are just giving back what you 
stole, right?
    Mr. McAdams. So it leaves investors more vulnerable and 
also undermines confidence in the market.
    Ms. Velikonja. But what it does mean is, for example, in 
cases where there are identifiable victims, like insider 
trading in options, you might still have disgorgement and 
compensation, perhaps.
    Mr. McAdams. Foreign bribery, I think you--
    Ms. Velikonja. Some sort of like--foreign bribery is 
outside the limitations period, right? There is a problem 
there. And also, if you are going to use it as a restitution, 
who is the victim of foreign bribery? Can you identify one? If 
you can't compensate, you can't order it.
    Mr. McAdams. Right. I generally think that we make better 
policy decisions when we allow data to inform our thinking. And 
so I want to also follow up on some of your work outside of 
this testimony, but you analyzed SEC enforcement actions filed 
in 2010 through Fiscal Year 2018, right? What did that data 
show you, and what does that body of information tell you about 
some of this legislation we are considering today?
    Ms. Velikonja. My goal with that study was to see, had the 
Kokesh decision been enforced, if it is applied, what 
differences would it have made in the cases filed? I made 
certain assumptions. One thing I shared with you was that many 
cases are affected by the Kokesh decision. If we don't get into 
the question of, is disgorgement a penalty and, thus, not 
allowed at all, if we just talk limited to the 5-year 
limitations period, 37 percent of cases include violations 
older than 5 years, half in 2018. So, this is a big issue.
    Now, I mentioned earlier, tolling agreements can be used to 
some extent to stretch the limitations period. Then, I focused 
in my paper, in my study of then the impact is greater in cases 
that are not settled. So who are we talking about? Ponzi 
schemers offering frauds.
    Mr. McAdams. And you talk about--we can debate the value of 
deterrence in some of these cases, but what incentive does this 
give to a promoter of a Ponzi scheme if disgorgement goes the 
way of a penalty limited to a 5-year statute of limitations?
    Ms. Velikonja. For a Ponzi schemer, typically, they don't 
think they are going to get caught. They are probably still 
going to do it. But what it does change is the market, the 
investors' perception about fairness of the markets. If I am an 
investor, I am putting money under my mattress.
    Mr. McAdams. I would note that we have seen some data from 
the SEC on their enforcement actions. I have severe concerns 
that the Kokesh decision ties the SEC's hands, and leaves our 
investors vulnerable and without appropriate remedies from bad 
actors.
    I would like to thank all of the witnesses for your 
testimony. I would urge this committee to remedy the Kokesh 
decision as soon as possible.
    And with that, Madam Chairwoman, I yield back.
    Chairwoman Maloney. Thank you very much.
    And I want to thank all of the panelists. You gave us a lot 
to think about.
    Before we wrap up, I would like to take care of some 
administrative matters, particularly one. Without objection, I 
would like to submit letters and statements for the record from 
the Council of Institutional Investors; Public Citizen; SIFMA; 
the North American Securities Administrators Association; Lynn 
Turner; and a statement from Mr. Himes, who had to leave early.
    And I would like to thank all of our witnesses for your 
testimony today, and I am deeply grateful.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    Mr. Huizenga. Madam Chairwoman?
    And Mr. Huizenga is recognized.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    I just would like to submit for the record as well an 
article written by one of our witnesses, Mr. Crimmins, 
entitled, ``What Restitution Could Mean for SEC Enforcement 
Cases.''
    Chairwoman Maloney. Without objection, it is so ordered.
    Mr. Huizenga. Thank you.
    Chairwoman Maloney. Thank you very much. This hearing is 
adjourned.
    [Whereupon, at 5:01 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             June 19, 2019
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