[Congressional Record Volume 149, Number 8 (Thursday, January 16, 2003)]
[Senate]
[Pages S1075-S1078]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEVIN (for himself, Mr. Nelson of Florida, Mr. Corzine, 
        and Mr. Biden):
  S. 183. A bill to address Securities and Exchange Commission 
authority to impose civil money penalties in administrative proceedings 
for violations of securities laws, and for other purposes; to the 
Committee on Banking, Housing, and Urban Affairs.
  Mr. LEVIN. Mr. President, I am introducing today legislation to 
provide the Securities and Exchange Commission with stronger 
administrative authority to detect, investigate, and punish corporate 
and individual misconduct. This legislation, the SEC Civil Enforcement 
Act, among other measures, would provide the SEC with new authority to 
impose administrative civil fines on those who violate federal 
securities laws. The bill is cosponsored by Senators Bill Nelson, 
Corzine, and Biden. 
  The SEC has repeatedly requested the new enforcement tools that this 
bill would provide, and I ask unanimous consent to print in the Record 
after my remarks a copy of a letter from SEC Chairman Harvey Pitt 
supporting enactment of this legislation.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

[[Page S1076]]

                                      United States Securities and


                                          Exchange Commission,

                                  Washington, DC, August 30, 2002.
     Hon. Carl Levin,
     Chairman, Permanent Subcommittee on Investigations, Russell 
         Senate Office Building, Washington, DC.
       Dear Chairman Levin: This letter responds to your letter of 
     August 9th, seeking my views on your proposal to enhance the 
     Commission's authority to seek civil penalties for violations 
     of the federal securities laws, increase the penalties the 
     Commission may seek, and eliminate a procedural requirement 
     that may slow the Commission's efforts to trace and recover 
     misappropriated investor funds.
       The three additional enforcement tools you contemplate 
     reflect recommendations we have made previously in an effort 
     to facilitate our goal of achieving ``real-time 
     enforcement.'' Especially in light of recent events, I 
     believe these proposals would enhance our efforts and the 
     interest of investors. As you know, during this Congressional 
     session, with the bipartisan support of Congress and the 
     Administration, the Commission already has been given, and 
     has begun to implement, greater authority to pursue and 
     punish corporate wrongdoers and enhance corporate 
     accountability. The additional authority about which you 
     inquire would be a welcome addition to our enforcement 
     arsenal, if the proposals achieve bipartisan support.
       Again, thank you for your interest in strengthening 
     penalties for securities fraud violations. Please do not 
     hesitate to contact me or Stephen Cutler, Director of the 
     Division of Enforcement, at (202) 942-4500 if we can be of 
     further assistance.
           Yours truly,
                                                   Harvey L. Pitt.

  Here is a description of what the bill would do.
  First, the bill would grant the SEC additional administrative 
authority to impose civil monetary fines on those who violate federal 
securities laws. Under current law, only broker dealers, investment 
advisers, and certain other persons regulated by the SEC are now 
subject to civil fines. Our bill would expand SEC authority to allow it 
to impose fines on such wrongdoers as, for example, corporate officers, 
directors, auditors, lawyers, or publicly traded companies, none of 
which can now be fined by the SEC in an administrative proceeding. 
These fines would, of course, be subject to judicial review, as are all 
current SEC administrative determinations.
  Hearings held and reports issued by the Permanent Subcommittee on 
Investigations, which spent the last year investigating Enron's 
collapse, determined that the Enron Board of Directors and certain 
highly respected financial institutions helped Enron carry out 
deceptive accounting transactions or other corporate abuses, misleading 
investors and analysts about the company's finances. The latest hearing 
in December also highlighted the fact that the SEC needs additional 
tools to deal with financial institutions. Our bill would give the SEC 
new authority to impose an administrative fine on any bank or 
individual banker who violates the federal securities laws including, 
as in Enron, by helping a public company doctor its books or engage in 
misleading transactions.
  Second, this bill would significantly increase the maximum civil fine 
that the SEC could impose on those whom it has authority to regulate. 
The civil fines that the SEC currently may impose have maximum amounts 
that range from $6,500 to $600,000 per violation. In a day and age 
where some CEOs are making $100 million in a year, and a company like 
Enron reported gross revenues of $100 billion in a single year, a civil 
fine of $6,500 is laughable. Here is what one SEC staff document stated 
in June 2002, explaining why the agency is seeking an increase in its 
civil fine limits:

       The current maximum penalty amounts may not have the 
     desired deterrent effect on an individual or corporate 
     violator. For example, an individual who commits a negligent 
     act is subject to a maximum penalty amount of $6,500 per 
     violation. This amount is so trivial it cannot possibly have 
     a deterrent effect on the violator.

  Our bill would increase the maximum fines from a range of $6,500 to 
$600,000 per violation, to a range that goes from $100,000 to $2 
million per violation. When we are seeing corporate restatements and 
corporate misconduct involving billions of dollars, these larger cash 
fines are critical if they are to have an effective deterrent or 
punitive impact on wrongdoers in the corporate world today.
  Third, the bill would grant the SEC new administrative authority, 
when the SEC has opened an official SEC investigation, to subpoena 
financial records from a financial institution without having to notify 
the subject that such a records request has been made. This authority 
will allow the SEC to evaluate financial transactions, trace funds, and 
analyze relationships without having to alert the subject of the 
investigation to the SEC's actions. Under current law, the SEC either 
has to give the subject advance notice of the subpoena or obtain a 
court order that can delay notification for no longer than 90 days.
  In the cases we are seeing today, where there are allegations that 
officers, directors, and companies are using offshore accounts to 
deposit millions of dollars, enlist foreign investors, and affect the 
accounting and tax treatment of various complex transactions, the SEC 
must be able to look at financial records without giving the account 
holder an opportunity to move funds, change accounts, and further muddy 
the investigative waters. This authority is particularly important in 
light of the Patriot Act, which Congress enacted after the 9-11 
tragedy, requiring the SEC to be on the lookout for money laundering 
through securities accounts. The SEC cannot afford to alert potential 
money launderers to the agency's efforts to review their financial 
accounts for possible money laundering. This bill would bring the SEC's 
subpoena authority into alignment with the subpoena authority of 
federal banking agencies that are already exempted by statute from 
having to notify account holders of agency subpoenas to review their 
financial records. Again, the SEC has requested this new enforcement 
tool, and this bill would provide it.
  This bill is an important compliment to the new Sarbanes-Oxley law 
which stiffened criminal penalties for securities fraud, because this 
bill would stiffen enforcement mechanisms on the civil side. Last year, 
I tried to incorporate it into the Sarbanes-Oxley Act, but was unable 
to obtain a vote on my amendment. That is why I am reintroducing the 
legislation this year. Since many corporate and accounting cases 
warrant civil rather than criminal treatment, strengthening the SEC's 
civil enforcement authority is another critical step in improving its 
effectiveness as an enforcement agency to deter and punish this 
misconduct.
  Given the current disillusionment among the American people and other 
investors with American public companies, Congress needs to provide 
leadership to restore investor confidence in our markets, in SEC 
oversight, and in company financial statements so that investors can 
trust them to reflect the true state of a company's financial 
condition. I hope my colleagues will join me in supporting this 
legislation and winning its enactment during the 108th Congress.
  I ask unanimous consent to have printed in the Record the full text 
of the bill.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 183

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``SEC Civil Enforcement Act''.

     SEC. 2. SECURITIES CIVIL ENFORCEMENT PROVISIONS.

       (a) Authority To Assess Civil Money Penalties.--
       (1) Securities act of 1933.--Section 8A of the Securities 
     Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end 
     the following new subsection:
       ``(g) Authority of the Commission To Assess Money 
     Penalty.--
       ``(1) In general.--In any cease-and-desist proceeding under 
     subsection (a), the Commission may impose a civil monetary 
     penalty if it finds, on the record after notice and 
     opportunity for hearing, that a person is violating, has 
     violated, or is or was a cause of the violation of, any 
     provision of this title or any rule or regulation thereunder, 
     and that such penalty is in the public interest.
       ``(2) Maximum amount of penalty.--
       ``(A) First tier.--The maximum amount of penalty for each 
     act or omission described in paragraph (1) shall be $100,000 
     for a natural person or $250,000 for any other person.
       ``(B) Second tier.--Notwithstanding subparagraph (A), the 
     maximum amount of penalty for such act or omission described 
     in paragraph (1) shall be $500,000 for a natural person or 
     $1,000,000 for any other person, if the act or omission 
     involved fraud, deceit, manipulation, or deliberate or 
     reckless disregard of a statutory or regulatory requirement.
       ``(C) Third tier.--Notwithstanding subparagraphs (A) and 
     (B), the maximum

[[Page S1077]]

     amount of penalty for each act or omission described in 
     paragraph (1) shall be $1,000,000 for a natural person or 
     $2,000,000 for any other person, if--
       ``(i) the act or omission involved fraud, deceit, 
     manipulation, or deliberate or reckless disregard of a 
     statutory or 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.
       ``(3) Evidence concerning ability to pay.--In any 
     proceeding in which the Commission or the appropriate 
     regulatory agency may impose a penalty under this section, a 
     respondent may present evidence of the ability of the 
     respondent to pay such penalty. The Commission or the 
     appropriate regulatory agency may, in its discretion, 
     consider such evidence in determining whether the penalty is 
     in the public interest. Such evidence may relate to the 
     extent of the person's ability to continue in business and 
     the collectability of a penalty, taking into account any 
     other claims of the United States or third parties upon the 
     assets of that person and the amount of the assets of that 
     person.''.
       (2) Securities exchange act of 1934.--Section 21B(a) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-2(a)) is 
     amended--
       (A) in paragraph (4), by striking ``supervision;'' and all 
     that follows through the end of the subsection and inserting 
     ``supervision.'';
       (B) by redesignating paragraphs (1) through (4) as 
     subparagraphs (A) through (D), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(1) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(2) Other money penalties.--In any proceeding under 
     section 21C against any person, the Commission may impose a 
     civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (3) Investment company act of 1940.--Section 9(d)(1) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(1)) is 
     amended--
       (A) in subparagraph (C), by striking ``therein;'' and all 
     that follows through the end of the paragraph and inserting 
     ``supervision.'';
       (B) by redesignating subparagraphs (A) through (C) as 
     clauses (i) through (iii), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Other money penalties.--In any proceeding under 
     subsection (f) against any person, the Commission may impose 
     a civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (4) Investment advisers act of 1940.--Section 203(i)(1) of 
     the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(1)) 
     is amended--
       (A) in subparagraph (D), by striking ``supervision;'' and 
     all that follows through the end of the paragraph and 
     inserting ``supervision.'';
       (B) by redesignating subparagraphs (A) through (D) as 
     clauses (i) through (iv), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Other money penalties.--In any proceeding under 
     subsection (k) against any person, the Commission may impose 
     a civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (b) Increased Maximum Civil Money Penalties.--
       (1) Securities act of 1933.--Section 20(d)(2) of the 
     Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--
       (A) in subparagraph (A)(i)--
       (i) by striking ``$5,000'' and inserting ``$100,000''; and
       (ii) by striking ``$50,000'' and inserting ``$250,000'';
       (B) in subparagraph (B)(i)--
       (i) by striking ``$50,000'' and inserting ``$500,000''; and
       (ii) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and
       (C) in subparagraph (C)(i)--
       (i) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (ii) by striking ``$500,000'' and inserting ``$2,000,000''.
       (2) Securities exchange act of 1934.--
       (A) Penalties.--Section 32 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78ff) is amended--
       (i) in subsection (b), by striking ``$100'' and inserting 
     ``$10,000''; and
       (ii) in subsection (c)--

       (I) in paragraph (1)(B), by striking ``$10,000'' and 
     inserting ``$500,000''; and
       (II) in paragraph (2)(B), by striking ``$10,000'' and 
     inserting ``$500,000''.

       (B) Insider trading.--Section 21A(a)(3) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u-1(a)(3)) is amended by 
     striking ``$1,000,000'' and inserting ``$2,000,000''.
       (C) Administrative proceedings.--Section 21B(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-2(b)) is 
     amended--
       (i) in paragraph (1)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in paragraph (2)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in paragraph (3)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (D) Civil actions.--Section 21(d)(3)(B) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended--
       (i) in clause (i)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in clause (ii)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in clause (iii)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (3) Investment company act of 1940.--
       (A) Ineligibility.--Section 9(d)(2) of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (B) Enforcement of investment company act.--Section 
     42(e)(2) of the Investment Company Act of 1940 (15 U.S.C. 
     80a-41(e)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (4) Investment advisers act of 1940.--
       (A) Registration.--Section 203(i)(2) of the Investment 
     advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (B) Enforcement of investment advisers act.--Section 
     209(e)(2) of the Investment advisers Act of 1940 (15 U.S.C. 
     80b-9(e)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (c) Authority To Obtain Financial Records.--Section 21(h) 
     of the Securities Exchange Act of 1934 (15 U.S.C. 78u(h)) is 
     amended--
       (1) by striking paragraphs (2) through (8);

[[Page S1078]]

       (2) in paragraph (9), by striking ``(9)(A)'' and all that 
     follows through ``(B) The'' and inserting ``(3) The'';
       (3) by inserting after paragraph (1), the following:
       ``(2) Access to financial records.--
       ``(A) In general.--Notwithstanding section 1105 or 1107 of 
     the Right to Financial Privacy Act of 1978, the Commission 
     may obtain access to and copies of, or the information 
     contained in, financial records of any person held by a 
     financial institution, including the financial records of a 
     customer, without notice to that person, when it acts 
     pursuant to a subpoena authorized by a formal order of 
     investigation of the Commission and issued under the 
     securities laws or pursuant to an administrative or judicial 
     subpoena issued in a proceeding or action to enforce the 
     securities laws.
       ``(B) Nondisclosure of requests.--If the Commission so 
     directs in its subpoena, no financial institution, or 
     officer, director, partner, employee, shareholder, 
     representative or agent of such financial institution, shall, 
     directly or indirectly, disclose that records have been 
     requested or provided in accordance with subparagraph (A), if 
     the Commission finds reason to believe that such disclosure 
     may--
       ``(i) result in the transfer of assets or records outside 
     the territorial limits of the United States;
       ``(ii) result in improper conversion of investor assets;
       ``(iii) impede the ability of the Commission to identify, 
     trace, or freeze funds involved in any securities 
     transaction;
       ``(iv) endanger the life or physical safety of an 
     individual;
       ``(v) result in flight from prosecution;
       ``(vi) result in destruction of or tampering with evidence;
       ``(vii) result in intimidation of potential witnesses; or
       ``(viii) otherwise seriously jeopardize an investigation or 
     unduly delay a trial.
       ``(C) Transfer of records to government authorities.--The 
     Commission may transfer financial records or the information 
     contained therein to any government authority, if the 
     Commission proceeds as a transferring agency in accordance 
     with section 1112 of the Right to Financial Privacy Act of 
     1978 (12 U.S.C. 3412), except that a customer notice shall 
     not be required under subsection (b) or (c) of that section 
     1112, if the Commission determines that there is reason to 
     believe that such notification may result in or lead to any 
     of the factors identified under clauses (i) through (viii) of 
     subparagraph (B) of this paragraph.'';
       (4) by striking paragraph (10); and
       (5) by redesignating paragraphs (11), (12), and (13) as 
     paragraphs (4), (5), and (6), respectively.

                                 ______