[Congressional Record Volume 158, Number 110 (Monday, July 23, 2012)]
[Senate]
[Pages S5259-S5262]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. REED (for himself and Mr. Grassley):
S. 3416. A bill to enhance civil penalties under the Federal
securities laws, and for other purposes; to the Committee on Banking,
Housing, and Urban Affairs.
Mr. REED. Today I am introducing bipartisan legislation to address a
matter that I explored as chairman of the Banking Subcommittee on
Securities, Insurance, and Investment. During a series of hearings, it
became increasingly clear to me that in order to protect taxpayers and
investors, we need tougher anti-fraud laws and better oversight of Wall
Street. Some of these institutions that are ``too big to fail'' have
also become ``too big to care.'' We need to end the cycle of misconduct
where such institutions can look at the bottom line and see they can
break the law, get caught, pay a nominal fine, and still profit.
At a Securities and Exchange Commission, SEC, oversight hearing I
held in November 2011, I asked Robert Khuzami, director of the Division
of Enforcement at the SEC, why a recently proposed settlement with
Citigroup had been thrown out by a Federal judge in the Southern
District of New York, who believed it to be egregiously low. Mr.
Khuzami replied that the SEC's ability to assess penalties was actually
limited by the statute. In follow-up questions, I directly asked if
Congress should consider raising these limits, especially in cases
involving repeated offenders. I subsequently received a letter from SEC
Chairman Schapiro, and written answers from Mr. Khuzami, supporting the
need to raise the limits and make other improvements to the SEC civil
enforcement statute.
As a result, I am introducing today with my colleague, Senator Chuck
Grassley, the Stronger Enforcement of Civil Penalties Act of 2012 or
the SEC Penalties Act. This bill will strengthen the ability of the SEC
to crack down on violations of securities laws by updating its civil
penalties statute. This legislation will ensure that the punishment
better fits the crime by increasing the statutory limits on civil
monetary penalties, directly linking the size of these penalties to the
scope of harm and associated investor losses, and substantially raising
the financial stakes for repeat offenders of our nation's securities
laws.
Our bill will increase the per violation cap for the most egregious
securities laws violations to $1 million per offense for individuals
and $10 million per offense for entities. This will help ensure that
the SEC's most severe, or ``tier three,'' penalties will help deter
people from engaging in the most serious offenses, rather than have
such wrongdoing be viewed as just the cost of doing business. Under
existing law, the SEC can only penalize individual securities law
violators a maximum of $150,000 per offense and institutions $725,000
per offense.
Our bill will also toughen penalties by allowing penalties equal to
three times the economic gain of the violator. It also provides a new
calculation method that includes the amount of associated investor
losses as part of the penalty determination. This should allow the SEC
to address situations where the actual economic gain to the violator is
relatively small compared to the extent of the wrongdoing or the harm
caused to investors.
In the recent case involving Citigroup, existing law did not even
entitle the SEC to recover the amount actually lost by investors.
Estimated investors losses were about $700 million, but the SEC
proposed to settle the case with Citigroup for only $285 million. This
amount was what was estimated to be close to the total monetary
recovery that the SEC itself could have obtained if it had gone to
trial. Under our bill, this amount could have been much larger, and
would have taken into account the economic gain to Citigroup, in
addition to investor losses.
Recent reports have highlighted the level of repeat offenses that
have occurred on Wall Street and gone unchecked. The SEC Penalties Act
includes two statutory changes that would substantially improve the
ability of the SEC's enforcement program to ratchet up penalties as
recidivism occurs.
One would allow the SEC to triple the applicable penalty cap for
recidivists who, within the preceding five years, have been criminally
convicted of securities fraud or been the subject of a judgment or
order imposing monetary, equitable, or administrative relief in any
action alleging SEC fraud.
The other would allow the SEC to seek a civil penalty if an
individual or entity has violated an existing federal court injunction
or bar imposed by the SEC. Many believe this approach would be more
efficient, effective, and flexible than the current civil contempt
remedy.
Finally, under the SEC Penalties Act, the penalty relief available in
administrative proceedings will be the same as it is in district court.
In essence, the SEC will be able to assess these types of penalties in-
house, and not just obtain them in federal court.
Given the JP Morgan trading scandal, issues arising from the Facebook
IPO, and the manipulation of LIBOR, it
[[Page S5260]]
is clear much still needs to be done to improve transparency and
restore confidence in our financial system. The nearly one-half of all
U.S. households that own securities deserve a strong cop on the beat
that has the tools it needs to go after fraudsters and the difficult
cases arising from our increasingly complex financial markets. Our
economy's success depends in no small part on restoring confidence in
our capital markets.
The SEC Penalties Act will help by giving the SEC more tools to
demand meaningful accountability from Wall Street. It will enhance the
SEC's ability to protect investors and crack down on fraud and I urge
my colleagues to cosponsor and join us in supporting this important
legislation.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 3416
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 ``Stronger Enforcement of
Civil Penalties Act of 2012''.
SEC. 2. UPDATED CIVIL MONEY PENALTIES FOR SECURITIES LAWS
VIOLATIONS.
(a) Securities Act of 1933.--
(1) Money penalties in administrative actions.--Section
8A(g)(2) of the Securities Act of 1933 (15 U.S.C. 77h-
1(g)(2)) is amended--
(A) in subparagraph (A)--
(i) by striking ``$7,500'' and inserting ``$10,000''; and
(ii) by striking ``$75,000'' and inserting ``$100,000'';
(B) in subparagraph (B)--
(i) by striking ``$75,000'' and inserting ``$100,000''; and
(ii) by striking ``$375,000'' and inserting ``$500,000'';
and
(C) by amending subparagraph (C) to read as follows:
``(C) Third tier.--Notwithstanding subparagraphs (A) and
(B), the amount of penalty for each such act or omission
shall not exceed the greater of--
``(i) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(ii) 3 times the gross amount of pecuniary gain to the
person who committed the act or omission; or
``(iii) the amount of losses incurred by victims as a
result of the act or omission, if--
``(I) the act or omission described in paragraph (1)
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement; and
``(II) such act or omission directly or indirectly resulted
in--
``(aa) substantial losses or created a significant risk of
substantial losses to other persons; or
``(bb) substantial pecuniary gain to the person who
committed the act or omission.''.
(2) Money penalties in civil actions.--Section 20(d)(2) of
the Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--
(A) in subparagraph (A)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in subparagraph (B)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) in subparagraph (C), by striking ``greater of (i)
$100,000 for a natural person or $500,000 for any other
person, or (ii) the gross amount of pecuniary gain to such
defendant as a result of the violation'' and inserting the
following: ``greater of--
``(i) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(ii) 3 times the gross amount of pecuniary gain to such
defendant as a result of the violation; or
``(iii) the amount of losses incurred by victims as a
result of the violation''.
(b) Securities Exchange Act of 1934.--
(1) Money penalties in civil actions.--Section 21(d)(3)(B)
of the Securities Exchange Act of 1934 (15 U.S.C.
78u(d)(3)(B)) is amended--
(A) in clause (i)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in clause (ii)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) in clause (iii), by striking ``greater of (I) $100,000
for a natural person or $500,000 for any other person, or
(II) the gross amount of pecuniary gain to such defendant as
a result of the violation'' and inserting the following:
``greater of--
``(I) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(II) 3 times the gross amount of pecuniary gain to such
defendant as a result of the violation; or
``(III) the amount of losses incurred by victims as a
result of the violation''.
(2) Money penalties in administrative actions.--Section
21B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-
2(b)) is amended--
(A) in paragraph (1)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in paragraph (2)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) by amending paragraph (3) to read as follows:
``(3) Third tier.--Notwithstanding paragraphs (1) and (2),
the amount of penalty for each such act or omission shall not
exceed the greater of--
``(A) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(B) 3 times the gross amount of pecuniary gain to the
person who committed the act or omission; or
``(C) the amount of losses incurred by victims as a result
of the act or omission, if--
``(i) the act or omission described in subsection (a)
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement; and
``(ii) such act or omission directly or indirectly resulted
in substantial losses or created a significant risk of
substantial losses to other persons or resulted in
substantial pecuniary gain to the person who committed the
act or omission.''.
(c) Investment Company Act of 1940.--
(1) Money penalties in administrative actions.--Section
9(d)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-
9(d)(2)) is amended--
(A) in subparagraph (A)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in subparagraph (B)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) by amending subparagraph (C) to read as follows:
``(C) Third tier.--Notwithstanding subparagraphs (A) and
(B), the amount of penalty for each such act or omission
shall not exceed the greater of--
``(i) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(ii) 3 times the gross amount of pecuniary gain to the
person who committed the act or omission; or
``(iii) the amount of losses incurred by victims as a
result of the act or omission, if--
``(I) the act or omission described in paragraph (1)
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement; and
``(II) such act or omission directly or indirectly resulted
in substantial losses or created a significant risk of
substantial losses to other persons or resulted in
substantial pecuniary gain to the person who committed the
act or omission.''.
(2) Money penalties in civil actions.--Section 42(e)(2) of
the Investment Company Act of 1940 (15 U.S.C. 80a-41(e)(2))
is amended--
(A) in subparagraph (A)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in subparagraph (B)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) in subparagraph (C), by striking ``greater of (i)
$100,000 for a natural person or $500,000 for any other
person, or (ii) the gross amount of pecuniary gain to such
defendant as a result of the violation'' and inserting the
following: ``greater of--
``(i) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(ii) 3 times the gross amount of pecuniary gain to such
defendant as a result of the violation; or
``(iii) the amount of losses incurred by victims as a
result of the violation''.
(d) Investment Advisers Act of 1940.--
(1) Money penalties in administrative actions.--Section
203(i)(2) of the Investment Advisers Act of 1940 (15 U.S.C.
80b-3(i)(2)) is amended--
(A) in subparagraph (A)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in subparagraph (B)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) by amending subparagraph (C) to read as follows:
``(C) Third tier.--Notwithstanding subparagraphs (A) and
(B), the amount of penalty for each such act or omission
shall not exceed the greater of--
``(i) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(ii) 3 times the gross amount of pecuniary gain to the
person who committed the act or omission; or
``(iii) the amount of losses incurred by victims as a
result of the act or omission, if--
[[Page S5261]]
``(I) the act or omission described in paragraph (1)
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement; and
``(II) such act or omission directly or indirectly resulted
in substantial losses or created a significant risk of
substantial losses to other persons or resulted in
substantial pecuniary gain to the person who committed the
act or omission.''.
(2) Money penalties in civil actions.--Section 209(e)(2) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b-9(e)(2))
is amended--
(A) in subparagraph (A)--
(i) by striking ``$5,000'' and inserting ``$10,000''; and
(ii) by striking ``$50,000'' and inserting ``$100,000'';
(B) in subparagraph (B)--
(i) by striking ``$50,000'' and inserting ``$100,000''; and
(ii) by striking ``$250,000'' and inserting ``$500,000'';
and
(C) in subparagraph (C), by striking ``greater of (i)
$100,000 for a natural person or $500,000 for any other
person, or (ii) the gross amount of pecuniary gain to such
defendant as a result of the violation'' and inserting the
following: ``greater of--
``(i) $1,000,000 for a natural person or $10,000,000 for
any other person;
``(ii) 3 times the gross amount of pecuniary gain to such
defendant as a result of the violation; or
``(iii) the amount of losses incurred by victims as a
result of the violation''.
SEC. 3. PENALTIES FOR RECIDIVISTS.
(a) Securities Act of 1933.--
(1) Cease-and-desist proceedings.--Section 8A(g)(2) of the
Securities Act of 1933 (15 U.S.C. 77h-1(g)(2)) is amended by
adding at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs (A), (B),
and (C), the maximum amount of penalty for each such act or
omission shall be 3 times the otherwise applicable amount in
such subparagraphs if, within the 5-year period preceding
such act or omission, the person who committed the act or
omission was criminally convicted for securities fraud or
became subject to a judgment or order imposing monetary,
equitable, or administrative relief in any Commission action
alleging fraud by that person.''.
(2) Injunctions and prosecution of offenses.--Section
20(d)(2) of the Securities Act of 1933 (15 U.S.C. 77t(d)(2))
is amended by adding at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs (A), (B),
and (C), the maximum amount of penalty for each such
violation shall be 3 times the otherwise applicable amount in
such subparagraphs if, within the 5-year period preceding
such violation, the defendant was criminally convicted for
securities fraud or became subject to a judgment or order
imposing monetary, equitable, or administrative relief in any
Commission action alleging fraud by that defendant.''.
(b) Securities Exchange Act of 1934.--
(1) Civil actions.--Section 21(d)(3)(B) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended by
adding at the end the following:
``(iv) Fourth tier.--Notwithstanding clauses (i), (ii), and
(iii), the maximum amount of penalty for each such violation
shall be 3 times the otherwise applicable amount in such
clauses if, within the 5-year period preceding such
violation, the defendant was criminally convicted for
securities fraud or became subject to a judgment or order
imposing monetary, equitable, or administrative relief in any
Commission action alleging fraud by that defendant.''.
(2) Administrative proceedings.--Section 21B(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-2(b)) is
amended by adding at the end the following:
``(4) Fourth tier.--Notwithstanding paragraphs (1), (2),
and (3), the maximum amount of penalty for each such act or
omission shall be 3 times the otherwise applicable amount in
such paragraphs if, within the 5-year period preceding such
act or omission, the person who committed the act or omission
was criminally convicted for securities fraud or became
subject to a judgment or order imposing monetary, equitable,
or administrative relief in any Commission action alleging
fraud by that person.''.
(c) Investment Company Act of 1940.--
(1) Ineligibility of certain underwriters and affiliates.--
Section 9(d)(2) of the Investment Company Act of 1940 (15
U.S.C. 80a-9(d)(2)) is amended by adding at the end the
following:
``(D) Fourth tier.--Notwithstanding subparagraphs (A), (B),
and (C), the maximum amount of penalty for each such act or
omission shall be 3 times the otherwise applicable amount in
such subparagraphs if, within the 5-year period preceding
such act or omission, the person who committed the act or
omission was criminally convicted for securities fraud or
became subject to a judgment or order imposing monetary,
equitable, or administrative relief in any Commission action
alleging fraud by that person.''.
(2) Enforcement.--Section 42(e)(2) of the Investment
Company Act of 1940 (15 U.S.C. 80a-41(e)(2)) is amended by
adding at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs (A), (B),
and (C), the maximum amount of penalty for each such
violation shall be 3 times the otherwise applicable amount in
such subparagraphs if, within the 5-year period preceding
such violation, the defendant was criminally convicted for
securities fraud or became subject to a judgment or order
imposing monetary, equitable, or administrative relief in any
Commission action alleging fraud by that defendant.''.
(d) Investment Advisers Act of 1940.--The Investment
Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is amended--
(1) in section 203(i)(2) (15 U.S.C. 80b-3(i)(2)), by adding
at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs (A), (B),
and (C), the maximum amount of penalty for each such act or
omission shall be 3 times the otherwise applicable amount in
such subparagraphs if, within the 5-year period preceding
such act or omission, the person who committed the act or
omission was criminally convicted for securities fraud or
became subject to a judgment or order imposing monetary,
equitable, or administrative relief in any Commission action
alleging fraud by that person.''; and
(2) in section 209(e)(2) (15 U.S.C. 80b-9(e)(2)) by adding
at the end the following:
``(D) Fourth tier.--Notwithstanding subparagraphs (A), (B),
and (C), the maximum amount of penalty for each such
violation shall be 3 times the otherwise applicable amount in
such subparagraphs if, within the 5-year period preceding
such violation, the defendant was criminally convicted for
securities fraud or became subject to a judgment or order
imposing monetary, equitable, or administrative relief in any
Commission action alleging fraud by that defendant.''.
SEC. 4. VIOLATIONS OF INJUNCTIONS AND BARS.
(a) Securities Act of 1933.--Section 20(d) of the
Securities Act of 1933 (15 U.S.C. 77t(d)) is amended--
(1) in paragraph (1), by inserting after ``the rules or
regulations thereunder,'' the following: ``a Federal court
injunction or a bar obtained or entered by the Commission
under this title,''; and
(2) by amending paragraph (4) to read as follows:
``(4) Special provisions relating to a violation of an
injunction or certain orders.--
``(A) In general.--Each separate violation of an injunction
or order described in subparagraph (B) shall be a separate
offense, except that in the case of a violation through a
continuing failure to comply with such injunction or order,
each day of the failure to comply with the injunction or
order shall be deemed a separate offense.
``(B) Injunctions and orders.--Subparagraph (A) shall apply
with respect to any action to enforce--
``(i) a Federal court injunction obtained pursuant to this
title;
``(ii) an order entered or obtained by the Commission
pursuant to this title that bars, suspends, places
limitations on the activities or functions of, or prohibits
the activities of, a person; or
``(iii) a cease-and-desist order entered by the Commission
pursuant to section 8A.''.
(b) Securities Exchange Act of 1934.--Section 21(d)(3) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)) is
amended--
(1) in subparagraph (A), by inserting after ``the rules or
regulations thereunder,'' the following: ``a Federal court
injunction or a bar obtained or entered by the Commission
under this title,''; and
(2) by amending subparagraph (D) to read as follows:
``(D) Special provisions relating to a violation of an
injunction or certain orders.--
``(i) In general.--Each separate violation of an injunction
or order described in clause (ii) shall be a separate
offense, except that in the case of a violation through a
continuing failure to comply with such injunction or order,
each day of the failure to comply with the injunction or
order shall be deemed a separate offense.
``(ii) Injunctions and orders.--Clause (i) shall apply with
respect to an action to enforce--
``(I) a Federal court injunction obtained pursuant to this
title;
``(II) an order entered or obtained by the Commission
pursuant to this title that bars, suspends, places
limitations on the activities or functions of, or prohibits
the activities of, a person; or
``(III) a cease-and-desist order entered by the Commission
pursuant to section 21C.''.
(c) Investment Company Act of 1940.--Section 42(e) of the
Investment Company Act of 1940 (15 U.S.C. 80a-41(e)) is
amended--
(1) in paragraph (1), by inserting after ``the rules or
regulations thereunder,'' the following: ``a Federal court
injunction or a bar obtained or entered by the Commission
under this title,''; and
(2) by amending paragraph (4) to read as follows:
``(4) Special provisions relating to a violation of an
injunction or certain orders.--
``(A) In general.--Each separate violation of an injunction
or order described in subparagraph (B) shall be a separate
offense, except that in the case of a violation through a
continuing failure to comply with such injunction or order,
each day of the failure to comply with the injunction or
order shall be deemed a separate offense.
``(B) Injunctions and orders.--Subparagraph (A) shall apply
with respect to any action to enforce--
``(i) a Federal court injunction obtained pursuant to this
title;
``(ii) an order entered or obtained by the Commission
pursuant to this title that bars, suspends, places
limitations on the activities or functions of, or prohibits
the activities of, a person; or
[[Page S5262]]
``(iii) a cease-and-desist order entered by the Commission
pursuant to section 9(f).''.
(d) Investment Advisers Act of 1940.--Section 209(e) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-9(e)) is
amended--
(1) in paragraph (1), by inserting after ``the rules or
regulations thereunder,'' the following: ``a federal court
injunction or a bar obtained or entered by the Commission
under this title,''; and
(2) by amending paragraph (4) to read as follows:
``(4) Special provisions relating to a violation of an
injunction or certain orders.--
``(A) In general.--Each separate violation of an injunction
or order described in subparagraph (B) shall be a separate
offense, except that in the case of a violation through a
continuing failure to comply with such injunction or order,
each day of the failure to comply with the injunction or
order shall be deemed a separate offense.
``(B) Injunctions and orders.--Subparagraph (A) shall apply
with respect to any action to enforce--
``(i) a Federal court injunction obtained pursuant to this
title;
``(ii) an order entered or obtained by the Commission
pursuant to this title that bars, suspends, places
limitations on the activities or functions of, or prohibits
the activities of, a person; or
``(iii) a cease-and-desist order entered by the Commission
pursuant to section 203(k).''.
______